Aurelia Butler

1. Futures inch lowerU.S. stock futures hovered below the flatline on Monday, as investors prepared for the release of key inflation data later in the week that could factor into how the Federal Reserve approaches potential interest rate cuts in 2024.By 05:13 ET (10:13 GMT), the S&P 500 futures contract had shed 9 points or 0.2%, Nasdaq 100 futures had lost 36 points or 0.2%, and Dow futures had dropped by 178 points or 0.5%.Attention is turning the publication of the U.S. consumer price index from the Bureau of Labor Statistics on Thursday, which is expected to show that headline inflation accelerated slightly to 3.2% in December. The measure registered a pace of 3.1% in November. Month-on-month, it is seen speeding up to 0.2%.But the core figure, which strips out volatile items like food and energy, is seen slowing to 3.8% annually and 0.2% monthly.How the numbers shake out could impact market estimates for U.S. interest rates in the coming months. Hopes that the Fed will slash borrowing costs early this year have waned recently, particularly after minutes from the central bank’s latest meeting showed that officials believed rates could remain elevated “for some time” to help bring inflation back down to its 2% target.Evidence that the Fed’s fight to cool price gains is proceeding slower than anticipated could further lessen what was buoyant optimism amongst traders in the final weeks of last year.2. Boeing shares slump premarket amid scrutiny over fresh 737 Max incidentShares in Boeing fell sharply in premarket trading in New York on Monday, as reports say that the planemaker and U.S. regulators have hit a snag in carrying out safety inspections in the wake of a mid-air breach of a 737 Max jet last week.On Friday, a plug in an emergency door ripped from the left side of a Boeing 737 Max 9 jet shortly after the takeoff of an Alaska Airlines flight from Portland, Oregon to Ontario, California. Pilots turned around and landed the plane. Several passengers were treated for minor injuries, but no deaths were reported.The Federal Aviation Administration subsequently ordered the temporary grounding of around 171 Boeing jets on Saturday. The agency later said the planes will not return to the air until it is “satisfied that they are safe.”But, citing people familiar with the matter, Reuters has reported that the FAA and Boeing have yet to agree on the criteria for the safety checks — a crucial step before the inspections can take place and flights can resume.Boeing, meanwhile, is planning to hold a company-wide meeting to discuss the incident, according to media reports. The firm has already faced heavy scrutiny over two fatal crashes of its 737 Max 8 plane in 2018 and 2019.3. Congressional leaders reach bipartisan deal on federal spending levelsDemocratic and Republican leaders in Congress announced that they have reached an agreement to set the federal spending limit for the 2024 fiscal year at roughly $1.66 trillion.The framework accord comes as lawmakers on Capitol Hill are racing to hammer out a deal to fund the government before several federal agencies are set to run out of money later this month.Republican House Speaker Mike Johnson said the agreement includes “hard-fought concessions,” while Democratic leaders said it “clears the way for Congress to act.”A final spending deal would need to be passed by both the House and the Senate before being signed into law by President Joe Biden.4. Evergrande EV unit says says director detained, shares slipThe electric vehicle division of China’s Evergrande has said its Vice Chairman Liu Yongzhuo has been detained and is facing a criminal investigation, sparking a fall in the firm’s Hong Kong-listed shares.In a filing with the Hong Kong Stock Exchange, China Evergrande New Energy Vehicle Group announced that Liu was detained in accordance with the law on suspicion of “illegal crimes.” It did not provide further details.The announcement comes as Evergrande (HK:3333), the division’s parent and the focal point of a real estate crisis that has threatened to disrupt the Chinese economy, faces a hearing later this month over demands from offshore bond holders to wind up the company. Evergrande’s chairman Hui Ka Yan is also being investigated for suspected crimes, a separate filing in September showed.Evergrande NEV, which once held ambitions of producing a million cars a year by 2025, sold just 760 of its only EV model in the first half of last year. It also posted a net loss of 6.9 billion yuan during the period.5. Oil retreats after Saudi Arabia cuts pricesOil prices fell Monday after Saudi Arabia slashed the prices of its Asian crude exports to over two-year lows, adding to the current narrative that global demand remains weak.By 05:14 ET, the U.S. crude futures traded 2.0% lower at $72.32 a barrel, while the Brent contract dipped 1.9% to $77.30 per barrel.Major crude exporter Saudi Arabia on Sunday cut the February official selling price of its flagship Arab Light crude to Asia to the lowest level in 27 months.Yet, despite these worries over global economic activity, both benchmarks climbed more than 2% last week on rising geopolitical tensions in the Middle East following attacks by Yemen-based Houthis on ships in the Red Sea, prompting disruptions in shipping activity in the region. More

LGFVs were set up by Chinese local governments to fund infrastructure investment, and their combined debt has ballooned to roughly $9 trillion, posing a major risk to a slowing economy. China has rolled out several measures to resolve local government debt risks, and new issuance of LGFV debt is tightly regulated. The latest guidance comes after a rush by many LGFVs to raise 364-day offshore bonds, seemingly in a bid to circumvent regulation that requires them to seek approval for offshore borrowings with maturities longer than a year. LGFVs have found onshore financing challenging, and they also have to seek approval from regulators such as the National Development and Reform Commission (NDRC) to issue offshore debt, unless the tenor of the bond is less than a year.The NDRC published regulations on medium and long-term foreign debt in January 2023, but said offshore debt financing with maturities of less than one year was not subject to approval.That loophole led to 27 offshore LGFV bonds with a duration of 364 days being issued in 2023, most of them after October and with yields over 6%, data from TianFeng Securities showed.”The issuance of 364-day offshore LGFV bonds has been stopped,” said one source at a brokerage that is familiar with LGFV issuance. “Such bonds were not regulated and were obviously contrary to the direction of government’s debt resolving efforts.” Shandong Province issued the most 364-day bonds, with 12 issues that raised more than $1 billion. “Such offshore bonds certainly came with risks. It’s not realistic that you can easily get double-digit yields on these bonds,” another source at a private fund said. The NDRC and currency regulator State Administration of Foreign Exchange (SAFE) did not immediately reply to Reuters’ requests for comments. More

BANGKOK (Reuters) -Thailand has received a green light to borrow to finance its controversial 500 billion baht ($14.29 billion) digital handout scheme, a senior official said on Monday, in a boost to a government eager to stimulate a sluggish economy.The Office of the Council of State, an independent panel that provides legal guidance to governments, had found no reason that would prohibit the government from borrowing to fund the plan, deputy finance minister Julapun Amornvivat told reporters. The programme to give away 10,000 baht (around $285) to 50 million Thais to spend in their local communities was the signature election policy of the ruling Pheu Thai party.The announcement came as Prime Minister Srettha Thavisin, who is also finance minister, urged the central bank on Monday to consider cutting interest rates to help the economy with inflation at very low rates.The government wants to spur growth in Southeast Asia’s second biggest economy, largely though stimulus and consumer spending, with Thailand trailing regional peers with growth forecast at about 2.4% last year, short of the 2022 figure. The “digital wallet” plan has come under fire from economists and some former central bank governors who say it could be fiscally irresponsible and fuel inflation. The government last year sought the Office of the Council of State’s advice on the legality of a borrowing bill for the programme.The office said borrowing for the digital wallet programme “can be done” under the power of the cabinet and the digital wallet committee, Julapun said.However, it said the programme should only be launched in an economic crisis, and the government must seek wider opinions, he said.The government has insisted it would be managed carefully and would boost the economy, which Julapun said was in crisis. The government would cascade its borrowing to fund the handout, he said, adding the government would stick to its plan to roll out the scheme in May.The borrowing would be staggered and would not affect market liquidity, which remains ample, Julapun said.He also said the central bank’s rate increases were “a bit too fast, too aggressive”, affecting the economy.Premier Srettha said on Monday he would speak to the central bank governor to urge him to reconsider the bank’s policy stance as inflation was very low.”On raising interest rates, I have a clear stance that I don’t agree with,” Srettha said, adding “there might be a need to consider reducing interest rates”, he said. The central bank left its policy rate unchanged at a decade high of 2.50% in November after raising it by 200 basis points since August 2022 to curb inflation. It will next review policy on Feb. 7.Headline inflation came in at -0.83% in December, making it the eighth straight month that it was outside the central bank’s target of 1% to 3%. ($1 = 35.0500 baht) More

U.S. banking giants kick off the reporting season and crypto markets look set for more volatility. Here’s a look at the week ahead in global markets from Rae Wee in Singapore, Ira Iosebashvili and Lananh Nguyen in New York, and Naomi Rovnick and Tom Wilson in London. 1/ INFLATION: CHEER VS FEARU.S. stocks and bonds soared in late 2023 in anticipation of Federal Reserve rate cuts this year. Inflation data on Jan. 11 could show whether those expectations are warranted.Gradually cooling inflation has increased bets that the central bank could begin lowering borrowing costs as early as March. Signs that inflation remained subdued in December would likely support that view – though a sharper-than-expected decline could also stoke fears that recent Fed rate increases are starting to weaken the economy.Conversely, a report showing that consumer prices are rising again could spark concerns markets may have underestimated how long it could take for the Fed to defeat inflation. Economists polled by Reuters expect the report to show a monthly 0.2% gain in consumer prices versus a 0.1% rise in November. 2/ TROUBLED WATERS Markets have been looking to oil prices for signs the Israel-Hamas dispute will push global inflation higher, but with expectations of heavy supply, oil does not tell the whole story. As transport groups re-route vessels away from the Red Sea, retailers face the biggest shipping upheaval since COVID-19 stymied the freight industry in 2020. The result could be Western retailers waiting longer for goods to arrive from China, with shortages pushing up prices, trade analysts say. The British Retail Consortium has said rising costs could reverse a trend of moderating grocery price inflation. Markets, more focused on relatively moderate oil prices, have so far shown limited concern about Red Sea shipping. But investors would be wise to monitor freight costs for signs that the battle against inflation is not over.3/ INFLATION INVASION    Policymakers across Australia, China and Japan face critical inflation readings likely to provide a sense of whether they will have more, rather than less work in 2024.The Reserve Bank of Australia, which is expected to join a rate-cut bandwagon later this year could find some relief if there is a slowdown in November’s inflation.In contrast, a pick up in consumer prices in Tokyo, a leading indicator of nationwide inflation trends, could cheer those betting on a Bank of Japan (BOJ) policy pivot. Such expectations sent a battered yen surging 5% versus the dollar in December. Achieving its 2% inflation target “sustainably” is the pre-condition for BOJ officials to ending negative interest rates.      In China, figures on Friday will give further clarity on whether deflationary pressures continue to mount in the world’s second largest economy. 4/ BANKING ON THE FEDU.S. banking giants kick off earnings with JPMorgan Chase (NYSE:JPM), Bank of America and Citigroup due to report fourth quarter and full-year results on Jan. 12.Top lenders brought in more income from interest payments in 2023 as the Fed raised rates, helping banks to offset a protracted slump in dealmaking revenue in Wall Street divisions.Consumers are also in focus with household finances having remained largely healthy since the pandemic, but some customers, particularly those on lower incomes, are starting to fall behind on payments in greater numbers. Commercial real estate will continue to be a drag meanwhile. Banks have set aside money to cover souring office loans last year. As many employees continue to work remotely or in hybrid arrangements, office owners who borrowed money to finance their buildings are likely to face further strains.5/ CYRPTO’S ETF HOPES Bitcoin kicked off the new year as it finished 2023 – with sharp gains after investors bet on possible approval by U.S. regulators of exchange-traded spot bitcoin funds. The biggest crypto token topped $45,000 for the first time since April 2022 on bets that such applications will get the nod from the Securities and Exchange Commission soon. Market players say the SEC’s decision may be imminent and could usher in a new wave of capital to crypto. Such hopes helped propel bitcoin in 2023 to yearly gains of more than 155%. Yet ever-volatile bitcoin has already trimmed its 2024 gains. Doubts linger, some analysts say, over how much demand will exist for any bitcoin ETF – and whether approval is already priced in. (Graphics by Vineet Sachdev, Pasit Kongkunakornkul, Sumanta Sen, Kripa Jayaram and Riddhima Talwani; Compiled by Karin Strohecker and Dhara Ranasinghe; Editing by Barbara Lewis) More

It also emphasised the need to ensure transparency and comparability in agreements with creditors outside the Official Creditor Committee (OCC), according to a statement dated Friday.Japan, along with France and India, co-chair the committee of 15 creditor nations. Battling its worst financial crisis since independence in 1948, the South Asian island nation is trying to restructure deals with creditors after soaring inflation, currency depreciation and low foreign reserves sent its economy into free fall, forcing it to default on foreign debt in May 2022. Sri Lanka and its creditors said in November they reached an agreement in principle on debt restructuring that would cover approximately $5.9 billion of outstanding public debt and consisted of a mix of long-term maturity extension and reduction in interest rates.China, Sri Lanka’s largest bilateral creditor, has struck its own deal with the island nation, but has not joined OCC as a formal member.Sri Lanka’s total external debt is estimated at $36.4 billion, which includes $10.81 billion of bilateral debt, according to data released by its finance ministry in September.Sri Lanka needs to secure debt restructuring agreements with both bilateral creditors and bondholders, possibly by March, to complete the second review of a $2.9 billion bailout from the International Monetary Fund. More

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