Economy

NEW YORK/LONDON (Reuters) – Global fund managers are exploring ways to spread their counterparty risk, with many regularly monitoring the credit ratings of their dealer banks following the recent banking crisis, according to an industry survey released on Wednesday.Concerned that possible future bank failures could cause short-term liquidity squeezes or leave them without a provider for foreign exchange services to make payroll or key vendor payments, 80% of fund managers are now looking to diversify their counterparties, according to the 2023 MillTechFX survey.MillTechFX, the fintech arm of specialist currency manager Millennium Global, surveyed 250 senior decision-makers at global asset management firms in the United Kingdom.Fund managers use counterparties such as banks to trade foreign exchange or hedge currency risks. A counterparty’s failure could put their hedges and the collateral that secures them in jeopardy.That number rises to 100% for chief executives, indicating a strong desire from the heads of these institutions to review their banking setup to ensure proper systems are in place to mitigate the impact of any future crisis, the survey said.An earlier survey of fund managers in North America by MillTech found a similar percentage looking at further diversification.”One of the big lessons for fund managers from recent events in the banking industry is the importance of having access to multiple counterparties,” said Eric Huttman, CEO at MillTechFX.The collapse of several regional and mid-sized U.S. lenders and the Swiss government-orchestrated rescue of Credit Suisse by UBS sent shock waves through global markets. Since then investors across the board have been sharpening their scrutiny of banks and strengthening their cash-management guidelines to plug the gaps exposed in their approach to counterparty risk and liquidity management.Huttman said that many companies may prioritize factors like prices when selecting foreign exchange counterparties but the recent banking crisis shows that “the likelihood of settlement are equally important.”TREASURY MANAGEMENT IN FOCUSSeveral executives at asset management and advisory firms told Reuters that fund managers in private equity and alternative credit have been making their treasury and investment guidelines more robust by adding more banks. They are also clarifying how much deposit they are comfortable leaving at each bank, and specifying how often their policies and counterparties will be reviewed.”It was not considered a high likelihood that some banks were going to go through the types of problems that they had,” said Matthew Pallai, chief investment officer at asset manager Nomura Private Capital.”So, it just makes sense as a risk-mitigation tool to start thinking about how you diversify your exposure to any one of those counterparties.”Danny Olds, a director in the treasury practice section at Lionpoint, a boutique consultancy, said March’s crisis elevated interest in treasury management, a long-overlooked area of the industry.Software provider Hazeltree said there has been increased interest in treasury and liquidity solutions and analytics that look at bank health, provide real-time exposures across various banks and highlight potential areas of concern that aid decision making such as changes in banks’ credit ratings.Similarly, recent research from law firm Latham & Watkins’ Private Capital Report highlighted how some private equity firms were scooping up financial products to rebalance funds across various bank accounts below the $250,000 FDIC insurance limit.”It wasn’t a concern on people’s radar until the March events where that started to play out in real time for some companies and their accounts were frozen,” said Jennifer Kent, partner at law firm Latham & Watkins.(This story has been corrected to fix the description of MillTechFX in paragraph 3) More

The tightening of liquidity conditions, equivalent to a rate hike, has been seen recently due to a significant increase in US bond yields reported by the CME Fedwatch tool. This aligns with the sentiments of Fed officials who appear comfortable with higher long-term yields replacing further rate hikes, as stated by Nomura. No additional hikes are anticipated in this cycle.Fed Chairman Jerome Powell’s upcoming press conference is expected to underline the cumulative tightening that has already occurred. This comes even as the Federal Reserve faces challenges such as persistent labor and inflation data and headwinds faced by average companies and households, despite rapid policy tightening. Morgan Stanley has highlighted these challenges, in addition to pointing out the expansion of the fiscal deficit during full employment, which restricts the Fed’s ability to definitively conclude its tightening cycle.Recent job gains acceleration, a more resilient underlying trend, and positive backward revisions suggest enduring economic growth strength. However, Dalma Capital anticipates that while immediate action from the US Fed is unlikely, it will need to address inflationary pressures soon due to these factors.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

The president’s push to focus attention on the domestic economy comes as his administration has been dealing with events overseas after the terrorist attacks in Israel.The White House on Wednesday will announce more than $5 billion in funding for agriculture, broadband and clean energy needs in sparsely populated parts of the country as President Biden travels to Minnesota to kick off an administration-wide tour of rural communities.The president’s efforts to focus attention on the domestic economy ahead of next year’s campaign come after three weeks in which his administration has been seized by events overseas following the terrorist attacks in Israel and the state’s subsequent military action in Gaza.The trip will take place as Mr. Biden is urging Congress to quickly pass a $105 billion funding package that includes emergency aid to Israel and Ukraine, two conflicts he has described as threats to democracy around the globe.But the president and his aides are well aware that his hopes for a second term are likely to be determined closer to home. Rural voters like the ones he will address at a corn, soybean and hog farm south of Minneapolis are increasingly voting Republican. A recent poll showed that most voters had heard little or nothing about a health care and clean energy law that is the cornerstone of Mr. Biden’s economic agenda. And the president even faces a challenge within his own party, from Representative Dean Phillips of Minnesota, who announced his long-shot presidential bid last week.Karine Jean-Pierre, the White House press secretary, declined on Tuesday to speak about campaign issues, citing the Hatch Act, which limits political activity by federal officials, but said that Mr. Biden “loves Minnesota.” Administration officials have said Mr. Biden’s trip was planned before Mr. Phillips announced his candidacy.The White House has called the next two weeks of events the “Investing in Rural America Event Series.” It includes more than a dozen trips by Mr. Biden as well as cabinet secretaries and other senior administration officials. The White House said in a statement that the tour would highlight federal investments that “are bringing new revenue to farms, increased economic development in rural towns and communities, and more opportunity throughout the country.”Mr. Biden will be joined on Wednesday by Tom Vilsack, the agriculture secretary. Against the backdrop of a family farm that uses techniques to make crops more resilient to climate change, they will announce $1.7 billion for farmers nationwide to adopt so-called climate-smart agriculture practices.Agriculture Secretary Tom Vilsack will join President Biden in Minnesota and later travel to Indiana, Wyoming and Colorado.Haiyun Jiang for The New York TimesOther funding announcements include $1.1 billion in loans and grants to upgrade infrastructure in rural communities; $2 billion in investments as part of a program that helps rural governments work more closely with federal agencies on economic development projects; $274 million to expand high-speed internet infrastructure; and $145 million to expand access to wind, solar and other renewable energy, according to a White House fact sheet.“Young people in rural communities shouldn’t have to leave home to find opportunity,” Neera Tanden, director of the White House Domestic Policy Council, said Tuesday on a call with reporters.She said federal investments were creating “a pathway for the next generation to keep their roots in rural America.”Gov. Tim Walz of Minnesota, a Democrat, said he expected Mr. Biden to face serious headwinds in rural communities, in large part because of inflation levels.“It is a little challenging, there’s no denying, when prices go up,” Mr. Walz said. “The politics have gotten a little angrier. I think folks are feeling a little behind.”But Mr. Walz also praised Mr. Biden for spending time in rural communities. “Democrats need to show up,” he said.Kenan Fikri, the director of research at the Economic Innovation Group, a Washington think tank, said the Biden administration had made sizable investments over the past two and a half years in agriculture, broadband and other rural priorities.“The administration has a lot to show for its economic development efforts in rural communities,” he said, but “whether voters will credit Biden for a strong economic performance is another question.”Later in the week Mr. Vilsack will travel to Indiana, Wyoming and Colorado to speak with agricultural leaders and discuss land conservation. Deb Haaland, the interior secretary, will go to her home state of New Mexico to highlight water infrastructure investments.Energy Secretary Jennifer M. Granholm will be in Arizona to talk about the electricity grid and renewable energy investment in the rural Southwest.The veterans affairs secretary, Denis McDonough, plans to visit Iowa to discuss improving access to medical care for veterans in rural areas. Isabel Guzman, who leads the Small Business Administration, will travel to Georgia to talk about loans for rural small businesses.Miguel A. Cardona, the education secretary, will go to New Hampshire to promote how community colleges help students from rural areas. Xavier Becerra, the secretary of health and human services, will be in North Carolina to talk about health care access in rural areas. More

For over a century, the Panama Canal has provided a convenient way for ships to move between the Pacific and Atlantic Oceans, helping to speed up international trade.But a drought has left the canal without enough water, which is used to raise and lower ships, forcing officials to slash the number of vessels they allow through. That has created expensive headaches for shipping companies and raised difficult questions about water use in Panama. The passage of one ship is estimated to consume as much water as half a million Panamanians use in one day.“This is the worst we have seen in terms of disruption,” said Oystein Kalleklev, the chief executive of Avance Gas, which transports propane from the United States to Asia.The problems at the Panama Canal, an engineering marvel that opened in 1914 and handles an estimated 5 percent of seaborne trade, is the latest example of how crucial parts of global supply chains can suddenly seize up. In 2021, one of the largest container ships ever built got stuck for days in the Suez Canal, choking off trade. And the huge demand for goods like surgical masks, home appliances and garden equipment during the pandemic strained supply chains to their breaking point.Before the water problems, the canal handled some 38 ships a day. In July the authorities cut that to 32 vessels.Fewer passages could deprive Panama of tens of millions of dollars in revenue, push up the cost of shipping and increase greenhouse gas emissions when ships travel longer routes.In Panama, a lack of water has hampered canal operations in recent years, and some shipping experts say vessels may soon have to avoid the canal altogether if the problem gets worse. Fewer passages could deprive Panama’s government of tens of millions of dollars in annual revenue, push up the cost of shipping and increase greenhouse gas emissions when ships travel longer routes.Though Panama has an equatorial climate that makes it one of the wettest countries, rainfall there has been 30 percent below average this year, causing water levels to plunge in the lakes that feed the canal and its mighty locks. The immediate cause is the El Niño climate phenomenon, which initially causes hotter and drier weather in Panama, but scientists believe that climate change may be prolonging dry spells and raising temperatures in the region.Before the water problems, as many as 38 ships a day moved through the canal, which was built by the United States and remained under its control until 2000. The canal authority in July cut the average to 32 vessels, and later announced that the number would drop to 31 on Nov. 1. Further reductions could come if water levels remain low. The canal authority is also limiting how far a ship’s hull can go below the water, known as its draft, which significantly reduces the weight it can carry.Container ships, which transport finished consumer goods, typically reserve passage well in advance, and have not faced long delays. But ships carrying bulk commodities generally don’t book passage.Tree trunks are visible due to low levels of water. The drought also presents tough choices for Panama’s leaders, who must balance the water needs of the canal with those of residents.Vessels waiting to cross the Panama Canal. The passage of one ship is estimated to consume as much water as half a million Panamanians use in one day.This presents bulk shipping companies with an expensive calculus: They can risk waiting for days, pay a big fee to jump the line or avoid the canal entirely by taking a longer route.Mr. Kalleklev, the shipping executive, said his company decided in August to pay $400,000 in a special auction to move a ship ahead in the queue, roughly doubling the total cost of using the canal. Other companies have paid over $2 million, a cost they will sometimes bear to ensure ships don’t miss their next assignment. A portion of these extra costs will be passed on to consumers, already pummeled by inflation.The pain, however, has been limited because the U.S. economy is not running very hot and demand for imported goods is relatively muted.“If this was a year ago, when we still had record high freight rates and consumers still spending a lot on containerized goods from the Far East, then you would see more drama than you have now,” said Peter Sand, chief analyst at Xeneta, a shipping market analytics company.But traffic through the canal is likely to remain at lower levels in the coming months. Reducing passages helps conserve water, because huge amounts are used up every time a ship goes through the locks as it travels the 40 miles across Panama.The drought also presents tough choices for Panama’s leaders, who must balance the water needs of the canal with those of residents, over half of whom rely on the same sources of water that feed the canal.The canal’s board recently proposed building a new reservoir in the Indio River to bolster the water supply and increase traffic through the canal, which generates over 6 percent of Panama’s gross domestic product. Under the plan, the new water supply could allow for an additional 12 to 15 passages daily.For over a century, the Panama Canal has provided a convenient way for ships to move between the Pacific and Atlantic Oceans.The canal’s board recently proposed building a new reservoir in the Indio River to bolster the water supply and increase traffic through the canal.“In optimal terms, the canal can handle 38 transits per day, so 12 to 15 is a lot,” said Rodrigo Noriega, a lawyer and a columnist for Panama’s La Prensa newspaper.Building the reservoir is expected to cost nearly $900 million, and the canal authority could start accepting bids from contractors toward the middle of next year with construction starting early in 2025. But that timeline could well be delayed; the construction of larger locks was completed two years late, in 2016, and that project was marred by cost disputes.The new reservoir would also involve acquiring land that is protected by a 2006 law, and displace at least some of its inhabitants. Mr. Noriega said he expected Panama’s legislature to pass a law that would lift the ban on acquiring land. But he and others note that new water sources could also be built in other places.Without a new water source, the canal could lose significant amounts of business. Other ocean routes are, of course, longer and more expensive, but they are less likely to have unpredictable delays. One alternative is to transport goods between Asia and United States through the Suez Canal to the East Coast and Gulf Coast. Another is to ship goods from Asia to the West Coast ports — and then transport them overland by train or truck.“In theory, something that offers a cheaper, shorter route should always be in favor, but it’s the uncertainty that can be a killer,” said Chris Rogers, head of supply chain research at S&P Global Market Intelligence.Protracted disruptions at the canal could stoke interest in building land routes in Mexico, Colombia and other countries that have coastlines on both oceans, said Richard Morales, a political economist who is running as an independent candidate for vice president in an election next year.The efforts to secure new water supplies could be a race against climate change.Because interest in building a canal dates to the 19th century, Panama has rainfall records going back some 140 years. That gives scientists more confidence when concluding that a weather change is a permanent shift and not merely random, said Steven Paton, a director of the Smithsonian Tropical Research Institute’s Physical Monitoring Program on an island in Lake Gatun, which makes up a large part of the canal and supplies most of its water.He said that while scientists were unsure about climate change’s impact on El Niño, two of the driest El Niño periods of the last 140 years had occurred in the last quarter-century, and that the current one could be the third.“It doesn’t say that this is climate change,” Mr. Paton said, “but it does say that this is wholly consistent with almost all of the climate change models.”Sol Lauría More

SHANGHAI/HONG KONG (Reuters) – China’s annus horribilis has seen its stock markets fall, funds run up losses and foreign investors run for the exit. But areas of the market dominated by small stocks and frequented by the country’s retail investors have done surprisingly well.Scores of retail investors are dabbling in micro-cap stocks – stocks whose market capitalisation is tiny – operating under the radar of big funds and investors and their massive market-moving flows. Take self-employed retail trader Joseph Cui, for instance. By buying micro-cap stocks of artificial intelligence(AI) companies, Cui has picked a corner of the market big fund managers can barely squeeze into, and made a fat 20% return on his 2-million-yuan ($273,347.27) investment. “It’s a tough environment for big capital. But for short-term money, it’s easy play,” Cui said.Strategies such as Cui’s stand out this year in a stock market depressed by China’s wobbly economy, heightened geopolitical risks and surging overseas interest rates. The Wind Micro Market Cap Index, which tracks the 400 China-listed A-shares with market value typically less than 3 billion yuan each, is up 37% so far this year. In contrast, the blue-chip CSI300 Index has lost 8%. While institution-dominated companies with large market values in sectors such as banking and manufacturing have faced selling pressure from investment funds in a struggling economy, micro stocks have become neat counter-cyclical targets. Such stocks lend themselves to speculation, particularly when tied in some way to Chinese chip behemoth Huawei Technologies or hot concepts such as AI, making the retail rush somewhat similar to last year’s meme-stock frenzy in the United States, albeit without short-sellers on the other side of the trades. Chinese regulators meanwhile seem cool with the micro-cap craze, even though it is worryingly reminiscent of the casino-like Chinese market culture of more than a decade ago. “Regulators appear to be greenlighting speculative activities so as to prop up the stock market,” said Yuan Yuwei, fund manager at Water Wisdom Asset Management. “The connivance is hurting the system of value investment, encouraging misbehaviours, and is negative to long-term health of the market.” The China Securities Regulatory Commission (CSRC) did not immediately respond to a request for comment.CONCEPT STOCKS Retail investor Helen Wu is not bashful talking about “stir-frying” – the practice of pumping up stocks with hot concepts. “We mainly pick stocks with a big story to tell, such as AI or Huawei, so that stir-frying becomes easy,” Wu said, referring to the mania in China around ChatGPT, as well as much-hyped technological breakthroughs at U.S.-blacklisted firm Huawei. “We don’t touch stocks with big institutional holdings, due to big selling pressure in a downbeat economy.”Retail investors are a big force in China. CSRC Chairman Yi Huiman notes that their transactions accounted for about 60% of the total A-shares turnover in late 2022. An index tracking China’s actively-managed equity funds has slumped 14% this year after sell-offs in once favoured sectors such as battery companies and spirit makers. In contrast, an index tracking ChatGPT concept stocks such as 360 Security Technology and TRS Information Technology has soared more than 40%. In a recent case, loss-making Ningbo Shenglong Automotive Powertrain System Co jumped nearly 250% in three weeks on speculation that is a supplier for Huawei’s planned electric vehicle, forcing the company to flag investment risks last week.Lu Deyong, a retail trader, said he made a 100% profit of 100,000 yuan betting on a Huawei concept stock, Seres Group, whose shares doubled in the past two months even while it booked a loss for the first three quarters of 2023.”Market buys Seres for the imagination of its future, not its current fundamentals,” Lu said. Some brokerages are starting to recommend micro stocks to clients. GF Securities said in an October strategy report that buying micro stocks is part of a new investment paradigm in a stock market suffering from anaemic growth, and global decoupling risks. “Speculation in concept stocks has been active throughout the year, and regulators have their eyes half-closed,” said Huang Yan, general manager of Shanghai QiuYang Capital Co. “A crackdown would dampen an already lifeless market.”($1 = 7.3167 Chinese yuan renminbi) More

SINGAPORE (Reuters) – The yen wobbled near 15-year lows on the euro and a one-year trough on the dollar on Wednesday, having slid on bets that a tweak of Japan’s yield control policy isn’t enough to close wide interest rate gaps that have pressured the currency for years.Moves in early Asia trade were modest ahead of a U.S. Federal Reserve meeting later in the day – where rates are seen on hold – and the release of U.S. Treasury refunding details.The New Zealand dollar slipped 0.4% to $0.5805 as softer-than-forecast employment data cemented expectations of an end to interest rate hikes.Against the dollar, the yen fell about 1.7% overnight, touching a low of 151.74 – a whisker from the 151.94 level that prompted intervention a year ago. The yen breached 160 per euro for the first time since 2008.It was last at 151.27 per dollar – down 13% for the year so far and 38% from its pandemic peak – and at 160.05 per euro.Intervention remained high on investors’ watch list, with Japan’s top currency diplomat noting on Wednesday that recent moves seemed to be speculative, and that authorities were on “standby” to step in. The Bank of Japan raised inflation forecasts on Tuesday, but not policy rates. It redefined its 1% limit on 10-year government bond yields as a reference rate, rather than a hard cap, effectively ending its strict yield-curve control policy.Data from the finance ministry also showed Japan did not intervene in currency markets through October.Taken together, it adds up to “no obvious new official approach to ‘muscle’ a stronger yen,” so traders feel the coast is clear to take up short positions, said Alan Ruskin, macro strategist at Deutsche Bank.”It is now more evident than ever, that a proper turn in dollar/yen is much less dependent on events in Japan than they are on the macro dynamic in the U.S,” he said in a note.On that score the dollar has been helped by the flattering comparison between the U.S. and other large economies. Data on Tuesday showed European growth a little softer than expected and a surprise slump in Chinese factory activity.In the U.S. data showed wages and salaries rose solidly last quarter and while consumer confidence ebbed, it fell far less than markets had expected. The euro declined 0.4% on the dollar overnight and nursed losses at $1.0579.The U.S. dollar index measure against a basket of major currencies rose 0.5% on Tuesday to 106.66. Sterling was steady at $1.2150. China’s offshore yuan held at 7.34 per dollar amid a liquidity crunch in the onshore market that drove overnight repo rates as high as 50% as banks scrambled for month-end cash.China’s Caixin PMI data will be in focus later on Wednesday, ahead of U.S. manufacturing and private payrolls figures – before the Fed meeting.U.S. yields rose in early Asia trade, while Japanese yields fell slightly on thin volumes, leaving the spread between benchmark 10-year rates at 398 bps. That is narrower than 414 bps it had hit in October.”Nominal 10Y rate spreads now warrant dollar/yen a fair bit lower, i.e., 147-8,” said James Malcolm, UBS currency strategist based in London.”Though this relationship is becoming choppier, 10bp has been roughly equivalent to one big figure in spot over the last couple of years.” More

Shares of the flexible workspace provider fell 32% in extended trading after the Wall Street Journal first reported the news. They have fallen roughly 96% this year. New York-based WeWork is considering filing a Chapter 11 petition in New Jersey, the WSJ reported, citing people familiar with the matter. WeWork declined to comment. Earlier on Tuesday, WeWork said it had entered into an agreement with creditors for temporary postponement of payments for some of its debt, with the grace period nearing an end.The company had net long-term debt of $2.9 billion as of June end and more than $13 billion in long-term leases, at a time when rising borrowing costs are hurting the commercial real estate sector.WeWork’s filing for bankruptcy would mark a stunning reversal of fortune for the company that was privately valued at $47 billion in 2019 and a black spot for investor SoftBank that sunk billions.The company has been in turmoil ever since its plans to go public in 2019 imploded following investors’ skepticism over its business model of taking long-term leases and renting them for the short term and worries over its hefty losses.WeWork’s woes did not abate in subsequent years. It finally managed to go public in 2021 at a much-reduced valuation. Its major backer, Japanese conglomerate SoftBank, sunk tens of billions to prop up the startup, but the company has continued to lose money.WeWork raised “substantial doubt” about its ability to continue operations in August, with numerous top executives, including CEO Sandeep Mathrani, departing this year. More

WASHINGTON (Reuters) -U.S. senators from both parties voiced doubts on Tuesday about House Republicans’ plan to provide $14.3 billion in aid to Israel by cutting Internal Revenue Service funding, without providing aid to Ukraine, and Democratic President Joe Biden threatened to veto the bill were it to pass.In the first major legislative action under new Speaker Mike Johnson, House of Representatives Republicans unveiled a standalone supplemental spending bill only for Israel on Monday.This is despite President Joe Biden’s request for a $106 billion package that would include aid for Israel and Ukraine and funding to boost competition with China in the Indo-Pacific as well as security along the U.S. border with Mexico.Republicans have a 221-212 majority in the House, but Biden’s fellow Democrats control the Senate 51-49. To become law, the bill would have to pass both the House and Senate and be signed by Biden.The top Senate Democrat said the Republican bill would be dead on arrival in the upper chamber, even if it passed the House.”The bottom line is it’s not a serious proposal,” Senate Democratic Majority Leader, Chuck Schumer, told reporters.The administration said Biden would veto such a bill were it to reach his desk.”This bill is bad for Israel, for the Middle East region, and for our own national security,” the White House’s Office of Management and Budget said.Senator Mitch McConnell, the Republican leader in the Senate said he felt the four issues needed to be addressed.”We need to treat all four of these areas, all four of them, Ukraine, Israel, Taiwan and the border,” McConnell told reporters. Secretary of State Antony Blinken met with Johnson on Tuesday after testifying in the Senate. At the hearing, Blinken and Secretary of Defense Lloyd Austin said Ukraine needed continued U.S. assistance to win its fight against Russian invaders.Blinken told reporters: “It was a very good meeting. I appreciate the opportunity. I’ll leave our conversation at that.”State Department spokesperson Matthew Miller said they had discussed issues including Biden’s request for support for Ukraine and Israel.Republicans are expected to pass the legislation in the House as soon as this week. More