Aurelia Butler

NEW YORK (Reuters) – Some investors are preparing for a hawkish turn from the Federal Reserve by buying the cyclical, economically-sensitive names they gravitated to earlier this year, as expectations grow that the central bank is zeroing in on fighting inflation. The gap between growth stocks and their value-focused counterparts, which include companies like banks, financials and energy firms, has fluctuated throughout the year, driven in part by bets on how quickly the Fed will normalize monetary policy.In recent days, signs that the central bank will move faster than expected in the face of surging consumer prices have slammed the shares of growth and technology companies, which have also been roiled by broader market volatility stemming from concerns over the spreading Omicron variant https://www.reuters.com/world/omicron-marches-biden-prepares-us-grim-winter-2021-12-03 of the coronavirus.At the same time, some investors have been ramping up bets on so-called value stocks, expecting them to perform better in an environment of tightening monetary policy. Such stocks surged earlier in 2021 as the U.S. economy reopened but faltered later as investors gravitated toward tech shares.“The Fed brings the punch bowl and they are the ones that remove the punch bowl,” said Michael Antonelli, strategist at Baird. “Markets are quickly repricing their view of the future.”Futures on the federal funds rate, which track short-term interest rate expectations, late Friday reflected a roughly 50% chance that the Fed will raise rates from its current near-zero level by May, CME’s Fed Watch tool showed. That compared with around 31% in early November.Driving those bets are comments from Fed Chairman Jerome Powell, who earlier this week said the central bank will likely in its next meeting discuss speeding the unwind of its $120 billion-per-month government bond-buying program.Powell also said the word “transitory” was no longer appropriate to describe the current high inflation rate.Stronger-than-expected elements in Friday’s U.S. employment report reinforced the view of a more hawkish Fed and weighed on growth stocks.Among the casualties was the Ark Innovation ETF, which outperformed all other U.S. equity funds last year due to its outsized bets on so-called stay-at-home stocks. Shares of the fund tumbled 5.5% on Friday to a 13-month low amid steep declines in many of the stocks it holds.The Russell 1000 Growth index is down 2.4% in the first three days of December, while its value-focused counterpart has risen by nearly 0.9%. The indexes are up 21.1% and 16.6%, year-to-date, respectively. “The internals of the market are starting to reflect a faster rate hiking cycle and it’s the longer-duration growth stocks that are really selling off,” said Spenser Lerner, head of Multi Asset Solutions at Harbor Capital Advisors. Higher yields – which can result from expectations of more aggressive Fed policy – can weigh even more on tech and growth stocks with lofty valuations, as they threaten to erode the value of their longer-term cash flows. At the same time, value and cyclical shares tend to benefit from a stronger economy – often a prerequisite for the Fed to tighten monetary policy.Lerner is focusing on high-quality, cyclical U.S. large-cap companies that do not trade at high valuations and will benefit from what he expects will be a continuing strengthening of the dollar as the Fed gets closer to raising rates. Among the data points the Fed will be watching in the week ahead will be the release of consumer price index and core inflation readings next Friday.Garrett Melson, portfolio strategist with Natixis Investment Managers Solutions, said Powell’s openness to accelerating the Fed’s tapering program will likely bring more volatility in the coming months as investors position for the possibility of rising rates. He is betting the faster removal of Fed support will lift shares of energy firms and financials. Not everyone believes the Fed is getting set for rate increases in 2022. Burns McKinney, a senior portfolio manager at NFJ Investment Group, is betting the Fed will not rush to hike rates after unwinding its bond buying but instead gauge the strength of the economy without any monetary support before tightening policy in 2023. Such an outcome could see the Fed allowing inflation to continue running hot for months, boosting the case for buying cyclical companies such as Lockheed Martin Corp (NYSE:LMT) and Honeywell International Inc (NASDAQ:HON), which have a history of growing their dividends and may benefit from the Democratic-led infrastructure deal that passed Congress in early November. “If the Fed hadn’t retired the word ‘transitory,’ all the rest of us had,” McKinney said. More

WASHINGTON (Reuters) – Private and sovereign creditors should accelerate work on debt restructuring efforts for countries like Chad, Zambia and Ethiopia or risk discouraging countries that need help from participating, International Monetary Fund chief Kristalina Georgieva told the Reuters Next conference on Friday.”Get it done,” she said, calling for more timely debt restructuring agreements and agreement to freeze debt service payments once a country applies for help under the Common Framework set up by the G20 economies and the Paris Club.”Why would they participate if it takes forever, and during that time, they are still expected to service debt?” she said. More

LONDON (Reuters) -Narrowing equity market breadth, rising volatility and the prospects of rate hikes are the classic signs of a market top, BofA said in a weekly report on Thursday.Just five of the biggest U.S. technology stocks accounted for 71% of the nearly 20% gains in U.S stocks, BoFA analysts noted of the performance of shares in a weekly flows note based on EPFR data. A situation in which a tiny group of stocks powers gains while others lose ground is often viewed as an indicator that a rally is running out of steam. The picture was equally worrying for world stocks, with year-to-date returns from a global index excluding the top 300 U.S. growth stocks at a paltry 1.6% despite a record-breaking $1 trillion of equity market inflows so far this year.Volatility gauges are also signalling caution. While U.S and European stock market volatility gauges have stepped back from 2021 highs hit earlier this week, they remain far above recent averages.And with major central banks led by the U.S. Federal Reserve expected to start increasing interest rates from next year, traders are getting worried about technology shares. Their stellar performance this year has been partially based on the view that interest rates will remain near record lows.”Hikes plus volatility plus divergences often a market top make,” strategists at U.S. investment bank BofA led by Michael Hartnett said in a note.U.S. Treasuries saw their biggest inflows since October 2020 while investment-grade and high-yield bond funds saw large outflows. Cash funds saw the biggest weekly inflows at $27.1 billion, followed by equities at $9 billion.Short bonds and long equities trades this year have paid handsome dividends. But in a sign that investors are unwinding some of those trades, BofA said its private clients have trimmed their equity positions for the past three weeks, led by outflows from growth and industrial sectors. More

Only a quarter of small British importers are ready for new border controls on imports from the EU that will be imposed in four weeks, a trade body has warned, sparking fears of further disruption to supply chains immediately after Christmas. The Federation of Small Businesses (FSB) also warned there was a lack of capacity among small companies to handle the new paperwork.From January 1, companies will no longer be able to delay making import customs declarations for EU goods, and will instead have to make declarations and pay relevant tariffs at the point of import. Notice of imports of food, drink and products of animal origin will also be needed to be given in advance. A FSB survey showed that only one in four small importers were ready for the changes, while one in eight of the importers said they were unable to prepare for the introduction of checks.A third said they were unaware of the changes before the FSB study, but would be affected by them.FSB national chair Mike Cherry said few businesses were fully prepared for the introduction of import controls from January given “the turmoil of the past 18 months, concerns about the spread of Covid, and this being the busiest time of year”.He urged business to refrain from stockpiling, however, saying that there was “already a squeeze on warehousing space — if everyone ramps up storage, that squeeze will only tighten”. In recent days the government has said that companies should consider how they are going to submit customs declarations and pay any duties. Unless goods have a valid declaration and have received customs clearance, they will not be able to be released into circulation, and in most cases will not be able to leave the port.Goods may be directed to an inland border facility for documentary or physical checks if these checks cannot be done at the border. Meanwhile, supplier declarations will be needed for the first time to export goods to the EU using tariff preferences — a reduced rate of customs duty granted as long as there is proof of origin. Commodity codes used worldwide to classify goods that are imported and exported will also change on January 1.The FSB has called on the government to further raise awareness “in a climate where a lot of small firms simply don’t have the cash or bandwidth to manage this new red tape”.It also wants ministers to introduce a new SME Brexit support fund to help businesses that import and export with paperwork and regulations. More

WASHINGTON (Reuters) – Global economic growth projections from the International Monetary Fund will likely be downgraded due to the emergence of the Omicron variant of the coronavirus, IMF Managing Director Kristalina Georgieva said on Friday.”A new variant that may spread very rapidly can dent confidence, and in that sense, we are likely to see some downgrades of our October projections for global growth,” Georgieva said during the Reuters Next conference.The IMF said in October it expected the global economy to grow 5.9% this year and 4.9% next year, pointing then to the threat of new coronavirus variants as increasing uncertainty about the timeline for overcoming the pandemic.INFLATION BITESGeorgieva said high inflation in the United States should be addressed by policymakers but that such hefty price pressures are not being observed equally around the world, allowing other economies to change policy at their own pace.The IMF’s head added that the strength of the U.S. economy has a positive spillover effect around the world even if it means the U.S. Federal Reserve will wind down its accommodative policy stance in the months ahead, as most economists now expect.”We do believe that the path to policy rate increases may be walked faster,” she said, pointing to 2022 as a likely target.Georgieva said tariff reductions are a “useful tool” to help control inflation and that she was encouraged by U.S. Trade Representative Katherine Tai’s work on tariff reductions through an exclusion process.”It is not a silver bullet. There has to be action on all these fronts, so we can see the issue of inflation being contained.”Georgieva called for more aggressive debt restructuring for the current debt burden in developing countries not to become a long-term headwind.”The reality is that 2022 is going to be a very pressing year in terms of dealing with debt,” she said, adding that sovereign debt has risen 18% during the COVID pandemic and it will take decades to go to pre-pandemic levels unless there is a “much more thoughtful and aggressive” policy.”So far, interest rates are relatively low, this is not so dramatic. Going forward … that may not be the case.”Georgieva defended the fund against criticism of its work on climate change, which she considered a critical element of macroeconomic stability.”I don’t think there are many people today who could see climate change as not being macro critical for stability, growth and employment. It is. And the reason the IMF is engaged on this topic is because for our members, it matters.” More

(Reuters) – Kellogg (NYSE:K) Co said on Thursday it has reached an agreement with the union on a new five-year contract for its employees at a few breakfast-cereal plants in the United States, potentially bringing a near two-month long strike to an end.The tentative agreement, reached after multiple rounds of talks with the union, includes wage increases and benefits for all employees and better terms for transitional employees.The latest agreement allows for all transitional employees with four or more years of service to move to legacy positions.Union members had previously opposed Kellogg’s two-tier employment system that did not offer transitional workers a pathway to become legacy staff.Employees at Kellogg’s cereal plants including Michigan, Nebraska, Pennsylvania and Tennessee went on strike on Oct. 5 after their contracts expired, as negotiations over payment and benefits stalled due to differences between the company and about 1,400 union members. The new deal, which will be voted on by Kellogg employees on Dec. 5, will also offer permanent employees with better post-retirement benefits. During lengthy negotiations with union members, Kellogg had hired permanent replacements for some of its plant workers on strike, and also warned of a dent to its annual profit due to the disruption. Kellogg is one of the several major U.S. companies that has faced worker strikes in the recent past as the labor market tightens and inflation reaches record highs. Last month, farm equipment maker Deere (NYSE:DE) & Co reached an agreement with workers after a six week strike. More