Aurelia Butler

Fund flows: Global equities bonds and money market – https://fingfx.thomsonreuters.com/gfx/mkt/lgvdwxgdnpo/Fund%20flows-%20Global%20equities%20bonds%20and%20money%20market.jpg A fresh batch of global companies including Amazon.com Inc (NASDAQ:AMZN), oil giant BP (NYSE:BP) and Britain’s GSK reported strong earnings, although Facebook (NASDAQ:FB) owner Meta Platforms missed its profit forecasts. Investors bought U.S., European and Asian equity funds of $14.19 billion, $6.07 billion and $2.03 billion respectively. Financial sector funds obtained $1.63 billion in net buying, the biggest in three weeks, while energy and utilities sector funds received $0.76 billion each. However, consumer discretionary, health care and tech funds saw outflows of $0.8 billion, $0.73 billion and $152 million respectively.Meanwhile, global bond funds posted outflows for a fifth straight week, worth $9.05 billion. Fund flows: Global equity sector funds – https://fingfx.thomsonreuters.com/gfx/mkt/egpbklerovq/Fund%20flows-%20Global%20equity%20sector%20%20funds.jpg Global high yield, and short- and medium-term bond funds faced net selling of $4.01 billion and $2.08 billion respectively, in a fifth straight week of outflows, while inflation protected funds saw outflows for a third successive week, worth $1.55 billion. “We believe the selloff in high yield is largely technical in nature and we are constructive on high yield as we are still seeing very robust fundamentals, strong balance sheets,” said Paul Benson, head of Efficient Beta at Insight Investment.However, government bond funds obtained $3.15 billion, marking their biggest inflow in seven weeks. Global bond fund flows in the week ended Feb 9 – https://fingfx.thomsonreuters.com/gfx/mkt/dwvkrjyxjpm/Global%20bond%20fund%20flows%20in%20the%20week%20ended%20Feb%209.jpg Global money market funds saw outflows of $35.42 billion, a 68% surge in net selling over the previous week. Among commodity funds, precious metals lured inflows for a fourth successive week, worth $289 million, although the lowest since Jan 12. Energy funds also attracted marginal inflows of $25 million after four consecutive weeks of outflows. An analysis of 24,010 emerging market funds showed equity funds pulled in $4.05 billion in net buying, the biggest in nearly a year, while investors sold bond funds of $98 million after having purchased $306 million in the previous week. Fund flows: EM equities and bonds – https://fingfx.thomsonreuters.com/gfx/mkt/klpykmlaqpg/Fund%20flows-%20EM%20equities%20and%20bonds.jpg More

The company, which lost a bid to bolster its advanced driver assistance systems business through an acquisition of Sweden’s Veoneer (NYSE:VNE) Inc, is now looking to capitalize on soaring demand in the areas of electrification and autonomous cars.”We expect improved operating results in 2022 as the industry recovers and production schedules normalize,” Chief Executive Officer Swamy Kotagiri said in a statement.The Ontario-based company estimated full-year revenue of $38.8 billion to $40.4 billion, compared with the $36.24 billion it reported for 2021 on Friday. Analysts on average were expecting $39.47 billion, according to Refinitiv I/B/E/S data.American peer Aptiv (NYSE:APTV) Plc last week said it expects the flow of semiconductors and other commodities to automakers to stabilize this year allowing for vehicle production to rise in the second half of the year.Meanwhile, North American automakers are wrestling with Canadian truckers protesting anti-coronavirus mandate shutting the Ambassador Bridge, which serves as a supply route for Detroit’s carmakers, from Monday night. General Motors Co (NYSE:GM) and Chrysler parent Stellantis and Toyota Motor (NYSE:TM) Corp – all customers of Magna – have canceled or scaled back shifts due to shortage of parts caused by the closure of the bridge.Magna’s fourth-quarter results, however, were still dented by the chip shortage. The company reported a 13.7% drop in net sales to $9.11 billion but managed to beat analysts’ estimates of $8.95 billion.Adjusted net income per share of $1.30 also topped estimates of 86 cents. More

The S&P 500 and the Dow fell more than 1% on Thursday, while the tech-heavy Nasdaq slumped 2% after data showed consumer prices surged 7.5% in January, marking the biggest annual increase in 40 years. The numbers raised fears about an aggressive tightening of monetary policy.St. Louis Fed Bank President James Bullard, a voter on the Fed’s rate-setting committee this year, told Bloomberg News on Thursday he wants a full percentage point of rate hikes over the next three policy meetings.Traders are pricing in a half-point rate hike in March with just a scant chance of a smaller quarter-point hike, and heavy bets for a policy path that would bring rates to a range of 1.75%-2.00% by the end of the year.Highly valued growth stocks such as Apple Inc (NASDAQ:AAPL), Amazon.com Inc (NASDAQ:AMZN) and Microsoft Corp (NASDAQ:MSFT) inched lower in premarket trading, pointing to more weakness for the Nasdaq.At 07:20 a.m. ET, Dow e-minis were down 84 points, or 0.24%, S&P 500 e-minis were down 12.5 points, or 0.28%, and Nasdaq 100 e-minis were down 53.75 points, or 0.37%.Despite the market volatility, all the three major indexes were on track for weekly gains, helped by strong earnings, easing of tensions in Ukraine, reduction in COVID-19 cases and lifting of mask mandates in some states.Investors are awaiting the University of Michigan’s Consumer Sentiment Index that is expected to rise to 67.5 in February from 67.2 in January, the lowest since November 2011.Online real-estate platform Zillow Group (NASDAQ:ZG) Inc jumped 13.3% after beating Wall Street estimates for quarterly sales, boosted by an 11-fold increase in revenue in its homes segment.Cloudflare (NYSE:NET) Inc rose 4.0% on breakeven earnings and a better-than-expected full-year outlook. More

COLOMBO (Reuters) – Sri Lanka’s foreign exchange reserves are plummeting, essential imports are stalling and opposition leaders and some experts warn that time is running out to avoid a sovereign default that would further upend the economy.But Finance Minister Basil Rajapaksa is focused on helping the domestic economy shake off the impact of the COVID-19 pandemic before he seeks assistance from the likes of the International Monetary Fund (IMF), a close aide said.”We should not be in a hurry to run here and there without sorting out local issues,” said Milinda Rajapaksha, who works closely with the finance minister and is an additional director general in the media ministry.It could take up to four to five months to fix issues like local supply chains and restart businesses, which alongside a pickup in tourism and remittances – both major foreign exchange earners – would help stabilise the economy, Rajapaksha said.”You have to look at the external debt crisis separately,” he told Reuters. “That’s what we are going to do. Are we going to look at a package like the IMF? Are we going to work with our neighbours and supporters for more swaps and loans?”Sri Lanka’s foreign exchange reserves are down to $2.36 billion, according to data from the Central Bank of Sri Lanka (CBSL) released earlier this week.In a note on Monday, Citi Research said that confidence in the Sri Lankan government’s external repayment position remains weak and foreign exchange reserves were declining faster than expected.Sri Lanka has outstanding sovereign bonds amounting to $12.55 billion, with $1 billion of the bonds maturing in July, according to the CBSL. This year, the island’s government has to repay debt of around $4 billion.”We stick to our base-case scenario that international bonds will need to be restructured by July,” Citi Research said.On Wednesday, the CBSL said there was currently no need for discussions on debt restructuring as “the government would be able to ensure the settlement of its sovereign debt without any interruption or default.””The government and the CBSL are committed to honour all forthcoming debt obligations,” the central bank said in a statement.’VERY DANGEROUS LEVEL’The lack of dollars is already holding up goods from coming into the import-dependent country of 22 million people, which typically spends about $1.6 billion every month for imports of fuel, essential food and medicine.In Sri Lanka’s main port of Colombo, thousands of containers packed with essentials like rice and sugar have been stuck for weeks because importers are unable to get hold of foreign exchange.On the streets of Colombo, prices of everything from milk powder and fuel to auto spares and mobile phones are rising.Headline inflation rose to 14.2%, the highest in more than a decade, with food inflation hitting 25% in January, according to government data.Sri Lanka is left with usable foreign exchange reserves of around $800 million, which could be exhausted in a matter of weeks, said Murtaza Jafferjee, Managing Director of stock broker JB Securities.”The amount of reserves basically have come down significantly to a very, very dangerous level,” he said.To meet the shortfall, Sri Lanka’s government has sought help from India with a $1 billion credit line. It is also in talks with Pakistan and Australia for two credit lines of $200 million each for imports of rice, cement, grains and medicine. In January, President Gotabaya Rajapaksa sought debt relief from China and assistance to pay for imports. Sri Lanka imports about $3.5 billion worth of goods from China every year.POLITICAL FUTUREThe government, led by the influential Rajapaksa family, faces a choice between moving immediately to restructure its debt or continuing to scrape by even as it hits ordinary Sri Lankans, said Nishan de Mel, Executive Director of Verité Research think-tank.”So, it is really a question of how much pain the society can bear and how much pain the government is willing to inflict before it changes the path,” he said. “It is not a path that looks to be sustainable.”The IMF on Thursday said the Sri Lankan government had not initiated talks for financial support.”Of course, we stand ready to discuss options if requested and we continue to closely monitor economic and policy developments,” IMF spokesman Gerry Rice said in an online briefing.For finance minister and veteran lawmaker Rajapaksa, the decision to go to the IMF or another external agency will also depend on political considerations, his aide Rajapaksha said.The powerful politician is the younger brother of the president and of Prime Minister Mahinda Rajapaksa, and took over the finance portfolio in July, 2021 as the economic crisis gathered steam.”His political future is on the line,” Rajapaksha said, referring to the finance minister. “And his political party’s future is on the line.” More

Investors are betting the Federal Reserve could deliver an extra-large rate rise next month, or even lift borrowing costs between scheduled meetings for the first time since 1994, as policymakers battle blistering inflation.Expectations of a more aggressive tightening in monetary policy mounted after Thursday’s US inflation data, which showed consumer prices rising at the fastest annual pace in 40 years and once again confounded forecasts that price pressures would begin to level off.Investors had in recent weeks coalesced around the view that the Fed will increase interest rates by 0.25 percentage points at its March meeting. However, traders in money markets are now pricing in a more than 50 per cent chance the central bank will boost rates by half a percentage point next month. Futures contracts linked to the federal funds rate — which currently stands at a historic low of between zero and 0.25 per cent — also show the possibility of a move before the Fed meeting that starts on March 15.“The Fed knows it has to hike rates,” said Gennadiy Goldberg, US rates strategist at TD Securities. “It’s very likely that they will hike faster and probably will hike at consecutive meetings. There are a multitude of arguments for going more quickly and I think the market is realising it.”Two-year US government debt — which is highly sensitive to moves in short-term interest rates — suffered its biggest one-day sell-off since 2009 on Thursday after the data showed inflation hit 7.5 per cent in January. The two-year yield traded at 1.63 per cent on Friday, leaving it on track for the highest close since late 2019, from 0.4 per cent as recently as November. James Bullard, one of the Fed’s more hawkish policymakers, fuelled the selling by saying on Thursday he backed a half-point rate rise in March and that the Fed should be open to the idea of responding sooner. A shift in Fed policy between meetings is rare. The central bank delivered emergency unscheduled rate cuts during the global financial crisis in 2008 and the early stages of the pandemic in March 2020, but has not increased borrowing costs in this way since April 1994.A move prior to the March Fed meeting would be “out of character” for policymakers who typically try prime markets for policy changes, according to analysts at JPMorgan. “Nevertheless, unless [Fed] leadership pushes back on this notion, markets will continue to price a significant chance of an intermeeting tightening over the near term,” they said in a note to clients.The dramatic rise in yields reflects the “pivot” made by the Fed in December, when Jay Powell backed away from his previous mantra that high inflation was transitory in nature. Since then, traders have responded to stubbornly high monthly inflation readings by pricing in an increasingly aggressive Fed response. Markets now expect at least six quarter-point rate rises by the end of the year. Goldman Sachs raised its forecast on Thursday to seven increases in 2022.Some analysts argue that wagers on a sharp rise in borrowing costs could become a self-fulfilling prophecy.“The Fed has not faced inflation of this magnitude at the start of a hiking cycle for many decades,” said Ajay Rajadhyaksha, head of macro research at Barclays, adding that the central bank “has historically been reluctant to shock financial markets going into a meeting.”“If [a half percentage point rise in rates] is priced in with a very high probability just before the March meeting, that might — whether it should or not — have significant influence on the Fed’s decision at that meeting,” he said. More

Russia’s central bank has raised its key interest rate by 100 basis points to a five-year high of 9.5 per cent and left scope for further increases in the near future as the country’s inflation remains well above target levels.“Inflation is far above the Bank of Russia October forecast,” the bank said on Friday, noting a tight labour market and extensive domestic lending as well as external factors. The bank said expanding demand was outstripping rising production. “Rapid economic activity growth amid the limited availability of labour resources is increasing inflationary pressures,” it said. “The situation in global markets also remains pro-inflationary.”Russia’s central bank has been one of the world’s most aggressive in raising rates to try to curb inflation, which is stoking mounting concern for monetary policy worldwide.The rate increase was the eighth since last March. The bank allowed for a potential further rate hike at its next meetings, scheduled for March 18. Its policy aim remains to return inflation to the 4 per cent mark next year.This year, the bank forecasts annual inflation of 5-6 per cent, it said. In January inflation hit 8.7 per cent, and rose further in early February, it said. At the moment, “inflationary expectations are not coming down, remaining at multiyear highs,” the bank said. “In these conditions, the balance of risks for inflation has shifted even further to pro-inflationary.”With unemployment at historic lows, and recruitment at historic highs, the sustainability of further economic growth would be determined by labour efficiency, it said.Russia’s GDP is expected to grow between 2 and 3 per cent this year, and a further 1.5 to 2.5 per cent next year.The rate hike comes at a time of market caution over the rouble and the outlook for the stand-off between Russia and the west over Ukraine. The rouble traded at about 75 to the dollar on Friday, having strengthened from close to 80/$ since late January, when Ukraine tensions hit the market.Analysts at BSC Global Markets said the rate increase was priced in and should not have an impact on the rouble. The central bank “seems to be inclined to keep the rate relatively high for longer, as some advanced economies have already entered the rate hike cycle, which implies a weakening of emerging market currencies, including the rouble”, the analysts said.   More

LONDON (Reuters) – Investors are piling into derivatives linked to a rising euro, according to industry data and trading sources, as they bet the European Central Bank’s hawkish tilt means the end to eight years of negative interest rates.The euro has hit three-month highs near $1.15 since the ECB opened the door to a rate increase later in 2022 and said that a March 10 meeting would be crucial in deciding how quickly the central bank would reduce its bond-buying scheme.ECB policymakers, including President Christine Lagarde, have since struck a more dovish tone. But many traders believe the shift in thinking is evident and markets must catch up with an ECB finally ready to tighten — even if not as fast as rivals.”There was not a lot priced in (to the euro) and people have been forced to look at the ECB and when it could tighten. German inflation is very high,” said Antony Foster, head of G10 spot trading, EMEA, at Japanese bank Nomura. The end of negative rates would mark a significant moment for euro zone markets, which have suffered persistent outflows and currency weakness that analysts attribute to sub-0% rates.Those rates have made the euro a favourite for hedge funds to engage in lucrative carry trades — the equivalent of borrowing in low-yielding currencies to invest in relatively higher-yielding ones. A strategy of borrowing euros and investing them in U.S. dollars, Australian dollars and sterling posted a return of 5.3% last year, the highest since 2015, according to Refinitiv data.Vasileios Gkionakis, head of European FX strategy at Citibank, said that the mentality of regarding the euro as a cheap currency to borrow was beginning to disappear.”The ECB decision was a game changer for the euro,” he said. “While we don’t expect the euro and rest of the world yield differential to shrink dramatically, it is a big change in sentiment.”Nomura’s Foster said clients had been buying large numbers of euro call options — which give traders the right to buy euros in future at pre-determined prices — between 1-month and 1-year maturities.This includes call options on euro/dollar, on euro/Swiss franc and against Britain’s sterling, which had hit a two-year high versus the single currency before the ECB meeting.”The BoE seems to have moved early and that’s been priced. But there could be a lot further for euro pricing to go,” Foster added, referring to the Bank of England’s rate increases in December and this month.Industry data shows a shift in positioning in derivatives markets on euro/dollar — a currency pair that has been stuck in a relatively tight trading range since 2015, frustrating bank traders that profit from higher volatility.Three-month risk reversals on euro/dollar, a ratio of calls to puts on the single currency, have bounced from -0.7 to -0.2 this week, the highest level since July.MORE MOMENTUMNot everyone is bullish on the euro, and Thursday’s forecast-beating U.S. inflation reading has markets once again betting on even faster tightening in the United States.Analysts at HSBC argue that the United States has higher growth and high inflation that justifies “persistent tightening”, whereas hiking euro zone rates would do little to resolve its stagflation.Euro zone labour markets have much more slack to absorb workers before wage pressures build and ECB policymakers could easily flip back towards their decade-long dovish setting if inflation subsides.The ECB will also be wary of any hawkish pricing that whacks up borrowing costs in the likes of Italy and Greece, where government bond yields have risen this month.Speculative euro long positioning in futures markets has not increased in recent months, Commodity Futures Trading Commission data shows, even as economic data in the region has improved.But it means the euro should have further to climb if positioning shifts.Goldman Sachs (NYSE:GS) this week said euro/dollar “fair value” was $1.30. Faster Fed rate increases could hold back the euro in the short term, Goldman’s analysts said, but they raised their year-end euro/dollar forecast to $1.20 from a previous $1.15, with a further rise to $1.25 predicted for end-2023 and $1.30 at end-2024.(Graphic: https://fingfx.thomsonreuters.com/gfx/mkt/zjvqkagknvx/euro%20and%20CFTC.JPG) More

March futures on the S&P/TSX index were down 0.4% at 06:41 a.m. ET. Still, the TSX is set for its third straight week in positive territory, eyeing a 1.2% weekly gain.Oil prices rose after the International Energy Agency said oil markets were tight but were still heading for weekly losses on inflation worries and U.S.-Iran which could boost global supplies. [O/R]The Toronto Stock Exchange’s S&P/TSX composite index ended 0.3% lower on Thursday. (TO)Dow e-minis were down 152 points, or 0.43% at 06:41 a.m. ET, while S&P 500 e-minis were down 21.75 points, or 0.48% and Nasdaq 100 e-minis were down 102 points, or 0.69%. [.N]TOP STORIES [TOP/CAN]Auto parts maker Magna International (NYSE:MGA) Inc reported a 13.7% fall in quarterly revenue on Friday, hammered by semiconductor shortages that have wreaked havoc on global automobile production.Canadian oil companies exported a record amount of crude out of the U.S. Gulf Coast at the end of 2021, a trend that should continue in the coming months, as tight international oil markets are in need of the nation’s heavy, sour crude.Canada will seek to join the United Kingdom, the U.S. and Australia to be included in consultations as part of the European Union’s dispute with China at the World Trade Organization over Beijing’s alleged trade curbs on Lithuania.ANALYST RESEARCH HIGHLIGHTS [RCH/CA]Constellation Software Inc: RBC raises target price to C$2,800 from C$2,700Definity Financial Corp: RBC raises target price to C$35 from C$32Precision Drilling (NYSE:PDS) Corp: Atb Capital Markets raises target to C$98 from C$91Telus (NYSE:TU) Corp: National Bank of Canada (OTC:NTIOF) raises target price to C$36 from C$35COMMODITIES AT 7:00 a.m. ET Gold futures: $1,826.9; -0.5% [GOL/]US crude: $90.58; +0.78% [O/R]Brent crude: $91.99; +0.63% [O/R]FOR CANADIAN MARKETS NEWS, CLICK ON CODES:TSX market report (TO)Canadian dollar and bonds report [CAD/] [CA/]Reuters global stocks poll for CanadaCanadian markets directory($1= C$1.2725) More