Aurelia Butler

LONDON (Reuters) -World stocks rallied to their highest levels since late 2022 on Wednesday, with year-end optimism high on hopes that major central banks such as the U.S. Federal Reserve will start cutting interest rates early next year.U.S. stock futures were mostly flat a day after the S&P 500 touched its highest intraday level since January 2022. European shares firmed although trade was generally subdued given public holidays across the region on Monday and Tuesday. China’s November industrial profits posted double-digit gains as overall manufacturing improved, data showed, but soft demand continued to constrain business growth expectations, emboldening calls for more macro policy support.MSCI’s world stock index touched a more than one-year high and is up 4.5% in December, while MSCI’s broadest index of Asia-Pacific shares outside Japan rose more than 1% to an over four-month high. “We still have strong equity markets and that is likely to hold through to New Year,” said SEB chief economist Jens Magnusson.A risk-on mood in world markets lifted the euro to more than four-month peaks against the dollar, while oil prices slipped as some major shippers returned to the Red Sea — an area disrupted after Yemen’s Houthi militant group began targeting vessels earlier this month. Maersk shares fell almost 5%, and other shipping stocks also slipped, giving back part of this month’s gains fuelled by expectations that a Red Sea traffic halt could boost rates.Japan’s Nikkei rallied more than 1%, and Hong Kong’s Hang Seng Index rose 1.7% in its first trading day after the Christmas and Boxing Day holidays. Chinese blue chips eked out a marginal gain of 0.35%.Market pricing now shows a more than 80% chance the Fed is likely to begin cutting rates next March, according to the CME FedWatch tool, with over 150 basis points of easing priced in for all of 2024.Tim Murray, a capital markets strategist in the multi-asset division at T. Rowe Price, noted much of the year had been spent in fear that rate hikes would drag the economy into recession.”Happily, that did not happen, and a more dovish Fed means the likelihood of recession in 2024 has fallen considerably,” he said.U.S. and European government bond yields edged lower as investors held tight to rate-cut bets, with 10-year U.S. Treasury yields last down 1.5 basis points at 3.86%.EURO SHINESIn currency markets, the dollar remained on the back foot and languished near a five-month low against a basket of currencies.The euro touched its highest level since August, at $1.1059, while the dollar was 0.15% firmer against the yen at 142.59 following the release of minutes from a Bank of Japan policy meeting earlier this month.BOJ policymakers remain divided over if, and when, the central bank should move away from its ultra-loose monetary stance, the minutes show.Bank of Japan Governor Kazuo Ueda meanwhile said he was in no rush to unwind ultra-loose monetary policy as the risk of inflation running well above 2% and accelerating was small, public broadcaster NHK reported.Brent crude futures slipped 0.5% to $80.66 a barrel, while U.S. WTI crude futures fell 0.7% to around $75, pulling back from respective one-month highs hit the previous session.Oil prices rose more than 2% on Tuesday as fresh attacks on ships in the Red Sea prompted fears of shipping disruptions. Still, major shipping firms such as Maersk and France’s CMA CGM said they were resuming passage through the Red Sea following the deployment of a multinational task force to the region.SEB’s Magnusson said his main scenario was that disturbances to shipping would be short-lived although there were risks to disruptions further out. “It is something to keep an eye on from an inflation perspective as we know now what disturbances in global transportation can do to inflation,” he added. “It’s not my main scenario but there is a tail risk of escalation and that’s something that could impact risk appetite.”Iran denied on Monday a U.S. claim that a drone launched from Iran had struck a chemical tanker in the Indian ocean.Elsewhere, the Turkish lira weakened to a fresh record low of 29.4 against the dollar, and is now 36% weaker this year. More

Premarket trading volumes were low, with most participants away on year-end holidays and due to a lack of any strong cues, except the weekly jobless claims data expected on Thursday.An eight-week rally in the main indexes went into overdrive two weeks ago after the Fed signaled the end of its rate hike cycle and opened the door to potential rate cuts in 2024. “Equities look set to end the year in buoyant form as the disinflation theme continues to fuel the rally in global risk assets,” said Raffi Boyadjian, lead investment analyst at XM. Markets extended a rally on Tuesday in light trading, a day after the Christmas holiday, with the benchmark index near its highest close since January 2022. It is now on track to post its biggest quarterly gain in three years.Closing above the 4,796.56 level would confirm the S&P 500 has been in a bull market since touching the bear market nadir, the closing low reached in October 2022.”Once the Santa high fades, the hangover will hit,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank. At 6:01 a.m. ET, Dow e-minis remained unchanged, S&P 500 e-minis were down 1 point, or 0.02%, and Nasdaq 100 e-minis were down 0.75 points.Among individual movers, shares of Bit Digital were up 9.3% in premarket trading as the U.S.-based bitcoin miner plans to double its mining operating fleet to about 6.0 ether per second in 2024. Coherus BioSciences rose 35.8% after the company said the U.S. FDA has approved its drug delivery device for its infection-fighting treatment. More

NEW YORK (Reuters) – As bonds emerge from a historic selloff, some investors expect better times in the U.S. fixed income market next year – as long as the Federal Reserve’s rate cuts play out as anticipated.A fourth-quarter rally saved bonds from an unprecedented third straight annual loss in 2023, following the worst-ever decline a year earlier. The late year surge came after Treasuries hit their lowest level since 2007 in October. Fueling those gains were expectations that the Fed is likely finished with rate increases and will cut borrowing costs next year – a view that gained traction when policymakers unexpectedly penciled in 75 basis points of easing in their December economic projections amid signs that inflation continued to cool. Falling rates are expected to guide Treasury yields lower and push up bond prices – an outcome that a broad swathe of investors are anticipating. The latest fund manager survey from BofA Global Research showed investors are holding their biggest overweight position in bonds since 2009.Still, few believe the path to lower yields will be a smooth one. Some worry the over 100 basis point drop in Treasury yields since October already reflects expectations for rate cuts, leaving markets vulnerable to snap backs if the Fed doesn’t cut soon enough or fast enough.The market has priced some 150 basis points in cuts next year, twice what policymakers have penciled in, futures tied to the Fed’s main policy rate show. Benchmark 10-year Treasury yields stood at 3.88% last week, their lowest level since July. Many are also watchful for the return of the fiscal worries that helped drive yields to their 2023 peaks but ebbed in the later part of the year.“As long as the Fed doesn’t totally have this wrong, we should expect to see some rate cuts next year,” said Brandon Swensen, a senior portfolio manager on the BlueBay Fixed Income team at RBC Global Asset Management. However, “it could be a bumpy path.”‘BONDS ARE BACK’ U.S. bond year-to-date returns, which include interest payments and price changes, totaled 4.8% as of last week, compared with negative 13% last year, according to the Bloomberg US Aggregate Bond Index.”Bonds are back,” Vanguard said in an outlook report published earlier this month.The world’s second largest asset manager expects U.S. bonds to return 4.8%-5.8% over the next decade, compared with the 1.5%–2.5% it expected before the rate-hiking cycle began last year.Year-to-date, the Vanguard Total Bond Market Index Fund, with over $300 billion in assets, posted a 5.28% return as of last week, up from negative 13.16% last year. PIMCO’s flagship $132 billion bond fund, the Income Fund, had year-to-date returns of 8.92% as of last week, from minus 7.81% last year.Though not everyone sees a recession ahead, most bond bulls are counting on slowing U.S. economic growth and ebbing inflation to push the Fed to cut interest rates. Eoin Walsh, partner and portfolio manager at TwentyFour Asset Management, said 2023’s rise in yields means fixed income can offer the best of both worlds – income with the potential of capital appreciation. “From where we are right now, you are going to get your yield on Treasuries and you probably will get a capital gain as well,” he said.He expects 10-year yields to be between 3.5% and 3.75% by the end of next year.Others believe some parts of the Treasury yield curve may have already rallied too far. Rick Rieder, chief investment officer of global fixed income at BlackRock (NYSE:BLK), said the recent rally has left both longer-dated and shorter-dated bonds “quite rich.” “Much of the 2024 return for the very front end and for the very back end … has already been achieved,” he said. At the same time, concerns over wide fiscal deficits and expectations of increased bond supply could boost term premiums – or the compensation investors demand for the risk of holding long-term bonds. Meanwhile, demand could lag as the Fed and large foreign buyers such as China trim their Treasuries holdings.The recent bond rally has also eased financial conditions, a measure of the availability of funding in an economy. Some worry that could fuel a rebound in growth or even inflation, delaying the Fed’s rate cuts.The Goldman Sachs Financial Conditions Index has fallen by 136 basis points since late October and on Dec. 19 stood at its lowest level since August 2022.”The more markets move to price in cuts, the less urgency the Fed should probably feel about delivering them, because the markets are doing the easing for them,” said Jeremy Schwartz, U.S. economist at Nomura. More

NEW YORK (Reuters) – The traditional turbulence of money markets at year’s end could pose a first test for a new and so far largely unused central bank liquidity facility, but a shift to full scale activity likely still lies some time off into next year. Some market participants reckon that the Fed’s Standing Repo Facility, which it formally adopted in 2021, may see some noticeable usage over the turn of the year as traders and investors manage their money during a predictably volatile period. If that happens, it would not be a sign of distress, but of the financial plumbing system working as intended. The Standing Repo Facility, or SRF, takes in Treasury securities from eligible financial firms – they are mainly the mega banks that normally support the government securities market and serve as counterparties to Fed interventions – and converts them quickly into cash. Scarred by Treasury bond owners’ severe liquidity problems in the spring of 2020, the facility is designed to be a sort of automatic stabilizer for markets. The facility is also designed to lift from the Fed at least some of the burden of discretionary liquidity operations, of the sort it was forced to resort to in the fall of 2019 when market liquidity ran short. So far, markets, still awash in Fed-created money, haven’t needed to tap the SRF in a meaingful fashion. But what appears to be some recent small-scale testing has reminded markets that if not soon, the day is coming where the SRF will be in the mix. The end of 2023 “could mark the christening of the SRF,” said Scott Skyrm of money market trading firm Curvature Securities. He noted that a key borrowing level for short term markets called the general collateral repo rate has been trading above the 5.5% SRF rate which creates “a small incentive” for eligible firms to go to the Fed as the year draws to a close.THE MAIN EVENTBut any SRF usage now would likely be quite small. The bigger test lies down the road as the Fed presses forward with its ongoing effort to shrink the size of its balance sheet. That effort is drawing liquidity from the financial system and Fed officials expect the process, which is allowing just shy of $100 billion per month in Fed-owned bonds to mature and not be replaced, to run for quite some time. “I don’t know at what point, you know, how things will transpire over the next year,” Federal Reserve Bank of New York President John Williams said in a television interview on Dec. 15. The draw down is “going according to plan” and reserves are still quite abundant, he said, suggesting no imminent need for the Fed to slow or stop the contraction of its balance sheet. Markets, however, are less confident in that outlook, and they’ve been eyeing somewhere around a second to third quarter stopping point. Some of that projection rests on the idea that another Fed liquidity tool, the reverse repo facility, has been falling very rapidly over recent months. After hitting a record $2.6 trillion at the end of last year, it’s fallen markedly and stood at about $794 billion on Tuesday. It’s unclear if the reverse repo facility, which takes in cash largely from money market funds and is designed to provide a floor for short-term rates, will return to negligible usage or whether some cash will remain. A report from the New York Fed on Dec. 19 said conditions in the banking sector argue for continued contraction. It noted if reverse repos continue to fall, “such a steady decline would be consistent with that observed in early 2018, when investment at the [reverse repo facility] gradually disappeared as the Federal Reserve continued to normalize the size of its balance sheet and reserves in the banking system became less abundant.”Joseph Wang,  chief investment officer at Monetary Macro, believes the fate of the reverse repo facility is the key barometer of when the SRF will spring into life. “I wouldn’t expect meaningful usage until the [reverse repo facility] is at 0” and the Secure Overnight Financial Rate matches the rate offered on the SRF. Reverse repo utilization “should be around 0 first half of next year, and thereafter rates could drift higher towards the (SRF) offering rate. So I don’t expect meaningful usage for some time.” More

WASHINGTON (Reuters) – There was plenty of sound and fury this year in the U.S. Congress, but scant legislating amid Republican infighting in the House of Representatives, leaving little time for pressing matters such as funding the government and continuing to aid Ukraine in its war against Russia.Congress will return for its 2024 legislative session on Jan. 8. Lawmakers will be confronted with Jan. 19 and Feb. 2 deadlines for settling government spending through September. They also hope to pass emergency aid for Ukraine and Israel, possibly with unrelated U.S. border security provisions attached.Failure to approve the one-dozen fiscal 2024 spending bills would plunge Washington agencies into shutdown mode.With the November presidential and congressional elections now looming, Congress could see yet another year of struggles, especially if Republican chaos in the deeply-divided House continues.Three history-making developments defined Congress in 2023: A record 15 ballots were required before Republicans managed to elect Representative Kevin McCarthy as speaker of the House; within nine months a group of right-wing conservatives made him the first speaker in history to be removed from office and it took three weeks to anoint a new one; and two months later, Republican Representative George Santos became the first member to be expelled from the House who had not been convicted of a crime or fought for the Confederacy during the U.S. Civil War.The result was that for more than the equivalent of a full month the House was unable to work on any legislation as the chamber fought to tamp down Republican anarchy.As revolts by right-wing Republicans roiled the House, the Senate was comparatively tame, working across party lines to write one dozen 2024 spending bills — none of which have yet made it into law in any form — and trying to confirm as many of Democratic President Joe Biden’s judicial nominees as possible as he enters the final year of his first term in office.DISASTERS AVERTEDAmid the House ruckus, lawmakers narrowly avoided a couple of disasters.They sidestepped triggering an historic default on U.S. debt in June with a deal that made minor budget savings. It promptly was thrown into controversy as right-wing House Republicans refused to adhere to the top-line spending authorized by the deal. And, despite two close brushes in October and November, there were no government shutdowns, as stop-gap federal funding bills kept U.S. agencies running on fumes.In one important legislative victory, a defense policy bill was enacted into law, authorizing a record $886 billion in annual military spending.The relatively unproductive year was in contrast to 2022, when the Democratic-controlled Congress passed a major infrastructure investment law, record investments to fight climate change and lower prescription drug prices and the first major new gun controls in decades.Last year may have been light on lawmaking, but it had no shortage of colorful personalities.Congressional Democrats privately worried about Biden’s age (81) as he gears up for re-election; Senate Republicans fretted their leader, Mitch McConnell (81), may not be up to the job, especially after two episodes in which he froze in front of cameras, stirring worries about his health.Democrat Joe Manchin announced he will not run for re-election in his solidly-Republican home state of West Virginia. But he refused to quiet speculation he might run as an independent presidential candidate.His exit put a dent in Democrats’ drive to keep their Senate majority in November’s elections.The House authorized an impeachment probe of Biden, even though Republican investigators have not unveiled firm evidence of presidential wrongdoing; Republican Representative Marjorie Taylor Greene used a congressional hearing to show graphic images of what she said was Biden’s son, Hunter.Meanwhile, three House Democrats were censured: Adam Schiff for investigating Trump’s conduct as president; Jamaal Bowman for pulling a fire alarm in a House office building when there was no fire; and Rashida Tlaib, a Palestinian-American, for comments she made regarding Israel’s war with Hamas.When elected speaker, McCarthy triumphantly said: “It’s time for us to be a check and provide some balance to the president’s policies.” Instead, McCarthy is checking out of Congress on Dec. 31. More

U.S. stock futures traded largely unchanged Wednesday, consolidating after recent gains in the final trading week of the year.By 05:00 ET (10:00 GMT), the Dow futures contract was up just 3 points, S&P 500 futures had dipped by 1 point, and Nasdaq 100 futures had rise by 2 points.The three main indices closed higher on Tuesday as traders returned to Wall Street following the Christmas break, although volumes were low. The blue-chip Dow Jones Industrial Average gained 160 points, or 0.4%, the broad-based S&P 500 index also rose 0.4% and the tech-heavy Nasdaq Composite climbed 0.5%.These gains add to what has already been a strong year, as investors gained confidence that the Federal Reserve would start cutting interest rates next year, having largely succeeded in getting inflation under control without causing a recession.With just three sessions left in 2023′s trading year, the DJIA and S&P 500 are poised to end 2023 higher by 13% and 24%, respectively, while the Nasdaq Composite has jumped an impressive 44%.SoftBank Group (TYO:9984) announced overnight that it would receive shares in T-Mobile US (NASDAQ:TMUS) worth some $7.59 billion as part of the conditions set out in the merger  agreement of its U.S. telco Sprint and T-Mobile.The news drove shares in the Japanese conglomerate up more than 4%, their  biggest gain in more than a month. Softbank’s stock has underperformed the wider market this year, with the group trading at a discount of around 45.5% to the value of its assets, after reporting its fourth straight quarterly loss last month following the bankruptcy of once high-flying flexible office space provider WeWork. Signs are growing that a series of pro-growth measures to aid a patchy post-COVID recovery may be having the desired impact in China, increasing the probability of the government’s growth target of around 5% for this year being achieved.China’s industrial profits rose 29.5% in November, gaining for a fourth month, as overall manufacturing improved. On an annual basis, earnings shrank 4.4%, a further narrowing from the 7.8% decline in January to October.That said, the economic recovery remains shaky amid persistent property sector weakness, rising deflationary pressures and soft global demand, suggesting more stimulus may still be needed.Toyota (NYSE:TM), the world’s largest automaker, received a late Christmas present this week after data showed its global production jumped 11% in November to a record level.Domestic sales for the month shot 27% higher, sales in both the United States and China increased by 17%, while those in Europe climbed 15%. This puts the auto giant on course for global sales of more than 10 million in 2023 – also a record. Toyota struggled last year from the global supply chain disruptions and had to announce a recall of 1.1 million vehicles earlier this month on the back of safety concerns that dated back decades.Oil prices edged lower Wednesday, after the previous session’s sharp gain as traders continue to monitor shipping in the Red Sea amid broader Middle East tensions.By 05:00 ET, the U.S. crude futures traded 0.2% lower at $75.41 a barrel, while the Brent contract dropped 0.1% to $80.75 per barrel. Both the benchmark contracts gained over 2% on Tuesday as further attacks by Yemen’s Iran-backed Houthi militia on ships in the Red Sea prompted more fears of shipping disruptions.However, major shipping firms such as Maersk and France’s CMA CGM have resumed passage through the Red Sea following the deployment of a multinational task force to the region, while Germany’s Hapag-Lloyd is expected to decide whether to resume shipments later Wednesday.The crude market also received a boost Tuesday with the news that the United States has agreed to purchase three million barrels of oil to help replenish the Strategic Petroleum Reserve.The Biden administration had conducted sales last year, including a record one of 180 million barrels, to help control oil prices after Russia’s invasion of Ukraine.The first weekly estimate of U.S. crude stockpiles, from the industry body American Petroleum Institute, is due later in the session, a day later than usual following the Christmas holiday. More

The attacks, targeting a route that allows East-West trade, especially of oil, to use the Suez Canal to save the time and expense of circumnavigating Africa, prompted some shipping companies to reroute vessels earlier in December.Others, now encouraged by the deployment of a U.S.-led military operation, are resuming crossings of the area.Below are companies’ reactions (in alphabetical order) to the situation in the Red Sea:C.H. ROBINSON The global logistics group said on Dec. 22 it had rerouted more than 25 vessels around the Cape of Good Hope over the past week, and that number would likely continue to grow.”Blank sailings and rate increases are expected to continue across many trades into Q1 of 2024,” it added.CMA CGMThe French shipping group is planning a gradual increase in the number of vessels transiting the Suez Canal, it said on Dec. 26. “This decision is based on an in-depth evaluation of the security landscape and our commitment to the security and safety of our seafarers,” CMA CGM said in a statement.The company had previously rerouted several vessels via the Cape of Good Hope.EURONAV The Belgian oil tanker firm said on Dec. 18 it would avoid the Red Sea area until further notice.EVERGREEN The Taiwanese container shipping line said on Dec. 18 its vessels on regional services to Red Sea ports would sail to safe waters nearby and wait for further notification, while ships scheduled to pass through the Red Sea would be rerouted around the Cape of Good Hope. It also temporarily stopped accepting Israeli cargo.FRONTLINE The Norway-based oil tanker group said on Dec. 18 that its vessels would avoid passages through the Red Sea and the Gulf of Aden.GRAM CAR CARRIERSThe Norwegian shipping company, which specialises in pure car truck carriers, said on Dec. 21 its vessels were restricted from passing through the Red Sea.HAPAG-LLOYD The German container shipping line said on Dec. 21 it would reroute 25 ships by the end of the year to avoid the Suez Canal and the Red Sea, adding it would take further decisions at the end of the year.A projectile believed to be a drone on Dec. 15 struck its vessel sailing close to the coast of Yemen. No crew were injured.HMM The South Korean container shipper said on Dec. 19 it had from Dec. 15 ordered its ships from Europe that would normally use the Suez Canal to reroute via the Cape of Good Hope for an indefinite period of time.HOEGH AUTOLINERSThe Norwegian shipping company said on Dec. 20 it would stop Red Sea transit after the Norwegian Maritime Authority raised its alert for the southern part of the sea to the highest level.MAERSKThe Danish shipping group said on Dec. 24 it is preparing to resume shipping operations in the Red Sea and the Gulf of Aden.”With the OPG (Operation Prosperity Guardian) initiative in operation, we are preparing to allow for vessels to resume transit through the Red Sea both eastbound and westbound,” it said in a statement.On Dec. 19, Maersk said it would reroute its vessels around the Cape of Good Hope, imposing extra charges on container transport on affected routes.MSCMediterranean Shipping Company (MSC) said on Dec. 16 its ships would not transit through the Suez Canal, with some already rerouted via the Cape of Good Hope, a day after two ballistic missiles were fired at its vessel.OCEAN NETWORK EXPRESSOcean Network Express (ONE), a joint venture of Japan’s Mitsui O.S.K. Lines, Nippon Yusen and Kawasaki Kisen Kaisha, said on Dec. 19 it would reroute vessels away from the Suez Canal and the Red Sea. Instead, its ships will navigate around the Cape of Good Hope or temporarily pause their journey and move to safe areas.OOCLThe Hong Kong-headquartered container group said on Dec. 21 it had guided its vessels to either divert route or suspend sailing to the Red Sea. The company, owned by Orient Overseas (International) Ltd, has also stopped cargo acceptance to and from Israel until further notice.WALLENIUS WILHELMSEN The Norwegian shipping group said on Dec. 19 it would halt Red Sea transits until further notice. Rerouting vessels via the Cape of Good Hope will add 1-2 weeks to voyage durations, it said.YANG MING MARINE TRANSPORT The Taiwanese container shipping company said on Dec. 18 it would divert ships sailing through the Red Sea and the Gulf of Aden via the Cape of Good Hope for the next two weeks. More