Aurelia Butler

MONTAUBAN, France (Reuters) – In the last 12 months, the cost of running Jean-Marie Dirat’s lamb farm in southwest France has jumped by 35,000 euros ($38,000), driven up by increasingly expensive fertilisers, fuel, electricity and pesticides. Money is so tight that this year he won’t pay himself. To his surprise, he even calculated he would be eligible for the minimum welfare benefit, given to society’s poorest.”My grandfather had 15 cows and 15 hectares. He raised his kids, his family, without any problem. Today, me and my wife, we have 70 hectares, 200 sheep, and we can’t even pay ourselves a salary,” Dirat told Reuters at a roadblock made of hay bales that barred access to a nuclear plant.Other farmers in the French southwest, where a nationwide movement started, complain about red tape and restrictions on water usage, as well as competition from Ukrainian imports let into the European Union to help its economy during the war. Farmers elsewhere in Europe are similarly disgruntled, with protests in Germany, Poland, Romania and Belgium coming after a new farmers’ party scored highly in Dutch elections. Their blockades and pickets are exposing a clash between the EU’s drive to cut CO2 emissions and its aim of becoming more self-sufficient in production of food and other essentials following Russia’s invasion of Ukraine. Just five months before elections to the European Parliament, the revolt is fuelling a narrative that the EU is riding roughshod over farmers, who are struggling to adapt to stringent environmental regulations amid an inflation shock.French far-right leader Marine Le Pen’s lieutenant Jordan Bardella blames “Macron’s Europe” for the farmers’ troubles. Le Pen herself says the EU needs to quit all free trade deals and that her party would block any future agreements, such as with Mercosur countries, if it wins power. Worryingly for French President Emmanuel Macron and other EU leaders, opinion polls show farmers’ grievances resonate with the public. An Elabe poll showed 87% of French people supported the farmers’ cause and 73% of them considered the EU was a handicap for farmers, not an asset.National governments are scrambling to address farmers’ concerns, with France and Germany both watering down proposals to end tax breaks on agricultural diesel. The European Commission also announced new measures on Wednesday.But the protests could amplify a shift to the right in the European Parliament and imperil the EU’s green agenda. Poll projections show an “anti-climate policy action coalition” could be formed in the new legislature in June. “The far-right’s strategy is to Europeanise the conflict,” Teneo analyst Antonio Barroso said. “Farmers are a small group, but these parties think they can attract the whole rural vote by extension.”VOICE FOR THE COUNTRYSIDEDifferent political catalysts have spurred farmers from France to Romania into action. In Germany, a week of protests against high fuel prices culminated last month in a rally of 10,000 farmers who gummed up central Berlin’s streets with their tractors and jeered Finance Minister Christian Lindner. The far-right Alternative for Germany party, running high in the polls on a lacklustre economy, tried to capitalise, dropping its usual opposition to subsidies and saying farmers demands should be met.In March 2023, discontentment with climate and agriculture policy helped new party BBB win regional elections in the Netherlands, the world’s second-biggest agricultural exporter. Its list for June’s EU elections will be led by Sander Smit, a former EU parliament adviser who wants to be “a voice of and for the countryside”, campaigning for an easing of EU restrictions on agricultural land use.”The EU must start working again for citizens, farmers, gardeners, fishermen, for communities, families and entrepreneurs,” Smit, 38, said.French unions like the powerful FNSEA have brought discipline to the farmers rallies, avoiding the violence seen during the “yellow vest” protests that rocked France in Macron’s first term and already winning concessions from the government.But unions say they can’t control who farmers will vote for. WINDS TURNINGIn France, support from the EU’s Common Agricultural Policy (CAP) means farmers, although politically conservative, have historically been more pro-European than the average voter.In the 2022 presidential election, Le Pen did less well among farmers than in the rest of the population, while pro-European Macron outperformed, according to an Ifop/FNSEA poll. Now, however, some farmers say they are tempted to vote for Le Pen’s Rassemblement National (RN) in June in protest at the EU’s climate drive, which they complain crushes production and leaves space for global competitors.”Europe is putting us on a drip to let us die silently,” Pierre Poma, a 66-year old retired farmer in Montauban in the southwest, told Reuters. He joined the RN a few years ago and ran for a parliamentary seat in 2022, garnering 40% of the votes compared with the 15% Le Pen’s party won in the same constituency in 2017.Poma, who used to grow peaches, pears and apples, says he had to sell his house because he could not turn a profit. He blames red tape and the EU’s farm-to-fork strategy he abhors.After visiting farmers’ motorway blockades in recent days, he is confident like-minded parties will be a force to reckon with in Brussels after June. “Our group is growing, in Germany, in Hungary, elsewhere. It’s the end of a world, the end of the policies of the past,” Poma said.($1 = 0.9258 euros) More

(Reuters) – Global passive equity funds’ net assets surpassed those of their active counterparts for the first time in 2023 as investors increasingly sought lower-cost funds that mirror broad market indices.According to LSEG Lipper, global passive equity funds’ net assets stood at a record $15.1 trillion at the end of December while those of active funds was $14.3 trillion. Passive funds, often associated with stable, large-cap stocks with strong fundamentals and lower volatility, have grown in popularity since the 2008 financial crisis as investors sought safety in periods of uncertainty.John Cunnison, chief investment officer at Baker Boyer said large U.S. companies have led global market performance across time frames ranging from 3 years to 10 years, significantly lifting market cap-weighted passive index funds. “When these companies have extraordinarily strong performance, the performance of the indices is better than just about any other method of portfolio construction.”The SPDR S&P 500 ETF Trust (ASX:SPY) led passive fund inflows in 2023, netting a substantial $52.83 billion. It was closely followed by the iShares Core S&P 500 ETF and Fidelity 500 Index Fund, which attracted a net $38.1 billion and $24.79 billion, respectively.Active funds faced consistent outflows, a situation worsened by their higher management fees and underwhelming returns. According to Lipper data, last year saw active funds suffer outflows totalling $576 billion, in stark contrast to passive funds, which attracted inflows of $466 billion.Analysts say this influx into passive funds could spawn market imbalances, with large-cap stocks ascending regardless of their actual growth potential.Geoffrey Strotman, senior vice president at Segal Marco Advisors, said higher inflows into passive funds can create or exacerbate pricing discrepancies and lead to a less efficient market.”This inefficiency should create more opportunity for active managers to purchase stocks at attractive pricing and sell stocks when they are too expensive.”Mark Haefele, chief investment officer of wealth management at UBS AG, expects active funds to experience a resurgence this year, with likely Federal Reserve rate cuts expected to reduce borrowing costs and boost earnings more significantly for small-cap companies than their larger counterparts.”There can be bigger payoffs to stock selection in smaller-cap indexes compared to large caps, due to a higher dispersion in performance. Since most companies are less followed by the analyst community, there can be greater inefficiencies that can be exploited,” he said.”As a result, there is greater scope for active managers to achieve above-market returns (alpha) in this part of the equity market.” More

Six out of nine members of the BoE’s Monetary Policy Committee voted to keep rates at a 15-year high of 5.25%. Jonathan Haskel and Catherine Mann voted for a 0.25 percentage-point hike, while Swati Dhingra voted for a cut of the same size. It marked the first time since August 2008 that different policymakers have voted to move interest rates up and down at the same meeting.MARKET REACTION: BONDS: Britain’s 2-year gilt yield rose and was last trading at 4.28%, up from 4.24% just before the rate decision. Ten-year yields were at 3.83%, versus 3.79% earlier, and up around 3 basis points on the day.Money markets price in a roughly 50% chance of a quarter point rate cut in May down from a more than 60% chance earlier in the day.FOREX: Sterling was last down 0.2% against the dollar at $1.2663, compared with $1.2635 before the decision. It was at 85.38 per euro, versus 85.58 pence earlier.STOCKS: London’s FTSE-100 trimmed its gains and was last up around 0.3% on the day.COMMENTS:FIONA CINCOTTA, MARKET STRATEGIST, CITY INDEX, LONDON:”I think that vote was a bit more hawkish than what we were expecting and I understand inflation is still sticky. But it does feel like they’re pushing back quite strongly still – at least two are – on the prospect of a rate cut.””Given what we’ve seen from the state of the economy, in the sense that we’ve seen retail sales dropping, we are seeing the manufacturing sector is still in contraction. But the service sector is still relatively strong, the labour market is holding up, service sector PMIs are still in expansionary territory and inflation is still double the Bank of England’s target, that (could be) what those two members are focusing on.””The market isn’t necessarily paying huge amounts of attention to the meeting. The pound has been rangebound for quite some time around that $1.27 level and it feels like it is still waiting for a little bit more confirmation from the Bank of England about the timing of the move.” JANE FOLEY, HEAD OF FX STRATEGY, RABOBANK, LONDON:”I think the market is very focused on the voting pattern and that two members still voting for a hike, has led the market into thinking that there was a slightly hawkish element. If you remove the voting pattern much of the rhetoric is fairly unsurprising.””The market is going to want to know why they have changed their language to take out the risk that more hikes may be needed while there are two members voting for a hike, what signal does the market need to take from that?””Market place a lot of store on the voting patterns and that is often the source of confusion. We don’t see this for other central banks, the fact that we do often raises more questions than answers.”KYLE CHAPMAN, FX MARKET ANALYST, BALLINGER & CO, LONDON”While the ECB and the Fed are hinting at rate cuts, the Bank of England’s reticence for these discussions continues to make it stand out as an outlier. The most interesting point for us is the expectation that inflation will soon temporarily reach the 2% target before reaccelerating – this suggests that a sharp fall in inflation in the near-term may be less impactful on policy than we would have thought previously.””The materialisation of this forecast would entail holding policy firm despite 2% inflation prints, and then cutting rates later in the year while inflation is rising. We have doubts that the MPC would be able to credibly hold their nerve and not start cutting in this scenario.”PETER SCHAFFRIK, GLOBAL MARKET STRATEGIST, RBC CAPITAL MARKETS, LONDON:”The long and the short of it is that they (the BoE policymakers) are moving slowly and steadily away from a hawkish stance. There was one vote for a cut.””The text suggests the views are balanced, but not as hawkish as it used to be.”PHILIP SHAW, CHIEF ECONOMIST, INVESTEC, LONDON:”The fact that two members are still voting for higher rates suggests that there is no material, immediate momentum to lower rates and the inflation projections implicitly show that the committee as a whole believes that the speed of rate cuts implied by yield curve has been too rapid.””We stand by our baseline call that the committee will begin to ease in June, but this is of course subject to data over the next few months. Furthermore the fact that the MPC is very divided is a good pointer to the prevailing uncertainty.” JEREMY BATSTONE-CARR, STRATEGIST, RAYMOND JAMES, FRANCE:”It appears there no longer exists a firm commitment to keep rates at levels restrictive to economic activity. However, rate-setters are likely to tread warily and will wait to see confirmation that inflation has resumed its downward pathway before committing to policy easing.””While the exact timing of the first rate cut remains in doubt, the point at which monetary policy is finally loosened is probably not all that far away.”DAVID MORRISON, SENIOR MARKET ANALYST, TRADE NATION, LONDON:”What is really interesting is the voting. We got two voting for a hike and one for a cut. For two members to still be going for a rate hike, that does say to me that rates aren’t coming down any times soon particularly. I would have expected more of a shift.””There is still that hawkishness at the Bank and I think it’s kind of justified. Inflation is far too high in the UK and far too sticky and is taking far too long to shift downwards.” More

TORONTO (Reuters) -Small, loosely-regulated lenders in Canada who rode a pandemic housing boom to offer mortgages at high interest rates are now showing signs of stress as a spike in living costs pushes some homeowners toward a default.Canada’s C$2 trillion ($1.5 trillion) mortgage market is dominated by the “Big Six” major banks that include Royal Bank of Canada and TD Bank.But for many Canadians unable to pass a rigorous test to qualify for a home loan, there has long been another option: private lenders who offer short-term mortgages at rates that are several percentage points higher than those charged by big banks.One subset of this group of lenders – Mortgage Investment Companies (MICs) – has mushroomed in the past three years, taking on riskier deals, when record low borrowing costs pushed up mortgage demand at the peak of a housing market boom in 2022. But as the real estate market softened in Canada over the past year while the cost of living and interest rates rose, consumers struggled to make their monthly payments, forcing many MICs to sell properties cheaply to recoup losses as homeowners defaulted and property prices declined. “It is reasonable that the alternative mortgage funds today are experiencing some stress given our markets are adapting to a new normal,” said Dean Koeller, chair of the Canadian Alternative Mortgage Lenders Association.Data from the Canada Mortgage and Housing Corp showed that nearly 1% of mortgages from private lenders were delinquent in the third quarter of 2023 compared with the industry-wide rate of 0.15%. The market share of newly-extended mortgages by private lenders in the first quarter of 2023 jumped to 8% from 5.3% in 2021, while the share of those lent by big banks fell to 53.8% from 62%, the data showed.Data provided to Reuters by Toronto-based commercial mortgage brokerage LandBank Advisors also captures some of the stress private lenders are facing.LandBank Advisors studied over 1,000 mortgages issued between 2020 and January 2024 and found that about 90% of home buyers who were forced to sell their homes because of default in the Greater Toronto Area, Canada’s biggest real estate market, had taken out mortgages from private lenders.MICs generated more than half of the mortgages among the 90% pushed into fire sales.About 50 such forced sales in the Greater Toronto Area region were registered so far in 2024, compared with 558 in 2023 and 92 in 2020.ON ALERTIn response to the rise in interest rates since March 2022, the office of the Superintendent of Financial Institutions – which regulates the country’s big banks – last year directed them to hold more capital to cover for loan defaults.But private lenders, which are overseen by provincial governments, face fewer regulations and unlike the major banks, do not require that clients take federally-mandated mortgage tests that ensure they can make payments even if rates go up. Superintendent of Financial Institutions Peter Routledge, whose office does not directly oversee private lenders, said this month that a “sudden proliferation of unregulated lending” would be a problem but that so far the sector was not growing in a way that gave cause for concern. The Financial Services Regulatory Authority, which oversees mortgage brokerages, has begun campaigns to protect consumers from unaffordable, high fee mortgages and issued new guidance and tighter licensing requirements on mortgage brokerages. “Many MICs opened up three or four years ago. The problem is they opened up… when values were at their highest and when you look at their books, a lot of their books are underwater,” Jonathan Gibson at LandBank Advisors said.”MICs are trapped or are becoming more and more picky.”But some well-capitalized and more experienced private lenders see M&A opportunities by rescuing struggling lenders, industry executives say.Jesse Bobrowski, vice president of business development at Calvert Home Mortgage Investment Corporation, said his firm is on the lookout for acquisitions or loan books to buy.”Definitely we’re looking to expand our market share,” Bobrowski said. ($1 = 1.3428 Canadian dollars) More

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LONDON (Reuters) – The Bank of England kept interest rates at a nearly 16-year high on Thursday but softened its stance about the possibility of cutting them and one of its policymakers cast the first vote for a reduction in borrowing costs since 2020.BoE Governor Andrew Bailey said inflation was “moving in the right direction” shortly after the Monetary Policy Committee ditched its previous warning that rates could rise again and instead said borrowing costs would be kept “under review”.The MPC split three ways on the right course for policy with six of its nine members voting to keep rates at 5.25%, Jonathan Haskel and Catherine Mann voting for a 0.25 percentage-point hike and Swati Dhingra backing a cut of the same size.It marked the first time since August 2008 – early in the global financial crisis – that different policymakers have voted to move interest rates up and down at the same meeting.Economists polled by Reuters had mostly expected only one policymaker to vote for a rate rise, and for the remainder to vote to keep rates on hold. The pound and British government bond yields rose modestly after the BoE announcement. Investors slightly reined in their bets on the extent of cuts to Bank Rate over 2024 but still saw four reductions for the year.”The balance of argument is edging slowly towards rate cuts, but the Bank cannot risk cutting rates and then having to raise them again as inflation revives,” Ian Stewart, chief economist at Deloitte, said.Bailey stressed that the BoE remained cautious and inflation falling to its 2% target would not be “job done.””We need to see more evidence that inflation is set to fall all the way to the 2% target, and stay there, before we can lower interest rates,” he said.But in a softening of its language on the outlook for interest rates, the BoE dropped its warning that “further tightening” would be required if more persistent inflation pressure emerged.Instead, the BoE said it would “keep under review for how long Bank Rate should be maintained at its current level”.Officials at the U.S. Federal Reserve and European Central Bank have been more explicit that rate cuts are on the agenda. Late on Wednesday the Fed said its rates had peaked and would move lower later this year.INFLATION TO FALL, WAGE GROWTH STILL STRONGThe BoE reiterated that policy would need to stay “restrictive for sufficiently long” – even as it slashed its inflation forecast for the coming months.However, considerably higher wage growth set Britain apart from its peers in driving inflation pressure over the longer term, the BoE said.Annual consumer price inflation now looks likely to return to 2% in the second quarter of this year, albeit briefly, in a sharp downgrade of the BoE’s near-term outlook for price growth compared with November’s projections.But the medium-term forecast – based on a much lower market path for interest rates than in November – showed inflation would rise back above 2% in the third quarter of 2024 and not return to target until late 2026, a year later than the BoE had forecast in November.The BoE stuck to its view that Britain’s economy will struggle to generate much economic growth in the quarters ahead, despite a modest upgrade to the annual growth projections.In a small boost for finance minister Jeremy Hunt, the BoE judged that his tax cuts announced in November would boost British economic output slightly in the years ahead.But the central bank largely maintained its forecast for weak household income growth after tax and inflation, with the cost of living a key issue ahead of a likely national election this year.Households’ living standards have fallen over the past two years due to high inflation, contributing to the electoral challenge facing Prime Minister Rishi Sunak.Hunt is preparing a budget to be delivered on March 6 that is likely to include tax cuts in a pre-election bid to woo voters back to the Conservative Party, which is lagging badly behind the opposition Labour Party in opinion polls.Earlier this week the International Monetary Fund warned Hunt not to cut taxes, due to high levels of public debt and growing demands on services, and trimmed its outlook for British economic growth in 2025. More

LONDON (Reuters) – Major central banks stood pat on interest rates in January, as the much anticipated change of course in the global monetary policy draws closer while emerging market peers ploughed on with rate cuts.January saw five of the central banks overseeing the 10 most heavily traded currencies – the U.S. Federal Reserve, the ECB, the Bank of Japan, Bank of Canada and Norges Bank – hold rate setting meetings with none changing rates. That follows on from eight meetings in December where only Norway hiked. “Interest rates are set to remain front and centre in 2024,” Philip Shaw at Investec said in a research note. “However, in a departure from the last two years, now the question is not how far central banks will raise rates, but when and how far they will cut.”Fed chair Jerome Powell on Wednesday delivered a sweeping endorsement of the U.S. economy’s strength and said the next rate move would be lower. But he also pushed back against markets betting on a move as soon as March, with expectations now anticipating a first Fed cut in May. Meanwhile, emerging economies – which have been frontrunning both the tightening and the easing cycle – ploughed on with rate cuts.Five of the Reuters sample of 18 central banks in developing economies cut rates in January – matching the December number which had been the highest number in at least three years. Across the Reuters markets sample, 12 central banks held rate setting meetings last month.Policy makers in Brazil, Hungary, Colombia and Chile all extended their easing push, while Israel joined the fray, delivering the first rate cut in four years. The moves brought the January rate cut tally to 275 basis point – the biggest monthly total since May 2022. Turkey was the sole outlier in January, delivering another 250 bps rate hike to shore up its battered currency and tackle sticky inflation, though the central bank said it had now completed its aggressive tightening cycle. Analysts predicted that monetary easing would continue to broaden out in the months ahead. “Mexico’s central bank will probably be the next to cut rates later this quarter, and many Asian central banks will join the fray in April and May, which is sooner than most expect,” said William Jackson at Capital Economics in a note to clients. More