Aurelia Butler

COLOMBO (Reuters) -Sri Lanka’s central bank raised interest rates in an unexpected move on Friday in a bid to help the country secure a bailout package from the International Monetary Fund (IMF) to stabilise its crisis-hit economy.The bank raised its standing deposit facility rate and standing lending facility rate by 100 basis points each to 15.50% and 16.50%, respectively, it said in a statement.The country is awaiting approval of a $2.9 billion IMF bailout package.Central bank Governor P. Nandalal Weerasinghe said with the rate increase all “prior actions” have been fulfilled and he was hopeful of the IMF bailout being approved within this month.Despite the increase in rates, the central bank expects market rates will continue to reduce, while on the currency front the country will gradually move towards a market-driven exchange rate regime, Weerasinghe added.The island nation’s economy has been squeezed by its worst financial crisis since independence from Britain in 1948, with growth contracting by an estimated 9.2% last year amid soaring inflation that hit 50% in February.”There have been some differences between the CBSL and IMF staff on the inflation outlook,” the Central Bank of Sri Lanka (CBSL) said in its statement.”Given the necessity of fulfilling all the ‘prior actions’ in order to move forward with the finalisation of the IMF Extended Fund Facility (EFF) arrangement, the Monetary Board and the IMF staff reached consensus to raise the policy interest rates,” it added.Sri Lanka has to restructure its debt before IMF disbursements can begin.”It indicates that the IMF staff are pushing to complete any and all possible domestic actions, hoping they can convince IMF board for approval of the program,” Thilina Panduwawala, head of research at Colombo-based Frontier Research, said.”It will probably leave the market confused in the near term than confident. But depends on whether the market reads this as positive for getting IMF (bailout) in March.”Sri Lanka is seeking IMF approval under a special Lending Into Official Arrears policy, which allows the global lender to green-light the program without formal prior financing assurances from China, Weerasinghe said.India and the Paris Club of creditors, the island nation’s other major lenders have already given their support.Recent tax increases are in line with international comparisons and are needed to help creditors regain confidence, the IMF said on Thursday, backing Sri Lanka’s efforts to lock down a programme. More

(Reuters) – The reward for holding U.S. stocks over Treasury bonds has not been this unattractive since 2004, possibly setting the stage for the sought-after 60/40 portfolio diversification to make a comeback after one of its worst years on record.A 60/40 portfolio, which typically has 60% of its holdings in stocks and the remaining 40% in fixed income, counts on moves in the two asset classes to offset one another, with stocks strengthening amid economic optimism and bonds rising during turbulent times.The strategy took a backseat in 2022 as the Federal Reserve raised interest rates aggressively to rein in inflation. However, signals from the stock and bond markets this year are pointing to a return of the popular asset allocation strategy.At the end of February, the S&P 500 returned 5.41% in earnings yield, the reciprocal of price-to-earnings ratio, while the yield on the benchmark U.S. 10-year bond surged to 3.94%, according to data from Refinitiv. The 1.47 percentage-point difference is the lowest upside stocks have held over bonds in nearly two decades.Earnings yield here refers to the S&P 500 earnings per share estimate for the next 12 moths divided by the index price. Graphic: Stock snag https://www.reuters.com/graphics/STOCK-SPREADS/CHART/byprlqxyepe/chart.png “The relative shine of equities is definitely dulled by rising yields across the Treasury curve,” said Eric Leve, chief investment officer of wealth and investment management firm Bailard.With estimates for earnings in 2023 implying essentially no growth over 2022, rates above 5% on short-term bonds and 10-year yields on the verge of 4% represent credible alternatives to stocks, according to Leve. The thinning spread between returns from stocks and bonds is set to bring the 60/40 portfolio strategy back in favor.”This strategy does provide excellent hedging in current environment,” said Glenn Yin, Head of Research and Analysis at AETOS Capital Group.The 60/40 portfolio has already had the best start to the year since 1991, according to Bank of America (NYSE:BAC).The Fed’s move to tighten monetary policy at the fastest pace in decades pumped up bond yields after nearly two years of near-zero interest rates.But a rise in yields poses headwinds for equities, especially growth stocks, and by extension, a large index like the S&P 500. Apple (NASDAQ:AAPL), Alphabet (NASDAQ:GOOGL) and Amazon.com Inc (NASDAQ:AMZN) are among the tech heavyweights that make up nearly a fifth of the index and bore the brunt of a sell-off last year.”Equity yields will continue to struggle this year as both prices and earnings decline” amid an economic slowdown, said Lance Roberts, Chief Investment Strategist at RIA Advisors.On the other hand, “during a recession, yields will fall and Treasury bond prices will rise,” said Roberts. He prefers bonds over stocks today, he added.Recent results and guidance from companies have bolstered the case for investors who believe the stock market’s early-year rally is unlikely to last.As of Feb. 24, results from 465 of the S&P 500 companies showed fourth-quarter earnings are estimated to have fallen 3.2% from the year-ago quarter while Wall Street’s expectation for S&P earnings growth for 2023 fell to 1.7% from an expected 4.4% on Jan. 1, according to Refinitiv.Expectations for U.S. earnings to decline in the first two quarters if the year come amid weaker-than-expected fourth-quarter results for 2022, which Credit Suisse estimates will be the worst earnings season outside of a recession in 24 years.Investors are hoping that in case of a severe recession, the Fed would be forced to slash interest rates. While the economic downturn would hit stock returns, drop in bond yields should provide some relief in such a scenario, according to analysts.”For me, the best risk-reward portfolio in this environment for now is long duration Treasury bonds, and deep value, dividend equities,” Roberts said. Deep value refers to stocks that are trading at a huge discount to their intrinsic values.”When the recession arrives, and the Fed cuts rates to zero, I will sell my bond portfolio to lock in the capital appreciation, and buy distressed equities with high yields and companies with strong balance sheets and earnings growth,” he added. More

A spokesperson for KLM, the Dutch arm of the Air France-KLM Group, which accounts for 60% of flights at Schiphol said the companies involved have sent a summons for the government to appear in a summary suit at Haarlem District Court.In June 2022, as Schiphol struggled with labour shortages, the Dutch government said it would lower the cap on annual flights at the airport to 440,000 from the current 500,000 in order to combat noise pollution and help meet climate goals. The government has recently indicated it may adopt an annual cap of 460,000 from November as an intermediate step.But the airlines joining the suit, which also include Delta, EasyJet, TUI and Corendon, called the decision “unilateral and sudden”.”The airlines maintain that, along with violating national, European and international legislation, the decision is unnecessary, damaging and lacks proper substantiation, given the airline industry is already achieving significant results in relation to reducing CO2 emissions and lowering noise levels,” they said.A spokesperson for the Ministry of Infrastructure, responsible for the decision to cap flights said the ministry was considering its response.Separately, the International Air Transport Association (IATA) said in a statement it supports the airlines’ suit and it plans a parallel challenge on the grounds that the move violates both EU law and the Chicago Convention on noise-related operating restrictions.”The dangerous precedent that this illegal approach creates left no choice but to challenge (the government) in court,” IATA Director General Willie Walsh said in a statement. More

TORONTO (Reuters) – Analysts are sticking to their forecasts for a stronger Canadian dollar over the coming year, expecting an improved global economy and less central bank uncertainty that would boost the commodity-linked currency, a Reuters poll showed on Friday.The loonie has weakened about 8% since March 2022 as aggressive interest rate hikes by the Federal Reserve and other major central banks to tackle inflation cooled prospects for the global economy this year. But analysts say the economic outlook could get better.According to the median forecast of more than 30 currency analysts in the March poll, the Canadian dollar will strengthen 1.5% to 1.34 per U.S. dollar, or 72.63 U.S. cents, in three months’ time, matching last month’s forecast.It was then expected to rally to 1.30 in a year, which is a gain of 4.6% and also in line with February’s forecast.”A supportive growth backdrop boosted by China’s reopening, a stronger European economy, and diminished central bank policy uncertainty will be the catalyst for a capital exodus from the U.S. dollar, which will likely take the loonie along for the ride,” analysts at Monex Europe, including Simon Harvey, said in a note.The reopening of China’s economy could fuel demand for commodities produced in abundance by Canada, including oil. Manufacturing activity in China grew last month at the fastest pace in more than a decade, data showed on Wednesday.Still, there are headwinds that could delay the loonie’s recovery. Canada’s economy is likely to be particularly sensitive to higher borrowing costs after households borrowed heavily in recent years to fuel a red-hot housing market.That point was not lost on the Bank of Canada. It has signaled a pause in its interest rate hiking campaign to assess the impact of its tightening on the economy.Data on Tuesday showed Canada’s economy stalled in the final three months of 2022 but likely rebounded in January.Money markets expect the BoC to keep its benchmark rate on hold at 4.50% at a policy decision next Wednesday.”Over the next few months, we think the Canadian economy is likely to be more susceptible to the impacts of higher interest rates than the U.S. economy,” said Royce Mendes, managing director and head of macro strategy at Desjardins, expecting the rebound in the Canadian dollar to take until next year to arrive. “If we’re able to get inflation under control, if the global economy and the domestic economy have already bottomed out then 2024 should provide a solid backdrop for the Canadian dollar,” Mendes said.(For other stories from the March Reuters foreign exchange poll:) More

Cash funds saw inflows of $68.1 billion, BofA said citing EPFR data. As per previous flow reports from the bank, this is the largest influx into cash since a $126.4 billion inflow in the week of April 24 2020.Global shares hit two-month lows while bond yields surged in the latest week, as investors assessed a raft of data that has reinforced the belief that interest rates aren’t going to peak any time soon and no cuts will materialise this year.Investors ditched equities and gold, which tends to suffer in an environment of rising real interest rates.Describing inflation as a “secular reality” rather than a “cyclical theme”, the BofA analysts hailed the end of an “era of extraordinary monetary policy”.In light of higher inflation and higher interest rates, they note cash will be “as good as bonds & stocks” until the bear market comes to an end with an expected credit event.Such a credit event could originate from the “Anglo-Saxon real estate” sector which has been hit by higher rates, the BofA analysts wrote.The bank pointed to U.S. mortgage applications being at their lowest since April 1995, while house prices in the United States, the UK, Canada, Australia and New Zealand were either falling or stagnating.They advise long-term investors to buy assets considered “solutions to society’s problems” such as infrastructure, inequality and climate change, but also to buy assets that lost out under the zero-rate environment such as value stocks, banks and European assets.Bonds saw inflows of $8.4 billion, while global stocks recorded outflows of $7.4 billion and investors pulled $900 million out of gold funds.Investors meanwhile shed $1.8 billion in emerging market debt and bought $2.4 billion in emerging market equities.BofA’s bull and bear indicator – a measure of market sentiment – ticked up marginally to 4.3 from 4.2 the previous week. More