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The central bank lifted its main funds rate by 25 bps to its highest since 2007 as it continued its fight against inflation. Yet the S&P 500 (.SPX) hit a five-month high, as traders focused resolutely on the idea that the world's most influential central bank would change course soon. Government bond markets meanwhile continued to price in rate cuts by year-end as the economic cycle turns. Over in Europe, the European Central Bank delivered a hefty 50 bps hike on Thursday and promised more of the same for March and beyond. "In terms of the impact of (central bank) hawkishness on markets," he added, "this has significantly softened."
[1/2] The Bank of England in the City of London financial district, in London, Britain, January 26, 2023. Sterling initially strengthened after the announcement, with markets split on whether the central bank would opt for a smaller 25 bps rate rise. It then lost its shine as markets digested the commentary and the central bank signalled rates were near their peak. It was last trading at the same levels where it was before the BoE decision, up 0.55%. Reporting by the London Markets team, writing by Samuel Indyk; editing by Dhara RanasingheOur Standards: The Thomson Reuters Trust Principles.
Central banks hike rates again, but a pause is coming
  + stars: | 2023-02-02 | by ( )   time to read: +5 min
REUTERS/Joshua RobertsLONDON, Feb 2 (Reuters) - Major central banks are steadily moving closer to a pause in their aggressive interest rate hiking campaigns. The European Central Bank and the Bank of England raised rates on Thursday, but markets suspect a peak is nearing. Overall, 10 big developed economies have raised rates by a combined 2,965 basis points in this cycle to date, with Japan the holdout dove. Canada's central bank has raised its policy rate at a record pace of 425 basis points in 10 months. The central bank raised its forecast for its peak interest rate to 5.5%, up from a previous forecast of 4.1%.
End of easy-cash era is going to hurt
  + stars: | 2023-02-01 | by ( )   time to read: +5 min
LONDON, Feb 1 (Reuters) - The end of the easy-cash era is over and its impact yet to be felt on world markets, hopeful that the pain of aggressive rate hikes and high inflation has passed. Reuters Graphics3/ GOING PRIVATEPrivate debt markets have ballooned since the financial crisis to $1.4 trillion from $250 billion in 2010. Reuters Graphics Reuters Graphics4/CRYPTO WINTERRising borrowing costs roiled crypto markets in 2022. Reuters Graphics5/FOR SALEReal estate markets, first responders to rate hikes, started cracking last year and 2023 will be tough with U.S. house prices expected to drop 12%. How the sector services its debt is in focus and officials warn European banks risk significant profit hits from sliding house prices.
A trading book includes loans banks have earmarked for sale and are thus marked-to-market, while a banking book is where a lender holds loans and other assets not intended for disposal. This implies a heavy discount of 15 pence on the pound if banks sell the loans at that level. Banks make money also by charging the borrower a fee to provide loans, then sell the loans to third party investors. Reuters could not ascertain the exact size of the hit on the loans sold. On the flipside, loans sold by banks can generate attractive gains for buyers.
[1/2] Men walk past an electric board displaying Nikkei and other countries' indexes outside a brokerage in Tokyo, Japan January 16, 2023. After $14 trillion was wiped off world shares in 2022, $4 trillion has been added back this month. "Markets are in this Goldilocks-scenario of OK growth, slowing inflation and softer monetary policy," said Richard Dias, founder of London-based investment consultancy Acorn Macro. Major central banks have added almost 3,000 basis points to global borrowing costs in this tightening cycle to date. "We've had a monumental rally in government bonds based on expectations we've reached the peak in interest rates," he said.
ECB President Christine Lagarde, speaking in Davos recently, stressed the need for monetary policy to "stay the course." "There were questions recently about why markets don't understand what the ECB will do next," said ING's Brzeski. With updated ECB projections not out until March, Lagarde is likely to be pressed on how the ECB views core inflation, which strips out volatile food and energy prices. The ECB targets headline inflation at 2%, but officials are focused on a core measure. Reuters Graphics5/ Is the ECB more upbeat on the growth outlook?
India's Adani dollar bonds hit lowest since November
  + stars: | 2023-01-27 | by ( )   time to read: 1 min
LONDON, Jan 27 (Reuters) - Dollar bonds issued by entities of India's Adani Group tumbled on Friday as a scathing report by a U.S. short seller triggered a rout in the conglomerate's listed firms. The short seller report has cast doubts on how investors will respond to the company's record $2.45 billion secondary sale. U.S. dollar-denominated bonds issued by Adani Green Energy (ADNA.NS) extended this week's sharp falls to just under 77 cents in the dollar to their lowest since November, Tradeweb data showed. The price was last down 7.32 cents to 77.007 cents. .International bonds issued by Adani Ports And Special Economic Zone (APSE.NS), Adani Transmission (ADAI.NS) and Adani Electricity Mumbai also fell. Reporting by Amanda Cooper and Dhara RanasingheOur Standards: The Thomson Reuters Trust Principles.
Take Five: Goldilocks and the three bears
  + stars: | 2023-01-27 | by ( )   time to read: +5 min
Will the Federal Reserve tone down its hawkish rhetoric in the face of cooling inflation or stick to its guns? Investors widely expect a 25-basis point rate increase at the Feb. 1 meeting and for rates to stop short of hitting 5%. Fed officials, however, have indicated they expect the key policy rate to top out at 5.00-5.25% this year. Dollar bears, meanwhile, will watch for dovish leanings that could further accelerate a decline in the greenback. Amundi reckons ECB rates could reach 4%.
REUTERS/Benoit Tessier/IllustrationLONDON, Jan 25 (Reuters) - A blazing rally in European stocks and government bonds has gone too far, the chief investment officer of the region's largest asset manager said on Wednesday, warning that markets are ignoring the possibility of euro zone rates going as high as 4%. MSCI's broad index of European shares outside the UK (.dMIEU00000PUS) is up 8.8% so far in January. "We could expect a consolidation of 15% to 20% from current levels," on European equity indices, Mortier said. "These kinds of processes are very powerful and work well until something breaks, and that's why we don't want to participate [in the rally]," Mortier said. Continued ECB rate rises after the U.S. Federal Reserve pauses its hiking cycle could see the dollar weaken further, he said.
[1/3] Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., October 7, 2022. Trade in European stocks was lacklustre, as signs of an improving economic outlook in the euro zone fed worries about further rate hikes. AUSSIE DOLLAR SURGEThe Australian dollar surged to $0.7123 after the latest inflation data. Germany's Ifo institute said its business climate index rose to 90.2, in line with the consensus, according to a Reuters poll of analysts, and up from 88.6 in December. U.S. crude futures recently rose 1.01% to $80.94 per barrel and Brent was at $86.68, up 0.64% on the day.
Morning bid: Who let the hawks out?
  + stars: | 2023-01-23 | by ( )   time to read: +3 min
It's a good opportunity for policy hawks at the European Central Bank to get their message across. The ECB is likely to raise interest rates by 50 basis points in February and March and will continue to increase rates in the months after, ECB governing council member Klaas Knot said at the weekend. ECB chief Christine Lagarde meanwhile has reiterated the central bank will keep raising rates at a brisk pace to bring inflation down to its 2% target. Euro at nine-month highs vs dollarThe Bank of Canada, meanwhile, is expected to hike interest rates by 25 bps on Wednesday. Trade in U.S. stock futures suggested a flat open for Wall Street , , although the signals from other major stock markets boded well for U.S. trading later on.
Jan 19 (Reuters) - Zambia needs "desperate debt relief" and agreements under a Group of 20 restructuring vehicle are proving difficult, the World Bank's managing director of operations said on Thursday. "In the last two years, we have seen the limitations of the common framework," Axel van Trotsenburg told a panel at the World Economic Forum's annual meeting in Davos, moderated by Reuters Editor-in-Chief Alessandra Galloni. Zambia has become a test case for the G20-led "Common Framework" restructuring vehicle launched during COVID-19 to streamline debt restructuring efforts as poorer countries buckle under the fallout from the pandemic hit. "Right now we have negotiations where there is not an established debt sustainability framework. What you see in the discussions is that different creditors are challenging all the underlying assumptions," van Trotsenburg added, without specifying which creditors he was referring to.
According to Refinitiv data, those sales so far in January add to almost $2.2 billion worth of sales in December and $760 million in November. Decades-high inflation and aggressive central bank rate hikes also weighed on debt markets with investors shunning risk assets. Firms are either selling new debt or asking investors to extend the maturity of existing debt, offering in return an increase in the interest they pay. Last week, Air France SA-KLM (AIRF.PA) sold a debut sustainability-linked bond worth one billion euros, giving the European credit market its first major high-yield deal in months. Analysts say that such firms could struggle with selling new debt and might require shareholder support to entice investors.
Japan's 10-year bond yield, trading at 0.4%, fell on Wednesday but is not far off its highest levels since 2015. Total holdings of foreign bonds by Japanese institutional investors, excluding Japan's $1 trillion reserve portfolio, reached $3 trillion at their peak. GOING HOMEThe implications of higher inflation and a possible end to ultra-low rates are not lost on Japanese investors. Still, anticipating a shift, Japanese investors sold a net 2.1 trillion yen ($15.94 billion) of foreign bonds in December, marking a fourth straight month of selling. According to Nomura, Japanese investors have been far more active buyers of global and overseas equities than domestic stocks in the last decade.
LONDON, Jan 17 (Reuters) - Fund managers' allocation to U.S. equities collapsed in January, with 39% saying they had an underweight position, the most since October 2005, a BofA survey of global investor views on Tuesday showed. Global growth optimism hit a one-year high, while inflation expectations have peaked, according to the global Fund Manager Survey of investors, who have combined assets under management of $772 billion. The survey showed investors turned bullish on euro zone equities, flipping their allocation to a 4% net overweight in January from a 10% net underweight in December. Fund managers also moved into emerging market stocks, increasing their net overweight to 26%, the highest since June 2021. The survey also showed inflation staying high as the biggest "tail risk" and the top "contrarian trades" as being 'long' stocks, U.S. stocks and tech versus 'short' bonds, emerging market stocks and utilities.
"The curve trade in Credit Suisse reflects my view that one way or the other, in the next two years the drama around Credit Suisse will resolve for better or for worse. Weinstein led a proprietary trading fund at Deutsche Bank which was spun out to start Saba Capital Management in 2009. Credit Suisse's CDS surged in price through late November after the bank's $2.4 billion rights issue and the stock of the company fell to the lowest level in its 166-year history. While bearish bets against Credit Suisse mounted in late 2022, Weinstein says he watched Credit Suisse's CDS price curve make less and less sense: the 2-year protection on the bank cost about the same as the 10-year. Credit Suisse declined to comment.
Take Five: Much to say in Tokyo (and Davos)
  + stars: | 2023-01-13 | by ( )   time to read: +5 min
U.S. earnings and retail sales numbers, a slew of China data and inflation readings elsewhere mean there's plenty to mull over. Recent data showed Tokyo inflation at double the central bank's target. Reuters Graphics Reuters Graphics3/ HOPE AND FEARU.S. retail sales data and more earnings reports are on tap. Before then comes December's data deluge, with industrial output (CNIO=ECI), retail sales (CNRSL=ECI) and Q4 economic growth data (CNGDP=ECI) lining up to be ugly. Economists expect retail sales to have dropped 7.8% for a fourth straight monthly decline and for annual growth to finish up at a meagre 1.8%.
The impact of the reopening of the world's second largest economy on financial markets, hit by double-digit losses last year as inflation and interest rates jumped, is critical. Being touted among the top buying bets on recovery hopes are emerging markets, commodity currencies, oil, travel and European luxury companies. The boost to world growth from China's reopening was expected to hurt the safe-haven dollar but benefit the euro. INFLATION CAUTIONBut a boost from China's reopening raises some concerns about inflation. China is the world's leading importer of oil and many other commodities -- oil prices have risen 10% since mid-December to almost $84 .
REUTERS/Dado Ruvic/IllustrationLONDON, Jan 12 (Reuters) - The euro hit a seven-month high, European government bond yields briefly trimmed falls and European shares dipped after data showed an easing in U.S. inflation in December. The euro rose to a more than seven-month high at $1.08155. Germany's 10-year bond yield, the benchmark for the euro area, briefly trimmed some of its earlier falls. The pan-European STOXX 600 (.STOXX) briefly trimmed gains before hitting a new high on the session. And in Britain, government bond futures fell sharply before lurching up and then returning close to to their earlier level.
Analysis: Move over TINA, it's time for TARA
  + stars: | 2023-01-11 | by ( Naomi Rovnick | )   time to read: +5 min
Reuters GraphicsIdanna Appio, a portfolio manager at First Eagle Investments, said that TINA was good for passive investors as it meant that equity prices went up because bond yields went down. "The risk free rate," he added, referring to core government bond yields, "actually gives you something." Bond funds recorded net inflows for six straight weeks until early January, BofA said, based on its analysis of EPFR data. "The end of TINA is very important," said Francesco Sandrini, head of multi-asset strategies at Amundi, Europe's largest fund manager. "You don’t need a bond bull market, you now have income," said Jeffrey Sherman, deputy chief investment officer at U.S. money manager DoubleLine.
LONDON, Jan 6 (Reuters) - Hedge fund fees have dropped to their lowest level since the global financial crisis in 2008, research firm Hedge Fund Research (HFR) said on Friday, as high inflation and recession fears hit investors. HFR said hedge fund base fees fell from the second to the third quarter of 2022 by one basis point (bps) to an estimated 1.35% and that average incentive fees tumbled 4 bps to 16.01%. Both estimated fees represent their lowest levels since HFR began publishing the estimates in 2008, a note from the firm added. The top hedge funds in their weighted composite index had a positive 10.9% return while the bottom decile averaged a negative 14.3%. The hedge funds that are easy to get into might not be the best ones to invest in, he added.
Take Five: Welcome to 2023
  + stars: | 2023-01-06 | by ( )   time to read: +5 min
LONDON, Jan 6 (Reuters) - A potential shift by the world's most dovish major central bank, inflation pressures abating, a turn in the economic outlook and oil markets suffering their biggest tumble in decades: Welcome to 2023! 1/ EARNINGS AND INFLATIONThe week ahead brings a critical read into two key themes for Wall Street in 2023: the health of corporate profits and inflation. With crude oil volatility soaring, 2023 might be anything but plain sailing for producers and consumers alike. Barclays expects the UK economy to keep contracting until the end of the third quarter of 2023. It takes time for declines in market prices to filter through into household bills, but signs are positive for cash-strapped consumers and businesses.
Jan 6 (Reuters) - Investment management firm AQR's Absolute Return Strategy in 2022 saw its best year since its inception since 1998, a source with knowledge of the matter said on Friday. Its Equity Market Neutral Global Value and its Global Macro strategies both posted record years at 44.7% and 42.0% net of fees. Its Alternative Trend Strategy also had its best year ever, with a 48.9% net of fees, the source added. AQR is an investment firm that has hedge fund strategies but also includes long-only and mutual funds. Trend strategies would continue to succeed for AQR during sustained downturns and persistent macro volatility, the source told Reuters.
Morning bid: Rate cut talk, already!
  + stars: | 2023-01-05 | by ( )   time to read: +3 min
Indeed, minutes from the Fed's December meeting, released on Wednesday, cautioned against expectations for late-year rate cuts that traders have priced in. They price in roughly 40 basis points worth of rate cuts in the second half of the year and the key is whether inflation will slow enough for the Fed to ease. So perhaps it is too early to be talking about rate cuts? Still, U.S. stock futures point to a weak start for Wall Street shares , and European shares are a touch softer too. Gas prices are falling fastKey developments that may provide direction to U.S. markets later on Thursday:- U.S. Nov trade data.
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