Aurelia Butler

NEW YORK (Reuters) – Signs of a resilient U.S. economy are boosting the appeal of semiconductor stocks, even as worries over the Federal Reserve’s monetary policy tightening weigh on the sector along with the broader market.The Philadelphia SE Semiconductor index is up about 16% so far this year, dwarfing the 3% year-to-date gain for the S&P 500 and the Nasdaq Composite’s 8.5% rise. Semiconductors were among the worst hit areas in last year’s market rout, which saw the SOX index lose 36%, fueled by worries of an imminent recession. They have been standouts in the market’s 2023 rebound, supported in part by evidence that the U.S. economy continues to be robust even after the Federal Reserve unleashed its most aggressive monetary policy tightening in decades to fight inflation. With semiconductors a key component in countless products, some investors are betting economic strength could help the shares outperform. Despite last year’s recession fears, the market now believes “the economy is going to continue to chug along,” said King Lip, chief strategist at Baker Avenue Wealth Management, whose firm owns shares of Nvidia (NASDAQ:NVDA) and On Semiconductor. “If that’s the case, then I think semiconductors can do very well.”Of course, economic strength has been a double-edged sword for stocks lately. Semiconductor shares have pulled back recently along with broader markets on worries of a “no landing” economic scenario in which strong growth keeps inflation elevated and prompts the Fed to raise interest rates higher for longer. More insight into the state of the economy comes next week with a raft of data due, including consumer confidence and durable goods.Still, virtually all of the 30-component Philadelphia semis index have outperformed the broader market this year, led by heavyweight Nvidia’s roughly 60% year-to-date gain.The chip designer’s shares rose 14% on Thursday after it forecast first-quarter revenue above estimates as its CEO said use of its chips to power artificial intelligence services had “gone through the roof in the last 60 days.” The rally in Nvidia’s shares has catapulted its market value to $570 billion, making it the sixth most valuable S&P 500 company after electric automaker Tesla (NASDAQ:TSLA).Graphic: Chip stocks vs the S&P 500 https://fingfx.thomsonreuters.com/gfx/mkt/dwvkdzarjpm/Pasted%20image%201677191358965.png Whether the group maintains its momentum could depend on companies hitting earnings estimates that were marked down severely in the last year.Forward 12-month earnings estimates for semiconductor companies declined 28% from June of last year to January, the largest such downward revision in a decade, according to Stacy Rasgon, an analyst at Bernstein.“We have had one of the larger earnings resets that we have had in a quite a while,” Rasgon said.Earnings for the S&P 500 semiconductor and semiconductor equipment industry, which has a nearly 6% weight in the index, are expected to fall 20% this year, but are seen perking up in the last quarter of the year, according to Refinitiv IBES. “It’s not that fundamentals are incredibly good right now,” said Peter Tuz, president of Chase Investment Counsel. But, he said, “the outlook down the road seems to be a little bit better than it was in late 2022.”Not every chip stock has thrived. Intel (NASDAQ:INTC) shares have slumped 5% this year. The company earlier this week cut its dividend payout to its lowest in 16 years amid slowing demand for its chips used in personal computers and data centers.While chip stocks might benefit from a stronger economy, few expect them to be immune to the adverse effects of higher Treasury yields, which have surged along with Fed rate expectations. Rising yields offer investment competition to stocks and make equities more expensive in standard analyst valuation models – particularly for tech companies, whose market value is more dependent on future profits.And if tighter Fed policy eventually brings on a recession in the second half of the year, as some fear, semis could suffer.Burns McKinney, a portfolio manager at NFJ Investments, also sees declining demand in the personal computer market after the pandemic boom as yet another obstacle for the sector. Nevertheless, he believes the sector could thrive in the longer-term, especially if signs of cooling inflation eventually allow the Fed to slow its monetary policy tightening later in the year. McKinney holds positions in Texas Instruments (NASDAQ:TXN) and ASML Holding (NASDAQ:ASML). “Lower data prints should give the Fed the ability to take their foot off the brakes, and if that takes place it would be a positive for cyclical tech stocks,” McKinney said. More

U.S. large-, and mid-cap funds suffered weekly disposals of $5.68 billion and $389 million respectively but small-cap received a marginal $79 million worth of inflows.Tech and real state witnessed $856 million and $603 million worth of outflows, while consumer discretionary and utilities, both lost about $300 million in net selling.Economic data releases during the reported week showed upbeat U.S. business activity in February and fewer weekly unemployment claims, solidifying expectations that interest rates would remain higher for longer. Meanwhile, investors exited U.S. bond funds for a second straight week as they withdrew a net $1.67 billion. U.S. high yield and municipal debt funds suffered outflows of $6.4 billion and $1.78 billion, respectively, but U.S. short/intermediate government and treasury funds saw about $4.85 billion worth of net buying.Meanwhile, money market funds obtained $541 million, marking a second weekly inflow in a row. More

In a statement issued on Friday, TitleMax said it “vehemently denies” any wrongdoing.The Consumer Financial Protection Bureau said the business, which comprises an array of entities operating under TMX Finance LLC, was a repeat offender. The CFPB fined TitleMax $9 million in 2016 for allegedly misrepresenting loan costs and using “high pressure” debt collection practices, the bureau said in a statement. CFPB Director Rohit Chopra called TitleMax’s behavior “predatory,” citing the lender’s steps to hide allegedly illegal behavior by doctoring borrowers’ personal information so they would not be identified as military service members or their dependants.From 2016 to 2021 TitleMax made nearly 2,700 prohibited auto loans to borrowers covered by the Military Lending Act and charged illegal fees on about 15,000 loans, the CFPB said.In its statement, TitleMax said the CFPB’s factual and legal allegations were unproven and untrue. It also denied being a repeat offender, saying it had complied with all prior Bureau directions.”Although the company agreed to pay a fine to the CFPB, it did so to avoid lengthy and costly litigation,” the statement said. More

China’s post Lunar New Year business activity data will give a reading of the health of the world’s number-two economy whilst Nigerians head to the polls in the first of this year’s key emerging market elections.Here’s a look at the week ahead in markets from Ira Iosebashvili in New York, Rae Wee in Singapore and Naomi Rovnick, Dhara Ranasinghe and Karin Strohecker in London. 1/ FED VS STOCKS Reports on U.S. durable goods orders, home prices as well as manufacturing and consumer confidence threaten to cement expectations of more Fed rate hikes and to deal a knockout punch to the early-year stocks rally.Evidence of a stronger-than-expected economy has forced investors to recalibrate projections for Fed hawkishness, lifting bond yields and weighing on stock gains. The S&P 500 has managed to hang on to a 4.5% year-to-date gain but is well off its highs.Tuesday’s consumer confidence data may be of particular interest, offering a glimpse into households’ views on economic prospects and inflation expectations. Economists polled by Reuters expect a median reading of 109.5 on the index, which unexpectedly fell in January. Graphic 1: U.S. consumers seen more upbeat in February, https://www.reuters.com/graphics/USA-CONSUMERS/T5/lbpgglgkopq/chart.png2/ BUCKLING UP FOR NO LANDINGAre economic conditions becoming too rosy for markets to bear? The idea of “no landing,” which upends a host of popular trades based on a the scenario of the global economy entering recession is gaining traction thanks to surprisingly upbeat data.China has reopened from COVID lockdowns, U.S. labour markets are booming and consumer spending is holding up, while Europe’s energy crisis has eased. Still, inflation remains sticky, which could keep big central banks on their hawkish path of raising interest rates further.This is inconvenient for investors who bought government bonds and bet on a softer dollar this year, expecting economies would decelerate and central banks would pause rate-hike campaigns. A soft landing could still happen. But if data in coming days signal that growth and inflation remain robust, equity and bond markets may turn lower still. Graphic 2: Economic growth forecasts turn higher, https://www.reuters.com/graphics/GLOBAL-MARKETS/zdvxdxojnvx/chart.png3/INFLATION WEEKIt’s inflation week in the euro area. Preliminary February data from Germany, France, Spain and Portugal are due on Monday and Tuesday, followed by the bloc-wide flash number on Thursday. Price pressures are abating: headline euro area inflation eased to 8.6% in January from 9.2% a month earlier. Still, Thursday’s numbers are unlikely to placate European Central Bank hawks pushing for aggressive rate hikes to continue.Focus will likely stay on core inflation, stripping out volatile food and energy prices. It’s proving stubborn and could still rise from January’s 5.3%.Markets have got the message and renewed bets on the ECB 2.5% depo rate moving higher. Deutsche Bank (ETR:DBKGn) just raised its forecast for the peak in ECB rates to 3.75% from 3.25%.Graphic 3: ECB still in rate-hiking mode to contain inflation, https://www.reuters.com/graphics/GLOBAL-MARKET/znpnbxbjypl/chart.png4/ROARING RESTARTChina’s reopening came fast and furious after a three-year lull. Wednesday’s PMI releases could show whether factory activity in the world’s second-largest economy has returned with a bang or a whimper after the Lunar New Year break.Strong figures could revive some of the waning enthusiasm for the reopening trade – where optimism seems to be fizzling out. The A-share blue-chip CSI 300 Index is largely flat on the month after surging 7% in January.Retail investors are sitting out the stocks rally, and the recent disappearance of star Chinese dealmaker Bao Fan has investors worrying that Beijing’s regulatory crackdowns are far from over. Escalating tensions between Washington and Beijing over a suspected Chinese spy balloon and Taiwan loom large over the China investment thesis. Graphic 4: China economic activity rebounds in January 2023, https://www.reuters.com/graphics/GLOBAL-MARKET/dwpkdzdqqvm/chart.png5/ TIME TO VOTE Nigerians vote on Saturday in what could be their most credible and close electoral contest since military rule ended nearly a quarter of a century ago. It’s also the first election in which a presidential candidate who is not from one of the two main parties stands a chance.Whoever Nigerians choose to succeed President Muhammadu Buhari will have to resolve a litany of crises that have worsened under the current administration – from widespread banditry and militant violence to systemic corruption, and from high inflation to widespread cash shortages. Many other emerging market economies are also approaching election crossroads. Turkey’s government under President Tayyip Erdogan could hold elections in the wake of the devastating earthquake as scheduled in June. Argentina’s Peronists are seeking re-election in October and Pakistan voters will likely head to the ballot box the same month. Graphic 5: Nigeria’s soaring inflation, https://www.reuters.com/graphics/GLOBAL-MARKETS/THEMES/zjpqjyjmmvx/chart.png More

US stocks have recorded their biggest weekly fall in more than two months, declining further on Friday after traders were shaken by the latest evidence of stubbornly high inflation in the world’s largest economy.The S&P 500 index closed down 1.1 per cent in New York, bringing its losses for the week to 2.7 per cent. The tech-heavy Nasdaq Composite was 1.7 per cent lower for the day, for a 3.3 per cent decline for the week. The weekly declines were the sharpest since early December.After an unexpectedly strong start to the year, US stocks have now declined for three consecutive weeks. Recent economic data has increased expectations that the Federal Reserve will have to hold interest rates at higher rates for an extended period to bring inflation back towards its 2 per cent target, putting pressure on equity valuations.Central bank officials have repeatedly warned that rates would be high for some time, but Jonathan Golub, chief US market strategist at Credit Suisse, said “the market wasn’t listening” until the recent data convinced them.The most recent disappointment came on Friday as data showed core monthly personal consumption expenditures — the Fed’s preferred measure of inflation — rose more than expected in January. Prices increased 0.6 per cent month on month, and 4.7 per cent year on year — substantially more than average forecasts of a 4.3 per cent annual rise.“The market is now beginning to discount a different kind of backdrop” featuring a combination of stubborn inflation and weak economic growth, said Golub. “It’s ‘stagflation lite’.”Friday’s figures followed strong labour market, consumer price and retail spending data released earlier this month.Susan Collins, president of the Federal Reserve Bank of Boston, said on Friday that the data “reinforce my view that we have more work to do to bring inflation down to the 2 per cent target.“I anticipate further rate increases to reach a sufficiently restrictive level, and then holding there for some, perhaps extended, time.”US Treasuries sold off alongside stocks, with the yield on the interest rate-sensitive two-year note rising 0.12 percentage points to 4.81 per cent, the highest since June 2007. Yields rise when prices fall. The 10-year Treasury yield climbed 0.07 percentage points to 3.95 per cent.Markets are now pricing in a rise in the benchmark federal-funds rate to between 5.25 per cent and 5.5 per cent by July — more than half a percentage point higher than where investors thought rates would peak at the start of February.European stocks also dropped on Friday. The region-wide Stoxx 600 fell 1 per cent, while London’s FTSE 100 dipped 0.4 per cent.Germany’s Dax declined 1.7 per cent and the French CAC 40 was down 1.8 per cent.Investors are also concerned that the European Central Bank will lift rates further. Joachim Nagel, president of the Bundesbank and a member of the ECB’s governing council, said on Friday that inflation was likely to “remain at very high levels”, requiring “significant interest rate hikes beyond March”.Earlier in Asia, the Hang Seng index fell 1.7 per cent, while China’s CSI 300 lost 1 per cent. Although ecommerce group Alibaba beat analysts’ expectations with its fourth-quarter earnings, its shares fell 5.4 per cent, suggesting investor skittishness over China’s economy despite the government easing Covid-19 restrictions.The dollar index, which measures the greenback against a basket of six peers, rose 0.6 per cent. More

WASHINGTON (Reuters) – U.S. consumer spending increased by the most in nearly two years in January amid a surge in wage gains, while inflation accelerated, adding to financial market fears that the Federal Reserve could continue raising interest rates into summer.The report from the Commerce Department on Friday was the latest indication that the economy was nowhere near a much-dreaded recession. It joined data earlier this month showing robust job growth in January and the lowest unemployment rate in more than 53 years.”Clearly, tighter monetary policy has yet to fully impact consumers and shows that the Fed has more work to do in slowing down aggregate demand,” said Jeffrey Roach, chief economist at LPL Financial (NASDAQ:LPLA) in Charlotte, North Carolina. “This report all but insures the Fed will continue on its rate hiking campaign for a lot longer than markets anticipated just a few weeks ago.”Consumer spending, which accounts for more than two-thirds of U.S. economic activity, shot up 1.8% last month. That was the largest increase since March 2021. Data for December was revised higher to show spending dipping 0.1% instead of falling 0.2% as previously reported. Economists polled by Reuters had forecast consumer spending rebounding 1.3%.Graphic: Personal consumption https://www.reuters.com/graphics/USA-STOCKS/egvbyomrzpq/pce.png When adjusted for inflation, consumer spending increased 1.1%, also the biggest gain since March 2021. The so-called real consumer spending had declined in November and December.Consumers boosted purchases of long-lasting manufactured goods like motor vehicles, household furnishings and equipment as well as recreational goods and vehicles. They also bought clothes. Goods outlays rebounded 2.8%. Spending on services was also strong, rising 1.3% as Americans frequented restaurants and bars. There were increases in spending on healthcare, recreation and transportation services.The overall surge in spending came as wages and salaries jumped 0.9%. An 8.7% cost of living adjustment, the biggest increase since 1981, for more than 65 million Social Security beneficiaries offset a drop in government social benefits. That reflected the expiration of the extended child tax credit. Spending was also likely flattered by difficulties ironing out seasonal fluctuations from the data at the start of the year. Some economists expect payback in February. Nevertheless, the strong performance put consumer spending on a higher growth path at the start of the first quarter. Consumer spending slowed in the fourth quarter, with most of the loss in momentum happening in the last two months of 2022.The data together with another Commerce Department report showing new home sales vaulting 7.2% in January prompted Goldman Sachs (NYSE:GS) to raise its first-quarter gross domestic product tracking estimate by 0.4 percentage point to a 1.8% annualized rate. The economy grew at a 2.7% pace in the fourth quarter. Stocks on Wall Street fell. The dollar firmed against a basket of currencies. U.S. Treasury yields rose.Graphic: New home sales https://www.reuters.com/graphics/USA-STOCKS/byprlqrgwpe/nhs.png MORE RATE HIKESFinancial markets have been on edge since the release of January’s blockbuster employment report.The Fed is expected to deliver two additional rate hikes of 25 basis points in March and May. Traders on Friday raised their bets for another increase in June. The U.S. central bank has raised its policy rate by 450 basis points since last March from near zero to a 4.50%-4.75% range.The personal consumption expenditures (PCE) price index shot up 0.6% last month, the largest increase since June 2022, after gaining 0.2% in December. In the 12 months through January, the PCE price index accelerated 5.4% after rising 5.3% in December.Excluding the volatile food and energy components, the PCE price index increased 0.6%. That was the biggest gain since August 2022 and followed a 0.4% rise in December. The so-called core PCE price index increased 4.7% on a year-on-year basis in January after advancing 4.6% in December.The Fed tracks the PCE price indexes for monetary policy. According economists’ calculations, core services prices excluding housing, which are being closely watched by policymakers, increased 0.6% after climbing 0.4% in December.The rise in inflation reflects upgrades to consumer and producer prices in annual revisions published this month. Businesses also push through price increases at the beginning of the year. The latest high readings left economists to expect that the road to disinflation would be slow and bumpy, with a survey from the University of Michigan on Friday showing consumers’ near-term inflation expectations increased in February.Graphic: UMich inflation expectations https://www.reuters.com/graphics/USA-STOCKS/lgpdkolddvo/umichinflation.png But some believe the year-on-year PCE price data will be revised lower when the Commerce Department’s Bureau of Economic Analysis (BEA) publishes its annual revisions to the series later this year. The year-on-year CPI and PPI data were not impacted by the annual revision.”But so far the PCE price data are only getting the upward revision from the annual revisions to the underlying source data from recent months without getting the offsetting downward revisions to earlier months,” said Daniel Silver, an economist at JPMorgan (NYSE:JPM) in New York. “This means that year-ago rates for the PCE price data in recent months are ‘too high’ right now and likely will be revised down in the BEA’s own annual revision coming in the fall.”Personal income increased a solid 0.6%, the bulk of it coming from strong wage growth. Income at the disposal of households after adjusting for inflation surged 1.4%, the largest increase since March 2021. Disposable income was also boosted by a 7.9% drop in tax payments.Consumers increased savings even as they stepped up spending. The saving rate rose to 4.7%, the highest in a year, from 4.5% in December. “Households are drawing down excess savings at a slower rate than before, likely due to recession concerns,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. More

Russia’s invasion of Ukraine a year ago reverberated through global markets. With no end in sight to Europe’s most intense conflict since the second world war, the effects are still being felt.Financial Times reporters look at what has occurred in key markets and what might happen next.Putin’s energy war backfiresRunning almost in parallel to Russia’s invasion of Ukraine has been the energy war President Vladimir Putin unleashed against Europe. The squeeze on gas supplies started earlier, in what many industry commentators now believe was an attempt to weaken Europe’s resolve before the first shots were even fired. But Moscow’s weaponisation of gas supplies ramped up dramatically as western powers threw their support behind Kyiv.Russian gas exports, which once met about 40 per cent of Europe’s demand, have been cut by more than three-quarters to EU countries in the past year, stoking an energy crisis across the continent.But Putin’s energy war is no longer going to plan. Senior figures in the industry believe that for all Russia’s undoubted sway in oil and gas markets, the president is now staring at defeat in markets he once thought he could dominate.“Russia played the energy card and it did not win,” Fatih Birol, head of the International Energy Agency, told the Financial Times this week.“It wasn’t just meant to cause pain in Europe for its own sake it was designed to change European policy,” said Laurent Ruseckas, executive director at S&P Global Commodity Insights. “If anything, it made Europe more determined not to be bullied into changing positions.”European gas prices have fallen by 85 per cent from their August peak, bolstering the wider economy, which now looks likely to avoid a deep recession.The continent has also avoided the worst potential outcomes such as outright gas shortages or rolling blackouts, which once seemed a distinct possibility.Indeed, there are signs that Europe is now better placed to tackle next winter too.Relatively mild weather and Europe’s success in tapping alternative supplies such as seaborne liquefied natural gas mean that storage facilities across the continent are far fuller than normal for the time of year.Gas in storage stood just below 65 per cent of capacity as of Wednesday, according to trade body Gas Infrastructure Europe, with only a month of winter still to run. On the day of Russia’s invasion, gas storage stood at just 29 per cent.“The storage refill issue for next winter is no longer a big burden,” said Ruseckas.Longer-term traders including Pierre Andurand, who has run one of the world’s most successful energy funds for more than 15 years, think Putin has already lost as he has obliterated his relationship with Russia’s main gas customer. While Russia wants to sell more gas to Asia, it could take a decade to reorient its pipelines east, with the gasfields that once supplied Europe not connected to the line it uses to feed China.Andurand this month argued that China would also be in a position to force a hard bargain with Moscow on price, and would not want to repeat Europe’s mistake of becoming too reliant on any one supplier. “Once Russia can only sell gas to China, Beijing will be in a position to decide the price,” Andurand said.Europe still faces challenges. While gas prices have plummeted from the near $500 a barrel level (in oil terms) they reached in August, they remain two-to-three times higher than historical norms. Russia still supplies about 10 per cent of the continent’s gas along pipelines running through Ukraine and Turkey. Should Moscow decide to cut those supplies it is likely to push prices higher again, although it may be wary of alienating Turkey.Europe will also potentially face stiffer competition for LNG supplies with Asia this year as China’s economy reopens after the end of zero-Covid, though there is some initial evidence that Beijing is more price sensitive than feared. Traders look to extension of grain export dealInternational traders are focused on the extension of the Black Sea grain export deal between Kyiv and Moscow that is due to expire next month, amid Ukrainian accusations that Russian inspectors were deliberately delaying the transit of grain ships in the port of Istanbul.The agreement, brokered by Turkey and the UN last July, allowed Ukrainian grain shipments to flow through the Black Sea, bringing prices down from their post-invasion peaks. Grain prices have since fallen to prewar levels although they remain historically high.Ukraine had been a leading player in the food commodity markets prior to the war, accounting for about 10 per cent of the global wheat export market, just under half of the sunflower oil market and 16 per cent of the corn market.Last November, the deal was extended despite Putin’s threats to terminate it, and there is heightened uncertainty over how Moscow will act at the negotiation table.“If [the deal] is renewed — that’s great news, but if it’s not done, then immediately you’re going to have an issue there with supplies,” warned John Baffes, senior agricultural economist at the World Bank. “Those issues are going to affect mostly countries in north Africa and the Middle East.”High inflation ensures interest rates remain elevatedInflation was already elevated in February 2022, as prices were pressured higher by snarls in supply chains and the enormous fiscal stimulus unleashed to temper the worst effects of the Covid-19 pandemic. But those forces had been understood by central banks as transitory. The sanctions placed on Russia at the start of the war drove up the prices of oil, gas and coal — among other commodities — adding to inflation and rendering it more persistent. Even as supply chains were unblocked and pandemic cash was spent, inflation continued to rise. The persistence of that inflation has forced central banks to raise interest rates higher and higher, lifting yields on sovereign debt. Two-year sovereign bond yields, which move with interest rates, have risen more than 2 percentage points in Germany, the UK, the US and Australia, among others, in the last year alone. As the cost to borrow has risen for sovereign nations, so it has for companies, pushing corporate bond yields higher and stock prices lower. There’s little chance they will fall soon. Although inflation globally has begun to slow, the pace remains far above target for many central banks, which have vowed to continue their fight. Rouble set to depreciate after recovering from post-invasion lowOne year on from Russia’s invasion of Ukraine and the rouble’s value against the dollar is close to where it was at the start of the conflict — although there have been plenty of twists along the way.The Russian currency halved in value to a record low of 150 to the dollar in the month after Putin ordered troops into Ukraine, despite Russia’s central bank more than doubling interest rates to 20 per cent in late February in an attempt to calm the country’s increasingly strained financial system.European and US sanctions — designed to cut Russia out of the global payments system and freeze the hundreds of billions of dollars of reserves amassed by the Bank of Russia — swiftly followed. In late March, an emboldened US president Joe Biden declared that the rouble had been “almost immediately reduced to rubble” as a result.Then came the rebound. Moscow’s imposition of capital controls meant the rouble had recovered almost all of its losses by the start of April. The currency was also helped by the continued flow of oil and gas exports.It has gradually weakened since July, however, when it touched 51 against the dollar, a level last seen in 2015. Today it trades at 75.With Russia’s capital account all but closed for major hard currencies, “the exchange rate does not perform its forward-looking role based on expectations, it only reflects day to day trade flows, most of which is energy trade,” said Commerzbank analyst Tatha Ghose. Ghose expected the rouble to continue to depreciate against the greenback in 2023, dragged lower as western sanctions on Russian oil weigh on the country’s current account. More