Aurelia Butler

The rouble is the world’s best-performing currency https://emea1.apps.cp.thomsonreuters.com/Apps/NewsServices/mediaProxy?apiKey=6d416f26-7b24-4f31-beb6-1b5aa0f3fafb&url=http%3A%2F%2Ffingfx.thomsonreuters.com%2Fgfx%2Frngs%2FGLOBAL-CURRENCIES-PERFORMANCE%2F0100301V041%2Findex.html this year, although this is due to artificial support from capital controls Russia imposed to shield its financial sector in late February after sending tens of thousands of troops into Ukraine.The exchange rate is mostly being driven by export-focused companies that have to convert their foreign currency revenues, while demand for forex is limited as imports into Russia have waned amid disruptions in logistics and sweeping Western sanctions.As of 1133 GMT, the rouble had eased 1.4% to 64.17 against the dollar, after earlier touching 62.6250, its strongest mark since early February 2020.President Vladimir Putin on Thursday cited the rouble rally as an example of Russia’s sound performance under sanctions.Against the euro, the rouble shed 2% to 66.67, moving away from 64.9425, which it touched in early trade on the Moscow Exchange. That was its strongest since June 2017. Banks are offering to buy roubles at much weaker levels, however. Russia’s No.1 lender Sberbank offered to sell dollars and euros for 72.59 and 76.41 roubles, respectively.Promsvyazbank analysts said they expected the rouble to return towards 65 to the dollar towards the end of the session as market players close positions going into the weekend.Despite some weakness in the rouble ahead of the weekend, levels of 55-60 roubles to the dollar look achievable in the short-term, said Dmitry Polevoy, head of investment at LockoInvest.Russian stock indexes were mixed.The dollar-denominated RTS index was down 1% at 1,129.0 points, earlier touching its strongest point since Feb. 22 of 1,631.11. The rouble-based MOEX Russian index rose 0.6% to 2,312.0 points.For Russian equities guide seeFor Russian treasury bonds see More

The data compares with a growth of 4.7% in the fourth quarter. On a quarterly basis, the economy contracted by a revised seasonally adjusted 3% for the January-March period.(This story refiles to link to alerts, add dropped % in headline) More

And with jittery investors dumping risk assets en masse, what comes next after a crypto-currency rout is also in focus.Here’s your week ahead in markets from Ira Iosebashvili in New York, Tom Westbrook in Singapore, Elizabeth Howcroft, Sujata Rao and Karin Strohecker in London.1/ HARD OR SOFT LANDING?The Federal Reserve is all but certain to hike interest rates by 50 basis points at upcoming meetings. Upcoming data should show whether hefty tightening will bring a hard or soft landing for the economy. Forecasts for Tuesday’s U.S. retail sales data predict a 0.7% rise in April after a 0.5% monthly increase in March. Signs of how much inflation, which shows only the slightest hints of moderating, is pinching consumers may also be evident in Tuesday’s earnings reports from Walmart (NYSE:WMT), Home Depot (NYSE:HD) and Macy’s.Friday’s existing home sales data could show just how quickly rising mortgage rates are cooling the housing market. The Fed’s determination to contain inflation has fuelled hard landing worries. The S&P 500 is set for its worst year since 2008 — any signs the economy is weathering higher rates would be welcome relief. U.S. retail sales https://fingfx.thomsonreuters.com/gfx/mkt/dwvkryxdypm/Pasted%20image%201652306123735.png 2/CRYPTO CRASHCryptocurrency aficionados and observers alike will be watching for the fallout of a spectacular price collapse.Bitcoin was on track on Friday for a double-digit weekly drop, and headed for a record losing streak. Other cryptocurrencies have also slid with investors shunning risk assets as central banks get aggressive on inflation.Whether so-called stablecoins can maintain their dollar pegs as investor confidence plummets is key. The algorithmic stablecoin TerraUSD broke its peg and has plunged to as low as 30 cents, as its complex balancing mechanism involving another free-floating token stopped working.Others such as Tether, USD Coin and Binance USD are confident they will be spared TerraUSD’s fate because their cryptocurrencies are backed by reserves of dollar-based assets. Those reserves may come under increasing scrutiny as investors assess whether those coins can handle a wave of redemptions. Bitcoin wipes out 2021 gains https://fingfx.thomsonreuters.com/gfx/mkt/znvnemwgapl/Bitcoin.png 3/ TAKING ASIA’S PULSE A data pulse across Asia could re-calibrate the outlook for regional assets. Japan reports growth, trade and inflation data. If they beat expectations, even the world’s most dovish central bank may start considering a more neutral stance — good news for a frail yen. China reports industrial output, retail sales and house prices, probably all glum. China also fixes benchmark rates, though traders see steady as the most likely outcome. And in Australia, wages and jobs figures are out. Its central bank didn’t wait for the data before hiking rates on May 3 and markets suspect further increases are coming. Rates are expected to be near 3% by year-end, any signs to the contrary could prompt an unwind of expectations. Data surprises pave markets’ path to hawkish Aussie rate bets https://fingfx.thomsonreuters.com/gfx/mkt/zdpxogwedvx/Pasted%20image%201651821916831.png 4/ WHAT SPENDING POWER?The consumer is in trouble. Soaring food and fuel prices are eroding disposable incomes and lockdown-era savings that could have been spent on travel and shopping, are dwindling fast. Economists predict COVID curbs will have driven a 6% slump in China’s April retail sales, almost double March falls. U.S. April retail sales are tipped to rise, but as in March, gasoline and food may account for most of the increase. British consumer confidence slumped in March to near the lowest in nearly half a century, research firm GfK said. A cost-of-living squeeze likely deepened shoppers’ gloom in April.No surprise global consumer discretionary shares have tumbled almost a third this year, exceeding a broader equity index fall. Investors have taken note; several say they are no longer banking on the consumer. Savings https://fingfx.thomsonreuters.com/gfx/mkt/jnvweromqvw/Pasted%20image%201652090477948.png 5/ PIPELINES & PAYMENTSPressures on Europe’s gas markets show no sign of abating.Moscow’s sanctions against Gazprom (MCX:GAZP) Germania, in which its gas producer Gazprom ceded ownership, and EuRoPol GAZ SA, owner of the Polish part of the Yamal-Europe gas pipeline, have sent prices higher. A Kremlin decree from May 3 bans Russian entities to make deals with those on the sanctions list.This has hit flows to Europe already diminished after Ukraine declared force majeure and said it will not reopen a key gas transit route from Russia to Europe until Kyiv obtains full control over its pipeline system. And there’s still confusion among EU gas companies over a payment scheme decreed by Moscow in March that the European Commission has said would breach EU sanctions as deadlines approach. Brent crude and gas prices https://fingfx.thomsonreuters.com/gfx/mkt/lbvgnyqlrpq/Brent%20crude%20and%20gas%20prices.PNG (This story refiles to change number on last theme to 5 from 4. No other changes to text) More

BEIJING (Reuters) -New bank lending in China hit the lowest in nearly four and half years in April as the COVID-19 pandemic jolted the economy and weakened credit demand, central bank data showed on Friday, after it pledged to step up support to ward off a sharper slowdown.Chinese banks extended 645.4 billion yuan ($95.14 billion) in new yuan loans in April, down about 80% from March and dipping to the lowest level since December 2017, according to the People’s Bank of China data.The lending missed expectations by a wide margin, as analysts polled by Reuters had predicted new yuan loans would fall to 1.52 trillion yuan in April from 3.13 trillion yuan the previous month and against 1.47 trillion yuan a year earlier.”Lending was much weaker than expected last month as lockdowns weighed on credit demand. This should nudge the PBOC to announce further easing measures soon,” Capital Economics said in a note.”But the central bank continues to signal a relatively restrained approach.”The central said the sharp slowdown in April new loans reflected the impact of the COVID on the real economy.”Enterprises, especially small, medium-sized and micro enterprises, had more operating difficulties, and demand for effective financing decreased significantly,” it said.Household loans, including mortgages contracted by 217 billion yuan in April, versus 753.9 billion yuan in March, while corporate loans dropped to 578.4 billion yuan in April from 2.48 trillion yuan in March, central bank data showed.Full or partial lockdowns to stop the spread of COVID in dozens of Chinese cities, including a city-wide shutdown in the commercial hub of Shanghai, have hit the economy hard.To cushion a sharp slowdown in economic growth, the central bank cut the amount of cash that banks must hold as reserves from April 25, and more modest easing steps are expected.LIMITED ROOM FOR EASINGThe central bank said on Monday it would step up support for the slowing economy, while closely watching domestic inflation and monitoring policy adjustments by developed economies.But analysts say the room to ease policy could be limited by worries it could fuel capital outflows, as the Federal Reserve raises interest rates. Cutting borrowing costs may have only limited impact if consumers and businesses remain locked down.”It is difficult to decide because cutting interest rates is not a direct way to help an economy that has been damaged by lockdowns,” analysts at ING said. “Fiscal measures would be more effective, and there are quite a few of them for small and medium-sized enterprises and individuals.” Broad M2 money supply grew 10.5% from a year earlier, central bank data showed, above estimates of 9.9% forecast in the Reuters poll. M2 grew 9.7% in March from a year ago.Outstanding yuan loans grew 10.9% in April from a year earlier compared with 11.4% growth in March. Analysts had expected 11.4% growth.Growth of outstanding total social financing (TSF), a broad measure of credit and liquidity in the economy, slowed to 10.2% in April from a year earlier and from 10.6% in March.TSF includes off-balance sheet forms of financing that exist outside the conventional bank lending system, such as initial public offerings, loans from trust companies and bond sales.In April, TSF fell to 910.2 billion yuan from 4.65 trillion yuan in March. Analysts polled by Reuters had expected April TSF of 2.15 trillion yuan.($1 = 6.7835 Chinese yuan renminbi) More

TORONTO (Reuters) – As Canada’s economy overheats, the Bank of Canada is likely to be among the first of the major central banks to lift interest rates to a more normal setting even as worries persist about record-high levels of household debt, strategists say.Money markets expect Canada’s central bank to continue to raise rates by half a percentage point at its next two policy meetings, in June and July, after it hiked by that increment last month, its biggest single increase in 22 years.That would lift rates to the bottom of the 2% to 3% range that the central bank estimates to be a neutral setting, or the level at which monetary policy is no longer stimulating the economy.The economy likely expanded at an annualized rate of 5.6% in the first quarter. That’s well ahead of the BoC’s projections and compares with a contraction in the United States and barely any growth in the euro area. “The BoC has the strongest case for already being at neutral of any peer group central bank out there,” said Derek Holt, head of capital markets economics at Scotiabank. Ending monetary stimulus could reduce the risk of inflation becoming embedded in the economy. The move is likely more urgent with economic activity exceeding capacity.Among G7 central bank’s, the Federal Reserve and the Bank of England could also lift rates to neutral in the coming months. The Fed’s estimate of neutral is in line with Canada’s central bank but the BoE’s is much lower at 1.25% to 2.25%.Unlike the Fed, Canada’s central bank does not have a dual mandate targeting employment as well as inflation, nor has it adopted average inflation targeting.”There may be that perception, especially with international investors, that the BoC is perhaps a bit more proactive and less tolerant of high inflation,” said Jimmy Jean, chief economist at Desjardins Group.Canada’s inflation rate hit a 31-year high of 6.7% in March, while jobs have climbed well above pre-pandemic levels and the economy continues to benefit from a surge in commodity prices that has been amplified by the war in Ukraine.Government spending continues to add economic stimulus in Canada, while population growth is raising demand for housing and other services, strategists at TD Economics, including Beata Caranci, said in a note.”This means that the Bank of Canada may face a larger challenge than the Federal Reserve in snuffing out the inflation impulse,” the strategists said. Canada’s economy is likely to be particularly sensitive to higher rates after Canadians borrowed heavily during the pandemic to participate in a red-hot housing market. Still, the BoC says the economy is strong enough to handle further tightening.All the major central banks are “dealing with private debt and housing affordability issues but if anyone can pull off neutral – and beyond – then it’s got to be the BoC,” Scotiabank’s Holt said. More

According to Refinitiv Lipper data, U.S. bond funds faced capital withdrawals for the 18th straight week, amounting to $10.42 billion, nearly twice the $5.9 billion in disposals in the previous week. GRAPHIC – Fund flows: US equities bonds and money market funds https://fingfx.thomsonreuters.com/gfx/mkt/xmvjoyzbbpr/Fund%20flows%20US%20equities%20bonds%20and%20money%20market%20funds.jpg The U.S. benchmark 10-year Treasury yield hit a 3-1/2-year high of 3.203% this week on fears over higher inflation levels. U.S. headline consumer prices rose 8.3% in April year-on-year, beating economists’ forecasts for 8.1%, data showed on Wednesday.Investors sold U.S. taxable bond funds worth $7.72 billion, about 95% larger withdrawal from a week ago, while municipal funds suffered outflows of $2.76 billion.U.S. short/intermediate investment-grade funds witnessed net selling of $7.28 billion in the biggest weekly outflow since April 2020. However, U.S. short/intermediate government & treasury funds lured inflows of $2.62 billion. GRAPHIC: U.S. bond funds https://fingfx.thomsonreuters.com/gfx/mkt/znpnemylovl/Fund%20flows%20US%20bond%20funds.jpg Meanwhile, investors offloaded U.S. equity funds worth $8.46 billion in a fifth straight weekly outflow. GRAPHIC: U.S. growth and value funds https://fingfx.thomsonreuters.com/gfx/mkt/movanoxwbpa/Fund%20flows%20US%20growth%20and%20value%20funds.jpg Selling continued in U.S. growth funds for the seventh straight week, amounting to $4.5 billion. Value funds also posted an outflow, worth $1.99 billion, after a week’s inflow.Among sector funds, financials, industrials, materials, and tech lost $1.24 billion, $756 million, $677 million, and $468 million, respectively, in outflows. GRAPHIC: U.S. equity sector funds https://fingfx.thomsonreuters.com/gfx/mkt/gkvlgkrbapb/Fund%20flows%20US%20equity%20sector%20funds.jpg Meanwhile, U.S. money market funds booked net selling of about $7 billion in their first weekly outflow in three weeks. More