Economy

LONDON/SINGAPORE (Reuters) -A perfect storm of political, policy and technical risks has upended one of the year’s most popular currency trades, sending the Japanese yen soaring from 38-year lows with ripples spreading as far as Switzerland, Australia and Mexico. Nearly $40 billion in suspected intervention by Japanese authorities ignited the yen’s rally but the move has taken on a life of its own, upending the carry trades which exploit differences in interest rates and often utilise the currency. The yen has surged from around 162 per dollar in mid July to roughly 153 per dollar, its biggest two week gain of the year, even if it remains this 2024’s worst performing G10 currency.”The yen is a classic example of where positioning and top-down factors are aligning,” said Hugh Gimber, global market strategist at JPMorgan Asset Management. Analysts point to expectations that the yawning gap between U.S. and Japanese interest rates could soon narrow, as well as concerns that a Donald Trump victory in November’s U.S. presidential election could unleash new currency wars.Speculators have cut their bearish bets against the yen by the most in a month since March 2020. At $8.61 billion, the net short position is 40% below April’s near-seven year high, according to data from the U.S. markets regulator.”Because this unwinding of short yen positioning is correlated with the so-called carry trade it can affect other carry positions as well,” said Athanasios Vamvakidis, global head of G10 FX strategy at Bank of America.STEAMROLLERCarry trades have proved hugely popular this year and last, fuelled by a combination of low volatility and big differences between central bank interest rates.Traders borrowed in yen or Swiss francs at rock-bottom rates and invested in assets with higher returns such as Mexican government bonds or even U.S. tech stocks, with analysts saying last week’s equity-market rout may have got an extra kick from some carry trades unwinding. Benchmark 10-year borrowing costs are around 1% in Japan and 0.5% in Switzerland versus more than 4% in Australia – popular with developed-market carry traders – or near 10% in Mexico. The recent pick up in volatility has added pressure to carry trades that did well in the more benign markets of the first half of 2024, said Nathan Swami, head of currency trading at Citi in Singapore”Carry trades involving funding in yen appear to be increasingly vulnerable to VaR shocks, similar to what we saw last week,” he said. A VaR shock is essentially a jump in the maximum loss an investment can sustain over a period of time.The resulting shifts are felt far and wide.The Swiss franc and China’s offshore yuan, other popular carry trade funding currencies, also appreciated last week, with the yuan seeing its biggest weekly gain against the dollar since April, and the franc hitting its strongest since March..”It’s all about carry trades. You can see from the daily moves in say the Swiss franc, when the news isn’t to do with the franc but the yen,” said Jamie Niven, senior fixed income portfolio manager at Candriam. Niven said he began reducing a short position in China’s yuan last week, as its sudden appreciation made him wary of carry-trade currencies. Meanwhile, the Australian dollar has fallen 3.6% against the U.S. dollar in two weeks, and nearly 6% on the yen, its most in a fortnight since the pandemic volatility of March 2020. Latin American currencies like the Mexican peso are also softer.”It’s not a pure carry environment for the moment,” said Andreas Koenig, head of global FX at Amundi, Europe’s largest asset manager, noting that the recent daily moves in currencies like the peso can easily wipe out any gains from carry.    The surprise outcome of the Mexican election in June also jolted carry trades, while the U.S. vote and uncertainty about the trajectory of central bank policy are likely to drive further currency volatility, deterring investors from carry trades for now.”When uncertainty goes up and we’re coming closer to big events, like U.S. elections, I would say I would wait until these are out,” said Koenig. “Afterwards,” Koenig added, “I’m pretty sure a lot of opportunities can open up, especially let’s say on the Mexican side.” More

BOGOTA (Reuters) -Colombia’s government proposed on Monday a 523 trillion peso ($130 billion) 2025 budget to lawmakers for their consideration, the finance ministry said in a statement, as mounting fiscal challenges put pressure on President Gustavo Petro’s agenda. The government budget proposal compares to this year’s 483-trillion-peso budget, which in June was slashed by 20 trillion pesos, the ministry said.WHY IT’S IMPORTANTPetro is about to enter the second half of his presidential term, but without the backing of a solid majority in Congress to approve his economic and social priorities.Congress must approve the budget bill by Oct. 20 and could make significant changes to it.Diego Guevara, Colombia’s vice-minister for finance, said the government will seek some 12 trillion pesos via a new financing law set to go through Congress, in order to cover the funds required for the budget plan. KEY QUOTES”This is a budget that bets on economic reactivation,” budget director Jairo Bautista told a press conference. “It manages to target fundamental spending objectives in key economic sectors such as health, education and infrastructure.”BY THE NUMBERSThe bill sets out operating expenses of about 327.9 trillion pesos, debt service funds of 112.6 trillion and investments of 82.4 trillion.The finance ministry said the budget was consistent with next year’s targets of economic growth of 3% and a fiscal deficit of 5.1% of gross domestic product (GDP), which the government set out in a mid-term framework last month.CONTEXTThe ministry also plans to propose legislation to bring forward certain fiscal changes that were set to take effect as of 2026.CARF, an autonomous fiscal committee, said earlier this month that Colombia’s government may need further adjustments to its accounts to comply with fiscal rules this year and next and stabilize its debt in the face of risks to tax collection goals.($1 = 4,063.3000 Colombian pesos) More

Insurers providing policies to homeowners were hit with a $15.2 billion net underwriting loss last year, according to figures from rating agency AM Best, saying that the figure was the worst since at least 2000 and more than double the losses since the previous year.The report identified increasing population in the areas most vulnerable to natural disasters as a key factor — citing census figures showing that six states prone to severe weather, including California, Texas and Washington, accounted for half of the country’s population growth in the 2010s.”A growing population means an even larger rise in real property development and thus in insured values,” said Christopher Graham, senior industry analyst at AM Best.”Construction in catastrophe-prone areas adds to flood risk. It also increases the risk of wildfires in areas prone to them due to human activity, as well as utility companies, he added.”AM Best said it believes that a return to underwriting profitability for the segment over the near term is unlikely.The Financial Times first reported on Sunday the details of the AM Best report. More

(Reuters) – A look at the day ahead in Asian markets. Stocks around the world on Monday continued from where they left off on Friday, stemming the tide of last week’s selling as investors squared positions ahead of a wave of market-moving economic data, policy decisions and earnings reports later in the week.There doesn’t appear to be much on the immediate horizon to give Asian assets a strong steer on Tuesday – Wall Street was mixed, the dollar climbed and Treasury yields dipped – suggesting regional markets will be relatively well-supported but range-bound.Japanese labor market data, housing and retail trade figures from Australia, and a sprinkling of earnings reports, including Standard Chartered (OTC:SCBFF), Nomura Holdings (NYSE:NMR) and Samsung (KS:005930) are the main regional events that investors will be looking out for.Asian equities appear to have stopped the recent rot, with some benchmark indices on Monday chalking up their best day in two weeks – the MSCI Asia ex-Japan index rose 0.7%, the Hang Seng rose 1.3%, and Japan’s Nikkei jumped 2.1%.That was the Nikkei’s best day since April – an impressive bounce from a three-month low, but it did follow eight straight down days, its worst run in almost three years. Can Asia take heart from U.S. and world stocks’ performance on Monday? The recent rotation out of U.S. Big Tech into small caps stalled, with the Russell 2000 heavily underperforming tech and the Nasdaq more broadly. The S&P 500 barely rose 0.1% – a tiny gain, but the first time in two weeks that the index has risen two days in a row.The Bank of Japan’s policy decision on Wednesday looms larger over Japanese assets. Sources have told Reuters that a rate hike will be discussed and policymakers may also unveil a plan to roughly halve its bond purchases in the coming years. Money market pricing on the BOJ’s move on rates still leans toward a 10-basis point hike but tightening will be slow – barely 20 bps of rate hikes are priced in by year end.If policy ‘normalization’ in Japan is that gradual, the yen will struggle to get much upward traction from Tokyo. It might get more of a boost from the U.S. Federal Reserve and other central banks cutting rates more aggressively than markets currently expect. U.S. rates futures traders are betting that the Fed will stand pat on Wednesday, begin easing in September, and cut rates by around 65 bps before the year is out. The Bank of England meets on Thursday, and could cut rates.The dollar rose to a two-week high against a basket of major currencies on Monday, nudging through 154.00 yen as Wednesday’s Fed and BOJ meetings draw closer. Asian FX markets are mostly subdued, while China’s yuan is also taking a breather.Here are key developments that could provide more direction to markets on Tuesday:- Japan unemployment rate (June)- Australia building approvals (June)- Samsung earnings (Q2) More

Shares of Florida-based SBA Communications fell more than 4% in extended trading.High interest rates have forced wireless carriers to keep a tight leash on their budgets after the initial roll-out of 5G network, hitting demand for companies such as SBA Communications.”New business execution in the US continued at a similar pace to the levels we have experienced the last few quarters, and internationally we saw a pick-up in new leasing activity,” CEO Brendan Cavanagh said in a statement.SBA, which leases space and manages tower sites for wireless carriers including AT&T (NYSE:T), T-Mobile US (NASDAQ:TMUS) and Verizon Communications (NYSE:VZ), now forecast annual revenue to be between $2.64 billion and $2.67 billion, compared with its earlier expectations of between $2.66 billion and $2.70 billion.In April, SBA had already cut its annual revenue forecast.The real estate investment trust competes with other tower companies such as Crown Castle (NYSE:CCI) and American Tower (NYSE:AMT).SBA’s second-quarter revenue fell about 3% to $660.5 million from a year earlier, missing analysts’ average estimate of $665.1 million, according to LSEG data. Adjusted funds from operations – a key measure of cash flow for REITs – came in at $3.29 per share, 1.5% higher than a year earlier.In the reported quarter, site leasing revenue stood at $626.5 million, compared with estimates of $629.5 million. More

Ethiopia’s central bank floated the country’s birr currency on Monday, a key step to secure IMF support, and to make progress on a long-delayed debt restructuring.The Horn-of-Africa nation, which is struggling with high inflation and chronic foreign currency shortages, became the third economy on the continent in as many years to default on its debt at the end of last year.It has been in talks with the IMF since last year to establish a new lending program, after the last fund-supported program agreed in 2019 was abandoned due to conflict in the northern region of Tigray that ended with a November 2022 peace deal.Reuters previously reported Ethiopia was seeking to secure about $3.5 billion in a deal with the IMF.The IMF said the agreement will enable an immediate disbursement of about $1 billion.Africa’s second-most populous country requested a debt restructuring under the Group of 20’s Common Framework process in early 2021, but progress was slowed by the civil war in Tigray that lasted two years.The government in Addis Ababa has unveiled some economic reforms, which analysts say are linked to the negotiations for a new IMF program, including the adoption of an interest rate-based monetary policy earlier this month. More

The Treasury Department lowered its net borrowing estimate for the July through September quarter to $740 billion, down from the $847 billion amount it had forecast in late April, driven by higher cash balance. The higher cash balance was driven by a slower pace of bond selling, or quantitative tightening that was announced in June, reducing the Treasury’s financing needs by $35B a month. Ahead of the announcement, Jefferies had expected “a modest downward revision to Q3 borrowing to a total of $750B.”For the October to December quarter, Treasury expects to borrow $565 billion in privately-held net marketable debt, assuming an end-of-December cash balance of $700 billion. More

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