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S&P warns of possible trebling of U.S., European default rates
  + stars: | 2022-12-01 | by ( )   time to read: +1 min
LONDON, Dec 1 (Reuters) - Credit rating firm S&P Global has warned that speculative-grade U.S. and European corporate default rates are likely to double and might even treble next year as rising borrowing costs take their toll. The firm estimated that the "trailing-12-month default rates" in the U.S. and Europe would reach 3.75% and 3.25% respectively by September, more than double the 1.6% and 1.4% in September 2022. With so much depending on the length, breadth and depth of a potential global economic downturn, however, S&P added that "pessimistic forecasts for default rates of 6.0% and 5.5% aren’t out of the question". "We expect credit ratings to deteriorate, as credit fundamentals - for many corporates and some sovereigns - erode further", S&P's 2023 outlook report said. Reporting by Marc Jones; editing by Danilo MasoniOur Standards: The Thomson Reuters Trust Principles.
[1/2] The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, November 29, 2022. REUTERS/StaffLONDON, Nov 30 (Reuters) - World equity markets rallied on Wednesday and focus turned to Jerome Powell, who speaks later in the day in what will be the U.S. Federal Reserve chief's last opportunity to steer sentiment ahead of the Fed's December meeting. European stock markets rallied (.STOXX) and U.S. equity futures pointed to a firm start for Wall Street , . MSCI's broadest gauge of Asia Pacific stocks outside Japan (.MIAPJ0000PUS) rallied more than 1% to its highest since September. Hong Kong's Hang Seng Index rallied more than 2% (.HSI), although Japan's blue-chip Nikkei fell 0.2% (.N225).
LONDON, Nov 30 (Reuters) - Asset manager BlackRock has said 2023 will require a new investment playbook, backing banks and energy sectors to do well while slapping 'underweights' on longer-term European government bonds and emerging market local currency debt. The BlackRock Investment Institute (BII) said in its 2023 global outlook that while the case for investment credit has brightened and short-term government debt yields looked attractive, the pressures of higher interest rates would weigh on longer-term sovereign bonds. "The macro damage we expect for next year is yet to be fully reflected in market pricing" said Wei Li, global chief investment strategist at the BII. Reporting by Marc Jones and Davide Barcuscia, editing by Karin StroheckerOur Standards: The Thomson Reuters Trust Principles.
Shares in Credit Suisse (CSGN.S) fell 3.1% to 2.915 francs by 1451 GMT, their lowest level on record according to Refinitiv data, as the rights tumbled as much as 29.9% to as low as 0.101 on their second day of trading in Zurich. That took losses for Credit Suisse shares in 2022 to more than 65%, further shrinking its market value to 12 billion francs and firmly setting the stock for its biggest yearly drop. "The problem now for Credit Suisse is to plug the outflows of staff and client assets: the damage is done and there will be an impact for sure," said Angelo Meda, head of equities and portfolio manager at Banor SIM in Milan. Credit Suisse declined to comment. snapshotThe offering, which is guaranteed by a group of banks, will raise as much as 2.24 billion Swiss francs ($2.3 billion) and follows a 1.76 billion-franc share placement where Saudi National Bank took a 9.9% shareholding in Credit Suisse.
LONDON, Nov 28 (Reuters) - Greece's Prime Minister Kyriakos Mitsotakis said on Monday there was "progress" and a sense of "momentum" in talks with Britain to reunite the Parthenon Sculptures in Greece. "We have seen progress," Mitsotakis said during an event at the London School of Economics, saying that while discussions remained private, the reunification of the sculptures could be a "win-win solution". The British Museum bought the marbles in 1816 and British officials say they had been acquired legally by Elgin, a claim Greece denies. "I do sense the momentum (to reunite the sculptures)," Mitsotakis added. Reporting by Marc Jones; editing by Rodrigo CamposOur Standards: The Thomson Reuters Trust Principles.
Take Five: Everything to play for
  + stars: | 2022-11-25 | by ( )   time to read: +5 min
Markets are hopeful the Federal Reserve will soon slow the pace of its aggressive rate hikes. The U.S. economy likely created 200,000 new jobs, a Reuters poll of economists forecasts found, in what would be the smallest gain since December 2020. Manufacturing indicators, mainly PMIs, due next week might attest to the weakness already seen across the economy. Inflation in the euro zone was 10.6% in October, more than five times the European Central Bank's 2% target. Indeed, the Fed may be getting ready to slow the pace of its rate hikes, but the ECB is not there yet.
"The Egyptian pound will likely remain under pressure until more U.S. dollar inflows from GCC (Gulf nations) and committed foreign direct investment materialises," said Carla Slim at Standard Chartered Bank. Last month's IMF deal has provided some respite. ,"Egypt has got a high debt load and arguably it is more vulnerable even than Pakistan in terms of debt payments as a share of revenues," said Renaissance Capital's chief economist Charlie Robertson. "But the difference is, it has been proactive and been quick to go to the IMF," Robertson added, noting Egypt also has strong support from rich Gulf countries. Egypt's IMF negotiations dragged on for seven months and drove its second big devaluation of the year.
For the currency markets, it meant the 7-week sell-off in the dollar continued. "The dollar could stay pressured for a bit longer, but it's probably embedding a good deal of Fed-related negatives now," analysts at ING wrote. Overnight, MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) rose 1.3%, while Japan's Nikkei (.N225) and South Korean shares (.KS11) both rose around 1%. In the oil market, prices were slipping toward a major support level established in September. Wednesday's post-Fed U.S. bond market moves had seen yields on 10-year notes drop to a huge 79-basis-point deficit relative to two-year yields.
LONDON, Nov 24 (Reuters) - Ukraine's Finance Minister Serhiy Marchenko has said more Western aid is needed to help it meet its growing reconstruction costs following this week's escalation of Russian missile attacks. Marchenko also said current Western support meant "we'll have approximately $3-3.5 billion a month vs $5 billion this year". However, he said the current budget includes only a very small amount for reconstruction costs which it needs to increase if possible. For now, though, Western support continues. Also, G7 foreign ministers will discuss how to ensure Ukraine's energy supply when they meet next week, German Foreign Minister Annalena Baerbock tweeted on Thursday.
LONDON, Nov 22 (Reuters) - Nomura has warned that seven countries - Egypt, Romania, Sri Lanka, Turkey, Czech Republic, Pakistan and Hungary - are now at a high risk of currency crises. Based on data from 61 different EM currency crises since 1996, Nomura estimates that a score above 100 indicates a 64% chance of a currency crisis in the following 12 months. Default-stricken Sri Lanka and currency crisis-regular Turkey both generate scores of 138, while the Czech Republic, Pakistan and Hungary notch 126, 120 and 100 respectively. Nomura also ran the Damocles model on the G7 group of leading economies, with the results showing that all but Japan now have Damocles scores above the 100 threshold, led by the United States and Britain. "It is somewhat surprising that there have not been more full-blown EM currency crises this year," Nomura added.
JP Morgan remains world's biggest systemically important bank
  + stars: | 2022-11-21 | by ( )   time to read: +1 min
LONDON, Nov 21 (Reuters) - JP Morgan remains the world's most systemically important bank according to the latest rankings from the G20's Financial Stability Board published on Monday. JP Morgan remains in bucket 2 - there is still nobody in the top category with most capital requirements. Within the list, one bank has moved to a higher bucket, Bank of America has moved from bucket 2 to bucket 3," the FSB said in a statement. China Construction Bank and BNP Paribas have moved to a lower bucket. Reporting by Huw Jones; editing by Marc Jones and Jason NeelyOur Standards: The Thomson Reuters Trust Principles.
LONDON, Nov 21 (Reuters) - The implosion of cryptocurrency exchange FTX shows the need to bring the crypto world within the regulatory framework, Bank of England Deputy Governor Jon Cunliffe said on Monday. FTX, which has filed for U.S. bankruptcy court protection, has said it owes its 50 biggest creditors nearly $3.1 billion. He added that FTX's woes highlighted the need for regulators to put in place tighter controls as quickly as possible. "The FTX example underlines how important these aspects are," Cunliffe said. "Our aim is to ensure that innovation can take place but within a framework in which risks are properly managed," Cunliffe said.
Shares and pound splutter as UK dishes out budget gruel
  + stars: | 2022-11-17 | by ( Marc Jones | )   time to read: +6 min
[1/3] Pound and Dollar banknotes are seen in this picture illustration taken June 13, 2017. Pound and UK Gilt recover from 'mini budget' turmoilOvernight in Asia, grim signals from Micron Technology about excess inventories and sluggish demand sent chipmaker stocks sprawling. Mainland Chinese shares also wobbled, with blue chips there (.CSI300) falling 0.5% having ripped 10% higher this month. Traders will also scrutinise speeches from Fed officials on Thursday for hints about rate hikes. Crude oil steadied in Europe after settling more than a dollar lower overnight, following the resumption of Russian oil shipments via the Druzhba pipeline to Hungary and as rising COVID-19 cases in China weighed on sentiment.
"There's now a big push to get nature into sovereign debt markets," said Simon Zadek, executive director at NatureFinance, which advises governments on debt-for-nature swaps and other types of climate-focused finance. At that level, it would be the biggest debt-for-nature swap struck to date. The combined value of swap deals to date is $3.7 billion, according to the data. Securing the buy-in of development banks is usually key for the economics of a deal. The WWF has projects in Central and South America where they are monitoring deforestation by tracking jaguars, said Brenes, who has worked on debt-for-nature swaps for the last 25 years.
UBS joins the emerging market bull run band
  + stars: | 2022-11-15 | by ( )   time to read: +1 min
LONDON, Nov 15 (Reuters) - Swiss bank UBS has joined a growing band of investment houses forecasting that emerging markets will see a bumper bounce next year after their torrid 2022. UBS' analysts published a note on Tuesday predicting 8-12% returns in emerging market equities in 2023 and a 2-3% rise in emerging currencies citing expectations for interest rate pressures to reduce and China easing its COVID containment restrictions in the second quarter of the year. They also project +10-15% returns in the mainly dollar-denominated emerging market hard currency debt indexes and +8-12% in big the local currency debt indexes. "As U.S. inflation further moderates and China cyclically recovers from Q2, we expect volatility to decline across EM assets," UBS said. Reporting by Marc Jones, editing by Karin StroheckerOur Standards: The Thomson Reuters Trust Principles.
JPMorgan raised its outlook for emerging market hard-currency debt on Monday to "marketweight" from "underweight", saying the latest U.S. inflation data cemented a shift to the next phase in the cycle. In its 2023 outlook Morgan Stanley predicted emerging market hard-currency bonds could return more than 14% next year. Core CPI seems to be finally in," Citi Research's head of emerging market strategy Dirk Willer said in the bank's weekly strategy note. However, it might not be quite time for investors to dive into emerging market sovereign credit. JPMorgan's emerging market strategist Jonny Goulden said Federal Reserve hiking cycles were usually followed by a "wait" period before the onset of a U.S. recession, or possibly even an emerging markets financial crisis.
LONDON, Nov 14 (Reuters) - JPMorgan raised its outlook for emerging market hard-currency debt on Monday to "marketweight" from "underweight", saying latest U.S. inflation data cemented a shift to the next phase in the cycle with focus now on growth and U.S. recession risks. However, this was not yet the entry point for investors to dive into emerging market sovereign credit they added. JPMorgan's emerging market strategist Jonny Goulden said Federal Reserve hiking cycles were usually followed by a "wait" period before the onset of a U.S. recession or possibly even an emerging markets financial crisis. "This will be the largest Fed hiking cycle for decades, with a large tightening in broad financial conditions". "But we have highlighted that the 'wait' period when the Fed has delivered its last hikes is usually accompanied by some relief" (in emerging markets)Reporting by Karin Strohecker; editing by Marc JonesOur Standards: The Thomson Reuters Trust Principles.
LONDON, Nov 9 (Reuters) - Countries hit by climate change-driven disasters such as flooding and hurricanes will automatically be able to freeze debt payments under new plans laid out by the bond market rule setting International Capital Market Association (ICMA). ICMA's move on Wednesday introduced new "climate resilient debt clauses" (CDRCs) that countries can now plug into the government bonds they sell to raise money on the international capital markets. Any country that uses them will be able to defer their debt payments for a maximum of 2 years, with the aim of giving them enough financial breathing space to provide aid and support to affected populations. "As well as supporting disaster resilience by freeing up cash flow, CRDCs could help avoid the liquidity challenges faced by low-income countries in such circumstances becoming costly payment defaults," ICMA said. ICMA said while technically no country is excluded from using CRDCs, they were likely to be most suitable for low-income countries, Small Island Developing States, or other developing countries particularly vulnerable to climate change.
IMF agrees $4.5 billion Bangladesh support programme
  + stars: | 2022-11-09 | by ( )   time to read: +1 min
LONDON, Nov 9 (Reuters) - The International Monetary Fund (IMF) provisionally agreed a $4.5 billion support programme for Bangladesh on Wednesday as global inflation and the prospect of lower demand for its garment exports raised risks for its macroeconomic stability. The IMF said a "staff-level agreement" had been reached for a 42-month arrangement, including about $3.2 billion from its Extended Credit Facility (ECF) and Extended Fund Facility (EFF), plus about $1.3 billion from its new Resilience and Sustainability Facility (RSF). Bangladesh has become the third country in South Asia to reach a staff-level agreement for loans with the IMF this year after Pakistan and Sri Lanka. A staff-level agreement is typically subject to approval by IMF management and consideration by its Executive Board. "The objectives of Bangladesh's new Fund-supported program are to preserve macroeconomic stability and support strong, inclusive, and green growth, while protecting the vulnerable," the IMF said in a statement.
Their woes will also mean emerging markets overall will see a more than 10% "high-yield" corporate default rate for another year, keeping it at more that triple the historical average. "We expect another high default year in 2023 focused on specific segments," JPMorgan's analysts said in a research note on Tuesday that describes China and Russia as the "trouble spots". China's battered property sector is forecast to have another eye-watering 46% default rate next year. The overall emerging market corporate default rate, once financially healthier "investment grade" companies are also included, is forecast to be 3.8%. Distressed bonds, classed as those trading below 70 cents on the dollar - or 30% below their face value - currently total $178 billion or 27.7% of EM corporate high yield outstanding bonds.
Inflation expectations are de-anchoring from central bank targets, UniCredit CEE Chief Economist Dan Bucsa said. The situation is less clear in Poland though credit holidays to ease the burden of higher central bank interest rates are remaining heading into 2023. In western Europe, economists and financial markets largely expect price growth in the euro area to fall back to the European Central Bank's 2% target by 2024. "The upcoming general election is likely to stimulate fiscal expansion and, notably, the planned significant increase to the minimum wage from January may indeed spark a more substantial wage growth across the board." According to a Czech central bank survey, companies expect year-on-year inflation to be at 10.3% in one year and at 7.5% in three years, well above the central bank's 2% target.
LONDON, Nov 2 (Reuters) - France, Singapore and Switzerland have launched a joint trial of their experimental central bank digital currencies (CBDCs) in the first cross-regional trial of its kind. AMM protocols are designed to combine pooled liquidity with algorithms to determine the prices between two or more digitally tokenised assets such as currencies. They are seen as having the potential to be the backbone of the financial market infrastructure needed for digital currencies to be traded between countries. Cecilia Skingsley, at the Bank for International Settlements central bank umbrella group overseeing the project, which aims to deliver proof of concept by the middle of next year, said it marked the first collaboration across regions and that she expected more to follow. Around 90% of the world’s central banks are either using, trialling or looking into CBDCs.
The Fed, which begins its two-day meeting Tuesday, is expected to deliver a fourth straight 75-basis-point rate hike on Wednesday in its attempt to tame inflation. The pan-European STOXX 600 index (.STOXX) rose 0.35% and MSCI's gauge of stocks across the globe (.MIWD00000PUS) shed 0.44%. read moreKey food and energy prices drop after initial panicGRAINS REPORTIn currencies, the dollar rose 0.8% against the struggling yen to 148.62 yen . Brazil's currency and main stock index rallied Monday, a day after leftist Luiz Inacio Lula da Silva won the country's presidential election. The Bovespa stock index (.BVSP) sank 2% at the opening and ended the session up 1.3%.
LONDON, Oct 31 (Reuters) - Analysts at investment bank JPMorgan have estimated that banks will repay between 500 and 700 billion euros ($494-$692 billion)of the European Central Bank's ultra cheap funding next month after it tightened up the terms on the loans. As well as hiking euro zone interest rates last week, the ECB changed the conditions from November of its widely-used long-term loan programme known as TLTRO-III to encourage banks to pay at least some of the money back. The TLTRO's original rules would have implied a borrowing cost of around 14 basis points from June 2022 to June 2023, they said. "This implies an increase in funding cost from June 2022 onwards due to this change to be around 82 basis points," JPMorgan said. ($1 = 1.0119 euros)Reporting by Marc Jones; editing by Barbara LewisOur Standards: The Thomson Reuters Trust Principles.
Dollar, bond yields rise ahead of pivotal rate hikes
  + stars: | 2022-10-31 | by ( Marc Jones | )   time to read: +6 min
Combined with news that Italy's economy grew far more strongly than expected in the third quarter, euro zone bond yields moved higher EUR/GVD although the euro succumbed to another bout of U.S. dollar strength. /FRX"A lot of data is coming out this week and lot of central banks are meeting," said Societe Generale strategist Kit Juckes. Palm oil futures rose nearly 5%. In the oil markets, Brent crude futures fell 1% to $94.65 a barrel, while spot gold was fractionally lower at $1,637 an ounce in the precious metals markets. Additional reporting by Tom Westbrook in Singapore; Editing by Kirsten Donovan and Angus MacSwanOur Standards: The Thomson Reuters Trust Principles.
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