Aurelia Butler

(Reuters) – British government bonds rallied for a third day running on Friday, all but wiping out a sharp spike in yields since the start of the year that had briefly prompted comparisons with former Prime Minister Liz Truss’ “mini-budget” crisis of 2022.Yields across the range of gilt maturities had fallen by around 6 basis points on the day as of 1200 GMT, pushed lower by figures showing an unexpected fall in British retail sales in December that added to a run of lacklustre economic data.The 10-year gilt yield stood at 4.622%, on track for its biggest weekly fall since July and down 30 basis points from a peak hit on Jan. 9 of 4.925%, which was its highest yield since 2008.Last week’s lurch higher in yields was spurred mostly by shifting U.S. markets, but it put pressure on finance minister Rachel Reeves because it raised the risk that she would not meet her own fiscal rules without further tax rises or spending cuts. On Wednesday, Britain’s opposition Conservative Party said Reeves did not have the confidence of the market, citing the moves in bonds.But the gilt market has rallied over the last three days, in part due to downbeat economic data – with retail sales sliding unexpectedly in December – and the increasing likelihood of a Bank of England interest rate cut on Feb. 6.The 10-year gilt yield has now increased only 5 basis points since the end of 2024 – meaning it has outperformed the equivalent benchmark bond from every other Group of Seven advanced economy bar the United States.However, 10-year yields are still around 0.35 percentage points higher than when Reeves delivered her first budget on Oct. 30, which set out plans for higher taxes and greater borrowing to fund investment.Thirty-year gilt yields – which bore the brunt of the selloff and touched their highest since 1998 on Monday at 5.472% – are now just 6 basis points higher than at the end of 2024 at 5.17%.Investors on Friday priced in 68 basis points of interest rate cuts from the Bank of England by the end of the year – or between two and three 0.25 percentage point reductions – compared with fewer than 50 bps earlier in the week.”We still think this is on the low side – we continue to forecast 100 bps of cuts,” said Andrew Goodwin, chief UK economist at Oxford Economics. “If we’re proven right on Bank Rate there’s still scope for yields at the longer end to fall.” More

From the pricing of yuan forwards to interest rate derivatives and analysts’ forecasts, indications are that China is already permitting a slow depreciation of the yuan to adjust to a broadly stronger dollar as it braces for Trump 2.0.But pricing also shows investors are expecting a gradual, moderate depreciation, with sell-side analysts seeing a 5-6% drop from current levels by year end.During Trump’s first term as president, the yuan was allowed to weaken more than 12% against the dollar during a series of tit-for-tat U.S-Sino tariff announcements between March 2018 and May 2020.Trump has threatened tariffs of up to 60% on imports of Chinese goods during his second term beginning on Monday, though some reports suggest levies may be ramped up gradually. But things are different now, analysts say. The yuan is already weak, the economy is fragile, portfolio money has been leaving China, and its exports to America are a smaller proportion of its overall global trade, too small to justify a big devaluation.The yuan, or renminbi as it is also known, has been languishing near 16-month lows against the dollar for days and has fallen for three straight years. It was near record highs of 6.3 per dollar in 2018.Reuters reported last month that there are discussions in official circles about allowing it to fall to 7.5 per dollar, a roughly 2% drop from current levels.Most of that depreciation, though, will likely come a result of interest rate differentials between the U.S. and China, which have widened to about 300 basis points.The dollar is already elevated at current levels around 7.3 yuan, and “to break this level significantly higher is not realistic,” said Ju Wang, head of Greater China FX and rates strategy at BNP Paribas (OTC:BNPQY).Wang pointed to how nearly half of China’s $1 trillion trade surplus was with countries other than the United States, particularly neighbours such as Vietnam that have grown as hubs for finishing Chinese manufactured goods.In both the 2015 and 2019 periods of sharp yuan falls, China was forced to defend its policy and explain it was not engaging in any kind of beggar-thy-neighbour currency devaluation tactic. A cheaper exchange rate helps exporters by making their prices more competitive internationally.”There is a responsibility on China’s side to keep the currency relatively stable because you still enjoy a fairly large trade surplus with the rest of the world. The world cannot take on a one-to-one adjustment in dollar-yuan against the tariff,” said Wang.When asked about the yuan, the People’s Bank of China (PBOC) told Reuters on Friday the country has sufficient foreign exchange reserves and more experience in responding to external shocks … “so it has the confidence, conditions and ability to keep the renminbi exchange rate fundamentally stable at a reasonable equilibrium level”. STABILITY IS KEYDomestic considerations about the sluggish economy also call for a stable financial system and currency so residents and businesses don’t shift their savings abroad. Falling domestic bond yields and wobbly stock and property markets have hastened that rush to hoard dollars.”If the renminbi becomes a very unstable currency, people will try to convert it into U.S. dollars, buy gold, et cetera. Which is not what the PBOC wants,” said Vincent Chan, China strategist at Aletheia Capital.While it has been difficult to interpret the PBOC’s plans for the yuan, it has made every effort to contain the currency’s weakness, so much so that it stays strong in trade-weighted terms.The trade-weighted CFETS yuan index, which measures the Chinese currency against a basket of 25 peers, remains near its highest level in over two years, showing the yuan so far remains slightly less competitive than currencies of its trading partners.Authorities have put a floor under falling domestic yields, including by suspending a bond purchase programme. They have encouraged companies to borrow abroad to attract more dollars home and the central bank has often fixed the yuan’s trading band at a stronger level than market expectations.While China’s leaders pledged in December to loosen monetary policy and take other steps to support economic growth in 2025, interest rate swaps show markets are pricing out the odds of rate cuts, because they think the PBOC will prioritise yuan stability.Alpine Macro (BCBA:BMAm)’s China strategist Yan Wang sees the 7.7 level in dollar/yuan as the upper limit for the PBOC, implying about a further 5% decline.”Yuan pressures in the near-term may be hard to avert,” said Vishnu Varathan, head of macro research for Asia ex-Japan at Mizuho (NYSE:MFG). “But it may be managed such that trade-weighted yuan stability is not unduly compromised.”($1 = 7.3317 Chinese yuan renminbi) More

(Reuters) -U.S. stock index futures edged higher on Friday, with the S&P 500 and the Dow looking set to log their biggest weekly advances since November, while investors awaited a wave of policy changes under the incoming Trump administration.At 7:21 a.m. ET, Dow E-minis were up 164 points, or 0.38%, S&P 500 E-minis were up 21.5 points, or 0.36% and Nasdaq 100 E-minis were up 93.25 points, or 0.44%.Better-than-expected earnings from major banks and signs that underlying inflation was cooling have prompted risk taking on Wall Street this week, putting the benchmark S&P 500 and the blue-chip Dow on track to log their steepest weekly rises since the U.S. election week. The S&P 500 banking index and regional banks have outperformed the main indexes this week, logging advances of about 5.8% and 6.4%, respectively. Also aiding risk sentiment was a dip in yields on longer-dated bonds that had touched more than 10-month highs earlier in the week. Yield on the benchmark 10-year note is now at a more than one-week low at 4.58%. [US/]President-elect Donald Trump is expected to take over the White House on Monday and investors will be on edge for any insights into his plans on tax cuts, tariffs, loose regulations and immigration at his inauguration speech, that analysts widely expect could boost the economy.The S&P 500 has gained nearly 3% to date since Election Day, while the dollar has jumped about 5%.However, concerns prevail that his plans on tariffs and immigration could spark a trade war and fresh price pressures, which could force the Federal Reserve to stave off further monetary policy easing.”On our math, (a stronger dollar) could cut first-quarter earnings growth by about 1.5 percentage points,” analysts at UBS said. “However, we believe that part of the strong dollar risks have already been priced in and that the tariff impact is unlikely to be strong enough to derail healthy earnings growth.”At a time when recent data points to a resilient economy, Cleveland Fed President Beth Hammack said inflation remains a problem.According to data compiled by LSEG, traders are expecting the central bank to leave interest rates on hold at its meeting later this month and see the first cut coming in June. They had all but priced out any rate cuts for 2025 earlier in the week.Before markets open, investors will assess data on building permits, housing starts and industrial production for the month of December, that could help gauge the health of the world’s largest economy.Eyes are also on developments around the ceasefire deal to the Middle East conflict, with the Israeli cabinet due to give final approval, following concerns the accord may be delayed.Among others, Nvidia (NASDAQ:NVDA) gained 0.9% and Broadcom (NASDAQ:AVGO) rose 1.4% after Barclays (LON:BARC) raised its price targets on the stocks.SLB rose 2.2% after the oilfield services provider beat estimates for fourth-quarter profit, benefiting from higher demand for its drilling equipment and technology in North America and international markets.Truist Financial (NYSE:TFC) rose 2.9% after reporting a rise in fourth-quarter profit, as it earned more in interest payments. More

“We want to collaborate with you in a fundamentally different way to support the growth mission,” FCA Chief Executive Nikhil Rathi wrote in a letter sent Thursday to Prime Minister Keir Starmer and finance minister Rachel Reeves.Reeves has urged Britain’s regulators to eliminate barriers to growth, tasking them with creating a regulatory environment that boosts investment and innovation.She has also called on regulators to institute cultural change to deliver growth instead of focusing “excessively” on managing risk.”To achieve the deep reforms necessary, your acceptance that we will take greater risks and rigorously prioritise resources is crucial,” Rathi said in the letter. “Growth will be a cornerstone of our strategy, through to 2030.”Setting out a series of proposals for reform, Rathi said the FCA would aim to boost capital investment, speed up digital innovation and reduce the regulatory burden for startups and other busineses.Among the proposed digital reforms, Rathi said the FCA was considering removing a 100-pound ($122) cap on payments with contactless cards, giving businesses and consumers more flexibility.($1 = 0.8202 pounds) More

A resilient economy, declining interest rates and expectations of relaxed regulations under the Trump administration have boosted corporate enthusiasm for mergers and acquisitions. Equity and debt issuance also surged in the latter half of 2024. Charlotte, North Carolina-based Truist’s shares rose nearly 3% in premarket trading on Friday.The bank’s performance aligns with that of larger competitors such as JPMorgan Chase (NYSE:JPM), Morgan Stanley (NYSE:MS) and Wells Fargo (NYSE:WFC), which exceeded their quarterly profit forecasts on the back of investment banking gains.Truist’s investment banking and trading income increased by 58.8% to $262 million in the fourth quarter from a year ago. However, it was down 21.1% from the previous quarter.The bank’s net interest income, or the difference between what a bank earns on loans and pays out on deposits, rose nearly 2% to $3.64 billion. Net interest margin, which measures lending profitability, expanded to 3.07%, compared with 2.95% a year earlier.Truist’s quarterly adjusted net income available to common shareholders was $1.21 billion, or 91 cents per share, surpassing estimates of $1.18 billion, or 88 cents, according to estimates compiled by LSEG.Provision for credit losses declined by nearly 18% in the quarter. For fiscal 2025, Truist expects its adjusted revenue to rise between 3% and 3.5%, compared with 2024. More

Services inflation saw a marginal rise from 3.9% to 4.0%. Despite the recent uptick, analysts anticipate a significant decline in services inflation across the euro-zone in 2025.The detailed analysis of December’s inflation data highlighted persistent inflation within three specific sectors: insurance, transport, and tourism, which have been influenced by unique factors. However, when excluding these sectors, services inflation has seen a notable decrease over the past two years.The increase in December was primarily driven by the transport and package holiday categories, while other sectors collectively contributed less to the overall inflation figure.Experts at Capital Economics point to several reasons supporting a broad-based reduction in services inflation for the current year. Transport and package holiday costs, which are partly dependent on oil prices, are projected to drop based on historical patterns in oil price movements. Despite a recent surge in oil markets, the anticipated decline in these sectors’ inflation rates appears unaffected.Furthermore, with a sharp decline in goods inflation, inflation for vehicle and home insurance is also expected to decrease soon. A return to pre-pandemic averages in insurance, transport, and tourism could potentially reduce services inflation by 1.2 percentage points.Other aspects of services inflation are also predicted to fall. For instance, catering services inflation, which was at 4.3% in December, is projected to drop to around 2.5% by mid-year, potentially reducing services inflation by another 0.4 percentage points.A key factor contributing to the anticipated decline is the slowing economic growth and cooling labor market, which are leading to a reduction in wage growth. The historical correlation between wage growth and services inflation reinforces the expectation that services inflation will substantially decrease in 2025.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

(Reuters) – The dollar steadied on Friday, but was on track to end the week lower after a six-week winning streak, while investors turned their focus to Donald Trump’s presidential inauguration and awaited the incoming administration’s policies.The yen was poised for its strongest weekly performance in over a month as expectations grow that the Bank of Japan will raise rates next week, putting the dollar on the back foot. The dollar has surged in the past few weeks on the back of rising Treasury yields, reflecting expectations that President-elect Trump’s policies could boost inflation when the U.S. economy is already strong. But bond markets got relief from a relentless sell-off after softer U.S. core inflation data on Wednesday, plus remarks from Federal Reserve Governor Christopher Waller on Thursday, who said three or four interest rate cuts were still possible this year if the data supported that. This led markets to up their bets on Fed cuts this year, putting some pressure on the dollar ahead of Trump’s return to the White House next week.Money markets currently price in about 43 basis points in U.S. rate cuts in 2025. Investors are now awaiting Trump’s inauguration speech on Monday to get a better sense of his policy steps, with a volatile period for markets expected ahead. “What happens next is just so dependent on what we hear from Trump, what he does and the policies that he implements in his first couple of days and weeks,” said Fiona Cincotta, senior market analyst at City Index.But Cincotta said she would be looking to gauge market sentiment later in the session. “It’ll be interesting to see what happens towards the end of the session today… Whether investors are prepared to hold risk going into next week, or whether we see a little bit of a sell-off heading into the weekend.”The yen has climbed more than 1% against the dollar this week, reversing last week’s decline. It was last 0.37% weaker at 155.69 per dollar, after touching a one-month high of 154.98 per dollar earlier on Friday. Remarks from BOJ officials along with Japanese data that point to persistent price pressure and strong wage growth have helped boost market confidence that a rate shift is in the offing, with traders pricing in an 80% chance of a hike next week.Sources also told Reuters that the central bank is likely to hike rates next week barring any market shocks when Trump takes office.”Unlike most other central banks, they (BOJ) benefit from the Fed’s recent hawkish shift which means they can hike without causing too much currency volatility,” said Ben Bennett, Asia-Pacific investment strategist at Legal And General Investment Management.Sterling was down 0.35% at $1.2194, not far from the 14-month low it hit on Monday. British retail sales fell unexpectedly in December, according to data on Friday that raised the risk of an economic contraction in the fourth quarter.The euro was flat at $1.03. That left the dollar index, which measures the U.S. currency against six other units, up 0.1% at 109.08, away from a more than two-year high touched at the start of the week. The index is set for a drop of about 0.5% in the week, which would snap a six-week run of gains.China’s yuan was little changed at 7.3290 per dollar after data showed the world’s second biggest economy grew 5.4% in the fourth quarter, significantly beating analysts’ expectations and putting full-year 2024 growth at 5%, bang in the centre of Beijing’s target.Bitcoin rose 2% to $102,246 on Friday, amid hopes in the crypto industry that the incoming Trump administration will mark a shift in cryptocurrency policies. More