Aurelia Butler

ORLANDO, Fla. (Reuters) – The slump on Wall Street and rebound in the U.S. bond market point to a growing belief that recession is on the horizon, curtailing the Federal Reserve’s tightening cycle sooner than it would like and opening the door to rate cuts later next year.That’s exactly what hedge funds appear to be betting on also, according to the latest Commodity Futures Trading Commission report on rates futures positioning.Data for the week to May 17 show that speculators slashed their net short position in three-month Secured Overnight Financing Rate (SOFR) contracts to the smallest in almost two months, and maintained a net long position in 30-day fed funds futures.The shift in SOFR futures positioning is most revealing, especially in light of the broader trends underway in that market, one of the most accurate barometers of traders’ views on the path for U.S. interest rates over the next few years. Funds cut their net short three-month SOFR position to 388,207 contracts from 460,721 the week before. That’s the smallest net short in seven weeks, and down significantly from the record of more than 600,000 contracts only a month ago. 417b4cb4-4628-40b6-9928-75f3119bf3863The shift was almost entirely down to a jump in long positions rather than short covering, suggesting traders are beginning to look beyond the aggressive tightening likely to be delivered this year toward possible easing next year.A short position is essentially a bet that an asset’s price will fall, and a long position is a bet it will rise. In rates, implied yields fall when prices rise, and move up when prices fall.Fed officials have stressed they will keep tightening policy until they think their inflation goals are being met, despite the economic “pain” that will cause. Traders and funds in the SOFR market are putting more of their eggs in that “pain” basket. affb6724-499a-449b-b17e-98651e870c8d1 ea0d747d-cd45-46c7-87c1-038b6d9fa9a92RATE CUTS SEEN STARTING NEXT YEARFirstly, implied rates for next year have fallen sharply. The June 2023 contract now implies a fed funds rate of around 3%, down almost half a percentage point from the high on May 4, the day of the Fed’s 50-basis point rate hike.Secondly, the expected length of the Fed’s tightening cycle has shortened dramatically. A few months ago traders projected the Fed’s ‘terminal rate’ being reached in September next year. That has since shifted to June, but now March is on the table.The implied rate on December 2023 SOFR futures has fallen to 2.80%, the lowest in almost 2 months. Set against the peak terminal rate forecast in June, that implies an 80% chance the Fed will cut rates in the second half of next year.Even St Louis Fed President James Bullard, who wants rates raised to 3.5% this year, said the Fed could be cutting them as early as next year if inflation is under control. Fed officials and most economists still say there will be no recession. But the rapid tightening in financial conditions is starting to bite – Wall Street is in turmoil, and Citi’s U.S. economic surprises index is now negative and at a five month low. “We continue to expect that the financial conditions tightening triggered by Fed policy will likely lead to a recession by end 2023,” Deutsche Bank (ETR:DBKGn) analysts wrote on Friday. Wells Fargo (NYSE:WFC)’s research arm last week joined Deutsche in predicting a U.S. recession, but even earlier, at the end of this year. 51ba9e45-cf9f-4651-99e4-67514e57e11d4Related columns:- If Fed has to choose, markets could get much uglier (Reuters, May 20)- Fed fingers crossed for 1994 re-run as hiking path shortens (Reuters, May 5)(The opinions expressed here are those of the author, a columnist for Reuters.) (By Jamie McGeever; Editing by Sam Holmes) More

DAVOS, Switzerland (Reuters) -Global private equity firm General Atlantic plans to plough $2 billion into India and Southeast Asia over the next two years after falling valuations made the region’s startups more attractive, a senior executive told Reuters.General Atlantic is in early-stage investment talks with about 15 companies in sectors including technology, financial services, retail and consumer, Sandeep Naik, the head of its business in India and Southeast Asia, said in an interview. The market for startups, especially in India, is going through a rough patch. After raising a record $35 billion in 2021, founders are struggling to attract cash, sparking fears of lower valuations and forcing some to cut jobs.After investing just $190 million in Indian startups in 2021, its lowest ever annual figure, General Atlantic is now ready to loosen its purse strings, Naik said in an interview at the World Economic Forum in the Swiss ski resort of Davos.”The realism is setting in. We were waiting for the value creation to happen. We are now ready,” Naik said of General Atlantic’s plans for India and Southeast Asia, it has investments of more than $4.5 billion, mostly in India.”We are very bullish on India, Indonesia and Vietnam,” Naik added, while declining to name any companies it is looking at.General Atlantic’s existing high-profile Indian investments include education technology companies such as Byju’s, which offers online tutoring in a country where internet and smartphone use is booming and is valued at around $22 billion. It has also invested in Reliance Retail, India’s largest retailer, and in Southeast Asia its portfolio includes Indonesian food and beverage retailer PT MAP Boga Adiperkasa and social entertainment platform Kumu in the Philippines.Many tech companies globally have suffered in recent weeks as the conflict in Ukraine and rising interest rates hit investor sentiment. Japan’s SoftBank has reported a record loss of $26.2 billion at its Vision Fund investment arm.Given the tough market environment and falling valuations, General Atlantic is advising all its portfolio companies to look at consolidation opportunities.”Now is the best time to consolidate … Strong gets stronger,” Naik said. Analysis: Zombie unicorns: Indian startups go from feast to faminehttps://reut.rs/3G85gv3 More

The chief executive of JSR, one of the world’s largest suppliers of a material critical for semiconductor production, has said lack of industry infrastructure will make it “very difficult” for China to develop leading-edge chipmaking technology despite a push for self-sufficiency.Eric Johnson, a rare American leader at a Japanese semiconductor company, also said in an interview that he expected chip sector supply bottlenecks to continue into 2023.US export curbs on technologies required to make the most advanced chips have prompted China to invest heavily to develop its own semiconductor supply chain. But Johnson said China would struggle to master the sophisticated chipmaking technology based on a technique known as extreme ultraviolet or EUV lithography. “I think China also would love to develop their own EUV competency, their ecosystem for these things. I think it’s going to be very difficult for them to do that, frankly,” Johnson said.Semiconductors, essential to products from smartphones to washing machines, have become a focus of competition between Washington and Beijing. Joe Biden on Friday began his first trip to Asia as US president by visiting a Samsung chip plant in South Korea and stressing his desire to secure semiconductor supply chains.EUV lithography is a highly demanding process using light to etch minuscule integrated circuits on to silicon wafers.Even if China “got a paper on exactly what the chemistries were . . . to manufacture that at the purities, and the precision, and reproducibility is really tough”, Johnson said. “It’s not that simple and they don’t have the supply chain to support that either.”Tokyo-based JSR is a leading supplier of photoresists, thin layers of material used to transfer circuit patterns on to semiconductor wafers. Analysts say it has around 30-40 per cent of the global market for photoresists used to make advanced chips and counts Samsung, Taiwan’s TSMC and Intel of the US among its customers.

China is the world’s biggest importer of chips and has been investing heavily in semiconductor initiatives as part of its “Made in China 2025” push, which calls for 70 per cent self-sufficiency in the most important components for critical technologies by 2025. But Johnson said “leading-edge capability takes decades and a lot of money to develop . . . you really need applications like the iPhone to pay for the stuff”. Still, Johnson stressed that Beijing was aggressively investing in less advanced chipmaking technologies that were also important, and that China was a big part of JSR’s growth strategy.He said he wanted to balance being able to “respectfully” and “responsibly” service customers in China with “sensitivity to the concerns that the US government has and concerns with protecting interests in Japan”.“It is under-appreciated how much opportunity there is in China that’s not dependent on those very leading-edge capabilities,” he said.Johnson said global chip supply bottlenecks that have undermined the global economy would take until next year to resolve. “It just takes time to bring new capacity online and that new capacity won’t really start to make an impact probably until the end of this year or next year,” Johnson said.He said he expected it to be particularly “problematic” for the sector to meet demand for semiconductors used in vehicles, as they used less advanced chips which were less profitable and so attracted less investment. More

DAVOS, Switzerland (Reuters) -Russia would normally have its own “house” at the World Economic Forum as a showcase for business leaders and investors.This year the space on the dressed-up main street in Davos has been transformed by Ukrainian artists into a “Russian War Crimes House”, portraying images of misery and devastation.Russia has denied allegations of war crimes in the conflict.Ukraine is top of the agenda for the four-day meeting of global business leaders, which kicks off in earnest on Monday with a video address by Ukrainian President Volodymyr Zelenskiy.”This is the world’s most influential economic platform, where Ukraine has something to say,” Zelenskiy said in his daily video address on Sunday night.As the WEF meeting emerges from a coronavirus pandemic hiatus of more than two years, a deferral from January to May means that attendees are surrounded by spring flowers and verdant slopes rather than navigating icy streets.But not only the weather is different in 2022, with Russian politicians, executives and academics entirely absent.Russian institutions such as its sovereign wealth fund, state banks and private companies have in previous years thrown some of the most glitzy parties, serving black caviar, vintage champagne and foie gras.They even hired Russia’s most prominent musicians and pop stars to perform for top chief executives.MARKET MELTDOWNAside from the Ukraine crisis, the post-pandemic recovery, tackling climate change, the future of work, accelerating stakeholder capitalism and harnessing new technologies are among the topics scheduled for discussion at Davos.European Commission President Ursula von der Leyen, German Chancellor Olaf Scholz and NATO Secretary-General Jens Stoltenberg are among the leaders due to address the meeting. On the business agenda, discussions are likely to focus on the souring state of financial markets and the global economy. After a sharp bounceback from the downturn triggered two years ago by the onset of the pandemic, there are now myriad threats to that recovery, leading the International Monetary Fund to downgrade its global growth forecast for the second time since the year began.Inflation due to hobbled supply chains emerged as a problem last year, particularly in the U.S. economy.That has been compounded since the beginning of 2022 by events including Russia’s invasion of Ukraine and waves of COVID-19 lockdowns across China that have stalled a recovery.’DEFINE TOMORROW’The Ukrainian artists are hoping to get their message of fighting for a better future to world leaders in Davos.Visitors are confronted by images such as a badly burned man in Kharkiv after Russian shelling and a film made up of thousands of pictures of dead civilians and bombed houses.”This is a place where all influencers and all decision-makers of the world come together,” the artistic director of the PinchukArtCentre in Kyiv, Bjorn Geldhof, told Reuters TV.”What is happening in Ukraine will define tomorrow.”Russian President Vladimir Putin calls the invasion of Ukraine a “special military operation” to disarm the country and rid it of radical anti-Russian nationalists. Ukraine and its allies have dismissed that as a baseless pretext for the nearly three-month war, which has killed thousands of people, displaced millions and shattered citiesWhile the WEF meeting may not be back to pre-pandemic levels, with Zurich’s airport expecting the number of flights to be about two-thirds of previous levels, its return comes as a welcome relief to the ski resort’s hotels and restaurants.”It is another step back to normality,” Samuel Rosenast, spokesperson for the local tourism board, said last week. More

The three-decade era of globalisation risks going into reverse, according to company executives and investors, as world leaders prepare to meet in the Swiss town of Davos for the first time since the coronavirus pandemic began. The geopolitical fallout from Russia’s war in Ukraine, combined with the disruption to global supply chains caused by the virus, recent market turmoil and the rapidly worsening economic outlook leave corporate leaders and investors grappling with vital strategic decisions, several told the Financial Times in interviews. “Tension between the US and China was accelerated by the pandemic and now this invasion of Ukraine by Russia — all these trends are raising serious concerns about a decoupling world,” said José Manuel Barroso, chair of Goldman Sachs International and a former president of the European Commission. Onshoring, renationalisation and regionalisation had become the latest trends for companies, slowing the pace of globalisation, he added: “[Globalisation faces] friction from nationalism, protectionism, nativism, chauvinism if you wish, or even sometimes xenophobia, and for me, it is not clear who is going to win.” “Pretty much no one has seen” these conditions “during the arc of their investing career”, according to the head of one of the world’s largest private equity groups. Charles “Chip” Kaye, chief executive of Warburg Pincus, said geopolitics had been “on the fringe of the way we thought” since the fall of the Berlin Wall and that this had “provided a certain oxygen to global growth”.However, he said, geopolitics was now “front and centre” of investment decisions just as the “pretty powerful tailwind to asset prices” provided by years of falling inflation and low interest rates comes to an end. “You’re not optimising the economic outcome, you’re creating friction in the system,” he said of rising geopolitical tensions.Happy Monday. Thanks for reading FirstFT Asia. Here’s the rest of today’s news — SophiaFive more stories in the news1. ‘Millions’ at risk of death as Ukraine war hits food supplies Egypt, which sourced most of its wheat from Russia and Ukraine before the war, is the world’s biggest wheat importer and subsidises a bread programme for 70mn people. Finance minister Mohamed Maait warns that “millions” could die as the global wheat shortage intensifies and triggers a food price crisis. 2. ‘Quad’ security group plans to track China’s illegal fishing The US, Japan, Australia and India will unveil a maritime initiative tomorrow aimed at curbing illegal fishing in the Indo-Pacific. China is allegedly responsible for 95 per cent of illegal fishing in the region, which has “drastically depleted global fish stocks and undermined traditional livelihoods of many countries,” said Charles Edel, Australia chair at CSIS.3. Biden and Yoon agree to step up deterrence against North Korea During president Joe Biden’s visit to Asia, he and South Korean president Yoon Suk-yeol have discussed the “timely deployment” of US strategic assets — including fighters, bombers, and missiles — to reinforce deterrence as Pyongyang continues to develop nuclear weapons.4. Lukoil’s ex-chief warns the EU against banning Russian oil Vagit Alekperov, the former head of Russia’s second-biggest oil group, has warned that a European ban on the country’s “impossible to replace” crude would be “the most negative scenario” for all parties as EU discussions on an embargo intensify.5. Saudi Arabia signals support for Russia as Opec+ partner As Russian output falls and the oil group’s production quotas are set to expire in three months, energy minister Prince Abdulaziz bin Salman said Riyadh will stand by Russia despite tightening western sanctions on Moscow and a potential EU ban on Russian oil imports.The day aheadResults Zoom releases their Q1 results today, and Kingfisher gives a Q1 trading update.European Union The EU General Affairs Council meets in Brussels today. Plus, the eurogroup of 19 finance ministers from member states that adopted the single currency also meet in Brussels.Middle East Turkish foreign minister Mevlüt Çavuşoğlu visits Israel and the Palestinian Authority to discuss the appointment of ambassadors with his Israeli counterpart as part of improving relations between the countries.Biden in Asia US president Joe Biden will present his Indo-Pacific Economic Framework in Tokyo today.What else we’re readingIs the global economy heading for recession? Four different problems are stalking the global economy as it recovers from the pandemic: strict Covid-19 lockdowns, tightening monetary policy, a soaring cost of living crisis, and food crises. Chris Giles lays out the deteriorating outlook in The Big Read.How Elon Musk and Jack Dorsey aligned behind Twitter deal The billionaire “bromance” relationship between Musk and Dorsey has already shaken up the future of Twitter. The alliance has angered staffers — and fuelled speculation about the scope of Dorsey’s role in the deal and the company’s future.London lawyers helping Russia’s super-rich Top London law firms have made fat profits helping Russian oligarchs with issues such as alleged libel or data protection — but the equation has changed in the wake of the Ukraine war, bringing these legal arrangements under increasing scrutiny.The truckers who keep our world moving The history of humanity — from Bronze Age trade in the Indus valley to lorries carrying aid to Ukrainian refugee children — is the story of supply chains. Horatio Clare hitches a long-distance lift with a truckie to see the world from a startling new angle.Death notices for the city are premature It’s not just the cost or duration of travel that is preventing urban dwellers from spending five days a week in the office, John Burn-Murdoch writes. It’s that standing nose-to-armpit on a packed commuter train is not fun, but sitting on an airy train to a pub full of friends is.ArtThe Andy Warhol silkscreen “Shot Sage Blue Marilyn” — which sold for a record $195mn at a New York auction — deserves the cliché “iconic”, but Tim Harford argues there is a much more obscure portrait that has a claim to being Warhol’s most interesting and definitive work.

The 1964 painting “Shot Sage Blue Marilyn,” by Andy Warhol © AP More