Economy

WASHINGTON (Reuters) – The Federal Reserve’s top regulatory official said on Friday that bank supervisors are flagging problems at banks at a higher rate in the past year, and are conducting additional exams at firms facing large unrealized losses.Fed Vice Chair for Supervision Michael Barr also said that bank examiners are “closely focused” on how firms are managing commercial real estate risk as that sector continues to face post-pandemic pressure.Nearly one year after Silicon Valley Bank failed due in large part to hefty unrealized losses, Barr said the Fed has been focused on flagging potential problems at banks more quickly.”The past year has been busy for Federal Reserve supervisors,” he said in prepared remarks.Reuters reported in December that federal bank supervisors had been stepping up their oversight of firms after several banks failed in the spring and issuing additional disciplinary actions to firms, including downgrading confidential bank health ratings.Barr said the uptick in activity is not due to a change in policy, but rather reflects the changing economic and interest rate environment and what strains it can put on bank finances.”We want and expect supervisors to help banks focus adequate attention on the areas that matter most for the particular bank,” he said.In addition to extra exams for firms grappling with unrealized losses, Barr said examiners are requiring those firms to take steps to address weaknesses and bolster their capital. He added a small number of firms “with a risk profile that could result in funding pressures” are being continuously monitored.He also added that different supervisory teams are heightening their coordination, particularly for regional firms that are nearing the $100 billion threshold, at which point they face stricter oversight. Firms that are growing rapidly are facing more frequent assessments of their health and policies, as part of an effort to ensure they are ready to meet tougher requirements.”The goal is that the transition to heightened supervision for fast-growing banks is more of a gradual slope and not a cliff,” he said.Those comments come as New York Community Bancorp (NYSE:NYCB) saw its stock fall sharply in value after it posted an unexpected quarterly loss in January. Bank executives said at the time part of the strain was heightened requirements they faced after recently exceeding $100 billion in assets.Barr said the Fed is still weighing whether it should impose temporary higher capital and liquidity requirements on firms facing risk management issues. More

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LONDON (Reuters) -Global shares rose for a third day on Friday, thanks to a lift from Japan’s Nikkei closing at another 34-year peak and following gains on Wall Street as data revived chances of a June rate cut.This week’s data releases have added to the belief among investors that the U.S. economy at least is holding up well enough not to merit any immediate rate cuts, which has kept the dollar at its highest in three months and set gold on course for its largest weekly drop this year.However, data on Thursday showed a surprisingly large drop in U.S. consumer spending, which revived the chances of the Fed cutting rates by June and sent Wall Street higher.The upbeat mood carried into Asia, where the Nikkei closed at its highest since 1989 and then into Europe, with the STOXX 600 hitting its highest since January 2022. “Everyone is still in this massive ‘dip-buying mode’ that they’ve been in pretty much all year,” Michael Brown, a strategist with broker Pepperstone, said.”Any dips are lasting 12 hours at most, before the buyers come in and just scoop it up,” he said.U.S. futures pointed to an upbeat start to trading later in the day. Nasdaq futures were up 0.5%, while those on the S&P 500 futures gained 0.2%.The dollar recovered some poise after a swift sell-off on Thursday to trade 0.24% higher against the yen, which has been wallowing at its weakest since November at levels that have been typically seen as potential catalysts for official intervention.Bank of Japan Governor Kazuo Ueda said on Friday that monetary policy would most likely remain accommodative, even after ending negative interest rates, echoing recent reassurances from BOJ officials that have weighed on the yen.”The dollar/yen has sort of consolidated around the 150 level, so that’s providing support (to Nikkei). There’s the corporate reform still going through, so the exporters will continue to do well,” said Tony Sycamore, market analyst at IG.WEAK DATA, STRONG CONFIDENCEFigures on Thursday showed that Japan and Britain slipped into recession at the end of last year, and U.S. retail sales last month fell much more than expected. But the upshot of that could be relatively looser monetary policy.”I think the demand picture is certainly starting to fracture in some of the developed market economies,” said Sycamore. “So it does bring forward the idea of rate cuts.”Overnight, data showed U.S. retail sales fell by 0.8% in January, the sharpest drop in 10 months. Meanwhile, UK data on Friday showed a big improvement in retail sales in January, but this did little to prop up the pound.Markets moved to fully price in a rate cut from the Fed in June, reversing some of the price action after a stronger-than-expected U.S. inflation report prompted traders to give up bets for early rate relief.Treasury yields edged up after an overnight dip. The yield on benchmark 10-year notes rose 3 basis points to 4.271% ahead of producer price data later in the day.With the dollar in the ascendant, gold has been under pressure this week. The spot price is heading for a weekly fall of nearly 1%, its biggest weekly decline since late December.Gold, which has traded consistently above $2,000 an ounce for most of the past two months, rose 0.2% to $2,007 but was down nearly 1% on the week, heading for a second consecutive weekly fall and its biggest weekly fall in 2024.Oil prices fell on Friday after jumping the previous session. The International Energy Agency on Thursday flagged slowing demand growth this year.Brent crude eased 0.9% to $82.12 a barrel, while U.S. futures fell 0.7% to $77.45. More

MOSCOW (Reuters) -Russia’s central bank held its key interest rate at 16% on Friday, opting to leave borrowing costs unchanged after five successive rate hikes since last summer, still grappling with stubborn inflation pressure.The central bank had raised rates by 850 basis points since July, including an unscheduled emergency hike in August as the rouble tumbled past 100 to the dollar and the Kremlin called for tighter monetary policy, but has lately signalled a more dovish approach. The bank said returning inflation to its 4% target this year would require “tight monetary conditions… for a long period” and warned that inflationary pressures remained high, despite their easing from autumn peaks. Analysts largely viewed the signal as neutral. Governor Elvira Nabiullina will shed further light on the direction of monetary policy in a press conference at 1200 GMT. Domestic demand was still outstripping production capacity, the bank said, with labour shortages still the key constraint on expanding the output of goods and services. “A judgement on the sustainable nature of emerging disinflationary trends would be premature,” the bank said in a statement.The balance of inflation risks is still tilted to the upside over the medium term, the bank said, pointing to elevated inflation expectations and suggesting that it has inflation concerns regarding high budget spending and sanctions impacting Russia’s terms of trade.NO MORE HIKES? Friday’s decision was in line with a Reuters poll of analysts, who expect interest rates to start coming down this year. Double-digit rates are expected to remain into 2025. The bank’s next rate-setting meeting is scheduled for March 22. The bank raised its forecast for its average key rate range to 13.5-15.5% from 12.5-14.5%, suggesting that easing borrowing costs would take longer than previously thought. The bank slightly improved its 2024 economic growth forecast to 1.0-2.0%, from 0.5-1.5%. The International Monetary Fund expects Russia’s economy to grow 2.6% this year, but anticipates tough times ahead. Russia’s economy rebounded sharply from a slump in 2022, but the growth relies heavily on state-funded arms and ammunition production and masks problems that are hampering an improvement in Russians’ living standards.”It is very optimistic to raise GDP at the same time as such tight policy,” said Yevgeny Kogan, a professor at Russia’s Higher School of Economics. “We won’t see any more rate hikes, but they plan to keep the rate at 16% for a long time.”The central bank’s tightening cycle began last summer when inflationary pressure from a tight labour market, strong consumer demand and the government’s budget deficit was compounded by the falling rouble.Russia had gradually reversed an emergency hike to 20% which it made in February 2022 after Moscow sent its army into Ukraine, prompting sweeping Western sanctions. It cut rates to as low as 7.5% in 2023. More

(Reuters) -Futures tracking the S&P 500 and the Nasdaq gained on Friday as investors looked forward to a producer inflation report for more cues on the timing of interest rate cuts, while shares of Applied Materials (NASDAQ:AMAT) surged following an upbeat revenue forecast.January’s slump in U.S. retail sales revived optimism about imminent rate cuts from the Federal Reserve this year, providing some relief after a hotter-than-expected consumer prices report earlier this week.The tech-heavy Nasdaq is set to snap a five-week winning streak, while the benchmark S&P 500 also lost some steam this week after jumping over 5% so far this year.Robust corporate earnings and a surge in enthusiasm around the potential for artificial intelligence has helped the S&P 500 close above the 5,000-point mark for the fourth time this year.The producer prices index (PPI) for January, due at 8:30 a.m. ET (1330 GMT), is expected to show prices inched up 0.1% after an unexpected dip last month. It will further shape the outlook for the Fed’s monetary policy path. Traders’ bets of a start to the Fed’s easing cycle are tilted towards June, with 37% betting on an at least 25-basis-point rate cut as soon as May, according to the CME Group’s (NASDAQ:CME) FedWatch tool.”The inflation shock from the U.S. earlier in the week seems to have been shrugged off for now, even if it has pushed back expectations for when the Federal Reserve will start cutting interest rates,” AJ Bell investment director Russ Mould said in a note.”So-called factory gate prices are significant because when manufacturers and other producers charge more for goods and services the higher costs usually feed through to the consumer,” Mould added, referring to the producer prices report.Investors will also monitor remarks due in the day by Fed’s Richmond President Thomas Barkin and San Francisco chief Mary Daly, both voting members this year.Atlanta Fed President Raphael Bostic on Thursday noted he saw fewer rate cuts in his last forecasts compared with his colleagues in part because he has been expecting less steady progress on inflation.Later in the day, eyes will also be on a U.S. consumer sentiment survey for February from the University of Michigan.At 7:08 a.m. ET, Dow e-minis were down 30 points, or 0.08%, S&P 500 e-minis were up 9.25 points, or 0.18%, and Nasdaq 100 e-minis were up 98.25 points, or 0.55%.Among big movers, Applied Materials jumped 13.1% in premarket trade after the semiconductor equipment supplier forecast better-than-expected second-quarter revenue on strong demand for advanced chips used in artificial intelligence. Roku (NASDAQ:ROKU) slumped 16.8% after forecasting a bigger first-quarter loss, while crypto exchange Coinbase (NASDAQ:COIN) Global jumped 13.6% on posting its first quarterly profit since 2021.DoorDash (NASDAQ:DASH) dropped 7.2% as the delivery firm forecast a quarterly profitability metric below expectations, hurt by higher labor costs.A total of 80.3% of S&P 500 companies that have reported quarterly earnings so far have beaten expectations compared to the annual 76% average, according to LSEG data on Thursday.Most megacap stocks also advanced, with Nvidia (NASDAQ:NVDA) gaining 1.4% after Oppenheimer hiked its price target on the AI chip designer’s stock. More

U.K. retail sales rebounded by 3.4% after a grim December, according to the Office for National Statistics, the strongest monthly gain since April 2021.
The “strong pick up in sales suggests the worst is now behind the retail sector and falling inflation and rising wages in 2024 will provide a strong platform for recovery,” Joe Maher, assistant economist at Capital Economics, said in a note.

A general view of a kiosk near Charing Cross station in London, England, on January 20, 2024. (Photo by Alberto Pezzali/NurPhoto via Getty Images)
Nurphoto | Nurphoto | Getty Images

LONDON — Stronger-than-expected January retail sales provided a glimmer of light for the struggling British economy on Friday — and suggest that the country’s recession will be short-lived, according to some economists.
Sales rebounded by 3.4% from December, according to the Office for National Statistics, the strongest monthly gain since April 2021. Economists polled by Reuters had expected a more modest growth of 1.5%.

Sales volumes increased in all areas except closing, as food shops saw the biggest boost. Consumers “spent more for less in January,” the ONS said, with the total they paid rising by 3.9%.
The latest figures follow the news of Thursday that the British economy entered a technical recession in the final quarter of 2023. Gross domestic product declined by 0.3%, following a 0.1% contraction in the third quarter.
Sales over the key holiday trading period were far weaker than expected, with December seeing the biggest monthly fal since January 2021.
British retail sales meanwhile remain 1.3% below their pre-pandemic level from February 2020, according to the ONS.
The “strong pick up in sales suggests the worst is now behind the retail sector and falling inflation and rising wages in 2024 will provide a strong platform for recovery,” Joe Maher, assistant economist at Capital Economics, said in a note.

The hike also points to a fading drag on consumer spending from higher interest rates, as well as the economy exiting recession territory, Maher said —but there is “still a long way back for retailers” to their pre-pandemic highs.
Kris Hamer, director of insight at the British Retail Consortium, said two months of higher sales volumes over the last three months were “promising” after 19 months of decline.
“Nonetheless, shoppers remained cautious as they entered the third year of the high cost of living,” Hamer said, adding that a rise in business rates and new border control costs would weigh on the retail sector.
Despite the poor growth figures, the retail report — along with steady inflation figures and a healthy December jobs report — ended the week on a “half positive note,” said Kallum Pickering, senior economist at Berenberg.
Anecdotal evidence from retailers suggests consumers held back in December, but came out in force to benefit from January sales, he said.
“However, we need to be cautious. Monthly data are volatile. The January jump merely offsets the big 3.3% [month-on-month drop in December – and hence returns real sales to the November level,” Pickering said in a note.
The fresh figures are consistent with “haphazard stagnation” in the retail sector and with broader economic activity in the last 18 months, though Berenberg economists expect retail momentum to pick up over the coming months due to higher real wages and consumer confidence, he added. More

Spain has logged its warmest January since records began in 1961 and last year was the country’s second warmest, while a recent study showed parts of the Iberian peninsula were suffering from the driest period in 1,200 years. Scientists have linked scorching temperatures and dry and windy conditions in many parts of the world, including southern Europe, to climate change. De Cos said that the materialization of those risks would lead to a 0.2 percentage points reduction in the core tier-1 capital ratio of Spanish banks and would persist over a three-year horizon.”Bank capital consumption in this adverse scenario is mainly explained by higher impairment losses and lower net income generation, in line with lower economic activity”, De Cos said at an event in the Balearic Islands.De Cos said banks would probably react by reducing their loan portfolios, which would mitigate the effect on solvency, but exacerbate the economic impact. “In any event, if droughts and heatwaves were to become recurrent, their negative impact on the solvency and profitability of the banking sector would be greater than the short-term effects identified in this analysis,” he said.Findings were part of the results of various papers from the Bank of Spain.De Cos, who is also a member of the European Central Bank governing council, said that heat waves and droughts can occur simultaneously in several countries, posing additional risks.Last month, the ECB hinted it could make its monetary policy greener as part of a new push to take climate change into account in its work. More

(Reuters) -The dollar firmed on Friday after two days of declines and was still on track for its fifth straight weekly gain as investors scaled back expectations for Federal Reserve rate cuts, while the yen was anchored around the key 150 per dollar level.The dollar had come under pressure after mixed U.S. data, with retail sales falling more than expected in January. Investors await U.S. producer price data later in the session which could provide an update on key services components of the Personal Consumption Expenditure (PCE) index, the Fed’s preferred inflation gauge.Some analysts said the U.S. currency’s rebound could have run out of steam.The dollar retracement “has been much greater than the retracement in U.S. yields and that might mean there are limits to further dollar strength over the near-term,” said Derek Halpenny, head of research, global markets EMEA at MUFG.”Still, in a backdrop of near recessionary conditions in Europe and Japan and a real estate crisis in China, we would continue to see upside risks for the dollar,” he added.The dollar index, which measures the U.S. currency against six major rivals, was up 0.02% at 104.26 on Friday, having eased around 0.6% the two previous days. The index is on course to eke out a 0.18% gain for the week, its fifth in a row.Remarks by Federal Reserve Chair Jerome Powell early this month and strong U.S. data have quashed expectations of early and deep rate cuts from the Fed.Traders are now pricing in a rate cut in June, according to the CME FedWatch tool, which had initially priced in March as the starting point of the Fed’s easing cycle. They discount 100 basis points (bps) of cuts this year as the most likely outcome, much lower than the 160 bps priced in at the end of 2023.”The dollar correction (this week) is again the symptom of some investors’ impatience to join what remains a consensus view, despite recent data, that the U.S. will decline at some stage in 2024,” said Francesco Pesole, forex strategist at ING. “This is also why we think EUR/USD is not too far from a supporting floor despite more dollar strength in the near term.”The euro was up 0.05% to $1.0778, but set for a 0.55% decline on the week.BofA reiterates its forecast of a euro/dollar exchange rate of 1.15 at year-end.”We expect the European Central Bank (ECB) to start cutting rates at the same time and at the same pace (as the Fed), we have been arguing that Fed cuts matter more for markets, as they have global implications and affect overall risk sentiment,” said Athanasios Vamvakidis, global head of forex strategy at BofA, who sees the greenback as overvalued.Increasing risk appetite usually weakens the dollar which market participants see as a safe-haven asset.Investors focused on ECB speakers after President Christine Lagarde reiterated the bank’s cautious stance on easing monetary policy. Francois Villeroy de Galhau said the ECB should not hold off for too long on an initial cut, while Isabel Schnabel argued that sluggish productivity growth may slow the inflation fall. The pound briefly flickered higher on Friday after data showed UK retail sales grew at their fastest pace in nearly three years in January, beating expectations, but did little to shift expectations around Bank of England monetary policy.YEN WORRIESThe Japanese yen weakened 0.18% to 150.16 per dollar, hovering around the 150 mark, a level that puts the market on alert for possible intervention by Japan to support its currency as well as comments from officials.Finance Minister Shunichi Suzuki said that while a weak yen has merits and demerits, he was “more concerned” about the negative aspects of a weak currency.”Diminishing effectiveness of verbal interventions may require Japanese officials to take concrete action to slow down the pace of yen depreciation if U.S. Treasury yields rise further,” said Kieran Williams, head of Asia FX at InTouch Capital Markets.The yen, which is highly sensitive to U.S. rates, is down 6% against the dollar this year as investors pare back their expectations of rate cuts from the Fed. “We expect the Bank of Japan (BoJ) to start hiking policy rates from April 2024 amid persistent inflation and strong wage growth, but at a 10bp per quarter pace, which is unlikely to roll back the robust carry trade momentum,” said Shinichiro Kadota, chief forex strategist at Barclays Japan.The Japanese government and wealthy Japanese, especially pensioners, are running a massive carry trade funded in local bank liabilities and invested in domestic and foreign assets. More