Aurelia Butler

NEW YORK (Reuters) – Rattled investors are bracing for earnings from the market’s biggest tech companies, a Federal Reserve policy meeting and closely watched employment data in a week that could determine the near-term trajectory of U.S. stocks following a bout of severe turbulence.A months-long rally in massive tech stocks hit a wall in the second half of July, culminating in a selloff that saw the S&P 500 and Nasdaq Composite Index notch their biggest one-day losses since 2022 on Wednesday after disappointing earnings from Tesla (NASDAQ:TSLA) and Google-parent Alphabet (NASDAQ:GOOGL). More volatility could be ahead. Next week’s results from Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL), Amazon.com (NASDAQ:AMZN) and Facebook-parent Meta Platforms (NASDAQ:META) could further test investors’ tolerance of potential earnings shortfalls from tech titans. The blistering rallies in the world’s biggest tech companies this year pushed markets higher, but have sparked concerns about stretched valuations. Though the S&P 500 is still only about 5% below its all-time high and is up nearly 14% this year, some investors worry that Wall Street may have become too optimistic about earnings growth, leaving stocks vulnerable if companies are unable to meet expectations in coming months.Investors also will be closely watching comments following the end of the Federal Reserve’s monetary policy meeting on Wednesday for clues on whether officials are set to deliver interest rate cuts, which market participants widely expect to begin in September. Employment data at the end of the week, including the closely watched monthly jobs report, could indicate if a nascent downshift in the labor market has become more severe.”This is a critical time for the markets,” said Bryant VanCronkhite, a senior portfolio manager at Allspring. “You’re having people start to question why they are paying so much for these AI businesses at the same time the market fears that the Fed will miss its chance to secure a soft landing, and it’s causing a violent reaction.” Recent weeks have shown signs of a rotation out of the high-flying tech leaders and into market sectors that have languished for much of the year, including small caps and value stocks such as financials. The Russell 1000 Value index is up more than 3% for the month-to-date while the Russell 1000 Growth index is down nearly 3%. The small-cap-focused Russell 2000 is up nearly 9% this month, while the S&P 500 has lost more than 1%. Even strong earnings may not be enough to get the broad market out of its recent malaise, at least in the near term, said Keith Lerner, chief market strategist at Truist. “The market is going to take direction based on the fact that these stocks have pulled back,” he said. “My thinking is that tech came down so hard, even if you get a bounce from these names due to earnings you will have people itching to sell into any gains.”And any signs that the Fed is seeing worse-than-expected deterioration of the economy could also unnerve investors, disrupting the narrative of cooling inflation but still-resilient growth that has supported markets in recent months.”We think they are going to stay with the script that they will be data dependent but the data has not been going in a straight line,” said Matt Peron, global head of solutions at Janus Henderson Investors. Conflicting signs in the economy have included faster-than-expected GDP growth in the second quarter alongside declining manufacturing activity. Markets are currently pricing in a near-certainty that the Fed will begin cutting interest rates at its September meeting, and expect 66 basis points in total cuts by the end of the year, according to CME’s FedWatch Tool. The employment data at the end of the week could sway those odds if it shows that the economy has been slowing faster than expected, or conversely, if a picture of rebounding growth emerges. Still, the recent selloff could be seen as a healthy part of a bull market that burns off excess froth, said Charles Lemonides, head of hedge fund ValueWorks LLC. “I think the longer-term story is that growth names will carry us through another market high somewhere down the road,” he said. More

RIO DE JANEIRO (Reuters) -Japan sees the reaffirmation in the latest G20 joint communique of existing commitments against excessive foreign exchange volatility as one of the major achievements, Finance Minister Shunichi Suzuki said on Friday.”We believe there were major achievements at G20, such as the inclusion of the reaffirmed foreign exchange commitments in the joint communique,” Suzuki said, speaking at a press conference after the Group of Twenty (G20) finance ministers and central bank governors meeting in Rio de Janeiro.The commitments say the G20 major economies recognize that excessive volatility or disorderly movements in exchange rates can have adverse implications for economic and financial stability.In the same press conference, Japan’s top currency diplomat Masato Kanda said that Japan pushed for the inclusion of the commitments in the communique as their absence “could give a misleading message to the market.”While a weak yen gives exports a boost, it has become a source of concern for policymakers by pushing up the cost of imports and hurting consumption.The yen rallied sharply this week, rebounding from 38-year lows hit earlier this month, as market participants unwound their long-held bets against the currency ahead of a Bank of Japan (BOJ) meeting next week.Some politicians have recently called on the BOJ to offer more clarity on its rate hike plan partly to prevent the yen from testing fresh lows against the dollar.Suzuki said he met with U.S. Treasury Secretary Janet Yellen on the sidelines of the G20 meeting on Friday.They discussed “wide-ranging topics including Russia, taxation and markets,” according to Kanda, who briefed reporters on the bilateral meeting.Asked if foreign exchange was included in the talks on markets, Kanda confirmed it was on agenda, but noted that it was just an extension of two countries’ routine communications and did not mean there were any major issues that needed to be addressed. More

NEW YORK (Reuters) – A hedge fund study that said the U.S. Treasury last year effectively provided economic stimulus by moderating long-dated bond sales has sparked a debate in the bond market and a denial from the U.S. Treasury that said it was not aiming for such an effect.The U.S. Treasury Department announced in November it would slow the pace of auction size increases of long-dated debt securities, a move that gave relief to bond markets rattled by previous increases in long-term debt supply.This led to a decline in 10-year Treasury yields equivalent to the economic stimulus that would be provided by a one percentage point reduction in the Fed’s policy rate, according to a study published by Hudson (NYSE:HUD) Bay Capital Management.The study was authored by senior economic advisor Nouriel Roubini, an economist who rose to prominence for predicting the global credit crisis, and senior strategist Stephen Miran, who was an advisor for economic policy at the U.S. Department of the Treasury under former Treasury Secretary Steven Mnuchin, when Republican nominee Donald Trump was U.S. president. “Our interpretation is that while the Fed was raising the Fed fund rate all the way to 5.5%, these (Treasury) policies were effectively pushing long yields lower,” said Roubini in an interview. “The Fed has been trying to raise rates to pull down the economy and achieve a soft landing, but … it looks like we could be in a no landing zone, with growth persistently above potential.”The study echoes suggestions by Republican senators last month that the Treasury deliberately increased issuance of short-term Treasury bills to give the economy a “sugar high” ahead of the elections. Roubini’s paper drew a similar parallel. The U.S. Treasury denied any such strategy. The Roubini paper “suggests a strategy that is intended to ease financial conditions, and I can assure you one hundred percent that there is no such strategy. We have never, ever discussed anything of the sort,” Treasury Secretary Janet Yellen, who was appointed by U.S. President Joe Biden, said on Friday.Assistant Secretary for Financial Markets Joshua Frost in a speech earlier this month addressed what he said were common misconceptions about Treasury issuance, saying the reduction in long-dated debt increases last year was modest.The Hudson Bay’s paper compares changes in Treasury issuance to quantitative easing – a bond buying program used by the Fed to stimulate the economy. Several bond market analysts said the comparison was overstated.”At best, this … kept rates marginally lower than they would have otherwise been,” said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities USA. “This is highly consistent with Treasury’s goal to obtain the best possible funding for the taxpayer and is not in any way a sinister plot to ‘ease’ monetary policy,” he added.The move demonstrated “higher than expected market sensitivity on the Treasury’s part during a period of volatility,” said Jonathan Cohn, head of U.S. rates desk strategy at Nomura Securities International.”Treasury may not be a market timer, but it is also not market agnostic nor deliberately ignorant of market functioning,” he added. More

RIO DE JANEIRO (Reuters) – The first-ever joint declaration by G20 finance leaders vowing to cooperate on effectively taxing the world’s largest fortunes on Friday papered over deeper disagreement about the right forum to advance the agenda.Finance ministers and central bankers from the Group of 20 major economies agreed to reference fair taxation of “ultra-high-net-worth individuals” in both their joint communique and a separate declaration on international tax cooperation on Friday.”We will seek to engage cooperatively to ensure that ultra-high-net-worth individuals are effectively taxed,” said the final draft of the G20 ministerial declaration in Rio de Janeiro, seen by Reuters.However, fault lines have already emerged about whether to do that in talks at the United Nations or via the Organization for Economic Cooperation and Development (OECD), a group of wealthier democracies founded by U.S. and European allies.U.S. Treasury Secretary Janet Yellen told Reuters on the sidelines of the G20 meeting that she believes the OECD, which shepherded negotiations for a global two-part corporate tax deal for the past three years, is better placed to handle such talks.”We don’t want to see this shifted to the UN,” Yellen said, adding that the OECD “is a consensus-based organization. We’ve made a huge amount of progress, and the UN doesn’t have the technical expertise to do this.”Major developing nations have already bristled at that approach, according to an official familiar with the matter, who said Brazil should use its G20 presidency to advance discussion at both the UN and OECD.Some of the most vocal advocates of a global minimum tax on billionaires, including Nobel laureate Joseph Stiglitz, insisted that the UN was the proper forum for global tax cooperation.”We call on G20 leaders to align with the progress being made at the UN and establish a truly democratic process for setting global standards on taxing the ultra-rich,” said Oxfam International’s Tax Policy Lead Susana Ruiz.”Entrusting this task to the OECD — the club of mostly rich countries — would simply not be good enough,” she added.Brazilian Finance Ministry official Guilherme Mello, said that the UN Framework Convention on International Tax Cooperation represented a victory for the developing nations of the “Global South” who seek a venue where they are better represented, as most countries are not members of the OECD.Still, Mello recognized both the OECD and the UN as legitimate forums, and he said an ongoing discussion of how to effectively tax the super-rich is progress, whatever the forum.”The shape this will take depends on many dialogues that will be held,” he added.Some observers remained skeptical about the chances for a global “billionaire tax” targeting the world’s largest fortunes.European officials pointed out that not even the 27-nation European Union has power of taxation as a bloc. Although France lent early support to a global minimum wealth tax, Germans have offered stiff resistance.”It seems that it might be very difficult to bring this forward,” said one European official at the G20 meetings. More

RIO DE JANEIRO (Reuters) -U.S. Treasury Secretary Janet Yellen said on Friday that she opposes shifting global tax deal negotiations away from the Organisation for Economic Cooperation and Development to the United Nations, pushing back against the desires of some developing countries and non-profit groups.Yellen told Reuters on the sidelines of a Group of 20 finance leaders’ meeting in Brazil that she believes the OECD, which has shepherded negotiations over a two-part corporate tax deal for the past three years, is better placed to handle such talks.”We don’t want to see this shifted to the UN,” Yellen said in Rio de Janeiro. The OECD “is a consensus-based organization. We’ve made a huge amount of progress, and the UN doesn’t have the technical expertise to do this.”Moving negotiations to the UN would bring many more countries into the process and its majority vote structure is not suited to complex tax negotiations where countries need to all agree on terms that support their interests, Yellen said.”Countries have to come to the table and agree to do it. The United States is just not going to do something because it was a majority vote in the UN,” she added.Brazil, which holds the G20 presidency, had initially sought to add a third “pillar” to the global tax deal agreed by some 140 countries in the form of a common levy on ultra-wealthy individuals, alongside Pillar 1, a reallocation of taxing rights on large, multinational corporations, and Pillar 2, a 15% corporate minimum tax.The effort morphed into a declaration by G20 countries to work together to ensure that the ultra-rich are effectively taxed, in a move that seeks a balance between national sovereignty and more cooperation on tax avoidance.As part of this process, Brazil had sought to advance the tax debate at both the OECD and the UN, a source familiar with the effort said.Non-profit group Oxfam had called on G20 countries to align the OECD tax talks with the UN, saying “a truly democratic process” was needed to set standards on taxing the ultra-rich.”Entrusting this task to the OECD — the club of mostly rich countries — would simply not be good enough,” Oxfam said in a statement.Yellen said there may be some tax topics that would be appropriate for the UN, “but not this.”PILLAR 1 TALKSYellen also said that there has been good progress in talks on the ‘Pillar 1’ tax agreement, but India, China and Australia remain holdouts on U.S. demands over alternative ways to calculate transfer pricing, known as “Amount B.”The U.S. continues to insist on the method, which would cover companies not included in the largely completed Multilateral Convention for calculating local tax liabilities for the largest companies with annual revenues above $20 billion.Amount B would provide an objective way for smaller firms to calculate transfer pricing and hence tax liabilities, reducing the incidence of costly tax disputes for multinationals for the most common types of activities. “And so that is a red line for us in that we need a mandatory Amount B,” Yellen said, adding that work would continue to bring countries on board.She said that India was “a stumbling block,” but added that “China I don’t think is dug in against participating. It would not surprise me if we can get China to sign on to this and to participate.” More

(Reuters) -The U.S. Treasury Department is likely to announce next week that it will keep most of its coupon-bearing U.S. Treasury auction sizes steady over the coming quarter, offering the market some relief after recent large increases. Additional expansions are expected down the road, however, as the U.S. fiscal trajectory worsens.The Treasury increased its auction sizes from August 2023 as falling revenues, higher interest rates and other factors widened the budget deficit. Two-year note auction sizes, for example, have risen to $69 billion from $42 billion in mid-2023. Ten-year note auctions have grown to $42 billion from $35 billion.But in May the Treasury said that it does not expect to increase most auction sizes for at least the next several quarters and analysts say it should be well funded until May next year. Uncertainty over the November U.S. elections is also likely to keep any large debt changes on hold for now.“Treasury has strongly signaled that nominal auction sizes will not be increasing in the August-October quarter. The largest risk at this refunding would likely come from a strong change in the language that suggests coupon increases are coming sooner than we expect,” said Angelo Manolatos, macro strategist at Wells Fargo. One exception may be a modest increase in five-year Treasury Inflation-Protected Securities (TIPS).The Treasury will give its broad financing estimate on Monday and offer more details on Wednesday.An update on further increases is more likely “after the election when there’s a reset and everyone has a better idea of what the next 12 to 24 months will be like,” said Will Compernolle, macro strategist at FHN Financial.Market participants will watch for any mention of the size of Treasury bill issuance, which has grown in recent quarters.T-bills now account for around 21% of total marketable debt, above the 15-20% range recommended by the Treasury Borrowing Advisory Committee (TBAC).Treasury Secretary Janet Yellen defended increasing bill sales after some Republican senators in June suggested that the Treasury is increasing bill issuance instead of longer-term debt to stimulate the economy ahead of the November elections.Treasury bills currently pay higher rates than longer-term debt due to the inversion in the Treasury yield curve. Lower long-term rates due to less issuance or other factors could theoretically help to boost economic growth.Yellen said in comments sent to Reuters on Friday that the allegations, which were also made in a recent paper by asset manager Hudson (NYSE:HUD) Bay Capital, “suggests a strategy that is intended to ease financial conditions, and I can assure you 100% that there is no such strategy. We have never, ever discussed anything of the sort.”Assistant Secretary for Financial Markets Joshua Frost this month said the government remains committed to financing itself at the lowest cost over time, while also maintaining a broad and diverse investor base and being regular and predictable in its issuance.Yellen said that “my own experience with Treasury policy and debt issuance fully accords with the principles of regular and predictable that (Frost) outlines.”The increase in Treasury bills makes sense due to strong demand for short-dated debt, said Thomas Simons, senior U.S. economist at Jefferies. Meanwhile, “if the Fed cuts rates… you could point to the Treasury having issued in the long end as a mistake.”The Treasury may also offer guidance on the debt ceiling, which is due to be reinstated on Jan. 2 unless Congress suspends it again. In previous episodes the Treasury has repaid debt ahead of the deadline, and rapidly increased issuance after the ceiling is suspended.Meanwhile, the size of Treasury buybacks that began in May could also be increased. So far buybacks have been designed to support liquidity focusing on off-the-run securities, older and less liquid issues trading at a discount.It may now also launch buybacks meant for cash management purposes, or indicate when they will start. In these it will buy back shorter-dated debt mainly around major tax payment dates. More