Aurelia Butler

ORLANDO, Florida (Reuters) -After two decades of the dollar’s share of global foreign exchange reserves gradually eroding to less than 60%, economic, financial and geopolitical stars are aligning to halt that trend in the next few years and possibly even reverse it. At least temporarily. That’s the indication from an annual survey of central banks and reserve managers conducted by the Official Monetary and Financial Institutions Forum, which chimes with recent research and analysis from leading figures in the world of FX reserves.The emergence of the euro and China’s explosive rise to the world’s second-biggest economy have diminished the dollar’s FX reserve status, and an ongoing desire for diversification is likely to ensure it is never quite as omnipotent again. But according to the OMFIF’s ‘Global Public Investor 2024’ survey of 73 central banks in charge of managing $5.4 trillion of reserves, a net 18% of reserve managers plan to increase their dollar holdings over the next 12-24 months. That’s two and a half times more than the second-highest currency, the euro, which a net 7% of respondents plan to increase exposure to. Perhaps more significantly, it is three times higher than the net 6% in last year’s survey who said they would raise their dollar share. That’s a hugely positive swing in sentiment.DISTANT LAGGARDSThe dollar continues to enjoy overwhelming dominance in international trade, invoicing and financing flows, and U.S. debt markets offer a depth of liquidity that no market on the planet comes close to matching.OMFIF’s ‘Global Public Investor 2024′ survey found that 27% of reserve managers say the most important investment objective this year is ensuring liquidity, up from 20% last year.On top of that, cyclical factors are increasingly playing into the dollar’s favor – U.S. economic growth and rates of return relative to global peers are high and look likely to remain so over the next couple of years. This would signal a shift in central bank thinking. In a May 29 post, New York Fed economists argue that relative returns on sovereign assets have not been a significant factor in the dollar’s share of official reserves. What the OMFIF survey, New York Fed and other analysis all point to is the rise in global geopolitical tensions and need for liquidity, which will draw reserve managers to the dollar more than any other currency.”For the dollar share to fall, another currency’s share has to rise. Then you have to question, which one? Which of the others is a truly global currency,” said Hiro Ito, professor of economics at Portland State University and a renowned authority on global FX reserves and capital flows.”The dollar’s dominance is so strong. There’s no most powerful second currency, and certainly no most powerful third, fourth, or fifth currency,” he says.SANCTIONS While debate around the dollar’s FX reserves status is often conflated with doomsday scenarios about the collapse of the U.S. currency and economy, much less is said about the euro’s failure to capitalize on the gradual erosion of the dollar’s dominance. According to the International Monetary Fund’s composition of official exchange reserves (Cofer) data, the euro’s share of the $12 trillion total last year was just under 20%, exactly where it was in 2015 and well down from its peak of 28% in 2009.Geopolitics must be on central banks’ minds here too. The freezing of Russian assets and sanctions on Russia after it invaded Ukraine will affect the euro more than the dollar – Moscow had sold all its U.S. Treasuries and greatly reduced the dollar share of FX reserves before the invasion, and most Russian money overseas is in Europe, not the United States.Equally, if freezing Chinese assets abroad is a possibility, will countries in Asia – or anywhere, for that matter – want to be exposed to the renminbi? That’s before China’s capital controls are even taken into account.SMALL COHORT, BIG IMPACTA New York Fed paper in March found that countries that are more politically distant from the United States, and perhaps more likely to be subject to financial sanctions, tend to have a higher dollar share in official reserves, all else equal.It is countries that already have large reserves, well in excess of emergency liquidity needs and already with a high dollar share, that are more liable to divest out of dollars on geopolitical grounds.According to the March research, the seven percentage point decline in the dollar’s share of global reserves between 2015 and 2021 was driven by a small group of countries – notably China, India, Russia, and Turkey – and the large increase in Switzerland’s euro reserves accumulated through FX intervention.”It is therefore not the case that countries are moving away from dollars en masse,” they write, adding that out of the 55 countries for which there are estimates, 31 increased the dollar share of reserves in that period.(The opinions expressed here are those of the author, a columnist for Reuters.)(By Jamie McGeever; Editing by Andrea Ricci) More

WASHINGTON (Reuters) – Global insurers plan to invest further in the coming years in the growing but opaque private credit market, according to a new report by Moody’s (NYSE:MCO) Ratings.In a survey this week of the world’s largest insurers, Moody’s found that nearly 80% of respondents planned to increase their holdings in at least one class of private credit.Deemed riskier and less transparent than the public market, private credit deals involving non-bank lenders and middle-market companies have gradually gained market share in the U.S. and around the world over the last several years, as banks have avoided riskier loans to highly leveraged borrowers at elevated interest rates.Insurers have already increased their private credit holdings in the U.S. to 36% of their total investments in the region, according to Moody’s, driven by their attractive returns compared to the more volatile public credit market. “(Many) insurers have reallocated part of their portfolio toward less liquid assets of similar credit risk because they feel these investments now offer sufficient additional compensation for their lower liquidity,” the report’s authors wrote.Despite their lack of transparency, survey participants claimed that investment-grade quality assets account for most of their private credit holdings.However, the report highlighted the concerns of some survey respondents, that the long-term risk of insurers’ growing private credit investments could outweigh their short-term appeal. “A number of companies we spoke to believe that short-term spread volatility in public markets can overstate underlying credit trends, and is a less important consideration than credit risk for private credit assets, which are held to maturity as long as an insurer is operating on a going concern basis,” Moody’s noted.Analysts and market participants have forecast rising delinquencies and defaults among borrowers. As inflation and elevated rates lead more borrowers to avoid default and turn to private credit, insurers are expected to increase their holdings most quickly in assets such as private placements, asset-based financings and commercial real estate loans, according to the report.As they ramp up their private credit holdings, insurers also run the risk of mismanaging their assets and liabilities, which Moody’s warned is “highly credit negative.” More

For May, forecasts from 23 consultancies and 13 financial institutions estimated monthly inflation down 2.3 percentage points to 5.2%, while June inflation was seen down 1.3 points from the prior forecast at 5.5%. Latin America’s No. 3 economy should, meanwhile, shrink 3.8% in real terms this year, the poll predicted, a 0.3-point deterioration from the previous forecast.Forecasts for unemployment edged up 0.4 percentage points to 7.4% for the first quarter of the year.Despite four straight months of slowing monthly price rises, annualized inflation is still hovering close to 300%, and the government of libertarian President Javier Milei has pushed a tough austerity campaign in a bid to combat the crisis. More

It is targeting 800 deliveries for the year.Demand for aircraft is strong because air travel is staging a strong recovery at the same time as supplies of new airplanes are tight, notably at U.S. planemaker Boeing (NYSE:BA).Reuters reported on Monday that Airbus, which has headquarters in France, had delivered around 50 aircraft in May. Industry sources said it had been targeting closer to 60 deliveries for the month.Jefferies analyst Chloe Lemarie described the published tally of 53 deliveries as a “setback”.While May was affected by a high number of weekday holidays in France, where Airbus has two out of eight narrow-body assembly lines, Airbus must achieve “significant catch-up” to reach stable deliveries for the quarter, Lemarie said in a note.That comes as Airbus is also facing new pressure on the underlying production of single-aisle jets because of parts and labour shortages, Reuters reported last week.There is no immediate connection between production and deliveries because Airbus includes a buffer in its plans against delays to protect its delivery goals, analysts say.But industry sources said production of several dozen jets could be delayed in the second half of the year, putting renewed pressure on the planemaker’s industrial ramp-up.Airbus also said on Thursday it had sold 27 airplanes in May, including 20 A330neos to an unidentified customer.The upgraded A330 wide-body jet is one of the few available types of aircraft in a market beset by widespread shortages in the midst of surging demand for newer models like the A350 and Boeing 787, delegates said at an airline summit this week.So far this year, Airbus has sold 254 airplanes, or a net total of 237 after cancellations. More

OTTAWA (Reuters) – The Bank of Canada will need to play very safe in its easing cycle, despite widespread expectations of an immediate July rate cut, and take a much slower path due to the high risks from persistent inflationary pressures, economists said.Canada’s currency depends heavily on trade with the United States, high housing demand poses a constant threat of a surge in house prices and the country’s wage inflation has been ticking faster than the rate of growth of consumer prices.Economists and analysts said if a faster interest rate cut triggers inflationary pressures due to these factors, it could reverse the success seen on inflation.”I think they (BoC) should be and they still are very concerned about whether they will get inflation down all the way,” said Pedro Antunes, chief economist at Conference Board of Canada, an independent think tank.The BoC cut its interest rate for the first time in more than four years to 4.75% on Wednesday, from an over two-decade high of 5%.The announcement fueled expectations for a back-to-back rate cut in July and further reduction to 4% this year.But if the bank moves ahead with consecutive cuts, it could trigger inflation. One of the primary worries is how interest rates pan out in the United States. This impacts the fight against inflation, Antunes said.Canada’s currency depends heavily on trade with the U.S., which accounts for two-thirds of its imports. When interest rates in Canada fall while they stay steady in the U.S., its currency weakens and imports tend to get costlier, driving inflation.”We will see very slow declines in Canada (interest rates), in part, because of the kind of position that the Fed is still in,” Antunes said.Another factor the BoC should bear in mind, economists say, is to bring back a flood of housing demand as interest rates come down, said Craig Alexander, president of Alexander Economic Views, an independent economic research organization.Canada’s housing demand has mostly been sidelined due to high interest rates, but that has not changed the acute need to build houses at a rapid pace.It will need to expand its housing stock by an average of 315,000 units every year between now and 2030 to meet this demand, according to an analysis by the Royal Bank of Canada. Phil Soper, the CEO of Royal LePage, a real estate developer, told Reuters on Wednesday that the cut in interest rates would spark activity and put upward pressure on home prices in the second half.Wages are also often cited by economists and analysts as a factor that could spur inflation once again.The average hourly wage growth for permanent employees grew at 4.8% even as consumer price growth slowed to 2.7% in April.  “People are getting paid more. What’s wrong with that? The problem is that we have a declining productivity in Canada per capita,” said Brooke Thackray, research analyst with Global X, a fund management company.Even though wage growth is considered a lagging indicator – that is, it does not predict a future trend – it nonetheless feeds directly into inflation numbers amid negative productivity, he said.Bank of Canada Governor Tiff Macklem also acknowledged during his policy decision announcement that housing prices and wage growth could spell trouble for his efforts to tame inflation and bring down policy rates.”I think it’s going to be a very protracted rebalancing of monetary policy,” said Alexander from Alexander Economic Views. More

(Reuters) – A look at the day ahead in Asian markets.An interest rate decision in India and Chinese trade figures are the main events for investors in Asia on Friday, rounding off a tumultuous week globally that saw an explosion of political volatility in the emerging world, heightened worries over U.S. growth and world stocks hitting new highs.Asian markets go into Friday mostly on the front foot – the MSCI Asia ex-Japan index is up nearly 3% this week, the Hang Seng tech index is up almost 5% and, despite the political fireworks, Indian stocks are in the green.Capital is flowing into emerging markets. Japanese and Chinese stocks are struggling more, however. Expectations of tighter monetary policy and a stronger yen are capping the Nikkei, while economic gloom continues to weigh heavily on Chinese equities.The Reserve Bank of India is widely expected to keep its key interest rate on hold at 6.50% on Friday, before cutting just once later in the year, probably in the fourth quarter, according to a Reuters poll.With near-8% growth and above-trend inflation, there is little urgency for the RBI to begin cutting rates yet. Nor is there much incentive to move before the Fed, especially with the rupee languishing around record lows. But with the Bank of Canada and European Central Bank lowering rates this week, following the Swiss National Bank, the global ‘higher for longer’ mantra may be losing its oomph.U.S. rates traders are now fully pricing in 50 basis points of easing from the Fed this year – one quarter-point cut likely coming in September, before the Presidential election, and two by the Dec. 17 to 18 policy meeting.The 2-year U.S. Treasury yield has now fallen six days in a row. That’s the longest uninterrupted decline going back to late last year, according to Tradeweb data, or back to March 2020, according to Reuters/Refinitiv indicative pricing. The one G7 central bank going the other way is the Bank of Japan. Governor Kazuo Ueda said the central bank should reduce its huge bond purchases as it moves toward an exit from massive monetary stimulus, reinforcing his resolve to steadily scale back its nearly $5-trillion balance sheet.The remarks keep alive expectations the central bank could embark on a full-fledged tapering of its bond buying as early as its policy meeting next week.But having driven yields higher this year, Japanese Government Bond bears have gone into retreat as global yields have fallen – the two-year and 10-year JGB yields have slipped every day this week.China’s trade data, meanwhile, will be closely watched for signs that activity is picking up after months of disappointing numbers. Exports are seen rebounding strongly, rising 6.0% year-on-year, but import growth is expected to halve to 4.2%.Here are key developments that could provide more direction to markets on Friday:- India interest rate decision- China trade (May)- Japan household spending (April) More

NEW YORK (Reuters) -The former New Jersey attorney general Gurbir Grewal testified at U.S. Senator Bob Menendez’s corruption trial on Thursday that the lawmaker sought to intervene in a local criminal case, including a meeting that Grewal’s deputy described as “gross.” Federal prosecutors in Manhattan have said Menendez sought to have Grewal, the state’s top prosecutor from 2018 through 2021, intervene in cases involving two associates of insurance and trucking businessman Jose Uribe.In exchange, Uribe allegedly helped Menendez and his wife Nadine Menendez buy a $60,000 Mercedes-Benz (OTC:MBGAF) convertible with money disguised as a loan.Uribe pleaded guilty this year to fraud and bribery charges and is expected to testify against Bob Menendez.Testifying for the prosecution, Grewal said Menendez objected in a January 2019 phone call and September 2019 meeting that the attorney general’s insurance fraud unit treated Hispanic defendants in the trucking industry different from others.Upon being told by Menendez that the senator was referring to a specific case, Grewal said he advised Menendez to instruct the defendant’s lawyer to go through proper channels by speaking with individual prosecutors. “I can’t talk to you about this,” Grewal said he told Menendez at the September meeting at the senator’s office in Newark, which Grewal’s deputy Andrew Bruck also attended. Now head of enforcement at the U.S. Securities and Exchange Commission, Grewal said Menendez did not identify the case or ask for specific help, but that it was “pretty unprecedented” for an elected official to ask about a pending criminal matter. “Andrew said to me, ‘Whoa, that was gross,'” Grewal said Bruck told him after the September meeting.Menendez’s lawyer Avi Weitzman later sought to portray Menendez’s conduct as normal advocacy for a constituent.”He didn’t tell you, ‘You’d better look at this or I’m going to haul you in front of Congress?'” Weitzman asked Grewal when cross-examining him. “No,” Grewal replied.Menendez, 70, a three-term Democratic senator, has pleaded not guilty to 16 criminal charges including bribery, fraud, acting as a foreign agent and obstruction.Prosecutors have said Menendez and his wife accepted hundreds of thousands of dollars of bribes including cash, mortgage payments and gold bars in exchange for political favors and aiding the governments of Egypt and Qatar. Menendez has resisted calls from former Democratic allies to resign, but stepped down as chair of the influential Senate Foreign Relations Committee after he was charged in September.He is seeking re-election on Nov. 5 as an independent, but his unpopularity with voters makes it an uphill battle.U.S. Representative Andy Kim on Tuesday won New Jersey’s Democratic primary for Menendez’s seat. Earlier in the trial, Menendez’s lawyers blamed his wife for concealing her financial dealings from him.Nadine Menendez has pleaded not guilty. Her trial was postponed to July because she is being treated for breast cancer. Her husband’s trial could last through June.  More