Aurelia Butler

BENGALURU (Reuters) – The Swiss National Bank will wait until at least June before cutting interest rates, according to a strong majority of economists polled by Reuters, who said it would make shallower cuts this year than peers.The SNB may choose to wait on the sidelines until the U.S. Federal Reserve and European Central Bank start cutting interest rates, widely expected in June, to prevent further weakness in the Swiss franc.A declining franc poses a risk of a flare-up in inflation which eased to a near 2-1/2 year low of 1.2% in February and has been within the central bank’s target of 0%-2% since May 2023.In December, the SNB said it was no longer focusing on foreign currency sales to prop up the franc as a measure to dampen imported inflation, with SNB Chairman Thomas Jordan saying this was no longer necessary.Jordan recently announced his decision to step down in September.The franc has slid around 3.5% so far this year and some say unexpectedly cutting rates ahead of other major central banks could cause it to weaken further.A near 80% majority, 25 of 32 economists in the March 13-18 Reuters poll, predicted the SNB would hold the policy rate unchanged at 1.75% – the lowest among G10 nation central banks other than the Bank of Japan – on March 21.”There are several reasons for a June rate cut and keeping rates on hold in March. The Swiss franc has depreciated a bit against the dollar and the euro since the beginning of the year … They (the SNB) are not sure whether there are no second-round effects,” said Alessandro Bee, economist at UBS.The survey result was in line with market pricing for the first rate cut, which only recently changed to June from March, following a similar move earlier this year on expectations for the first Fed and ECB rate cuts. However, there was no clear consensus among economists around the exact timing of the first cut. While 14 predicted it to come in June, 11 expected the first reduction in the third quarter or later. Only seven said the SNB would cut on Thursday.”They will be cautious to cut rates in a situation where they cannot be sure whether the ECB and the Fed are going to follow,” said UBS’s Bee. “There is still the possibility the Fed and the ECB keep rates on hold for longer.”But Switzerland also has a very low inflation rate, much lower than in the U.S. or the euro zone.”We have been forecasting for a long time that inflation would fall to close to 1% at the start of this year and that the SNB would cut rates in March. And with our non-consensus inflation forecast having been largely realised, we think it is likely that the SNB will proceed with a rate cut (on March 21),” wrote Adrian Prettejohn, Europe economist at Capital Economics.The SNB will cut interest rates by a cumulative 50 basis points to 1.25% this year, survey medians showed. If realised, that would be shallower than the 75 to 100 basis points of rate reductions expected from the Fed and ECB.Inflation was expected to average 1.5% this year, the Reuters poll found, before easing to 1.3% in 2025 and 2026.”We hold our SNB call for a longer pause followed by a later/slower cutting cycle than the ECB,” noted Chiara Angeloni, Europe economist at Bank of America.”Should domestic inflation turn out stronger than the SNB thinks…we would expect the SNB to deliver tighter financial conditions via FX appreciation – hence the foreign assets’ balance sheet unwind – instead of higher rates.”When asked about the bigger risk around the magnitude of rate cuts this year, a slim majority of economists, 10 of 18, said it could be less than they expected and eight said it could be more.(For other stories from the Reuters global economic poll:) More

NEW YORK (Reuters) – The U.S. Federal Reserve is widely expected to keep rates unchanged when it ends its two-day meeting on Wednesday, but policy makers could show more concern about stubborn inflation and present more hawkish signals about the timing and extent of any easing this year.Stronger-than-expected economic growth and stickier inflation this year has led investors to push back expectations on the U.S. central bank’s first rate cut to June, from May, and reduce bets on how many cuts are likely this year.Traders are now pricing in three 25 basis points cuts, in line with Fed policymakers’ median expectations made in December. The Fed is due to give updated economic projections and refresh its “dot plot” graphing policymakers’ interest rate projections at the meeting.”What will be really interesting to see is if the Fed is still comfortable in the dot plots to still be showing the possibility of three rate cuts for this year,” said Matt Eagan, head of the full direction team at Loomis, Sayles & Co. “Or will they start to say we’ve got to push back against this a little bit longer.”The Fed pivoted to a more dovish outlook in December on growing confidence that inflation was on track to its 2% annual target.Inflation has since picked up, though analysts note that recent hotter-than-expected consumer and producer price index reports likely reflected seasonal factors. Powell said after the Fed’s January meeting that the central bank wants more confidence that inflation will continue to decline before cutting rates.”The Fed doesn’t want to break anything,” said Padhraic Garvey, regional head of research, Americas at ING, adding that when inflation gets closer to 2% the Fed will likely “use that opportunity as one to get rates off the highs.” In the meantime, the Fed may caution about the prospect of near-term rate cuts.”The main focus is which way they lean,” said Stephen Gola, head of U.S. Treasuries Sales & Trading at StoneX Group.An unexpected uptick in unemployment last month could keep the Fed circumspect on growth, offsetting some of the inflation concerns.Another possibility is that Powell could adopt a more hawkish tone by referencing loose financial conditions as stock markets hit records and corporate credit draws enthusiastic demand.”He didn’t say it (in January) but stocks have only gone higher and I think they’re going to struggle to achieve what they want to achieve as long as that’s the case,” Gola said.Powell in November cited financial conditions when higher Treasury bond yields, mortgage rates and other financing costs were having a tightening impact on the economy. His comments were interpreted as potentially leading the Fed to hike rates less than expected.HOW MUCH MORE QT?The Fed may also signal that it is getting closer to tapering its quantitative tightening (QT) program, in which it allows bonds to roll off its balance sheet without replacement.QT is meant to remove excess liquidity created by record bond purchases designed to stimulate the economy during COVID-related business shutdowns. So far QT has helped shrink the Fed’s balance sheet to $7.5 trillion from a peak of around $9 trillion.With ample liquidity remaining in the market, Garvey said there is no urgency to address the issue.”In our calculations we’ve still got about $1 trillion worth of excess liquidity in the system,” Garvey said. “If I saw the Fed getting concerned about taking liquidity away too fast it would lead me to get a bit concerned that they’ve seen something that we’re not seeing in the system.”The Fed may also expand on Fed Governor Christopher Waller’s comments that it may look to shift its mix of purchases to hold more shorter-dated Treasuries instead of mortgage-backed debt.”Longer maturities have a bigger effect on the market,” said Eagan. By reducing duration but still buying Treasuries, they can potentially decrease the market impact “without upsetting the plumbing of the liquidity within the banking system,” he said. More

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LONDON (Reuters) – European venture capital-backed companies are signing up to increasingly complex convertible debt deals which risk giving investors more control or bigger payouts further down the road, people involved in the deals told Reuters.Ultra-low interest rates allowed growing companies to complete equity funding rounds at sky-high valuations during a boom in 2020 and 2021. But as venture funding has dried up, companies and their investors have been wary of equity funding rounds which risk establishing a new, lower valuation.Convertible debt, which changes into equity after a set period, can enable company founders to raise cash quickly and privately, without publishing an updated valuation.The volume of convertible debt issued by European venture capital-backed firms hit a record $2.5 billion in 2023, up from $1.7 billion in 2022, Dealroom data compiled for Reuters shows.But as the deals become more complex, they can offer investors more upside and create risks for the companies, according to Reuters interviews with lawyers, company founders and an investor familiar with the deals.”If you don’t know what you’re doing, structured debt can be a Trojan horse,” said Ali Niknam, CEO of Dutch digital bank Bunq, who has raised via convertible debt at a previous company.”If for whatever reason you don’t make it, and it gets converted, sometimes people lose control.” James Wootton, a partner at law firm Linklaters, said that as companies have found it harder to raise money, the power has shifted towards investors. This means deals are becoming increasingly “structured”, including terms that favour investors such as handing them bigger stakes if management does not meet certain targets.Deals can be structured to create an incentive for the company to IPO or raise more funds, for example by having interest rates which accrue over time, Wootton said.Newer convertibles include clauses that grant investors more equity if profit margins drop below a certain level or if financial targets are missed, one venture capital investor familiar with recent convertible deals said, speaking on condition of anonymity.Termsheets have also featured agreements whereby the more time that passes until an IPO, the bigger the discount at which the debt is converted into shares, the investor added.For some, convertibles offer an opportunity to secure alternative longer-term funding while waiting for venture capital market conditions to improve. Josef Fuss, a London-based partner at law firm Taylor Wessing who has worked on recent deals, said he had seen an increase in the size and duration of convertible notes.”You’re kicking the can down the road and you’re saying we’re all optimistic here, in 18 months, 24 months, the world’s going to be a different place hopefully and then we can have the valuation discussion then – that is the basic premise,” he said. HARDEST MARKETVenture fundraising in Europe has slowed sharply, from $130 billion in 2021 to $62 billion in 2023, PitchBook data shows, leaving some early-stage firms in a funding crunch as they burn through cash.”It’s the hardest market I’ve worked in my professional career,” said James Downing, who has worked in finance for 20 years and is managing director for Europe at Hercules, a venture lender. Hercules loaned around $200 million in the UK and Europe last year, down from around $400 million in 2022.”(Start-ups) are not as lend-able as they were a couple of years ago when they were flush with VC equity,” Downing said, adding that fintech, software and consumer-focused companies were those running out of cash fastest.Traditional bank loans are not available to everyone and can be expensive – market rates are around 9-13% for earlier-stage and 7.5%-10% for later-stage companies, said Sonya Iovieno, head of venture and growth banking at HSBC Innovation Banking.To be sure, not all firms using debt are running out of cash or avoiding a revaluation, and convertibles are not necessarily risky, the industry participants who spoke to Reuters said.Norwegian lithium-ion battery business Morrow is among the VC-backed companies which helped swell convertible debt issued by start-ups to last year’s record.Morrow told Reuters it placed a convertible loan last year among its main shareholders.”Like other start-ups, Morrow Batteries has found that the capital markets have become more challenging the last couple of years for companies in the scale-up phase as we are,” CEO Lars Christian Bacher said in emailed comments.Later-stage companies are also getting a taste for convertibles. Swedish battery-maker Northvolt has raised $3.5 billion in such debt since 2022 and listed companies in the U.S. are turning to convertible bonds to save on interest costs.While venture capital firms are optimistic that equity fundraising will recover when rates fall, some companies may not be able to stave off lower valuations indefinitely, said Aberdeen University’s Chair of Finance, Gerhard Kling.”Delaying revaluations is not a good strategy because at the end of the day it’s the truth, it comes out, you can’t escape,” he said. “It’s a bit of a gamble, you hope the market condition improves but I’m not entirely convinced it will.” More

WASHINGTON/TUCSON, Arizona (Reuters) – An Arizona migrant shelter that has housed thousands of asylum seekers plans to halt most operations in two weeks when funding from Washington runs out, a problem for towns along the border where officials fear a surge in homelessness and extra costs.Arizona’s Pima County, which borders Mexico, has said that at the end of the month its contracts must stop with Tucson’s Casa Alitas shelter and services that transport migrants north from the border cities of Nogales, Douglas and Lukeville.Pima County Administrator Jan Lesher said the county cannot afford the roughly $1 million per week that previously would have been covered by federal funds.The amount “is not something that can be easily absorbed into a Pima County budget,” she said.Funding predicaments similar to Pima County’s are playing out in other border regions and far-away cities like New York City, Chicago and Denver that have received migrants. As in Tucson, other local governments anticipate that without federal dollars, communities will face many more migrants living on their streets, greater demands on police, hospitals and sanitation services.Pima County, which since 2019 has received over 400,000 migrants who have been processed by U.S. border authorities, estimated 400 to 1,000 migrants with nowhere to stay could start arriving daily in Tucson beginning in April. Congress faces a Friday deadline to fund the U.S. Department of Homeland Security, which pays for migrant services, along with other federal agencies. Current money could be temporarily extended as a stop-gap measure to keep DHS and other federal agencies running.But additional funding for the shelter and transportation services has been caught in broader political battles about illegal migration and government spending, and Congress is at an impasse, largely due to election-year politics. Immigration is among the top three concerns for voting-age Americans, and Arizona is an election battleground state that could help decide control of the White House and U.S. Senate.President Joe Biden, a Democrat running against Republican former President Donald Trump for re-election on Nov. 5, has tried to appeal simultaneously to the Democratic base in favor of protecting asylum seekers while also courting other voters who want to reduce the number of illegal crossings from Mexico. Biden has grappled with record numbers of such migrants since he took office in 2021. In recent months, Biden has toughened his stance, blaming Republicans for opposing additional border security funding and legislation that would grant him new enforcement authority.Republicans counter that Biden should reinstate restrictive Trump policies and end new legal entry programs before Congress devotes more money to border security.’HOMELESSNESS ON STEROIDS’Casa Alitas started in 2014 as a church effort to help Central American migrants whom authorities dropped at Tucson’s bus station. By 2023 it had served over 180,000 asylum seekers, mostly families, who are legally entitled to stay in the U.S. as they pursue their immigration cases.While some migrants come from Mexico, Guatemala and other Latin American countries, Casa Alitas has recently housed people from West Africa, India and elsewhere.At one of five Casa Alitas shelter sites last week, migrants rested on cots and received meals, clean clothes, toiletries and assistance planning onward travel. Sara Vasquez Gonzalez, 45, came with her husband and three of her six children from Chiapas, Mexico, where cartel violence has driven Mexican families to flee to the U.S.As they ate breakfast sandwiches, Vasquez said criminals had shot at their house, forcing them to seek refuge in the U.S.”We lost our house, our corn, our harvest,” she said.Casa Alitas has already told two-thirds of its 60-person workforce that they will be dismissed due to lack of funding, according to Executive Director Diego Lopez.The shelter plans to reduce its capacity from 1,400 people per day to 140, a level that may not even be enough to house all incoming families with infants and toddlers, he said.In December, Pima County received 46,000 migrants – more than ever before, according to county figures. Numbers have been just below 30,000 a month in January and February.In a February memo to Pima officials, Lesher said migrants being released by Border Patrol without shelter services could result in “homelessness on steroids.”Tucson officials are considering setting up a migrant site with bathrooms but no sleeping accommodations. By giving migrants “some place where they can go,” the city hopes to avoid people living on the streets and resulting calls on police and emergency services, said county spokesperson Mark Evans. Arizona Governor Katie Hobbs, a Democrat, last week sent a letter to top U.S. lawmakers on funding committees saying her state needed at least $752 million in shelter funds. In the meantime, Hobbs said in a press conference that her office was working to find ways to deal with the situation.’STOPPING THE FLOW’In Congress, lawmakers representing the area are divided on the issue of shelter funding.U.S. Representative Raul Grijalva, a Democrat who represents part of Pima County and more than 350 miles (563 km) of the Mexico border, called for more federal funds and said Republicans were “continuing to exploit the humanitarian crisis for their political gain.”U.S. Representative Juan Ciscomani, a Republican whose district includes another part of Pima County, said in an interview that Biden should reinstate more restrictive Trump-era policies and increase deportations before Congress provides more money for migrant shelter and transportation.”We need to focus on what would actually solve the problem, which is stopping the flow at the border,” Ciscomani said. More

ANKARA (Reuters) – Turkey’s central bank is expected to leave its key interest rate unchanged at 45% this week, holding steady for a second straight month, though most economists forecast another rate hike later this year, a Reuters poll showed on Monday.The central bank has recently moved to tighten policy, including action on reserve requirements, prompting some banks to either reduce loan limits or even stop offering loans. On Saturday the bank raised the maximum interest rate on credit card cash withdrawals.All but two of 22 respondents expected the bank to keep its policy rate steady in March, while two forecasted a 250 basis-point hike. The poll also showed that eight of 12 expected the bank would hike again later this year. In a previous poll conducted in February, economists were expecting some 500-750 basis points of policy rate cuts by the end of year.While the central bank held its key interest rate steady at 45% last month after an aggressive tightening cycle, Finance Minister Mehmet Simsek last week promised tighter fiscal policy to help the bank reduce inflation. Authorities are expected to take more policy steps to cool inflation after local elections on March 31, setting the stage for more pain for Turks already struggling after years of soaring prices.In an interview with broadcaster Kanal 7 on Sunday, Simsek said he believed that with additional fiscal policy measures inflation would be within the central bank’s forecast range in the period ahead.”If we believe that this will not be the case, we will take additional measures. This is an issue under the central bank’s responsibility,” Simsek said, adding that the central bank had a free hand and would do whatever is necessary to lower inflation.After President Tayyip Erdogan’s re-election in May, Turkey abandoned a years-long unorthodox low rate policy supported by the president in favour of tightening, raising its key rate to 45% from 8.5% since June. Capital Economics said in a research note to clients that the data released since February’s hold decision by the central bank suggest that the disinflation process has taken a step back and the risk of a restart to the hiking cycle is growing.A rate hike “looks unlikely given how close it is to the local elections taking place on 31st March. But the statement will likely maintain a hawkish tone and the possibility of a 250-500bp hike in April is becoming more likely.”Goldman Sachs, which expect the central bank to hike rates by 250 basis points this week given rising pressure on reserves and the lira, said it has already tightened policy via macroprudential measures and reserve requirements “We think the purpose of the hike will mostly be to signal that the central bank will and can hike if needed in line with its own guidance and avoid the risk that the macro prudential measures taken in response are interpreted as a return towards a less orthodox policy framework,” Goldman Sachs said.On Friday, the central bank’s monthly survey of market participants’ expectations showed that Turkey’s year-end annual inflation was seen at 44.19%, higher than the bank’s own forecast of 36%. The bank will announce its rate decision at 1100 GMT on March 21. More