Economy

CAIRO/DUBAI (Reuters) -Egypt’s pound hit a record low on Wednesday after the central bank said it would let the currency trade freely and hiked rates by 600 basis points at an unscheduled meeting, taking steps to stabilise the economy with help from Gulf investment and IMF funds. The currency weakened after the markets opened to beyond 50 pounds to the dollar from about 30.85 pounds, a level Egypt has for months tried to defend. A more flexible exchange rate is a key demand of the International Monetary Fund, which officials have signalled is close to confirming an expansion of its current, $3 billion support programme with Egypt.Analysts welcomed Wednesday’s steps, saying they paved the way for the deal with the fund.The country’s state-linked Al Qahera News cited an unnamed, senior official as saying an agreement would be signed within hours.Egypt has in the past said it would shift to a more flexible exchange rate, only to return to closely managing the currency whenever the pound weakened.This time, it may be betting that hard currency inflows from investment projects including a $35 billion investment deal signed in late February with the United Arab Emirates will prevent a freefall.Egypt has been suffering from a chronic shortage of foreign currency. The central bank said its actions were “backed by the steadfast support of multilateral and bilateral partners” and that “sufficient funding has been secured to avail foreign exchange liquidity”.After the announcement, Egypt’s international bonds soared, with longer-dated bonds gaining around 4 cents before giving away some gains. By 1200 GMT, 2049 bond was up 2.3 cent at 83.25 cent, according to Tradeweb data. The premium demanded by investors to hold Egypt’s international bonds over safe-haven U.S. Treasuries tightened to as little as 529 basis points, its lowest level since June 2021, according to JPMorgan The central bank said it had raised the overnight lending rate to 28.25% and its overnight deposit rate to 27.25%, as part of a decision to accelerate monetary tightening and bring down inflation, which rose to record levels last year.”To ensure a smooth transition, the CBE will continue to target inflation as its nominal anchor, allowing the exchange rate to be determined by market forces,” it said in a statement.CLEARING BACKLOGSThe foreign currency shortage has curbed local business activity and led to backlogs at ports and delays in payments for commodities. Remittances from Egyptians working abroad, the country’s top single source of foreign currency, have slowed sharply amid expectations that the pound would fall.The war in Gaza and attacks by Houthis in Yemen on Red Sea shipping have put at risk receipts from tourism and Suez Canal traffic, two other key sources of hard currency.”The unification of the exchange rate is crucial, as it facilitates the elimination of foreign exchange backlogs,” the central bank said.Since early 2022, when the foreign currency shortage worsened, the pound has lost about half its value against the dollar in a series of staggered devaluations.Though the central bank already had an inflation target, it also sought to manage the pound.The announcement on Feb. 23 that Emirati sovereign fund ADQ will invest $24 billion in new money and convert $11 billion of existing deposits within two months for real estate development and other projects had eased pressure on the Egyptian pound on the black market ahead of the devaluation.On currency markets, one-month non-deliverable forwards stood at around 50 to the dollar – in line with the spot rate – but 12-month contracts traded at just over 55 to the dollar, indicating the currency might have to adjust some more in the months ahead. Another return to managing the exchange rate would limit the benefits of Wednesday’s decision, said Kaan Nazli, portfolio manager at Neuberger Berman.”I guess the proof will be in the pudding, but there is a bigger chance than before thanks to the UAE funding,” he said. Analysts say doubts remain over Egypt’s commitment to structural reforms that it has often put off, including reducing the state’s and the military’s sway over the economy. Along with arrears to foreign companies, the country also faces a heavy foreign debt repayment schedule.The banking system, including the central bank, had a net foreign asset deficit of 841 billion Egyptian pounds ($27.2 billion) as of Dec 31. More

(Reuters) -U.S. stock index futures rose on Wednesday as investors awaited testimony by Federal Reserve Chair Jerome Powell before Congress that could help determine the central bank’s monetary policy path. Powell kicks off two days of testimony with a hearing at 10 a.m. ET (1500 GMT) before the House Financial Services Committee, explaining to lawmakers why he is confident price pressures will keep easing without upending the job market or conversely why the window for a “soft landing” may be narrowing.”Powell is likely to stick to the narrative of patience and data dependency this week, but given the intense market focus on Fed timing, there is potential for a market reaction, particularly in the Q&A,” said Seema Shah, chief global strategist at Principal Asset Management.Wall Street indexes closed more than 1% lower on Tuesday amid weakness in market leaders Tesla (NASDAQ:TSLA) and Apple (NASDAQ:AAPL) and as investor focus shifted to Powell and the Fed after signs of sticky inflation in February dampened hopes of early interest rate cuts.Traders see a 69.1% chance of the first rate cut this year in June, as per CME Group’s (NASDAQ:CME) FedWatch tool. At the start of 2024, they were betting on March as the starting point for the Fed’s easing cycle.Investors will also be tracking private payrolls and job openings data, due later in day, ahead of the crucial nonfarm payrolls report on Friday.At 6:55 a.m. ET, Dow e-minis were up 73 points, or 0.19%, S&P 500 e-minis were up 14.75 points, or 0.29%, and Nasdaq 100 e-minis were up 105.75 points, or 0.59%.Megacap growth and technology stocks rose in premarket trading, with Tesla recovering 0.9% after a 3.9% slide in the previous session, while AI darling Nvidia (NASDAQ:NVDA) rose 1.1%.U.S.-listed shares of China’s JD (NASDAQ:JD).com advanced 11.9% after the e-commerce group reported fourth-quarter revenue above estimates and upsized its share repurchase program.Shares of cryptocurrency-linked companies such as Coinbase (NASDAQ:COIN) Global and MicroStrategy gained 5.8% and 11.3%, respectively, as bitcoin rebounded.CrowdStrike Holdings (NASDAQ:CRWD) soared 24.3% after the company forecast annual results above Wall Street estimates, lifted by strong enterprise spending on cybersecurity to counter rising online threats.Other cybersecurity stocks Palo Alto Networks (NASDAQ:PANW), Fortinet (NASDAQ:FTNT) and Zscaler (NASDAQ:ZS) rose between 4% and 4.6%. More

BERLIN (Reuters) -Two German forecasting institutes cut their 2024 growth forecasts on Wednesday in the latest blow to the euro zone’s largest economy. The Ifo institute reduced its forecast to 0.2%, from its previous projection of 0.7% in January, citing weak consumption and high interest rates. The IfW Kiel Institute lowered its forecast to 0.1% from 0.9% previously.”The economy is paralysed,” Ifo’s head of forecasts Timo Wollmershaeuser said at a presentation. “If you look at surveys of companies and households, you realise that the mood is poor and uncertainty is high.””Consumer restraint, high interest rates and price increases, the government’s austerity measures and the weak global economy are currently dampening the economy in Germany and leading to another winter recession.” The German economy shrank by 0.3% in the final three months of 2023 and it is expected to contract again in the first quarter, according to Wollmershaeuser. Two consecutive quarters of falling output are defined as a technical recession. Ifo president Clemens Fuest said Germany was suffering from a combination of cyclical and structural problems, explaining its weaker performance than many other European countries.Structural problems include a lack of competitiveness in the housing sector and in industry, with the latter hit by low investment, he said.With the gradual easing of interest rates and inflation, economic output should accelerate towards the middle of the year, Wollmershaeuser said.Inflation is expected to fall to 2.3% this year from 5.9% last year, and drop to 1.6% in 2025. For 2025, Ifo raised its growth estimate by 0.2 percentage points to 1.5%. Exports are forecast to fall 1.5% this year, but should increase by 3.4% next year. A second Donald Trump presidency in the United States would not be a major risk for exports, Fuest added.”If we think back to the last Trump administration, he imposed tariffs, but how did the foreign trade deficit change during this time? Zero,” he said. Despite the economic downturn, Ifo forecast the number of people in employment would rise to 46.1 million this year from 45.9 million in 2023, and reach a record 46.2 million next year. The unemployment rate is expected to rise to 5.9% in 2024 from 5.7% last year, before falling to 5.6% in 2025.”The shortage of workers continues constraining production,” Wollmershaeuser said. The public deficit is expected to fall from 87.4 billion euros ($95 billion) in 2023 to 76 billion euros this year, and drop to 44.6 billion euros in 2025. Those figures represent 2.1%, 1.8%, and 1.0% of economic output respectively.($1 = 0.9195 euros) More

BENGALURU (Reuters) – A strong U.S. dollar will maintain the status quo in the near term, as markets brace for a risk the Federal Reserve’s first interest rate cut gets delayed to the second half of this year, according to a Reuters poll of foreign exchange strategists.Shrugging off a weakening trend late last year, the dollar has gained against nearly every currency tracked by traders and investors, and is up nearly 2.5% for the year.Much of the greenback’s recent strength is based on stronger-than-expected U.S. economic performance and receding calls for early Fed rate cuts. The timing of the latter is likely to have a bigger say on the currency’s moves in the near-term.”Over the next three months, I think we’re probably going to see the dollar hold in the ranges we’ve been seeing since the start of the year,” said Shaun Osborne, chief currency strategist at Scotiabank.”If we’re in a situation where instead of the soft landing, it’s a no-landing scenario, that potentially reduces rate cut opportunities for the Fed quite significantly over the balance of this year, in which case the dollar probably stays relatively strong.”Despite trader positioning data showing speculators increasing their net long dollar bets to the highest since last November, analysts in a Reuters March 1-6 poll were somewhat divided on how positioning will look over the next three months.Among 66 analysts who answered an additional question, a slim majority of 35 expected not much change, while 17 predicted a decrease in net longs. Eleven said an increase in net longs and only three said a reversal to net shorts.”One thing that’s happened this year is investors have had a hard time playing with the dollar and they’re looking for trades that…take the dollar out of it. I think that’s the way it will continue to lean,” said Dan Tobon, head of G10 FX strategy at Citi.”Over the coming three months, we’ll have a marginally weaker dollar, but not get the type of flows that really create stretched positioning situations off the back of that.”While currency strategists still expected the greenback to weaken against most major currencies over a 12-month period, median forecasts showed no big change to analysts’ predictions from a February poll.The euro, down around 1.5% for the year, was forecast to gain 3.0% to trade around $1.12 in a year. The common currency was last changing hands around $1.09 on Wednesday.Even the battered Japanese yen, which has lost nearly a third of its value since 2021, was expected to gain over 9.0% in 12 months to trade at 137.00/dollar.After failing to make any headway against the greenback in 2023, the Aussie and Kiwi dollars were predicted to gain around 7.3% and 5.0% respectively, recouping their 2024 losses and trading higher against the U.S. dollar in coming months. The Australian dollar and the New Zealand dollars – last trading around $0.65 and $0.61, respectively, on Wednesday – were forecast to rise to $0.70 and $0.64 by end-Feb.(For other stories from the March Reuters foreign exchange poll:) More

BEIJING (Reuters) -The head of China’s state planner said on Wednesday that the government’s 5% economic growth target this year, which many analysts say is ambitious, is achievable and that he expects the world’s second-largest economy to have a good first quarter.Speaking at a rare joint briefing on the sidelines of the annual parliament meeting in Beijing with China’s finance minister, commerce minister, central bank chief, and head of the securities regulator, Zheng Shanjie said officials would step up economic policy adjustments this year to consolidate a recovery.”The target is in line with the annual requirements of the 14th Five-Year Plan and basically matches the potential economic growth, and it is a positive goal that can be achieved with a leap of faith,” said Zheng, chairman of the National Development and Reform Commission (NDRC).Premier Li Qiang on Tuesday announced the growth goal of around 5% in his maiden work report to the National People’s Congress and promised to transform the country’s development model to offset the drag from a prolonged property crisis, high local government debts and weak consumer demand.But analysts say much more stimulus may be needed to hit this year’s target and Li’s vision contains an inherent contradiction: his aim to “transform” the economic model may be incompatible with keeping growth rates steady.”The drag from the unavoidable structural decline in China’s property sector has only just begun,” Mark Williams, chief Asia Economist at Capital Economics, said in a note to clients, while warning that weak demand in the construction sector “would shave another percentage point off China’s average economic growth rate over the rest of this decade.”China’s disappointing post-COVID recovery has cast doubts about the foundations of its investment-heavy economic model, raising the stakes for government action at the week-long parliament meeting of senior policymakers.China’s manufacturing activity in February shrank for a fifth straight month, an official survey showed on Friday, though the services sector showed modest signs of improvement. “Comprehensive analysis shows that the economy can be expected to have a good first quarter,” Zheng said, referring to February manufacturing and services sector data.He also said that China’s exports for the January-February period increased by 10%, but did not state whether that was in yuan or U.S. dollar terms.Economists recently polled by Reuters expected outbound shipments in the first two months grew just 1.9% year-on-year, slowing from December. The trade data will be released on Thursday.China’s foreign trade faces a severe situation this year, commerce minister Wang Wentao told the briefing. STABLE CURRENCY, STABLE STOCK MARKET Pan Gongsheng, governor of the People’s Bank of China (PBOC), said the bank would keep the yuan basically stable and that it had “rich monetary policy tools at its disposal.”Pan added there was still room for cutting banks’ reserve ratio requirement (RRR), following a 50-basis points cut in January, which was the biggest in two years.His comments spurred investors’ expectations for further cuts and pushed Chinese bond yields lower across the curve, said Zou Wang, an investment director at Shanghai Anfang Private Fund Management.China started the year with a stock market rout and deflation at levels unseen since the global financial crisis of 2008-09. The property crisis and local government debt woes have persisted, increasing pressure on leaders to come up with new policies.Last week, China’s cabinet approved a plan aimed at promoting large-scale equipment upgrades and the sale of consumer goods.State planner head Zheng said the proposed replacement of consumer goods would include cars and home appliances, and that equipment upgrades alone could generate market demand of over 5 trillion yuan ($694.54 billion) annually. He did not give further details. Wu Qing, head of the country’s securities watchdog, said it would attract long-term investment and address deep-rooted issues in the world’s second-biggest stock market to revive investor confidence. U.S. Commerce Secretary Gina Raimondo said in August that American companies had complained to her that China has become “uninvestable”, pointing to fines, raids and other actions that made it risky to do business there.Speaking about local government debt, Finance Minister Lan Foan said that risks were “generally under control” and that a basket of measures would be adopted to further deal with them.China’s local government debt hit 76% of gross domestic product in 2022, the latest data available, up from 62% in 2019 and dwarfing central government debt at 21%.Reuters reported in January that China has told the most heavily indebted local governments to delay or halt some state-funded infrastructure projects to contain debt risks, though that would weigh further on economic activity.($1 = 7.1990 Chinese yuan renminbi) More

(Reuters) – Gold prices gained on Wednesday to trade near previous session’s record highs as markets expect Federal Reserve Chair Jerome Powell’s testimony later in the day to reveal clues on a potential June rate cut.Spot gold was gained 0.3% to $2,132.80 per ounce, as of 1249 GMT after hitting a historic high of $2,141.59 per ounce in the prior session. U.S. gold futures were steady at $2,141.60.Bullion has powered to record highs in other major currencies as well.Increasing expectations of interest rate cuts, which boost the appeal of non-yielding bullion, following weaker U.S. economic data recently, and fears of an imminent correction in stock markets have led to strong demand for alternative asset classes such as bitcoin and gold, said Commerzbank (ETR:CBKG) analyst Carsten Fritsch. [MKTS/GLOB]Along with the bullion, the world’s largest cryptocurrency, bitcoin also touched a record high on Tuesday before retreating sharply.Tuesday’s rally pushed spot gold’s 14-day relative strength index to 78, much above the ‘overbought’ levels at 70.”We think the gold price has run too far in the short term and expect a correction. U.S. labor market data on Friday could put a damper on rate cut hopes,” Fritsch said.Traders see a 72% chance for a June Fed rate cut. Investors focus is also on Powell’s first day of semi-annual congressional testimony on the state of the U.S. economy amidst an environment of elevated interest rates.”We expect Powell to suggest that rate cuts may be delayed but likely to start in 2024,” UBS said in a note.”With a mid-year Fed rate cut as our base case, we forecast spot gold will rise to $2,250/oz by end-2024 alongside central bank buying, demand from China, and an expected revival in demand for gold exchange-traded funds.”In other metals, spot silver rose 0.4% to $23.77. Platinum was up 0.8% to $888.00 per ounce, and palladium gained more than 1% to $958.05. More

OTTAWA (Reuters) – The Bank of Canada (BoC) is expected to hold its key overnight rate steady at 5% on Wednesday, economists said, even though data have shown inflation easing and economic growth sputtering.Inflation has stayed stubbornly above the BoC’s target of 2% for three years, and despite rates being at a 22-year high, Canada’s economy has so far avoided recession and may be picking up steam. “The bank (BoC) has been quite prudent and our sense is that we won’t see a rate reduction until mid-year, until about June or July,” said Pedro Antunes, chief economist at Conference Board of Canada, an independent think tank.January’s inflation numbers dipped to 2.9%, falling into the 1%-3% range targeted by the BoC, but Antunes said that was not enough to convince it to cut now. Core price measures, which are closely watched by the central bank, also eased in January.The central bank’s governing council will announce its decision on the target for the overnight rate at 1445 GMT (0945 local time). The BoC has left rates on hold at its four previous meetings.After the January inflation figures, money markets edged forward their bets. They now see a 44% chance for a cut as early as April, and they fully price in a rate cut in June.On the other hand, a majority of economists polled by Reuters expect a rate cut in June with a risk that a reduction will be pushed back.Fourth quarter GDP numbers last week showed that the country’s growth topped expectations, accelerating at an annualized rate of 1.0%, driven by exports.January GDP likely gained 0.4% from December, according to a flash estimate. Canadian manufacturing activity rose to its highest level in 10 months in February, though it was still contracting, data showed this month. “We are still of the mind that April is on the table. If not April then more likely June,” said Philip Petursson, Chief Investment Strategist at IG Wealth Management, said in a email about rate-cut timing.After previous meetings when it left rates on hold, the BoC has pointed toward concerns of underlying inflation in areas like mortgage and rental costs, wages and food prices.While high rates have cooled inflation to below 3% from 8.1% in June 2022, the BoC forecasts that it will be the second half of next year before it comes down to 2%.”Look for an ever-so-slightly more dovish tone, while still highlighting that rate cuts aren’t imminent,” Benjamin Reitzes, managing director and macro strategist at BMO Capital Markets, wrote in a note. More

BUENOS AIRES (Reuters) – Mexico’s peso will likely depreciate moderately in the near-term as the campaign for June’s presidential election heats up, while the central bank continues to mull over the right time to launch a rate easing cycle, a Reuters poll showed.Since the start of the year, the currency has been trading within a close interval around 17.00 per U.S. dollar. Domestic markets have remained calm, hoping economic policies will be kept largely unchanged after the vote.The peso is set to weaken 7% to 18.24 per dollar in 12 months’ time, from 16.96 on Monday, according to the median estimate of 20 foreign exchange strategists polled March 1-4. Forecasts ranged from 15.50 to 19.00 per dollar.”Electoral races both in Mexico and the United States will for certain exercise pressure on the currency, but, overall, its performance will be among the best within emerging markets,” said Marcos Arias, an economist at Deloitte Mexico.”The country benefits from strong remittance inflows and possible increases in foreign direct investment as nearshoring projects materialize,” he added, projecting the peso at 17.80 per dollar in one year.Mexico’s presidential candidates started their campaigns on Friday for the election on June 2, with the ruling party candidate leading a race poised to crown a woman to rule Latin America’s second-largest nation for the first time.To cement current President Andres Manuel Lopez Obrador’s legacy, his MORENA party has been targeting its efforts on obtaining a majority needed in Congress to pass constitutional reforms.”It is unclear if any of them have a material chance of being approved in their current form, given MORENA and its allies lack the 2/3 majority needed … but it’s possible some could be ratified,” Scotiabank analysts wrote in a report.Meanwhile, Mexico’s central bank continues to signal the possible start of a rate cut drive similar to those already in place in other countries of the region. The cost of credit currently stands at 11.25%, the highest on record.This gives investors the opportunity to profit on a wide spread over the U.S. 5.25%-5.50% benchmark federal funds rate, which the Federal Reserve is expected to cut in June, according to another Reuters poll conducted last month.Answering a separate question in the March foreign exchange survey, a majority of 7 of 13 economists said risks to their estimates for the Mexican peso were skewed to softer values, while 4 viewed a stronger trend, and 2 saw a neutral one.In Brazil, the real is forecast to lose 0.8% in one year to 4.99 per dollar. The currency has shed around 2.0% of its value from the start of 2024, slightly worse than the flat performance of its Mexican counterpart so far.(For other stories from the March Reuters foreign exchange poll:) (Reporting and polling by Gabriel Burin in Buenos Aires; Editing by Alison Williams) More