Economy

TORONTO/LONDON (Reuters) – Four of Canada’s biggest pension funds managing nearly C$1 trillion ($742 billion) in assets have begun a major expansion into private credit, moving into an area previously dominated by banks.Canada Pension Plan (CPP) Investments, Ontario Teachers’ Pension Plan (OTPP), Ontario Municipal Employees Retirement System (Omers) and OPTrust told Reuters they intend to increase their exposure to private credit – typically tailored loans to companies underwritten by non-banks.CPP Investments, which manages C$576 billion, will double its overall credit portfolio to around C$115 billion, said Andrew Edgell, who oversees the portfolio, with private credit a key part of the expansion. “Private credit is expanding quickly,” he told Reuters. “With our global team, we expect to almost double our (overall credit) book over the next five years.” CPP Investments manages most of its C$62 billion credit book in-house.Pension plans OTPP and OPTrust told Reuters they saw opportunities to plug gaps left by banks. OPTrust said it expected to grow in private credit in Europe, including in Britain.Banks globally have been squeezed by higher capital requirements, forcing a retreat from some lending.Omers said it sought the kind of opportunities across credit markets, including in private credit, that it had not seen “in many years”. Private credit has become popular among pension schemes and insurers because it offers higher returns than traditional fixed-income products and typically better downside protection than equities.Once a niche asset class, data provider Preqin predicts assets under management will hit $2.8 trillion globally by 2028 from $1.5 trillion in 2022. “Private credit is an attractive product right now, and the structural shift from banks to private lenders continues,” said Nick Jansa, OTPP’s executive managing director for Europe, the Middle East and Africa.Regulators have raised concerns about the sector’s rapid growth as part of a burgeoning ‘shadow banking’ industry, particularly as the spike in borrowing costs and economic weakness mean greater risks of businesses defaulting.The overall non-bank finance sector is worth $218 trillion and accounts for nearly half of financial assets globally, according to the Financial Stability Board.OPTrust, which last year made a “sizeable” increase in its credit exposure from 10% of its assets in 2022, said its credit investments were primarily handled by external managers.”We’re quite confident they (the partners) have the skills and ability to navigate that market,” said David Ross, managing director of OPTrust’s capital markets group.($1 = 1.3452 Canadian dollars) More

1. Futures mutedU.S. stock futures mostly hovered around the flatline on Tuesday, after equities surged in the previous session on hopes for strong upcoming corporate earnings and ongoing enthusiasm around artificial intelligence.By 04:52 ET (09:52 GMT), the contracts for S&P 500 futures, Nasdaq 100 futures, and Dow futures were broadly unchanged.A recent rally in the main averages continued on Monday, with the benchmark S&P 500 in particular jumping to its third-straight positive close for the first time this year. The tech-heavy Nasdaq Composite also rose by 0.3% despite small declines in most of the so-called Magnificent Seven megacap stocks. Meanwhile, the 30-stock Dow Jones Industrial Average climbed above 38,000 for the first time.Stocks had logged a weak start to the year, but have since rebounded, partly due to investor optimism for a “soft landing” for the U.S. economy. In this scenario, elevated interest rates would contribute to a cooling in inflation without sparking a steep slowdown in economic activity.”The thought of a soft landing actually [materializing] against all odds are supporting risk assets in all corners of the market,” analysts at ING said in a note.2. Earnings parade intensifiesThe upbeat sentiment will face a series of tests this week from a fresh batch of corporate earnings and key economic data.Several big-name brands are set to report their latest quarterly results on Tuesday, pharmaceutical giant Johnson & Johnson (NYSE:JNJ), consumer goods behemoth Procter & Gamble (NYSE:PG), and diversified manufacturing conglomerate 3M (NYSE:MMM) before the start of U.S. trading. After the bell, traders will be keeping an eye out for figures from streaming group Netflix (NASDAQ:NFLX) and chipmaker Texas Instruments (NASDAQ:TXN).United Airlines (NASDAQ:UAL) post fourth-quarter adjusted profit per share that topped estimates following its “busiest travel period in history” last month, boosting shares in premarket U.S. trading. Fellow carriers American Airlines (NASDAQ:AAL) and Delta Air Lines (NYSE:DAL) rose in the wake of the numbers.Later in the week, traders will be keeping an eye out for the first reading of U.S. gross domestic product in the final three months of 2023, as well as the Federal Reserve’s preferred gauge of inflation for December.3. SEC says false X post linked to phone number swapThe top U.S. securities regulator said that a false post that appeared to announce its approval of a spot Bitcoin exchange-traded fund came after a bad actor took control of the phone number associated with its account on social media platform X.In a statement on Monday, the Securities and Exchange Commission said it was the victim of a “SIM swap” attack, a technique used to transfer a person’s phone number to another device without authorization. The unauthorized party then reset the password for the X account, the SEC added.”Among other things, law enforcement is currently investigating how the unauthorized party got the carrier to change the SIM for the account and how the party knew which phone number was associated with the account,” the agency noted.The fake post on Jan. 9 said the SEC had given a much-anticipated green light to ETFs tracking the spot price of Bitcoin, sparking a frenzy of trading activity around the world’s most recognizable cryptocurrency. The validity of the statement was denied by the SEC, which formally approved the ETFs a day later.4. BOJ leaves dovish stance unchangedThe Bank of Japan kept interest rates at historical lows on Tuesday and its yield curve control policies unchanged, but slightly lowered its inflation outlook for fiscal 2024.The BOJ left its short-term interest rates at negative 0.1%, and said it will maintain its yield curve control mechanism in allowing 10-year yields to fluctuate in a range of negative 1% to 1%, with a target of 0%. The central bank also offered no changes to its asset purchase programs.In an announcement on Tuesday, the BOJ added that it expects consumer price index (CPI) inflation to keep trending above its 2% annual target through fiscal 2024, and that price growth will only begin easing by the 2025 fiscal year.But a majority of the BOJ’s policy board members slashed their CPI inflation forecasts for fiscal 2024. Median forecasts for core CPI inflation, which excludes fresh food prices, were now at 2.4% during the period, down from the October forecast of 2.8%.5. Oil retreatsOil prices were lower on Tuesday, reversing earlier gains that were driven by a fresh round of strikes by U.S. and British forces on Houthi sites in Yemen.The Iran-backed Houthis, who control the most populous parts of Yemen, have disrupted global shipping through the Red Sea, raising concerns that crude supply to the important Asian market will be impacted. The group has said their attacks are in solidarity with Palestinians as Israel strikes Gaza.By 04:54 ET, the U.S. crude futures traded 0.6% lower at $74.31 a barrel, while the Brent contract slipped 0.6% to $79.59 per barrel.The latest reading of U.S. crude inventories, from the industry body American Petroleum Institute, is due later in the session, and is forecast to fall by about 3 million barrels in the week to Jan. 19.Upgrade your investing with our groundbreaking, AI-powered InvestingPro+ stock picks. Use coupon PROPLUSBIYEARLY to get a limited time discount on our Pro and Pro+ subscription plans. 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The measures, ordered by President Vladimir Putin in an October decree, have been effective, the government said on the Telegram messaging app. They are currently set to expire in April. The controls, which were opposed by the central bank, were brought in as the rouble tumbled past the 100 mark against the dollar. It was trading near 88 to the dollar on Tuesday. “Taking into account the current results in accordance with the president’s decree, the measures will be proposed for extension until the end of 2024,” the government said. The decree requires dozens of undisclosed exporting firms to deposit no less than 80% of foreign currency earned with Russian banks, and then sell at least 90% of those proceeds on the domestic market within two weeks.”It can be noted today that, according to the available data, exporters have generally observed the presidential decree’s requirements,” said First Deputy Prime Minister Andrei Belousov. “This has made it possible to cover the deficit of foreign currency needed by importers to maintain supplies of products to our country.” Assessing the potential impact of the government’s proposal is difficult as details remain scant, said Rosbank analysts, but the news should boost the rouble. “Given the positive shifts in exporters’ activity on the FX market, we assess the impact of the measures on exchange rate expectations as significant,” Rosbank said. The central bank had long warned that currency controls were inefficient and would ultimately be circumvented, but publicly endorsed Putin’s decree in October. Governor Elvira Nabiullina still voiced doubts. Alexander Morozov, head of the bank’s research and forecasting department, in late November said the central bank understood that the measures would last until April 30. The central bank did not immediately respond to a request for comment on the government’s proposal. More

The results of the quarterly Bank Lending Survey are likely to strengthen the ECB’s view that the most brutal increase in interest rates in the euro’s history has now been fully passed on to the real economy and lenders are beginning to anticipate a recovery. The poll showed lenders continued to tighten access to credit in the last quarter of 2023 but fewer banks did so than at any point in the previous two years and than banks themselves had expected three months earlier.Among the euro zone’s four largest economies – Germany, France, Italy and Spain – none saw a net tightening in credit standards for mortgages and only Germany witnessed it for corporate loans.While banks expect to raise the bar for extending loans this quarter, they also see “a small net increase” in the demand for corporate credit and for mortgages for the first time since early 2022, the ECB said.”That’s what the start of a gradual recovery looks like,” Dirk Schumacher, an economist at Natixis, said. “Standards aren’t getting tighter and demand is not shrinking as fast.”Furthermore, while terms and conditions tightened further on consumer credit, they eased for housing loans, the survey showed.In corporate loans, there was “almost no net tightening in services” but this was more than offset by “relatively large net tightening in the commercial real estate, construction and residential real estate sectors”. Banks’ access to funding via money markets, long-term deposits and debt securities improved as markets started expecting rate cuts from the ECB.But short-term retail funding and securitisation tightened slightly. More

COLOMBO (Reuters) -Sri Lanka’s central bank kept interest rates steady on Tuesday, in line with market expectations, forgoing a rate cut as a new tax threatened upward pressure on expenses and fuelled concerns about inflation.The Central Bank of Sri Lanka (CBSL) maintained the Standing Deposit Facility Rate at 9% and the Standing Lending Facility Rate at 10%, as predicted in a Reuters poll.The central bank said the decision was aimed at maintaining inflation at the targeted level of 5% over the medium term, while enabling the economy to reach its potential.”The Board took note of the effects of the recent developments in taxation and supply-side factors that are likely to pose upside pressures on inflation in the near term,” it said in a statement, adding that any such uptick in consumer prices this year was expected to be short-lived.The central bank slashed interest rates by 650 basis points last year as Sri Lanka’s economy began a painful recovery from its worst financial crisis in more than seven decades, helped by a bailout by the International Monetary Fund (IMF).Improvements in the economy need to be translated into improved living conditions for Sri Lankans, the IMF said last week, wrapping up a technical staff visit to the country.At the start of 2024, the island nation raised its value added tax (VAT) to 18% from 15% to meet revenue targets under the four-year $2.9 billion IMF programme.That could spark a renewed rise in Sri Lanka’s key inflation rate, which had eased to 4% at the end of 2023 from a high of 70% in September 2022.Sri Lanka could see inflation spike to “just under 7% in January” due to tax and short-term vegetable price increases, CBSL Govenor Nandalal Weerasinghe told reporters.”But inflation will trend down and return to the 4%-6% band targeted by the central bank. The uptick in inflation will remain for the first couple of months at about 6%.”The inflation spikes are likely to be short lived as the central bank does not see demand pressure building up in the economy, Weerasinghe added. “The uptick in inflation is rightly explained as caused by transitory factors of weather impacts on food prices and tax changes. And they find the rate cuts already done as sufficient to cause interest rates to ease further in the current context,” said Thilina Panduwawala, head of research at Frontier Research.Past monetary policy easing measures and a decline in the risk premium on government securities have created further space for market lending interest rates to decline, the central bank said.Sri Lanka will need to secure agreements with creditors in the next few months to get past the second review of the IMF programme, due in the first half of 2024. The country’s total external debt is $36.4 billion, according to the latest data released by the finance ministry.Sri Lanka is also pushing forward with its debt restructuring talks with commercial creditors who hold about $12 billion in international sovereign bonds in an effort to reach an agreement ahead of the IMF’s second review expected to be completed by around June, Weerasinghe said. Frontier Research’s Panduwawala expects the central bank to forgo any further easing for the time being “unless there are some visible delays on external debt restructuring”.”Rates of government securities will keep coming down, especially in the short term and risk premia will keep adjusting down with the improvements in the fiscal position and completion of external debt restructuring,” said Udeeshan Jonas, chief strategist at equity research firm CAL Group. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Carmakers, already struggling with supply chain problems, face further disruptions because of the Red Sea security problems as car-carrying vessels are rerouted, shipping executives have warned.Lasse Kristoffersen, chief executive of Oslo-based Wallenius Wilhelmsen, and Georg Whist, CEO of Gram Car Carriers, were speaking after continued attacks in the Red Sea last week prompted two leading Japanese operators — NYK Line and K Line — to suspend sailings via the Suez Canal.Their decision means that nearly all big car car-carrier operators have now switched their Asia to Europe services to the longer route round the Cape of Good Hope. The switch adds seven to 10 days to the normal voyage time of about four weeks between Shanghai and northern Europe, further reducing already squeezed capacity on the key trade route.Distinctive, boxlike car carriers, which can ship thousands of vehicles, are vital in transporting cars manufactured in Japan, China and South Korea to the key European market. According to Clarksons, the shipping services group, long-distance seaborne car shipments in 2023 were 17 per cent higher than the previous year, largely because of big increases in exports from China. This has come after large numbers of car carriers were scrapped during a market downturn in 2020.Kristoffersen, whose company operates 128 car carriers, said the global 766-vessel fleet was “sold out” even before the diversions, meaning that all the available capacity was in use. That had already been acting as “a constraint” on vehicle movements even before the latest crisis — a problem that diversions to a longer route would only exacerbate. The extra distance meant a further headache for carmakers as his company would be able to transport fewer vehicles annually than if they were using the Red Sea. That would further worsen the problems of a market struggling with undercapacity.Whist, whose company owns 18 car carriers, said travelling via the Cape would cut the fleet’s effective capacity by 5 per cent to 6 per cent. Even before the diversions, he said, manufacturers had been resorting to unconventional means of moving vehicles such as putting them in shipping containers or transporting them in the holds of vessels designed for moving dry bulk commodities.There is little immediate prospect that car carriers will return to their traditional Asia-to-Europe route via the Red Sea until the attacks subside. Kristoffersen rejected the idea of sailing through the danger area with a naval escort for protection, as French container line CMA CGM has done.“The principle is that we will not go back [until] we believe there’s a safe transit and we do not think that, with the current threat in Yemen, that any military protection will be sufficient,” Kristoffersen said. He contrasted the capabilities of the Houthis — who seized the car carrier Galaxy Leader in November by landing fighters from a helicopter — with the far more primitive threat previously posed by Somali pirates.“This is a military capability, obviously with very good intelligence, with military means, missiles,” Kristoffersen said of the Houthis. “They’re really hard to protect against.”Operators have 185 new vessels on order with shipyards, according to Clarksons. But deliveries this year are expected to increase fleet capacity by only a comparatively modest 7 per cent.Stephen Gordon, Clarksons’ managing director for research, said normally about 25 per cent of global, long-distance seaborne movements of cars went through the Suez Canal. His company estimated that of all shipping segments only container shipping was suffering bigger upheaval as a result of the problems in the Red Sea.However, the challenges for car-carrier operators are fundamentally different from those for container lines because there was a global excess of container ships before the latest crisis. Container lines have been able to reactivate idle ships to meet the extra demand created by longer journeys.Whist said car companies had built up some extra inventory in their key markets over the past year. He expected them to run stocks down as new vehicle deliveries from Asia were cut.“I expect it will be a combination of less service because of the longer distances but also some working into inventory to meet customer demand,” Whist said of the likely effects for carmakers. More

SINGAPORE (Reuters) – The yen languished near a two-month low on Tuesday ahead of a closely-watched policy decision by the Bank of Japan (BOJ) where expectations are for the central bank to stand pat on its ultra-loose monetary policy settings.Elsewhere, the U.S. dollar held broadly steady while its New Zealand counterpart slipped to a two-month low of $0.60625, pressured by strength in the greenback and China’s murky economic outlook.The yen was last fetching 148.13 per dollar, not too far from last week’s roughly two-month trough of 148.80, as it continues to be weighed down by the stark interest rate differentials between Japan and the United States.The BOJ concludes its two-day monetary policy meeting on Tuesday, though any expectations for a phasing out of its negative interest rate policy this month have been quashed in the wake of the country’s devastating New Year’s Day earthquake and dovish comments by BOJ Governor Kazuo Ueda.”I don’t think it is live,” said Carol Kong, currency strategist at Commonwealth Bank of Australia (OTC:CMWAY), referring to Tuesday’s policy decision. “I think the earthquake in Japan… really shifted market expectations toward the BOJ not normalising policy any time soon.”So I don’t think today is going to bring any surprises in terms of the interest rate and (yield curve control) policy.”Focus will also be on the central bank’s set of economic projections in its quarterly outlook report.”Markets will closely watch whether the BOJ will revise up the 2025 CPI forecast towards the 2% target or keep it steady at 1.7%,” said Kong.”What that number prints will signal a lot about whether or not the BOJ sees the lift in inflation being sustainable.”The European Central Bank (ECB) also meets this week, where expectations are similarly for its deposit rate to be held steady at 4.00%.ECB policymakers, including President Christine Lagarde, have pushed back against market expectations for early rate cuts.That’s helped the euro a little, with the single currency having traded largely sideways over the past few sessions. It eased 0.06% to $1.0879 in early Asia trade.EASING PROSPECTSAcross the broader market, the kiwi was last at $0.6074, struggling pull away from its two-month trough.”The (New Zealand dollar) has emerged as the weakest currency in G10 FX of late, and this can partly be explained by negative sentiment towards China, but also recent New Zealand data flow has underwhelmed,” said Chris Weston, head of research at Pepperstone.The country’s fourth-quarter inflation reading is due on Wednesday, which will provide further clarity on how soon the Reserve Bank of New Zealand (RBNZ) could begin easing rates.”A downside surprise would likely bring forward expectations of the first 25bp rate cut from May to the April RBNZ meeting,” said Weston.Against the dollar, sterling slipped 0.03% to $1.27075, while the Australian dollar tacked on 0.06% to $0.6574.The dollar index steadied at 103.36, not too far from an over one-month high of 103.69 it hit last week, as traders pare back their expectations for a rate cut by the Federal Reserve in March.That’s kept U.S. Treasury yields supported, with the two-year yield last at 4.3847%, up more than 25 bps from its January low of 4.1190%. [US/]The benchmark 10-year yield likewise settled above 4% and was last at 4.0976%.”We look for the FOMC to remain in a holding pattern, not only with the Fed funds rate at its January meeting, but also with its policy guidance,” said economists at Wells Fargo ahead of next week’s Fed meeting.”While progress in lowering inflation over the past six months has built the case that rate cuts are coming, the economy’s recent performance suggests no imminent need to ease.”In cryptocurrencies, bitcoin fell 0.24% to $39,720, after slipping below the $40,000 level in the previous session for the first time since the launch of 11 spot bitcoin exchange-traded funds on Jan. 11. More

Employment in California saw an addition of 34,500 jobs, although the job growth rate for the year has been approximately half of what it was in 2022. Continuing claims for unemployment insurance remained elevated, surpassing 400,000 for six months in a row. The unemployment rate in the state has increased by 0.7% since December 2022, reaching 4.8%. Industrial electricity sales, often used as an indicator of industrial production, fell by 1.5% in October, indicating a possible slowdown after three months of strong performance.The housing market presented a complex picture. Housing starts increased for the second month in October but were still approximately 7% lower in the first ten months of the year compared to the same period in 2022. Despite this, house prices in California’s three largest metro areas—Los Angeles, San Francisco, and San Diego—continued to rise, marking a 7.1% increase from January 2023.Tourism, an essential sector for the state, showed signs of weakening, with hotel occupancy and air passenger traffic both declining. This downward trend in tourism is reflected in the fourth consecutive month of reduced air passenger traffic. The state’s real fiscal revenues have also seen a significant drop from the previous year due to decreased personal income and corporate tax receipts.While California’s real GDP grew robustly in the first three quarters of 2023, Comerica’s Index suggests that economic momentum may have slowed in the fall. Factors such as housing challenges, high interest rates, persistent inflation, and reduced consumer spending are contributing to this deceleration. Additionally, the national tech slowdown continues to impact California’s economy.Comerica Bank, the creator of the index, is a Dallas-based financial services company with a presence in several U.S. states and a history dating back 175 years. The bank’s total assets were reported at $85.8 billion as of December 31, 2023. As Comerica Bank’s California Economic Activity Index provides a snapshot of the state’s economic trends, it’s also beneficial to consider the financial health and outlook of Comerica itself. According to recent data from InvestingPro, Comerica boasts a market capitalization of $7.08 billion and a Price/Earnings (P/E) ratio of 8.25, reflecting a valuation that could be attractive to value investors. The adjusted P/E ratio for the last twelve months as of Q4 2023 stands slightly lower at 8.13, which may indicate a stable earnings perspective relative to the stock price.InvestingPro Tips highlight that while analysts have revised their earnings expectations downwards for the upcoming period, and the company suffers from weak gross profit margins with an expected drop in net income this year, Comerica has maintained dividend payments for an impressive 53 consecutive years. This consistency in dividend payments, coupled with a strong return over the last three months of 43.34%, could be a sign of resilience and a commitment to shareholder returns.For those interested in a deeper analysis, InvestingPro offers additional tips on Comerica and other financial institutions. The InvestingPro subscription is now on a special New Year sale with a discount of up to 50%. Use coupon code SFY24 to get an additional 10% off a 2-year InvestingPro+ subscription, or SFY241 to get an additional 10% off a 1-year InvestingPro+ subscription. With these insights and the opportunity to unlock more with a subscription, investors can better navigate the complexities of the financial sector.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More