Aurelia Butler

NEW YORK (Reuters) – U.S. government bond investors hurting after the biggest annual decline in the history of the asset class are riding out yet another selloff, as worries over persistent inflation cloud the prospects for an expected 2023 rebound.Heavyweights such as Amundi, Vanguard and BlackRock (NYSE:BLK) turned bullish on bonds in recent weeks, on expectations that inflation has peaked and that a potential recession next year could push the Federal Reserve to end its most aggressive rate hiking cycle in decades. Many investors have followed suit. December’s BofA Global Research survey showed fund managers were the most overweight bonds versus stocks in nearly 14 years. But while bonds rebounded in October and November, prices have retreated over the last few weeks, as investors digested stronger-than-expected U.S. economic data and as China reopened from COVID-19 restrictions, which some believe could add to price pressures in the new year.Falling prices have pushed up yields, which move inversely. Benchmark 10-year Treasury yields have climbed over 40 basis points since mid-December to nearly 3.9%, the highest in over a month. Two-year yields – which more closely reflect monetary policy expectations – hit an intra-day peak of 4.445% on Tuesday, their highest since November.”The market seemed to have been getting ahead of itself expecting a pivot to occur from the Fed,” said Michael Reynolds, vice president of investment strategy at Glenmede. “It is coming to terms with the fact that the Fed is going to have to be tighter for longer, until they’re really sure that they’ve got inflation back under control.” GRAPHIC: 10-year (https://fingfx.thomsonreuters.com/gfx/mkt/egpbyyxxzvq/Pasted%20image%201672421608608.png) Wall Street’s record for end-of-year bond market predictions has taken a hit. Late-2021 forecasts from Barclays (LON:BARC), Goldman Sachs (NYSE:GS) and other big banks largely failed to predict the carnage markets would endure this year, which saw the ICE (NYSE:ICE) BofA US Treasury Index slide 13% for its biggest annual loss in history as the Fed rapidly raised interest rates to thwart surging inflation. Among banks forecasting a decline in the benchmark 10-year yield next year are Deutsche Bank (ETR:DBKGn) which sees the yield at year-end at 3.65% and Bank of America (NYSE:BAC) which expects a year-end 3.25% yield. Investors in futures markets believe the Fed will begin cutting rates in the second half, though the central bank has projected interest rates steadily rising into the end of 2023 to stand around 70 basis points above current levels.Several global and domestic developments are complicating the case for lower yields. China’s rollback of stringent COVID-19 policies may support global growth and mitigate a widely expected recession. It also threatens to push inflation higher. While the pace of U.S. inflation subsided in October and November, comparatively robust employment and other signs of strength in the economy have implied the Fed may have room for further monetary tightening. “If the economy does not weaken further overall, especially with China eventually re-opening, then inflation could possibly rebound,” said John Vail, chief global strategist at Nikko Asset Management.Investors are getting set for a rush of data next week, including minutes from the Fed’s latest meeting on Wednesday and the U.S. employment report for December on Friday.Signs of continued economic strength could feed inflation fears and bolster the case for policymakers to keep rates higher for longer. Conversely, investors could read weakening data as a sign that a recession is approaching and head into bonds, a popular safe haven.At the moment, the Treasury market “is more focused on inflation still than … recession,” said Matthew Miskin, co-chief investment strategist at John Hancock Investment Management.”You need to have patience in the next couple of months, because if you get whipsawed out in this recent rise … and then you miss all the downside of yields, that would be the worst case scenario,” he said.Matthew Nest, head of active global fixed income at State Street (NYSE:STT) Global Advisors, believes yields will likely fall in 2023. Over the shorter term, however, their current upward trajectory could continue, pushing the 10-year yield to a test of 2022’s highs of around 4.25%, he said. “The next big move will likely be down in yield,” he said. However, “you could experience some pain in the short run.” More

The economy plunged into crisis after a state-controlled model failed to produce results, prompting more than 7 million Venezuelans to flee the country.In 2019 President Nicolas Maduro’s government, facing U.S. sanctions, relaxed private sector regulations to allow more foreign currency inflows. While the move helped some industries, annual inflation remains high – hitting 155% in October – and more than half of Venezuelans live in poverty.Venezuela’s central bank began publishing some economic data more consistently this year after a three-year pause in gross domestic product data. It has yet to resume reporting its outstanding balances.Oil activity rose 27.09% in the January-to-September period from a year ago and non-oil activity grew 14.49%, the bank said in a statement.It attributed the bump in oil activity to the “recovery of crude oil production capacity.” The bank did not report the country’s production volumes, though OPEC data indicates output of 600,000 to 700,000 barrels per day (bpd).The manufacturing sector rebounded in the period, growing nearly 40% led by food, chemicals, machinery and plastic.Construction grew 34.45% year-over-year and commerce increased 25.28%. Exports jumped 32.57% and imports rose 11.43%, the central bank added. More

SHANGHAI (Reuters) – Chinese tech giant Huawei Technologies Co Ltd estimated on Friday its 2022 revenue remained flat, suggesting that its sales decline due to U.S. sanctions had come to a halt.Despite sales increasing a mere 0.02%, rotating chairman Eric Xu struck an upbeat tone in the company’s annual New Year’s letter, where he revealed the figure.”U.S. restrictions are now our new normal, and we’re back to business as usual,” Xu wrote in the letter that was addressed to staff and released to media.Revenue for the year is expected to be 636.9 billion yuan ($$91.53 billion), according to Xu.That represents a tiny increase from 2021, when revenue hit 636.8 billion yuan, and marked a 30% year-on-year sales tumble as the U.S. sanctions on the company took effect.Xu’s letter did not mention Huawei’s profitability. The company typically discloses its full annual results in the following year’s first quarter.Revenue for 2022 still remained well below the company’s record of $122 billion in 2019. At the time the company was at its peak as the top Android smartphone vendor globally.In 2019, the U.S. Trump administration imposed a trade ban on Huawei, citing national security concerns, which barred the company from using Alphabet (NASDAQ:GOOGL) Inc’s Android for its new smartphones, among other critical U.S.-origin technologies.The sanctions caused its handset device sales to plummet. It also lost access to critical components that barred it from designing its line of processors for smartphones under its HiSilicon chip division.The company continues to generate revenue via its networking equipment division, which competes with Nokia (NYSE:NOK) and Ericsson (BS:ERICAs). It also operates a cloud computing division.The company began investing in the electric vehicle (EV) sector as well as green technologies around the time sanctions took effect.”The macro environment may be rife with uncertainty, but what we can be certain about is that digitisation and decarbonisation are the way forward, and they’re where future opportunities lie,” said Xu in the letter. More

LONDON (Reuters) – Industrial metals markets hoping for improving demand and a price rally may have to wait a few more months with the headwinds of slow growth likely to dominate the economic landscape for some time.Since hitting record highs in March on a rally fuelled by worries about disruptions to commodity supplies from Russia, copper has plummeted 22%, aluminium 41% and zinc 39%.Nickel and tin have slumped 50% and 70% respectively. Battery metal lead, sustained by tight supplies, low inventories and inclusion in a commodity index from January, has fared better, dropping only 15% since March.Spiralling inflation, COVID lockdowns in top consumer China and aggressive interest rate rises are behind economic weakness and dwindling demand growth for industrial metals such as copper, used in the power and construction industries.”The macro picture in 2023 rhymes with 2022 and many of the crises that developed this year will reverberate into the next,” Bank of America (NYSE:BAC) analysts said in a note.However, BoA noted that metals prices had already fallen significantly and that they would outperform energy in the first half of next year.The knee-jerk reaction to China’s recent easing of COVID controls was to drive up prices of metals such as aluminium, used in transport, packaging and construction, but a surge in infections has prompted a rethink.Higher U.S. interest rates mean a stronger U.S. currency; a double whammy for dollar-priced copper, which was trading at $8,450 a tonne at 1210 GMT, and aluminium at $2,420, zinc at $3,000, lead at $2,290, tin at $25,350 and nickel at $30,530.”We expect copper to fall to $7,800 a tonne over the next three months as an end to finished goods restocking, higher smelter output, seasonal weakness, and weakness in global end-use consumption drives the market into surplus,” Citi analysts said in a note.The picture for nickel is clouded by March’s trading fiasco on the London Metal Exchange, which created a confidence crisis in the contract leading to sliding volumes and liquidity.”While these conditions persist, we can expect continued episodes of elevated nickel price volatility, although we think our bearish fundamental view will ultimately win out,” Citi said.Used mainly to make stainless steel, nickel is now also a key material for electric vehicle batteries.For soldering material tin, a major theme is consumer belt tightening, which has hit demand for electronic goods.”Slowing (tin) demand is perhaps best illustrated by global semiconductor billings, which had retraced 18% by September, since reaching an all-time high in February,” Macquarie analysts said in a note. More