2024-08-28 10:09

NEW YORK, Aug 28 (Reuters) - U.S. corporations are turning to foreign exchange options again to protect their cash flow as they fear the U.S. presidential election and diverging central bank interest-rate policies could spark a period of currency volatility, bankers said. Currency swings, which can hike costs, disrupt cashflows and dent earnings, are far less pronounced than from 2020 to 2022, making option hedges cheaper than before. Prices soared during the COVID-19 pandemic and as central banks started hiking interest rates to tame inflation. Ninety percent of U.S. companies surveyed in April by currency trading platform MillTechFX planned to buy more options. U.S. corporations hedged 48% of their currency exposure in the second quarter, up from 46% in the previous quarter, a MillTechFX survey of another 250 companies showed. "As macroeconomic conditions evolve and potentially lead to increased currency volatility, (companies) are becoming more aware of the effects on their balance sheets," said Nick Wood, head of execution at MillTechFX. Options grant the right to buy or sell currencies at a predetermined rate, allowing companies to soften the impact of currency moves by locking in a worst-case exchange rate. They can still benefit if the currency rebounds. Deutsche Bank's currency VIX (.DBCVIX) , opens new tab, which measures implied volatility of the world's most traded currency pairs, is hovering around 7.68, down from 13.67 in 2022. Some bankers cited increased demand for option hedges, a sign that many companies are taking policy risks seriously, particularly the Nov. 5 election. Republican U.S. presidential candidate Donald Trump plans to hike tariffs and curb immigration, policies economists call inflationary. That could lead the Fed to eventually hike rates again, potentially strengthening the dollar, analysts said. Democratic presidential nominee Vice President Kamala Harris' plan for housing assistance and curbing price gouging could have mixed effects on inflation, the Tax Policy Center has said. U.S. corporate executives are talking much more about the election on earnings calls than in 2020, often citing tariffs and trade as issues, Reuters reported. "The election has quite a wide dispersion of outcomes for foreign exchange in general, mainly around some of the policies around tariffs," said Garth Appelt, head of foreign exchange and emerging markets derivatives at Mizuho Americas, noting a "big pick up" in options use. "So, even though volatility is low, it is allowing corporates the ability to buy protection at a cheap rate on events that can be quite market moving." Implied volatility on an at-the-money options contract to buy or sell British pounds or euros versus U.S. dollars a year from now shows it is roughly 30% cheaper than two years ago, LSEG data showed. A divergence in central bank policies on interest rate cuts can fuel currency gyrations. Volatility jumped briefly earlier this month as investors unwound yen-funded trades after the Bank of Japan raised rates, reminding companies of currency exposure risks, said Thomas Kikis, global co-head of corporate sales, financial markets at Standard Chartered. On Friday, Federal Reserve Chair Jerome Powell said it was time to cut rates, but investors said it remains unclear how far the U.S. central bank will go. Expectations of Fed easing knocked the dollar down to an eight-month low against a basket of currencies on Monday. "We are seeing people layering into hedges," said Kikis. "It shows me that corporates have not taken their eyes off the ball." Collars, a hedging strategy combining puts and calls, is getting more popular, said bankers. This enables companies to participate in any rise in a currency, unlike forwards where the exchange rate is fixed. Companies are also using exotic options to structure strategies that cover their future cash flow in local currencies, said Appelt. These can be useful for protecting transactions such as mergers, and local investments with longer-term cash flows. Paula Comings, head of FX sales at U.S. Bank, said her team has been helping companies dipping into options for the first time to secure board approvals, as well as others returning to the market after a long break. In one case, a client sought options in six different pairs after a years-long hiatus, she said. "Political tension is higher, both domestically and internationally, and economic uncertainty has risen," she added. Sign up here. https://www.reuters.com/markets/us/us-companies-return-currency-options-hedge-election-macro-risks-2024-08-28/

2024-08-28 10:07

A look at the day ahead in U.S. and global markets from Mike Dolan Nvidia's post-bell earnings update on Wednesday is keeping stock markets everywhere in a holding pattern, while U.S. Treasury markets appear to be absorbing the latest torrent of debt sales quite comfortably. The wait for the world's most dominant artificial intelligence chipmaker's earnings has sucked all the oxygen out of the early part of the week, so large now is the influence of the $3.1 trillion-valued firm on wider stock indexes. Equity options traders are expecting Nvidia's (NVDA.O) , opens new tab report to spark a more than $300 billion swing in its shares over the day ahead. Pricing anticipates a stock move of almost 10% on Thursday - larger than the expected move ahead of any Nvidia report over the last three years. The stock gained more than 1% on Tuesday and was marginally higher in out of hours trading early on Wednesday. S&P500 and Nasdaq futures , held steady. The stakes are higher than ever, given the recent creeping doubts about AI overspend and the lack of end product so far for the new tech. Apple's planned announcement on Sept. 9 of a new iPhone with new AI functionality, however, may ease some of those concerns. And it's a big earnings day more broadly for Big Tech - with Salesforce also reporting and CrowdStrike updating following a July flub that sparked a worldwide computer outage. But while the S&P500 (.SPX) , opens new tab has stopped short of new record highs awaiting the Nvidia results, the market remains buoyant with the Federal Reserve now finally set to cut interest rates in three weeks' time. Nowhere has that been clearer than in the ease with which Treasury sold another $69 billion of two-year notes on Tuesday. Demand was stronger than forecast and, at 3.86% early on Wednesday, 2-year yields are eyeing 15-month lows. Another $70 billion of 5-year paper hits the street later today, with the total of bills and coupons up for grabs this week alone surpassing half a trillion dollars. Treasury is frontloading the new debt in short maturities and almost three quarters of that huge total this week is in bills with tenors of less than 12 months - a move that will see some benefit to debt servicing costs as Fed rates tumble. But the good reception for the new two-year notes and with one eye on how all those bills eventually get refinanced over the years ahead, the inverted yield curve between two and 10 years narrowed to just 3 basis points - its smallest in three weeks. The latest U.S. economic releases provide little bar to those souped-up easing expectations - now running at as much as 104 basis points over the remainder of the year. Although consumer confidence rose to a six-month high in August, Americans are becoming more anxious about the labor market - the cooling of which is now front and center of the Fed's focus. And despite multiple supply anxieties from the Middle East to Libya, oil prices were on the wane again on Wednesday - and still clocking year-on-year losses of more than 5%. The dollar was pretty mixed on all that. Its DXY index (.DXY) , opens new tab was a touch higher as the euro retreated following some soft euro zone lending data and expectations that the European Central Bank will now cut for the second time next month before the Fed even gets going. Dollar/yen was a touch firmer despite relatively hawkish Bank of Japan comments. BOJ Deputy Governor Ryozo Himino restated the central bank's intention to continue lifting interest rates if inflation stayed on course, while closely monitoring financial market conditions. In politics, the latest national opinion polls continue to show Vice President Kamala Harris marginally ahead of challenger Donald Trump and she remains favorite to win at bookmakers - with the latest Reuters/Ipsos poll showing her also ahead on her economic policy stance. Harris and running mate Tim Walz are expected to interview with CNN TV on Thursday. Trump, meantime, faced a revised federal indictment on Tuesday accusing him of illegally trying to overturn his 2020 election loss, with prosecutors narrowing their approach after a U.S. Supreme Court ruling that former presidents have broad immunity from criminal prosecution. In Europe, British Prime Minister Keir Starmer warned on Tuesday of a 'painful' budget ahead and travelled to Berlin on Wednesday to meet German Chancellor Olaf Scholz. Sterling has been buoyed since before Labour's recent election win in part on expectations the new government will ease relations with former European Union partners and seek to soften some of the economically-damaging post-Brexit agreement. Key developments that should provide more direction to U.S. markets later on Wednesday: * Federal Reserve Board Governor Christopher Waller in India and Atlanta Fed President Raphael Bostic speaks * US corporate earnings: Nvidia, Salesforce, CrowdStrike, HP, NetApp, JM Smucker, Cooper Companies, Bath & Body Works * US Treasury sells $70 billion of 5-year notes, sells two-year FRNs Sign up here. https://www.reuters.com/markets/us/global-markets-view-usa-2024-08-28/

2024-08-28 08:04

COPENHAGEN, August 28 (Reuters) - Toymaker Lego said on Wednesday it was on track to replace the fossil fuels used in making its signature bricks with more expensive renewable and recycled plastic by 2032 after signing deals with producers to secure long-term supply. Lego, which sells billions of plastic bricks annually, has tested over 600 different materials to develop a new material that would completely replace its oil-based brick by 2030, but with limited success. Now, Lego is aiming to gradually bring down the oil content in its bricks by paying up to 70% more for certified renewable resin, the raw plastic used to manufacture the bricks, in an attempt to encourage manufacturers to boost production. "This means a significant increase in the cost of producing a Lego brick," CEO Niels Christiansen told Reuters. He said the company is on track to ensure that more than half of the resin it needs in 2026 is certified according to the mass balance method, an auditable way to trace sustainable materials through the supply chain, up from 30% in the first half of 2024. "With a family-owner committed to sustainability, it's a privilege that we can pay extra for the raw materials without having to charge customers extra," Christiansen said. The move comes amid a surplus of cheap virgin plastic, driven by major oil companies' investments in petrochemicals. Plastics are projected to drive new oil demand in the next few decades. Lego's suppliers are using bio-waste such as cooking oil or food industry waste fat as well as recycled materials to replace virgin fossil fuels in plastic production. The market for recycled or renewable plastic is still in its infancy, partly because most available feedstock is used for subsidised biodiesel, which is mixed into transportation fuels. According to Neste, the world's largest producer of renewable feedstocks, fossil-based plastic is about half or a third of the price of sustainable options. "We sense more activity and willingness to invest in this now than we did just a year ago," said Christiansen. He declined to say which suppliers or give details about price or volumes. Rival toymaker Hasbro has started including plant-based or recycled materials in some toys, but without setting firm targets on plastic use. Mattel plans to use only recycled, recyclable or bio-based plastics in all products by 2030. Around 90% of all plastic is made from virgin fossil fuels, according to lobby group PlasticsEurope. Sign up here. https://www.reuters.com/business/retail-consumer/lego-replace-oil-its-bricks-with-pricier-renewable-plastic-2024-08-28/

2024-08-28 07:58

JOHANNESBURG, Aug 28 (Reuters) - The South African rand weakened on Wednesday ahead of economic data releases towards the end of the week. The rand was at 17.7925 against the dollar by 1533 GMT, about 0.44% weaker than its previous close. The dollar index showing its performance against a basket of currencies was last up about 0.36%. South African investors are awaiting July producer inflation data on Thursday and money supply, trade and budget balance figures on Friday for the latest indications on the health of the domestic economy. Global market focus this week will be on a preliminary estimate for U.S. gross domestic product in the second quarter and the core personal consumption expenditures (PCE) index, the U.S. Federal Reserve's preferred inflation measure. The rand, like most emerging market currencies, tends to track international moves as well as local economic events. On the stock market, the Top-40 (.JTOPI) , opens new tab index closed about 0.74% down. South Africa's benchmark 2030 government bond was weaker, with the yield up 2.5 basis points at 9.14%. Sign up here. https://www.reuters.com/markets/currencies/south-african-rand-slips-ahead-domestic-data-releases-2024-08-28/

2024-08-28 07:25

MUMBAI, Aug 28 (Reuters) - The Indian rupee traded lower on Wednesday, but a well recognised support level ensured that the currency fared better than many of its Asian peers. The rupee was at 83.95 to the U.S. dollar at 10:40 a.m. IST, compared with 83.9250 in the previous session. The currency has been holding a near one paisa range, having opened marginally weaker at the open. The rupee "yet again" does not seem at risk of falling past 84, "which should surprise absolutely no one", a currency trader at a bank said. "There is sufficient real (dollar) demand to keep the pair near 84 and then on the other side you have the RBI," he said. The RBI does not seem to be in favour of allowing the rupee to weaken past 84 right now, intervening regularly, according to traders. The central bank's intervention, alongside expected equity inflows provide a "glimmer of hope" for the rupee, Amit Pabari, managing director at fx advisory firm CR Forex said. Equity inflows of upto $3 billion are expected following changes in the MSCI's index which tracks emerging markets shares to come into effect from August 30. A large part of the inflow related to this MSCI's index weight changes happens on the day of when the changes come into effect, which would be this Friday. ASIAN CURRENCIES FALL Most Asian currencies were down on the day amid a lack of triggers. Investors are awaiting cues on what will be the pace of the Federal Reserve rate cutting cycle. The July U.S. core PCE inflation data, the August U.S. jobs report and the August inflation data are all due before the Fed's next meeting on September 17-18. Sign up here. https://www.reuters.com/markets/currencies/rupee-stalls-familiar-support-after-opening-dip-2024-08-28/

2024-08-28 07:22

Aug 28 (Reuters) - The former chairman of the China National Petroleum Corp (CNPC), Wang Yilin, was arrested on suspicion of taking bribes, state news agency Xinhua reported on Wednesday. Wang was expelled from China's ruling Communist Party, state media said last month. Reuters was unable to immediately contact Wang for a comment. Sign up here. https://www.reuters.com/world/china/former-cnpc-chairman-arrested-suspicion-accepting-bribes-state-media-says-2024-08-28/