Aurelia Butler

NEW YORK (Reuters) – It is time for the Federal Reserve to start removing accommodation and raising interest rates, but it is not necessary for the central bank to launch its rate hike cycle with a half percentage point increase, Cleveland Federal Reserve President Loretta Mester said on Wednesday. “I don’t like taking anything off the table,” Mester said during a virtual event. “But, you know, I don’t think there’s any compelling case to start with a 50 basis point” rate increase. She added that each meeting is going to be “in play” and the pace of rate increases will depend on what happens with inflation and the economy. More

(Reuters) – U.S. investors are snapping up funds that invest in dividend-paying stocks as they search for stable income from alternatives to bond markets, which are being roiled by the prospect of rate rises.According to Refinitiv Lipper, investors bought $6.9 billion in U.S. dividend funds in January, the highest net purchases since October 2006. Flows into U.S. dividend funds – https://graphics.reuters.com/GLOBAL-MARKETS/lgpdwxqlyvo/chart.png The Schwab US Dividend Equity ETF and SPDR S&P Dividend (NYSE:SDY) ETF led inflows, receiving about $1.7 billion each last month, while First Trust Rising Dividend Achievers ETF obtained $1 billion.There has been elevated volatility in global equity markets this year on concerns over higher yields and inflation levels, which tend to squeeze corporate profit margins. U.S. dividend funds with highest inflows in Jan. – https://graphics.reuters.com/GLOBAL-MARKETS/xmvjojqrkpr/chart.png Dividend funds are seen as safe and offering some stability in that scenario, as they hold well-established companies that have better pricing power and a track record of providing stable income. “As a total return manager, we do look for capital appreciation when markets are doing well and rely on income from dividends to help when markets become volatile or negative,” said Ryan Fause, a portfolio manager at Pinnacle Associates based in New Jersey.”As we see growth stocks struggle and prevailing interest rates still somewhat low, we do find comfort in owning dividend stocks as a core part of most portfolios.”Dividend funds’ higher inflows were also due to the recent investor shift towards what are called value stocks, and away from the growth stocks, the latter referring to equities with higher potential which had outperformed during the initial rapid recovery from the coronavirus pandemic.Economists predict moderate growth this year, prompting investors to look back at stocks trading at affordable levels, or value stocks, which often also offer higher dividends. Sectors such as energy and banks, which have high dividend yields, are expected to enjoy revenue growth this year, benefitting from higher interest rates and inflation levels.”Value has been a strong performer as economic growth and earnings growth are starting to settle back down toward longer-term growth rates, and companies that are cheaper will do better than companies that are highly priced,” said Gina Sanchez, chief market strategist at Lido Advisors in California.Bond markets have been choppy after the Federal Reserve indicated a faster pace of monetary tightening and tapering of its asset purchases this year.According to Lipper data, net sales of U.S. bond funds rose to $20 billion in January, the biggest outflow since March 2020.”Virtually no bond funds look attractive right now. Investors looking for safety and yield are turning to stocks with low volatility and consistent dividends,” said Terri Spath, chief investment officer at Zuma Wealth in Los Angeles.”Do we think this is a good direction? We say yes.” More

NEW YORK (Reuters) – CME Group Inc (NASDAQ:CME) on Wednesday reported a fourth-quarter profit that topped Wall Street expectations, helped by increased usage of the futures exchange operator’s interest rate hedging tools as investors prepare for central bank tightening. With the U.S. economic recovery in full swing and inflation surging, markets are pricing in more than a 70% chance of a 25-basis-point rate hike by the U.S. Federal Reserve and a nearly 30% chance for a 50-basis-point hike when policymakers meet in March, according to CME’s FedWatch Tool. That outlook has helped CME, which saw its average daily volume rise 26% from a year earlier to 20.5 million contracts, mainly driven by a 56% increase interest rate futures contracts, a 16% rise in energy futures contracts, and 15% growth in equity index products.”We’ve got now five tightenings priced into the curve for the coming year. That’s the first time I’ve seen that in a very long time,” Sean Tully, senior managing director at CME, said on a call with analysts. “Every single Fed meeting could be in play.”The Chicago-based company said its net profit rose to $625.2 million, or $1.71 per share, in the quarter ended Dec. 31, from $424 million, or $1.18 per share, a year earlier.Stripping out one-time costs, the company earned $1.66 per share, 2 cents above the consensus estimate of analysts, according to Refinitiv IBES data.CME shares hit a record high after the results were released, and were last up 6.32% at $256.68.Total quarterly revenue rose 4.5% to $1.1 billion.For the current quarter, CME said its daily activity in January was up 28% from a year earlier at 24.6 million contracts, with equity index and interest rates continuing to lead the way with year-over-year growth of 56% and 33%, respectively. More

(Reuters) -U.S. crude oil stockpiles fell unexpectedly last week as overall refined product demand reached an all-time record, according to government data on Wednesday, showing how the U.S. economic pace is cutting into the market’s already tight supply.    Crude inventories fell 4.8 million barrels in the week to Feb. 4 to 410.4 million barrels, their lowest for commercial inventories since October 2018, the Energy Information Administration said. Analysts had forecast in a Reuters poll a 369,000-barrel rise.Overall, the mild softness in oil demand witnessed in early January due to the Omicron coronavirus variant seems to have passed. U.S. product supplied – the best proxy for demand – peaked at 21.9 million barrels per day (bpd) over the past four weeks due to strong economic activity nationwide. Both U.S. demand for distillates like diesel, along with propane and propylene, surged.Weekly gasoline product supplied jumped to 9.1 million bpd, though the broader four-week average is slightly below seasonal levels.”This is a stark rebound of gasoline demand; we’re past Omicron and we have renewed travel demand. Refineries are clearly running more which contributed to the crude drawdown,” said John Kilduff, partner at Again Capital in New York.    Refiners have had a hard time keeping up with demand, as crude runs rose by 329,000 bpd in the last week, EIA said, boosting refinery utilization rates by 1.5 percentage points to 88.2% of their overall capacity.     U.S. gasoline stocks fell by 1.6 million barrels to 248.4 million barrels, the EIA said. Distillate stockpiles, which include diesel and heating oil, fell by 929,000 barrels in the week.    Net U.S. crude imports fell by 1.42 million bpd and crude stocks at the Cushing, Oklahoma, delivery hub fell by 2.8 million barrels, the EIA said.Oil prices spiked on the data. Brent crude futures gained 94 cents to $91.72 a barrel by 10:55 a.m. EST (1555 GMT) while U.S. crude gained 66 cents to $90.02 a barrel. More

FRANKFURT (Reuters) – As guardians of stability in prices and financial markets, the last word central bankers want to be associated with is “panic”.Yet that is precisely the term used by two top European Central Bank watchers to describe the message communicated by ECB President Christine Lagarde since she opened the door to a rate hike in 2022 to curb record-high inflation. Investors took Lagarde’s words last week – which were unexpected, as she had earlier all but ruled out a rate hike this year – as a signal the ECB would tighten policy soon, sending borrowing costs soaring across the 19-country euro zone. Government bond yields have held onto their gains even though Lagarde later sought to clarify and soften her meaning.”There can only be one conclusion: communication mission failed. This is ‘from patience to panic’,” ING’s economist Carsten Brzeski said on Twitter (NYSE:TWTR).He drew a contrast with Lagarde’s predecessor Mario Draghi, who in 2012 famously quashed speculation about a break-up of the euro with just three words – “whatever it takes”.”If you compare this to the Draghi era, it is extremely difficult for the market to know who to listen to,” Brzeski added in an interview.Investors’ faith in a central bank’s communication is arguably its most valuable asset when it comes to managing market expectations, something all central bankers, including Draghi, have struggled with.But a costly slip of the tongue at the onset of the coronavirus pandemic – when Lagarde said the ECB was not there to close bond spreads for struggling countries – has led to her facing increased market scrutiny. Her challenge is compounded by the vagaries of a pandemic-era economy and her desire to maintain a public consensus among ECB policymakers.Sources have told Reuters that a sizable minority of policymakers who take a hawkish stance on inflation wanted to start dialling back stimulus at Thursday’s meeting.”Lagarde panicked, and shifted to the hawkish side to prevent a return to the Draghi-era of public disagreement (particularly in Germany),” UniCredit’s chief economics advisor Erik F. Nielsen said in a research note. He added in an interview: “If the institution is led by a President swaying between sides it is difficult to give a consistent message.” DISCONNECTAfter Lagarde’s news conference on Thursday, investors brought forward their expectations for when the ECB will end its bond-buying programme and raise interest rates for the first time since July 2011.Analysts expect the former to happen well before year-end and money markets have priced in the ECB’s deposit rate climbing all the way back to zero by December, from -0.5% currently.This is the widest disconnect between market expectations and the ECB’s official guidance, which is for rates to stay at their present record-low level or even be cut, since the guidance was introduced in 2013.The rapid shift in expectations led another ECB watcher, Pictet economist Frederik Ducrozet, to ask on Twitter if Lagarde would be forced to give a remedial interview, as she did in March 2020 after her remarks had unsettled bond markets.On Monday, Lagarde told the European Parliament there was no sign that a “measurable tightening” of policy was needed – a speech described by Paul Donovan, chief economist of UBS Global Wealth Management, as “accompanied by loud splashing sounds as policy was inexpertly rowed backwards”. But Lagarde’s messaging has so far failed to soothe market nerves, a problem particularly for Italy and Greece, which have relied on the ECB’s bond purchases to keep their financing costs in check throughout the coronavirus pandemic.Yields on 10-year Italian government bonds have jumped from 1.4% to 1.8% in a matter of days and on their Greek counterparts from 1.8% to 2.5%, while risk premiums for the countries’ debt compared to ultra-safe Germany’s have widened. Lagarde’s reassurances that the ECB has plenty of tools to keep spreads under control, including reinvesting proceeds from maturing bonds bought as part of its quantitative easing (QE) programme, has not reassured investors either.”The spreads widened dramatically because if we don’t have QE, what are the tools?” UniCredit’s Nielsen said. “We only have investments but whether that’s enough, no-one seems to believe it.” Even former ECB vice-president Vitor Constancio made a rare criticism of its hawkish shift following two record inflation readings, comparing its policy setting to “looking out the window” – a citation from U.S. economist Alan Blinder.”Central banks must be forward-looking and therefore must use models and projections, adding, of course, some judgement,” Constancio tweeted.”Looking out the window, seeing the temperature, and deciding, is a very bad strategy for monetary policy.” More