Aurelia Butler

LONDON/SINGAPORE (Reuters) -The dollar rose on Friday, heading for its steepest weekly rise since May as traders scaled back expectations of early U.S. interest rate cuts this year.The U.S. currency’s strong start has cast a shadow on the euro even as rising inflation in the euro zone appeared to ease market pressure on the European Central Bank (ECB) to lower interest rates.The dollar’s rebound will be tested by the non-farm payrolls report due later in the day. Economists polled by Reuters forecast that 170,000 jobs were created in December, fewer than the 199,000 in November.Federal Reserve officials in December predicted 75 bps of rate cuts in 2024. Money markets expected around double that amount, with such expectations spurring a year-end blistering rally in stocks and bonds. But since the start of the year, markets have dialled back their expectations. Traders are now pricing in less than 140 basis points of cuts this year, with the chance of a cut in March at 62%, down from 86% a week earlier, CME FedWatch tool showed. Moh Siong Sim, currency strategist at Bank of Singapore said the data this week has shown that the U.S. labour market seems to be holding up and “perhaps the Fed will still need to stress the message of keeping the rates a bit longer than what the market has already priced in”. “But we’ll see, because tonight’s payroll data will be key data to watch.” Supporting the dollar, data showed on Thursday that U.S. private employers hired more workers than expected in December, pointing to persistent strength in the labour market that should continue to sustain the economy.The dollar was last up 0.25% against a basket of currencies at 102.69, after touching a fresh three-week high. The index is up 1.3% for the week, its strongest performance since the week ending May 15. EURO ZONE INFLATIONThe euro fell 0.24% to $1.0919, and is on track for a 1.09% decline in the week, its sharpest weekly drop since early December, and snapping a run of three weeks of increases. Inflation across the 20-nation bloc jumped to 2.9% in December from 2.4% in November, just shy of expectations for a 3.0% reading.The data is line with the ECB’s prediction that inflation bottomed out in November and will now flatline in the 2.5% to 3% range through 2024, well above the bank’s 2% target, before slowing again in 2025.Investors and policymakers disagree on the number of rate cuts likely this year. Traders are betting that the ECB will cut rates six times this year with the first move coming in March or April. Policymakers argue that it might take until mid-2024 to gain the confidence that inflation is under control.“Today’s data will have only made investors more concerned about whether the ECB will take it too far by being too restrictive with their policy, which will likely hinder growth in the process,” said Daniela Hathorn, senior market analyst at Capital.com. Elsewhere, the yen, which is highly sensitive to U.S. bond yields, weakened 0.37% to 145.14 per dollar, after touching a more than three-week low earlier in the session. The 10-year U.S. Treasury yield broke through the psychological 4% mark and was last at 4.04%. [US/] Investors have tempered their expectations of the Bank of Japan exiting its ultra-loose monetary policy in the near term, with concerns over the earthquake that hit western Japan earlier this week casting further doubts on a policy shift. More

LONDON (Reuters) – Investors ploughed $123.1 billion into cash in the seven days to Wednesday, marking the largest such inflow since March 2023 and a record for the first week of a year, Bank of America said in a report published on Friday.The shift, which BofA said was typical for the first week of the year, follows 2023’s record yearly inflow to cash of $1.3 trillion, as risk-averse investors fled to safe-haven assets and higher interest rates reduced investor demand for stocks. Citing data from fund flows and asset allocation data provider EPFR, BofA said investors bought $10.6 billion of bonds and $7.6 billion of stocks, but they shed $0.8 billion of gold. It was the second week in a row for inflows to equities, and eight out of the past ten weeks have seen inflows, totalling $82 billion, BofA added.Global equities are set to snap a nine-week winning streak as bets on aggressive central bank rate cuts were rolled back. The benchmark S&P 500 is up about 14% since the end of October, but declined 1.1% over Wednesday and Thursday, as investors grew nervous about expectations of near imminent interest rate cuts from the Federal Reserve. “Fed and yields dictating credit and stocks,” BofA said. Energy stocks saw their seventh straight week of outflows, and the largest since July 2023 of $1.0 billion. U.S. small-cap stocks recorded a weekly inflow of $2.3 billion, their fifth weekly inflow in a row. BofA’s bull & bear indicator, a measure of market sentiment, rose to 5.3 from 5.0 to the highest level since November 2021 though remained at a neutral signal, with BofA citing equity breadth, credit technicals and strong high yield inflows. More

The new administration of libertarian president Javier Milei is battling against the country’s worst economic crises in two decades, including inflation racing towards 200%, a lack of foreign currency reserves and rising poverty.The government is also expected to meet a delegation from the International Monetary Fund (IMF) on Friday, looking to hammer out an agreement on a delayed review of the South American country’s $44 billion program.Analysts say that the IMF meeting is a key step towards Argentina unlocking the next tranche of financing from the Washington-based lender, estimated at around $3 billion.Argentina recently paid some $920 million to the IMF and faces an upcoming capital payment to the organization for about $1.95 billion in mid-January. More

(Reuters) -U.S. stock index futures slipped on Friday and signaled losses for the first week of 2024, ahead of a key jobs report that could test expectations for an early start to the Federal Reserve’s easing cycle. The benchmark S&P 500 was on track for its worst week since late October as investors cashed in after a nine-week winning streak driven by bets that aggressive rate cuts were on the horizon. The Nasdaq was on course for its worst weekly performance since late September, impacted by rotation out of tech-heavy stocks into defensive sectors like healthcare, financials and utilities.After the recent Fed meeting minutes failed to offer hints on the timeline for monetary easing, traders dialed back rate-cut expectations and now see a 63.8% chance for at least a 25 basis points (bps) cut in March, down from nearly 86% a week ago, according to the CME FedWatch Tool.Yields on U.S. Treasury notes, an indicator of interest rate expectations, ticked higher with the yield on the benchmark 10-year note rising over 4% to a three-week high. [US/]All eyes were on the official non-farm payrolls report, due at 8:30 a.m. ET, for clues on how long the Fed could keep credit conditions restrictive.U.S. job growth likely moderated in December, while the increase in annual wages probably slowed to below 4% for the first time in 2-1/2 years, according to a Reuters survey of economists.”Demand for labor is moderating, which top policymakers have indicated will be crucial for hitting its 2% inflation target on a sustained basis,” analysts at UBS wrote.”The consensus forecast is for a modest rise in the unemployment rate and a slowing of the growth in average earnings.” At 6:56 a.m. ET, Dow e-minis were down 98 points, or 0.26%, S&P 500 e-minis were down 13.5 points, or 0.29%, and Nasdaq 100 e-minis were down 59.25 points, or 0.36%.Among early movers, Tesla (NASDAQ:TSLA) shed 0.8% before the bell. The electric-vehicle maker is conducting an effective recall on 1.62 million vehicles in China, the market regulator said.Other megacap names including Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL) and Alphabet (NASDAQ:GOOGL) lost between 0.1% and 0.7%. Chipmakers like Micron Technology (NASDAQ:MU), Intel (NASDAQ:INTC) and Qualcomm (NASDAQ:QCOM) declined between 1.1% and 1.4%.Applied Therapeutics (NASDAQ:APLT) tumbled 26.6% after the drug developer’s heart disease drug showed disappointing results in a late-stage trial. Palantir Technologies (NYSE:PLTR) lost 3.9% after Jefferies downgraded the data analytics firm to “underperform” due to high stock valuations. Later in the day, investors will parse remarks by Richmond Fed President Thomas Barkin, a voting member this year. More

ISTANBUL/LONDON (Reuters) – U.S. investment giants Pimco and Vanguard have bought local Turkish assets in recent months, betting that the country will maintain high interest rates after years of erratic policymaking under President Tayyip Erdogan. Interviews with top money managers at the companies show that two of the world’s biggest investors, which together oversee nearly $10 trillion in assets, have grown constructive on Turkey since its newfound economic orthodoxy following Erdogan’s re-election in May. Pimco and Vanguard did not elaborate on the specific size of their purchases but the investments are a sign of confidence after a years-long exodus of foreigners that left Turkey on the sidelines of global emerging markets. “We are constructive on Turkish assets, in particular local currency assets, due to the tightening in financial conditions to rein in spending and control inflation and the gradual easing of regulations that distort the asset prices,” said Pramol Dhawan, managing director and head of emerging markets at Pimco, which oversees nearly $2 trillion in assets. Vanguard, the world’s second-largest money manager with nearly $7.5 trillion, bought Turkish local bonds without hedging late last year after Nick Eisinger, co-head of Emerging Markets Active Fixed Income, and a few other investors visited the country for meetings. “It was a bit of a watershed moment,” Eisinger said in a separate interview, noting that benchmark yields later dropped by 500-600 basis points from November to mid-December, before partially rebounding this week. Buying interest from abroad hit a six-year high last month while credit default swaps (CDS), a key risk measure, have plunged to less than half of levels in May. That marks a dizzying departure from the days in which foreign investors largely abandoned Turkey as Erdogan oversaw a policy of slashing interest rates in the face of soaring inflation, and tightened authorities’ grip on foreign exchange, debt and credit markets, leaving them largely state managed. In June, Erdogan named a new cabinet and central bank chief, Hafize Gaye Erkan, who has since hiked rates by 3,400 basis points to 42.5% to rein in inflation that neared 65% last month. The bank says it will halt the aggressive rate hikes as soon as possible but maintain tight monetary policy as long as needed. Authorities have also begun untangling dozens of regulations in order to free up banks and financial markets. Pimco’s Dhawan said “a period of real FX appreciation coupled with tight fiscal policy is needed to bring down inflation towards target levels”, given the high domestic demand and dollarisation levels, as well as extended lira depreciation.”We are already starting to see some benefits materialize from this coordinated policy framework,” he said, adding the rising forex reserves have relieved a key investor concern. ERDOGAN RISKThough some investors are cautious, the foreign interest is primed to grow, drawn by potentially outsized bond returns. Amundi, Europe’s largest asset manager, has also taken a more bullish position on Turkish assets, Reuters reported.The risk, investors say, is that Erdogan loses patience with the long and painful return to orthodoxy – including an economic slowdown – as his ruling AK Party seeks to wrest back control of big cities in nationwide local elections on March 31. Opposition victories five years ago in Erdogan’s native Istanbul and Ankara were his biggest electoral defeats in more than two decades in power. To boost his campaign ahead of last year’s election, Erdogan – a self-described “enemy” of interest rates in the past – leveraged the budget and central bank to deliver record social spending and used foreign reserves to steady the lira. He has also fired four central bank chiefs in the last five years, eroding its independence. In response, foreign holdings of government bonds crashed below 1% from 20% in 2018, before rebounding back above 1% late last year. “The real litmus test is what happens in the next few months” with the elections and the central bank’s focus on tackling inflation, Vanguard’s Eisinger said. Vanguard invested when Turkish bond yields were up near 35% and it could expand the position, he said. “Potentially we would look to do more of that trade if yields back up.” Wall Street bank JPMorgan said Turkey’s lira was a key emerging market bet for 2024 while UBS recommended clients take a “tactical long” position on the currency in November.Erkan, the new central bank chief and former Goldman banker, and Finance Minister Mehmet Simsek will present Turkey’s policy vision to foreign investors in New York on Thursday next week. More

TORONTO (Reuters) – The Canadian dollar is expected to trade at stronger levels than previously thought over the coming months and year if the U.S. Federal Reserve pivots to cutting interest rates before the Bank of Canada, a Reuters poll found.In 2023 the currency notched a 2.3% gain against its U.S. counterpart as the prospect of rate cuts bolstered investor sentiment in the final two months of the year.It has since given back some of those gains and is set to weaken by an additional 0.4% in three months to 1.3400 per U.S. dollar, or 74.63 U.S. cents, according to the median forecast of 42 foreign exchange analysts surveyed in the Jan. 2-4 poll.Still, that would leave the loonie at a stronger level than December’s forecast of 1.3533 and the currency is then expected to advance to 1.3000 in a year, versus 1.3130 in last month’s forecast.”We think rate cuts are probably going to come a little bit earlier, maybe a little quicker in the U.S. relative to much of the rest of the world,” said Shaun Osborne, chief currency strategist at Scotiabank. “Some compression in yield spreads should result in supporting the Canadian dollar.”Minutes from the Fed’s December meeting did not provide direct clues about when rate cuts might begin but they reflected a growing sense inflation is under control and growing concern about the risks “overly restrictive” monetary policy may pose to the economy.Money markets are betting the U.S. central bank will begin easing as soon as March and slash rates by roughly 150 basis points in total in 2024, while they are leaning toward April for the first rate cut by the BoC and see about 110 basis points of BoC easing this year.The Canadian 2-year yield trades around 36 basis points below its U.S. equivalent but the gap has narrowed from 57 basis points in December.Canada is a major producer of commodities, including oil, so the currency could also benefit if a possible move to Fed rate cuts helps support the U.S. and global economies.”If we can avoid a (U.S.) recession, growth holding up should be some support at least for the high beta currencies, the commodity currencies and commodity prices,” Osborne said.(For other stories from the January Reuters foreign exchange poll:) More

They purchased about $56.92 billion worth of U.S. money market funds in their biggest weekly net buying since November 29, while exiting about $5.54 billion worth of equity funds, data from LSEG showed.U.S. unemployment data on Thursday indicated a still resilient U.S. labour market, tempering hopes of deep rate cuts by the Federal Reserve this year. The release of monthly U.S. payrolls figures later in the day would further influence expectations about the timing and pace of rate cuts.After gaining for nine successive weeks, the S&P 500 has dipped about 1.7% in the first week of 2024 amid concerns that expectations for steep rate cuts might be premature.Investors pulled out $687 million, $1.37 billion and $652 million, respectively from U.S. large-, mid-, and multi-cap funds. Small-cap funds remained in demand, attracting $1.32 billion in a fifth straight week of net buying. Among sector funds, the tech sector led outflows, losing $879 million in net selling, followed by $361 million and $214 million worth of outflows respectively from industrials and real estate sectors.Conversely, U.S. bond funds experienced $4.44 billion worth of purchases, the first weekly inflow in six weeks.US short/intermediate government & treasury funds received a significant sum of $3.25 billion as investors snapped an eight-weeks-long selling streak.Short/intermediate investment-grade, and general domestic taxable fixed income funds also received about $1.75 billion and $614 million, respectively. More