Aurelia Butler

NEW YORK (Reuters) – The prospect of interest rates remaining elevated as the Federal Reserve battles inflation is further clouding the outlook for shares of smaller U.S. companies, which have lagged broader markets this year.Small cap stocks surged at the end of 2023, as expectations grew that the Fed was done raising interest rates and would soon begin easing monetary policy. That would be a welcome change for smaller companies, which rely more heavily on debt financing and consumer spending. But stubbornly strong inflation has eroded prospects of rate cuts this year, and small cap stocks have suffered as a result. The Russell 2000 is up just 0.4% year-to-date, far less than the S&P 500’s 7.5% gain. Earnings are also expected to be shaky, giving investors little reason to shift allocations from larger companies and other, less risky parts of their portfolios.”Investors are skeptical right now about small cap stocks because of higher rates and stickier inflation, and they need greater clarity that the Fed will be cutting rates this year before moving in,” said Michael Arone, Chief Investment Strategist for State Street’s SPDR Business, who has been buying small caps in anticipation of rate cuts later in the year.The case for smaller stocks may have improved over the last few days. U.S. employment data on Friday showed that jobs growth, while still relatively robust, slowed last month, easing fears that rates will remain elevated for the rest of the year. The Russell 2000 was up about 1% on the day.On Wednesday, Fed Chairman Jerome Powell said he still believed rates were heading lower this year, despite stubborn inflation. Futures markets on Friday showed investors pricing in around 45 basis points of interest rate cuts this year, from less than 30 priced in earlier this week. That remained far lower than the 150 points they had priced in January.Stronger-than-expected earnings in coming weeks could help allay investor concerns. Overall, the Russell 2000 is expected to post earning growth of -8.4% over the most recent quarter, compared with a 10.2% earnings growth rate for the S&P 500, according to LSEG data. At the same, the Russell 2000 is trading at a forward price to earnings ratio of 22 compared with a 20 times earnings multiple for the S&P 500, making small-caps more expensive. “The earnings pickup we expected has just not been there,” said David Lefkowitz, CIO Head of US Equities at UBS Global Wealth Management, who has been overweight small caps since December. “I still think the preference for small makes sense, but it depends on your rate view.”Among the notable small cap companies reporting in the week ahead are nutrition company Bellring Brands, gambling company Light & Wonder and oil and natural gas company Permian Resources. Larger caps reporting next week include Walt Disney (NYSE:DIS), Wynn Resorts (NASDAQ:WYNN) and Akamai Technologies (NASDAQ:AKAM), as US corporate earnings season continues. Despite the encouraging developments of the last few days, few believe the path to rate cuts is clear.Jill Carey Hall, equity & quant strategist at Bofa Global Research, said investors buying small caps should focus on companies positioned to withstand an extended Fed pause, including those with higher percentages of fixed dent and comparatively low leverage.”It’s too soon to price in more rate cuts,” said Timothy Chubb (NYSE:CB), chief investment officer at Girard. “One number doesn’t make a trend. Overall, the Fed is getting the evidence it needs.” More

This article is an onsite version of our Disrupted Times newsletter. Subscribers can sign up here to get the newsletter delivered three times a week. Explore all of our newsletters hereToday’s top storiesUK culture secretary adamant UK is “open for business” despite blocking the sale of Telegraph media group to an Abu Dhabi-backed companyChinese AI start-ups race to rival US counterparts including OpenAI and Anthropic.Keir Starmer hails ‘seismic’ by-election result as Conservatives face losing half of contested council seats. Follow the latest coverage here. For up-to-the-minute news updates, visit our live blogGood evening.The US added 175,000 jobs in April, falling well below expectations forecast by a Bloomberg poll that predicted a 241,000 rise. This marks the smallest rise for six months, a sign that the labour market is cooling in the world’s largest economy. The employment data comes after the chair of the Federal Reserve, Jay Powell, signalled earlier this week that US borrowing costs are likely to remain higher for longer as the US battles persistent inflation.Speaking after the Federal Open Market Committee meeting on Wednesday, he claimed there had been a “lack of further progress” towards the 2 per cent inflation goal, and suggested rates would remain at their current level of 5.25-5.5 per cent.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.However, the slower pace of jobs growth than expected in April had traders speculating that the Fed will cut rates sooner. In response, treasury bond yields dropped and stocks rose. The two-year Treasury yield, which moves with interest rate expectations, dropped 0.14 percentage points to 4.74 per cent.Cutting rates could give President Joe Biden a boost in the upcoming US election as Americans grow increasingly unhappy with high borrowing costs. Holding rates steady could prevent Biden winning votes from those who thought the economy was stronger under Donald Trump, but Powell was adamant on Wednesday that cuts wouldn’t follow the political calendar. Disrupted Times is taking a short holiday break. We’ll be back in your inboxes next Wednesday, May 8Need to know: UK and Europe economyUK growth of 0.4 per cent will be the slowest in the G7 this year apart from Germany, according to new OECD forecasts. Inflation in the UK will hit 2.7 per cent, the highest in the group, the OECD says.The equal pay claim that tipped Birmingham city council into bankruptcy last year is likely to be much lower than the £650mn-£760mn estimate, according to Michael Gove’s levelling up commissioner.NatWest-owned Coutts bank plans to shift customers away from UK equities to access ‘mega-themes’ in international stocks, despite government efforts to revive London’s capital markets.Société Générale, France’s third-biggest bank, has reported a smaller than expected 22 per cent fall in net profit for the first quarter. This follows former trader Kavish Kataria’s criticism of the bank that he was made a “scapegoat” for bosses not taking “responsibility [for] the lapse in their risk system”.Foreign buyers flock to purchase Sweden’s secluded properties as low house prices, remoteness and clean air quality attract many to the region.The award-winning Inside Politics newsletter and Political Fix podcast are teaming up for an expert Q&A to digest the UK local election results, debate election strategies and answer your questions. Register here for free to watch live on May 8 at 13:00 – 14:00 BST.Need to know: global economy The OECD said high flows of immigration into rich countries are helping to strengthen jobs markets and bolster growth, as it lifted its outlook for the global economy. The Paris-based organisation predicted the world economy would grow by 3.1 per cent this year, up from an earlier forecast of 2.9 per cent. G7 countries are at odds over what to do with Russia’s frozen assets currently gathering dust across Europe. Our Big Read explains more.Meanwhile, Russian energy giant Gazprom plunged to its biggest loss in at least a quarter of a century after gas sales more than halved in the fallout from Putin’s war. Russia’s grip in the Black Sea has been broken by Ukraine’s targeting of Moscow’s warships.The US military is nearing completion of a $320mn floating pier off Gaza, a complex project to allow seaborne humanitarian aid into the besieged enclave. Turkey has halted trade with Israel after accusing the country of stoking a “humanitarian disaster” in Gaza.Karim Khan, the International Criminal Court’s chief prosecutor, hit back at unnamed “threats” against his work on Friday after Israel’s prime minister expressed outrage over possible legal action by the tribunal related to the war in Gaza.Despite the Japanese authorities’ attempt to prop up the yen earlier this week with two suspected market interventions totalling $59bn, Japanese consumers may still cut back on spending.You are seeing a snapshot of an interactive graphic. This is most likely due to being offline or JavaScript being disabled in your browser.Need to know: businessMike Ashley’s Frasers Group has dropped its €50mn lawsuit against Morgan Stanley ahead of a judgment in the London case that saw the British retail tycoon accuse the Wall Street bank of “snobbery”.The chief financial officer of Diageo, the spirits group, has stepped down after a turbulent three years in the role including a profit warning and poor share price performance.Apple’s shares rose after it exceeded analysts’ downbeat expectations for quarterly revenue. The tech company reported revenue of $90.75bn for the first three months of 2024.Shell, Europe’s biggest oil and gas company, smashed past earnings expectations for the first quarter to hit $7.73bn. Its big investors are urging other shareholders to back greater climate action and align its “medium-term” emissions target with the Paris Agreement on limiting global warming.US regulators on Thursday alleged Scott Sheffield, the former head of Pioneer Natural Resources, had tried to co-ordinate production levels with the Opec cartel to “pad Pioneer’s bottom line . . . at the expense of US households and businesses.”South Africa’s antitrust regulator has said it will have the last word on whether a takeover of Anglo American by its larger rival BHP can go ahead.Science round-upThe UK High Court ruled on Friday that the UK’s latest strategy for meeting its legally binding targets on reaching net zero emissions is unlawful.Climate change not only increases the risk of mosquito-born infections causing malaria and dengue, but could also fuel the rise of antibiotic-resistant “superbugs”.Read more in our Special Report: Health and Climate Change.Noctiluca scintillans, or “sea sparkle”, has two faces. While it bedazzles in the dark in places like the Arabian Sea, it’s responsible for a reeking green carpet of algae by day. Researchers are trying to stop its spread.Should we worried about the return of bird flu? Commentator Anjana Ahuja assesses the risks.Voyager 1, the 1970s spacecraft, has come back to life after Nasa engineers said they had fixed the corrupted memory in one of its onboard computers. News that the craft, now outside the solar system, can resume sending signals to earth is both uplifting and bittersweet.Molecular hydrogen therapy, which has been popular in Japan and China for years, is now becoming more popular in the west. Is it just more woo-woo or might it have a role in healthcare? Senior science writer Clive Cookson tries it out.Some good newsAdding bacterial spores to plastics could slash the environmental damage caused by plastics’ long lifespan, according to scientists at the University of California San Diego. This kind of ‘living plastic’, exposed to nutrients present in compost, could biodegrade within five months.Recommended newslettersWorking it — Discover the big ideas shaping today’s workplaces with a weekly newsletter from work & careers editor Isabel Berwick. Sign up hereThe Climate Graphic: Explained — Understanding the most important climate data of the week. Sign up hereThanks for reading Disrupted Times. If this newsletter has been forwarded to you, please sign up here to receive future issues. And please share your feedback with us at [email protected]. Thank you More

The U.S. emerged as the top LNG exporter in 2023 as buyers scrambled to find alternate sources after Western sanctions squeezed supplies from Russia. Cheniere’s overall loaded LNG volumes remained roughly flat year-on-year at 601 trillion British thermal units (BTU) but higher than Wall Street expectations. Earnings were stronger than estimated on 56 trillion Btu higher volumes contributing $190 million more margin than forecast, TD Cowen analysts said in a note. Cheniere reported adjusted earnings before interest, taxes, depreciation, and amortization of $1.77 billion, down 51% from a year earlier but above the average analyst estimate of $1.54 billion, according to LSEG data.The Houston, Texas-based firm reported LNG revenue of $4.04 billion for the three months ended March 31, compared with $7.09 billion in the year-ago quarter, due to lower U.S. natural gas prices. The company attributed a $697 million reduction in revenue to U.S. Henry Hub gas pricing, to which the majority of its long-term LNG sales contracts are indexed. Cheniere’s revenue from short-term agreements slumped 75.6% to $793 million as international gas prices scaled back from the peaks of 2022 and global LNG supplies improved. CEO Jack Fusco also said that an Arctic freeze in January impacted its operations and made it difficult to meet commercial commitments.U.S. LNG production has been hurt by Freeport LNG experiencing mechanical challenges caused by the January freeze that damaged electric motors.In the second and third quarters of 2024, when the temperatures on the U.S. Gulf Coast are high and plants less efficient, Cheniere will conduct most of its maintenance work leading to lower volumes, said Zach Davis, executive vice president and chief financial officer.Cheniere expects there will be a short-term tightening global LNG supplies as demand grows in Asia on higher temperatures and increased maintenance on some LNG plants, said company Vice President and Chief Commercial Officer Anatol Feygin.Cheniere is predicting growing LNG demand in Asia as prices decline and Europe’s high storage levels led to a 13% fall in demand on the continent, said Feygin at the company’s earnings call.The additional regasification capacity globally will support LNG prices in the long term at high single digits or low double digits, he said.Price sensitive countries like India and China are expected to lead the growth in LNG imports, with India increasing its regasification capacity to over 70 million metric tons per annum (MTPA), said Feygin.The labor challenges in the U.S. market have so far not impacted Cheniere and its contractor Bechtel’s timeline for the delivery of its expansion projects but traditionally LNG projects have suffered from delays, said Feygin. Exxon Mobil (NYSE:XOM) and Qatar Energy’s Golden Pass LNG project has been delayed several times and is now expected to produce first LNG next year. More

(Reuters) – Federal Reserve officials, buffeted by concerns the economy might again overheat, got relief on Friday when jobs data for April showed a marked cooling in wage growth and a pace of hiring in line with levels seen before the COVID-19 pandemic.The gain of 175,000 payroll jobs last month was the lowest since October of 2023, while the 3.9% annual change in average hourly earnings was the smallest since May of 2021 and continued what has been a steady decline towards the mid-3% range which policymakers feel is consistent with their 2% inflation target.It was still a “solid” report in terms of the numbers of jobs generated, said Chicago Fed President Austan Goolsbee, but more like the type of employment growth seen before the COVID-19 pandemic and therefore a boost to confidence that the economy is not again overheating.”The more jobs numbers like the ones we saw today, the more you see easing of inflation, the more comfort … I would have,” Goolsbee said on Bloomberg Television.He did not say, however, if he expected the Fed to cut rates this year.Inflation “hit a bump at the start of this year,” Goolsbee said. “We have go to get comfort it is not a sign of reacceleration.” Fed Governor Michelle Bowman, who has been among the more ardent voices on the steps needed to control inflation, said after the release of the data that her outlook remained “that inflation will decline further with the policy rate held steady.”Bowman, along with all other members of the central bank’s policy-setting committee, voted earlier this week to keep the policy interest rate steady in the current 5.25%-5.50% range.’SOFT LANDING’ Traders responded to the jobs data by adding to bets that the Fed will deliver its first rate cut in September and likely follow with a second quarter-percentage-point cut in December. Both probabilities had been sliding as inflation data ran hotter than anticipated and Fed officials at their April 30-May 1 meeting noted the lack of recent progress in lowering the pace of price increases.Other data, such as a slowdown in overall output, was dismissed as masking strong underlying demand, while a weak productivity reading for the first three months of the year raised the possibility that a key force helping to slow inflation may be of less assistance in the months ahead.But Fed Chair Jerome Powell in his post-meeting press conference on Wednesday cited an array of indicators he felt showed the labor market moving towards better alignment between the hiring demands of employers and the number of people looking for jobs.Data on job openings, the rate at which workers are quitting jobs, and the pace at which firms are hiring, have all indicated some softening in the labor market.In surveys of workers and businesses, answers to questions about the ease of finding jobs or filling positions “have come back down to pre-pandemic levels,” Powell said.The weaker-than-expected jobs gain in April was a wide miss from the 243,000 additional positions expected by economists in a Reuters poll.But it also hit a spot that Powell and his colleagues may see as bolstering their hopes of a “soft landing” in which inflation is tamed without a major hit to employment or a painful recession.While the jobless rate rose one-tenth of a percentage point to 3.9%, it remained below the 4.1% figure Fed officials at the median feel is aligned with their 2% inflation target.The jobs growth last month also remained close to the monthly average of 183,000 seen in the decade before the pandemic, and above the roughly 100,000 that policymakers feel is needed to accommodate population growth.”A 175,000 per month pace is still plenty good enough to absorb new entrants into the labor force and sustain a low unemployment rate,” said Thomas Simons, senior U.S. economist at Jefferies.(This story has been corrected to change historical reference for jobs growth in paragraph 2) More

SAO PAULO/BUENOS AIRES (Reuters) – Economists are unusually split over the size of a likely Brazil interest rate reduction on May 8, a Reuters poll found, amid changing views about the future path of U.S. monetary policy and persistent local inflation worries.In August 2023, the central bank launched a series of six consecutive 50 basis points rate cuts from a six-year high of 13.75% to 10.75% currently, satisfying market expectations policymakers had telegraphed well in advance.But Banco Central do Brasil (BCB) recently stopped offering clear forward guidance and adopted a more hawkish tone, leading to unusually divergent views for its near-term strategy, combined with calls for a more orthodox stance ahead.Of 39 economists surveyed between April 29-May 3, 22 said the bank’s rate setting committee, known as Copom, would ease by 25 basis points to 10.50% at its next meeting on May 8, while the other 17 stuck to a 50 basis points move to 10.25%.”The recent shift in our Fed call to a single cut in December puts additional pressure on the BCB to tread carefully with its easing cycle,” BNP Paribas (OTC:BNPQY) analysts wrote in a report, as views on the U.S. Federal Reserve’s policy remained in flux.”In addition to international factors, the BCB’s balance of risks also considers local factors, which continue to warrant caution. Inflation expectations remain unanchored,” they added, also citing bigger fiscal risks.Analysts had anticipated almost unanimously all half-percentage point reductions since the start of the easing cycle last year. This changed after BCB chief Roberto Campos Neto opened the door to smaller cuts last month.In a separate question in the poll, a majority of 27 of 28 respondents viewed a 25 basis points rate reduction in June. Only one saw a 50 basis points cut in next month’s policy meeting.Median estimates for the end of 2024 and 2025 were raised to 9.75% and 9.00% respectively, compared with 9.00% and 8.50% previously, in line with stronger warnings by Campos Neto about fiscal deterioration that have irked the Finance Ministry team.At the same time, rising volatility in local currency markets is shaping up as yet another potential threat following last month’s depreciation of Brazil’s real, but risks on this front look contained for now.”As long as foreign exchange moves do not materialize into faster inflation, there is no reason for BCB to reconsider monetary policy,” said Rafael Cardoso, chief economist at Daycoval Asset Management. (Reporting and polling by Gabriel Burin in Buenos Aires and Luana Benedito in Sao Paulo) More