Aurelia Butler

NEW YORK (Reuters) – As the Federal Reserve accelerates the unwinding of its balance sheet this month, some investors worry that so-called quantitative tightening may weigh on the economy and make this year even more brutal for stocks and bonds.After roughly doubling its balance sheet to $9 trillion after the pandemic, the Fed began unloading some of the Treasuries and mortgage-backed securities it holds in June at a pace of $47.5 billion. It has announced that this month it is ramping up the pace of quantitative-tightening to $95 billion.The scale of the Fed’s unwinding is unprecedented and the effects of the central bank ending its role as a consistent, price-insensitive buyer of Treasuries has so far been hard to pinpoint in asset prices.Some investors, however, are cutting back equities or fixed income as quantitative tightening accelerates, wary that the process could combine with factors such as higher interest rates and a soaring dollar to further weigh on asset prices and hurt growth.”The economy is already in a glide path to recession and the Fed’s quickening pace in terms of QT will accelerate the decline in stock prices and increase in bond yields,” said Phil Orlando, chief equity market strategist at Federated Hermes (NYSE:FHI), who recently increased his cash allocation to a 20-year high.The Fed’s tighter monetary policy has weighed on stocks and bonds in 2022. The S&P 500 is down 14.6%, while the yield on the benchmark 10-year U.S. Treasury, which moves inversely to prices, recently stood at 3.30%, after surging 182 basis points this year.Although recent data have shown the U.S. economy has remained resilient in the face of higher interest rates, many economists believe tighter monetary policy is increasing the chances of a recession next year. The New York Fed projected in May that the central bank will shave $2.5 trillion off its holdings by 2025.Estimates vary for how this will affect the economy: Orlando, at Federated Hermes, said every $1 trillion in Fed balance sheet reduction would equate to an additional 25 basis points in implicit rate hikes. Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, estimates it could add up to 75 basis points through the end of 2023 alone. On the other end, Solomon Tadesse, head of North American Quant Strategies at Societe Generale (OTC:SCGLY), believes the Fed will ultimately cut $3.9 trillion off its balance sheet, equating to about 450 basis points in implicit rate increases. The Fed has already raised rates by 225 basis points and another 75 basis point increase is expected later this month. “It could be the ramp-up in QT that could trigger the next fall in markets,” wrote Tadesse, who believes the S&P could drop to a range of 2900-3200. Investors next week will watch August consumer price data for signs inflation has peaked. The Fed will hold its monetary policy meeting on Sept. 21.Jake Schurmeier, a portfolio manager at Harbor Capital Advisors, said reduced liquidity from tightening financial conditions is already making it more difficult to take large bond positions and will likely contribute to more volatility ahead.”It gives us pause before we make any moves,” he said. While Schurmeier finds longer-dated Treasuries attractive, he is “hesitant to add more risk until volatility has dampened down,” he said. Timothy Braude, global head of OCIO at Goldman Sachs (NYSE:GS) Asset Management, has been reducing his equity allocation in anticipation of more volatility due to the Fed’s quantitative tightening. “It’s very hard to tell which markets are going to be the most affected,” he said. To be sure, some investors doubt quantitative tightening will have an outsized effect on markets. “The increase in the pace of QT has been known since the Fed announced its QT plans in May,” strategists at UBS Global Wealth Management wrote on Thursday. “However, when combined with a hawkish Fed, market sentiment focuses on the higher pace even though the impact to the marketplace over the long term is not material.”The energy crisis in Europe, the pace and duration of the Fed’s interest rate hikes, and a potential U.S. recession are likely to trump quantitative tightening as market drivers, said David Bianco, chief investment officer, Americas, at the DWS Group. “We’re not dismissing the risks of QT but they pale in comparison to the risks of where the Fed hikes the overnight rate and how long they have to stay there,” he said. More

BUENOS AIRES (Reuters) – Argentine farmers are under pressure to sell their soy stocks, with the government rolling out carrot and stick incentives and punishments for stock hoarding in the world’s top exporter of soy oil and meal and the No. 3 for raw beans.The government unveiled a preferential exchange rate for soy exporters on Sunday of 200 pesos per dollar versus the official rate of around 140 pesos. On Thursday it said farmers hoarding soy would face higher financing costs, a bid to push sales harder.”They are trying to seduce farmers to sell and then we see the other side of the coin with these pressure tactics,” Jorge Chemes, president of major farming body the Argentine Rural Confederations (CRA), told Reuters on Friday.Sales have spiked this week to some 3.6 million tonnes since the new exchange rate, dubbed the “soy dollar”, came into effect on Monday. That has helped the central bank build up reserves, though the government still wants more.The South American country, also a major producer of corn and wheat, is the largest global debtor to the International Monetary Fund (IMF) and needs to rebuild its foreign currency reserves to meet future debt obligations with its creditors.Argentina’s soybean industry as a whole brought in $21.5 billion in export earnings for the country last year and is the country’s main cash crop. It is seen as key to rebuilding depleted foreign currency reserves.However, with inflation running at over 70% and economic malaise raising fears of a currency devaluation, local farmers had been holding onto more grain than last year as a proxy for coveted dollars in which exports are priced.Nicolás Pino, the head of Sociedad Rural Argentina (SRA), another important farming body, criticized the new threat of higher financing costs for farmers who hold soy stocks of more than 5% of their production.”The rules must not be altered and must be fair, because in this way the operation of the supply chain is being complicated and altered,” he said.Chemes echoed the sentiment.”Right where the producer needs attention, with special financing, he is being punished,” he said, adding that the move would hurt farmers who need financing to build up their operations. “What is it they want from the farm sector?”The agriculture secretariat declined to comment. More

NEW ALBANY, Ohio (Reuters) -President Joe Biden made an election-year visit to an overwhelmingly Republican part of Ohio on Friday for the groundbreaking of a semiconductor plant that he promoted as evidence that his economic policies are working.But his trip was punctuated by comments from a fellow Democrat, Ohio Representative Tim Ryan, who is now running for the U.S. Senate. On Thursday, Ryan publicly questioned whether the party needed new leadership after he was asked if the 79-year-old president should run for re-election in 2024.Biden traveled to Licking County near Columbus to speak at the site of Intel Corp (NASDAQ:INTC)’s new $20 billion semiconductor manufacturing facility and hailed it as a sign of things to come.”The future of the chip industry is going to be made in America,” he said. “The industrial Midwest is back.” The trip is part of a White House pre-midterms push to tout new funding for manufacturing and infrastructure Biden’s Democratic Party pushed through Congress, while decrying opposition Republicans backed by former President Donald Trump as dangerous extremists.Previous trips to Maryland, Pennsylvania and Wisconsin have landed the president in areas where Democrats already have strong support, but Licking County voted Republican 63% to 35% in the 2020 presidential election.Democrats have lost Ohio in the past two presidential contests, but Republican Senator Rob Portman’s retirement may give Democrats a chance to pick up a Senate seat.Some recent forecasts show Democrats favored to maintain control of the Senate, after a series of wins in Congress. But not all candidates welcome Biden’s campaigning support. Ryan, who currently represents Ohio’s 13th congressional district, is running against Republican J.D. Vance, a venture capitalist and author of the book “Hillbilly Elegy,” who has Trump’s backing. Asked Thursday if Biden should seek a second term, Ryan told Youngstown, Ohio, network WFMJ, “My hunch is that we need new leadership across the board – Democrats, Republicans, I think it’s time for a generational move.”Ryan, who has broken with the president on some issues, has not asked Biden to campaign with him in the state, but was present at the Intel groundbreaking for the president’s remarks. Pressed later by reporters if Biden should run again, Ryan said that was up to the president. “The president said from the very beginning he was going to be a bridge to the next generation, which is basically what I was saying,” he said.Vance accused Ryan of hypocrisy. “It takes a real two-faced fraud for someone to tell Ohioans he doesn’t support Biden running for reelection, the literal day before he appears at an event with him,” he said.Trump’s political organization announced on Monday that Trump will appear at a rally for Vance in Youngstown, Ohio, on Sept. 17. CHIPS ACT PROJECTS Intel backed the Ohio project in anticipation of the passage of the Chips and Science Act, a funding law that Biden signed last month after some Republicans joined Democrats to support it, the White House says.The Chips act is aimed at jumpstarting the domestic production of semiconductors in response to supply-chain disruptions that have slowed the production of automobiles.A string of other companies have announced new semiconductor plants resulting from passage of the Chips act, which authorized about $52 billion in government subsidies for U.S. semiconductor production and research, and an investment tax credit for chip plants estimated to be worth $24 billion.”Industry leaders are choosing us – the United States – because they see America’s back and America’s leading the way,” Biden said. Intel timed an announcement that it has distributed $17.7 million to Ohio colleges and universities to develop semiconductor-focused education and workforce programs, part of a $50 million education and research investment in the state, to Biden’s visit.The Intel facility will contain at least two fabricating plants that the White House said will be built by union labor, creating more than 7,000 construction jobs and 3,000 full-time jobs producing cutting edge chips. More