Economy

MOSCOW (Reuters) – The Russian rouble rebounded past 100 to the U.S. dollar, trading at 99.50 on Friday, after a decree by President Vladimir Putin which opened new payment options for European buyers of Russian gas, allowing foreign currency flows to resume.The rouble strengthened by 1.5% against the dollar, according to over-the-counter data from banks. It was also up by 2.4% at 13.57, rebounding past 14, against China’s yuan in trade on the Moscow stock exchange. Putin’s decree meant that European buyers of Russian gas, including Hungary and Slovakia, who previously used Gazprombank for their transactions, could now convert their currency into roubles in other banks that are not under sanctions. U.S. sanctions imposed on Gazprombank on Nov. 22 disrupted Russia’s foreign currency market, leading to a 15% fall in the rouble exchange rate against the dollar. The Russian currency now is on track for its best week in four months, suggesting the market has adjusted to the sanctions. The rouble has been weakening since Aug. 6, the first day of Ukraine’s incursion into Russia’s Kursk region. Russia’s Finance Minister Anton Siluanov directly linked problems with energy payments and U.S. sanctions against Gazprombank to the rouble’s weakness, saying the volatility will disappear as soon as a solution for payments is found. “Our foreign trade participants are finding ways to settle accounts with their counterparts abroad, so I think that one more week and everything will be fine,” Siluanov was quoted by the Russian media as saying on Dec. 5. Analysts and traders shared this view, saying that Putin’s decree has unlocked energy payments, giving a boost to the Russian currency. “Previously stalled large export revenues, which were stuck due to new banking sanctions, may have been ‘unblocked’ and have now hit the market, which is already very thin,” a forex trader in a large Russian bank, who declined to be identified, told Reuters, explaining the reasons for the rouble’s rise. Putin said this week that up to 90% of Russia’s foreign trade was now in roubles and currencies of ‘friendly’ nations such as China’s yuan. However, some importers still needed dollars and euros, creating domestic demand for both currencies. Russia’s sanctioned largest lenders, including state-controlled Sberbank, can no longer hold and trade dollars in euros since they cannot have correspondent accounts in the U.S. and Europe and are cut off from the international SWIFT system. Many Russian banks have been importing large volumes of dollar and euro cash from third countries at least throughout 2023 in order to service their clients in case they want to buy foreign currency.However, many Russian banks, including local subsidiaries of Austria’s Raiffeisen, Hungary’s OTP and Italy’s UniCredit, were not under sanctions and could use SWIFT. Such banks formed the core of the Russian market in dollars and euros, which became entirely over-the-counter following sanctions against Moscow Stock Exchange in June, which made yuan the most traded foreign currency in Russia. Sberbank’s CEO German Gref said the fair value of the rouble is in a range of 100-105 to the U.S. dollar, adding that he did not expect more surprise exchange rate fluctuations for now. “Today we do not expect any surprises with this. It will fluctuate depending on the situation. And currently, we do not see any room for a significant weakening of the rouble,” Gref said at the bank’s investor day. More

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PARIS (Reuters) – President Emmanuel Macron on Friday began his latest search for a new prime minister to lead France’s unruly parliament, after rejecting demands he quit to end a crisis he said was driven by the far right and extreme left’s “anti-republican front.”In a prime time address on Thursday, Macron said he would announce a new prime minister in the coming days to replace Michel Barnier, who was ousted in a no-confidence vote by lawmakers angered by his belt-tightening 2025 budget bill.But it remains to be seen how Macron can cobble together enough support in parliament to pass a 2025 budget bill, or install a prime minister with any sort of longevity.Macron’s best hopes appear to lie with the Socialist Party, a moderate leftist grouping with 66 seats in the National Assembly. The Socialists voted to topple Barnier this week, but have since signalled they might be willing to support another government.If Macron can win their backing, a new prime minister would likely have the numbers to stave off no-confidence motions from Marine Le Pen’s far-right National Rally and the hard-left France Unbowed.Socialist Party leader Olivier Faure said he would meet with Macron on Friday, with his primary demand being a leftist prime minister. He also said he would be willing to make concessions on a previous demand for Macron’s pension reform to be scrapped.The Socialist Party is, just behind France Unbowed, the second-largest member of the New Popular Front, a broad left-wing electoral alliance that won the most seats, 193, during this summer’s snap legislative elections.”We cannot, if we are responsible, say that we are simply for the repeal (of the pension reform), without saying how we are financing it,” Faure said. “We’re going to discuss with the head of state because the situation in the country deserves it … that doesn’t mean I’ve become a Macronist.”Faure later said that Macron should also seek to bring in the Greens and Communists.MACRON REJECTS BLAME Macron, who sparked France’s festering political crisis in June by calling a snap election that delivered a hung parliament, was defiant in his address to nation.  “I’m well aware that some want to pin the blame on me for this situation, it’s much more comfortable,” he said.But he said he will “never bear the responsibilities” of lawmakers who decided to bring down the government just days before Christmas. He said Barnier was toppled by the far-right and hard left in an “anti-republican front” that sought to create chaos. Their sole motivation, he added, was the 2027 presidential election, “to prepare for it and to precipitate it.”Despite pressure for him to resign before 2027, Macron said he wasn’t going anywhere.”The mandate you gave me democratically is a five-year mandate, and I will exercise it fully until its end,” he said, adding he would name a new prime minister in the coming days and push for a special budgetary bill that rolls over the 2024 legislation for next year.The next government would pursue a 2025 budget bill early in the new year, he said, so that “the French people don’t pay the bill for this no-confidence motion.” More

According to LSEG data, investors acquired U.S. equity funds worth $8.85 billion on a net basis during the week after about $11.8 billion worth of net purchases in the previous week.U.S. economic activity has expanded slightly in most regions since early October, the Fed said earlier this week.Market participants are also gearing up for a potential rate cut later this month, with the CME Fed Watch tool currently indicating a 66.7% likelihood of a quarter-point reduction.The monthly payrolls report, due later on Friday, could sway the Fed’s decision.U.S. large-cap funds witnessed a robust $6.6 billion worth of inflows, the largest in three weeks. Investors also racked up small-cap and multi-cap funds of a net $2.59 billion and $585 million, respectively.U.S. sectoral funds, meanwhile, experienced a net $321 million worth of outflows, following inflows for three weeks in a row. Investors ditched tech and healthcare sector funds worth a noticeable $914 million and $538 million, respectively.At the same time, weekly net purchases in U.S. bond funds eased to a six-week low of $3.7 billion during the week.The short-to-intermediate investment-grade, general domestic taxable fixed income and municipal debt funds still received a significant $2.01 billion, $1.36 billion and $1.15 billion worth of inflows, respectively.Investors, meanwhile, pumped a hefty $121.34 billion into U.S. money market funds, the biggest amount in any week since April 2020. More

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LONDON (Reuters) -The European Central Bank would happily, if quietly, cheer an even weaker euro exchange rate – and may be far more wary of the opposite at just the wrong time.The euro is likely still too strong for the sort of subdued growth and outsize trade risks the zone faces next year and, far from being a brake on more monetary easing, its depreciation may well be encouraged. And it could argue for at least one deeper half-percentage-point interest rate cut at upcoming meetings. The ECB meets next Thursday for the last time in 2024 and economists overwhelmingly expect another 25-basis-point rate cut – which would be the fourth such move this year.Market thinking and the general thrust of ECB arguments are that the central bank has inflation more or less licked and should return to a neutral policy rate – somewhere around 2% if inflation holds at ECB targets. At that point it would simply sit and pray a cyclical recovery takes hold, while being alert to multiple political and trade risks unfolding through 2025.ECB President Christine Lagarde basically sketched that scenario earlier this week in a European parliament hearing, despite a lively debate among her policymakers about bigger and faster rate cuts to get across a pervasive German-led economic funk.If the gradualists hold sway, that suggests a quarter-percentage-point cut at every meeting until the middle of 2025 to get the current 3.25% deposit rate back to those rough estimates of “neutral”.As such, at least 125 basis points of ECB expected easing contrasts with market pricing for half that from the U.S. Federal Reserve.And yet many strategists claim that sort of Transatlantic divergence is already largely discounted by the euro/dollar exchange rate, which has dropped about 5% in two months. The euro’s nonchalant reaction to the week’s political drama in Paris suggests as much. Morgan Stanley (NYSE:MS) on Thursday raised a red flag about the unintended consequences of a softly-softly approach from the ECB around next week’s expected rate cut and how that may pose “upside risks” for the currency. “Markets are sufficiently bearish on the euro area outlook and the euro that any sign of unchanged messaging could be treated as a hawkish surprise,” it said.AVOIDING A EURO REBOUNDThe ECB has good reason to avoid a euro rebound just at this juncture – not least because the currency’s trade-weighted index is far higher than the swoon versus the dollar suggests.Despite the euro being just 5% from dollar parity, which was last seen in the wake of Russia’s invasion of Ukraine in 2022, the ECB’s nominal euro exchange rate index against the bloc’s main external trading partners is still only 1% below all-time highs hit in September.The inflation-adjusted real effective exchange rate index is not quite as lofty, due largely to the decade in which the bloc flirted with deflation after the 2008 global banking crash and 2010-2012 euro debt crisis. But despite ebbing in recent months, it too is little changed from where it was 10 years ago – even after the serial shocks seen in recent years. And for a region potentially facing 10%-20% U.S. tariff hits from President-elect Donald Trump’s incoming administration, a simmering bilateral trade row with China and a contraction in Germany, its export-dependent weakest link, currency depreciation would be a blessing.Even if still-sparky wage growth remains an ECB irritant, that’s even more of reason for a weaker currency to recapture some competitiveness in a global trade war. As euro consumer price inflation remains close to target and producer price deflation is still running at more than 3%, the ECB has ample scope to ease big. And even if trade tariffs could skew the price outlook somewhat, the ECB’s chief economist, Philip Lane, has argued the growth hit from any trade war would be a much greater consideration than any temporary price-level bump from tariff hikes.The only question in some minds then is whether a euro plunge through dollar parity would be in some way jarring for regional confidence, especially at a time of nervy German and French domestic politics.But currency weakness is not the euro zone economy’s problem right now. Arguably, it’s the opposite. The opinions expressed here are those of the author, a columnist for Reuters.(by Mike Dolan X: @reutersMikeD; Editing by Paul Simao) More

Several policymakers are due on Friday to give their final public remarks before the policy meeting after a week that has solidified market expectations that the Fed will cut rates by another quarter percentage point to a range of 4.25% to 4.50%.Fed Governor Michelle Bowman, Chicago Fed President Austan Goolsbee, San Francisco Fed President Mary Daly and Cleveland Fed President Beth Hammack are all due to speak or publish remarks through the day. The Fed’s internal communications rules forbid public comments on monetary policy beginning on the Saturday preceding the week before each two-day meeting.Earlier this week top Fed officials pointed to Friday’s jobs numbers for November as among the chief remaining data points they need to make a decision. On Monday, Fed Governor Christopher Waller said he was “leaning towards” a rate cut but would reserve final judgment to review the jobs numbers and inflation data due next week.In comments on Wednesday Fed Chair Jerome Powell noted that inflation was running higher than policymakers had expected at this point, and repeated his prior comments that the Fed could be careful in managing the endgame of its roughly three-year fight against inflation. Along with progress on inflation stalling in recent months, with some key measures still more than a half point above the Fed’s 2% target, the economy overall has been stronger than expected – something the Fed may get further confirmation of in the jobs report.The caution Powell spoke of, however, may come more into play next year, with many analysts expecting a cut in December but a pause after that.The chair’s comments were “well short of challenging the market’s growing confidence that a December cut is the base case,” wrote Evercore ISI Vice Chair Krishna Guha. More