Aurelia Butler

Stay informed with free updatesSimply sign up to the More

Stay informed with free updatesSimply sign up to the More

Stay informed with free updatesSimply sign up to the More

1. U.S. inflation reading aheadHeadline annual U.S. inflation is expected to have further cooled in January, although sticky prices for services are seen bolstering the case for the Federal Reserve to push out possible interest rate cuts.Economists project that the U.S. consumer price index (CPI) decelerated to 2.9% over the year-ago period last month, down from the prior reading of 3.4%. When compared to December, the measure is estimated to have slowed to 0.2% from 0.3%.Stripping out volatile items like food and energy, the inflation gauge is anticipated to have eased to 3.7% year-on-year and remain unchanged at 0.3% month-on-month.The Fed has said that it wants to receive more evidence that the pace of price gains is “sustainably” moving towards its 2% target before starting to bring borrowing costs down from more than two-decade highs. The comment, which has been reiterated by Fed officials including Chair Jerome Powell, has all but dashed already waning hopes that the Fed would roll out rate reductions early this year.But Powell has remained largely optimistic that the U.S. economy is on course for a so-called “soft landing” — a scenario in which inflation is successfully quelled without sparking a broader downturn in either growth or the labor market.2. Futures lowerU.S. stock futures pointed lower on Tuesday as investors took a cautious stance ahead of the publication of the January inflation data at 08:30 ET.By 04:59 ET (09:59 GMT), the S&P 500 futures contract had shed 15 points or 0.3%, Nasdaq 100 futures were down 100 points or 0.5%, and Dow futures were 0.2% lower.The main averages on Wall Street posted a mixed session on Monday. The blue-chip Dow Jones Industrial Average rose by 0.3%, outperforming the benchmark S&P 500, which dipped by 0.1% but remained above the 5,000-point mark it surpassed last week. The tech-heavy Nasdaq Composite closed lower by 0.3%.In individual stocks, Nvidia (NASDAQ:NVDA) briefly moved above e-commerce giant Amazon’s (NASDAQ:AMZN) market capitalization, making the chipmaker — and darling of a recent spike in enthusiasm around artificial intelligence — the fourth-most valuable U.S. company. However, Nvidia was below Amazon at the closing bell.3. Coca-Cola, Shopify headline earnings calendarTraders will have the chance to parse through quarterly returns from several major companies this week.Highlighting the calendar on Tuesday will earnings from beverage behemoth Coca-Cola (NYSE:KO), as well as e-commerce platform Shopify (NYSE:SHOP) and vacation rental group Airbnb (NASDAQ:ABNB), with the outcome of these numbers potentially providing a look into the state of the U.S. consumer.Later in the week, second-quarter figures will be released from cloud solutions provider Cisco Systems (NASDAQ:CSCO), which is pushing to capitalize on the AI boom. Cryptocurrency exchange Coinbase (NASDAQ:COIN) will also report its fourth-quarter results following a recent spike in volatility in the market for digital coins.4. Bitcoin breaks above $50kThe price of Bitcoin crossed a more than two-year high on Tuesday, with the world’s largest cryptocurrency crossing key levels amid consistent capital flows into the recently approved spot exchange-traded funds.Bitcoin rose 3.2% to $50,160.2 by 20:13 ET (05:13 GMT), crossing the $50,000 mark for the first time since December 2021. The token was now about $19,000 away from touching fresh record highs.Gains in Bitcoin came amid consistent capital flows into recently-approved spot exchange-traded funds. These ETFs saw net inflows of over $1 billion in the past week, digital asset management firm CoinShares said in a report on Monday. BlackRock’s iShares Bitcoin Trust (NASDAQ:IBIT) saw inflows of about $690 million, the biggest for the week.The token also benefited from slowing outflows from Grayscale Bitcoin Trust (NYSE:GBTC), which was granted approval from the Securities and Exchange Commission (SEC) last month to convert into a spot ETF. The conversion sparked the release of about $2 billion worth of Bitcoin onto the open market, which caused steep losses in the price of the cryptocurrency.Analysts at Bernstein noted that an element of “fear of missing out”, or FOMO, was also attracting some retail interest in the cryptocurrency.5. Oil inches higherOil prices gained ground in early European trade ahead of the U.S. inflation data and a key monthly report from the OPEC producer group.Brent oil futures expiring in April rose 0.7% to $82.63 a barrel, while West Texas Intermediate crude futures rose 0.86% to $77.58 a barrel by 04:59 ET (09:59 GMT). Both contracts were close to two-week highs. Crude prices had risen sharply last week after a potential Israel-Hamas ceasefire was rejected by Israel.Israel has kept up its offensive against the Palestinian group, while Yemen’s Houthi group has continued to attack vessels in the Red Sea. The latter has been the clearest sign that the Israel-Hamas conflict was potentially impacting global oil supplies, as crude shipments through the region have been redirected and delayed.Traders are now eyeing the consumer price index reading due later on Tuesday. The Federal Reserve has recently warned that sticky inflation was likely to keep interest rates higher for longer, pointing to sustained pressure on the economy in the coming months- a trend that could potentially dent oil demand. More

A sell-off in global bond markets combined with a rally in stocks this year shows that investors’ all-consuming obsession with the path of inflation and interest rates may finally be ending, say analysts.Wall Street has led a 3.8 per cent gain for developed market stocks so far this year, boosted by the outsize strength of the US economy, while an index of global bonds has dropped 2.8 per cent as investors have dialled back their expectations of interest rate cuts.Such divergent moves mark a break from the past year or more, when the two assets have tended to rise or fall together, and could herald a return to the previous pattern where lower-risk fixed income acted as a counterweight to riskier equities.The shift is likely to come as a relief to the many investors holding forms of the so-called “60/40” portfolio, which allocates 60 per cent to stocks and 40 per cent to bonds and is designed to lower risk and provide diversification during market shocks.“60/40 is not dead, it was just taking a break,” said Ronald Temple, chief market strategist at Lazard. Such portfolios were hard hit in 2022 when both stocks and bonds tumbled — a scenario for which such portfolios were not designed, although they performed well late last year when both assets surged in tandem on hopes of rapid interest rate cuts in 2024. Some strategists believe the divergence this year between stocks and bonds is set to continue.“We see the bond-equity correlation shifting back to negative this year,” said George Saravelos, global head of FX research at Deutsche Bank. “We have indeed started to observe this since the start of the year with US equities making fresh record highs but US yields also rising.”When interest rates were at rock bottom levels, bonds struggled to deliver any positive returns, and then suffered big losses as interest rates rose. But when rates are higher they offer a consistent income, while investors normally expect them to rise if the economy sours. Analysts believe the shift in correlation has been driven by the market’s focus switching from fears about inflation and the timing of the next move in interest rates to concerns about the strength of the economy.That has come as markets have become more comfortable that inflation is heading back down to central banks’ target levels, while also gradually starting to accept that policymakers will not be cutting borrowing costs as quickly as investors had been hoping.Investors are also rethinking whether they need to be quite so focused on monetary policy, given that the buoyant US economy so far appears to have shrugged off much of the impact of higher rates, which have been held at a 22-year high of between 5.25 per cent and 5.5 per cent since July last year. Economists polled by Bloomberg expect benchmark 10-year US borrowing costs to fall from a current level of 4.2 per cent to 3.6 per cent in 2025, still higher than under 2 per cent at the end of 2019. Higher yields bode well for the 60/40 portfolio, because they allow more room for prices to rise and for the bond component of the fund to perform well. Stocks have been given a boost this year by figures earlier this month showing the US economy added twice as many jobs as forecast in January. Investors also say the impact of fiscal policy on the economy has been underestimated. Legislation including the Inflation Reduction Act, the Bipartisan Infrastructure Deal and Chips and Science Act have helped channel over $1tn of investment so far into the US economy in recent years, and pushed the budget deficit close to 6 per cent. “I feel that we are too obsessed with monetary policy, as fiscal policy has a big impact on growth,” said Luca Paolini, chief strategist at Pictet Asset Management. “We have seen an incredible expansion of fiscal policy, which, unlike monetary policy, continues to be extraordinarily loose and expansionary.”Paolini thinks the correlation between stocks and bonds will fall “quite significantly” this year as risks shift from inflation to growth, which he thinks will accelerate “in the next few quarters” with a weakening of the US economy. “When growth risks rather than inflation risks become dominant, bad news is bad news. So [when] you have bad economic data, you have a strong positive impact on bonds and very negative on equities, he said, adding that it meant “bonds again will offer some diversification”.Investors say the key question now will be whether inflation re-emerges as a major concern. US consumer prices excluding food and energy items rose at a 3.3 per cent annualised rate in the final three months of 2023, down from more than 5 per cent early last year.Analysts at PGIM note that market pricing for long-term inflation remains “contained but stubbornly above” the Fed’s 2 per cent target, with an average annual rate of 2.6 per cent priced for five years starting in five years’ time. But Kamakshya Trivedi, head of global FX at Goldman Sachs, said he does not think it will prove “particularly hard” for policymakers to bring inflation back down to target.“The important thing is the nature of the shocks driving markets is shifting from a regime where it was almost exclusively inflation that mattered to one where growth matters too,” he said.As inflation comes back to target, positive growth is “good for equities and not so good for bonds”, he added. More

SYDNEY (Reuters) – South Korean companies have issued a record volume of dollar bonds so far this year, as they lock in funding to pay for overseas expansion plans and investors search for an alternative given the dearth of Chinese bond issuance.More than $15 billion worth of bonds have been issued since Jan. 1, according to LSEG data, a 30% increase on the same time last year.January in Korea is typically a traditionally busy month for bonds, according to bankers, but the rush of deals has surpassed expectations as companies take advantage of a current positive sentiment among investors towards Korea.Expectations of higher interest rates prompted some Korean corporates to shelve deals in 2023 but upcoming funding needs have prompted the transactions to be revived this year, bankers said.China’s offshore bond deals have fallen sharply as its real estate sector, a key issuer of dollar bonds, remains in crisis and the nation’s economy still recovers from the pandemic.”Korea is a very well-liked credit across different cycles… The country is AA rated, its issuers are either AA, A or BBB category,” Daniel Kim, HSBC’s co-head of debt capital markets for Asia Pacific, said.”In the current environment, where there is a lot of uncertainty and macro noise, Korea is seen as a safe haven for a lot of investors to put their money into.”SK Hynix, the world’s second largest memory chip maker was one of the biggest Korean companies to tap markets this year as it raised $1.5 billion in a two-tranche deal last month that received orders worth $6.5 billion.Korean deals accounted for 44% of dollar bonds issued across the Asian region, not including Japan and Australia, where the value of transactions is down 10% year to date, according to the LSEG data.”I think the pace can be maintained,” said Rishi Jalan, Citi’s head of Asia Debt Syndicate, referring to the record start to 2024.”Our overall volume expectations are similar to 2023 for this year, so around $30 to $40 billion. We’re not expecting to see any material decline.”The expansion of South Korea’s battery makers into markets like the United States is expected to require those companies to continue to need to tap funding markets for the rest of the year.”Continued growth in the Korea battery sector will require significant investment and financing,” Youn Sung Whang, Bank of America’s head of Korea capital markets, said.”This is likely to come via the US dollar bond market as these issuers also look to diversify their investor bases.” More