Economy

SYDNEY (Reuters) – U.S. stock futures rallied in Asian trade on Monday as authorities announced plans to limit the fallout from the collapse of Silicon Valley Bank (SVB), while investors wagered future hikes in U.S rates would now be less aggressive.In a joint statement, the U.S. Treasury and Federal Reserve announced a range of measures to stabilise the banking system and said depositors at SVB would have access to their deposits on Monday.The Fed said it would make additional funding available through a new Bank Term Funding Program, which would offer loans up to one year to depository institutions, backed by Treasuries and other assets these institutions hold.The moves came as authorities took possession of New York-based Signature Bank (NASDAQ:SBNY), the second bank failure in a matter of days.Analysts noted that, importantly, the Fed would accept collateral at par rather than marking to market, allowing banks to borrow funds without having to sell assets at a loss.”These are strong moves,” said Paul Ashworth, head of North American economics at Capital Economics.”Rationally, this should be enough to stop any contagion from spreading and taking down more banks, which can happen in the blink of an eye in the digital age,” he added. “But contagion has always been more about irrational fear, so we would stress that there is no guarantee this will work.”Investors reacted by sending U.S. S&P 500 stock futures up 1.2%, while Nasdaq futures rose 1.3%.MSCI’s broadest index of Asia-Pacific shares outside Japan held steady as investors pondered the consequences for regional markets.Japan’s Nikkei fell 1.1% in choppy trade, while South Korea added 0.1%.Such was the concern about financial stability, that investors speculated the Fed would now be reluctant to rock the boat by hiking interest rates by a super-sized 50 basis points this month.Fed fund futures surged in early trading to imply only a 17% chance of a half-point hike, compared to around 70% before the SVB news broke last week.The peak for rates came all the way back to 5.14%, from 5.69%, last Wednesday, and markets were even pricing in rate cuts by the end of the year.That, combined with the shift to safety, saw yields on two-year Treasuries fall further to 4.51%, a world away from last week’s 5.08% peak.Longer-dated yields, however, edged up as the curve steepened.”Accelerating your pace of hikes in the face of a significant bank failure may not be the wisest play for the Fed, especially if subsequent problems emerge stemming from similar root causes – underwater rates portfolios,” said John Briggs, global head of economics at NatWest Markets.Still, much will depend on what U.S. consumer price figures reveal on Tuesday, with an obvious risk that a high reading will pile pressure on the Fed to hike aggressively even with the financial system under strain.The European Central Bank meets on Thursday and is still widely expected to lift its rates by 50 basis points and to flag more tightening ahead, though it will now have to take financial stability into account.In currency markets, the dollar dipped 0.3% on the safe-haven Japanese yen to 134.63, though that was well off its early low. The dollar eased 0.4% on the Swiss franc, while the euro firmed 0.4% to $1.0690 as short-term U.S. yields dropped.Gold climbed 0.6% to $1,879 an ounce, having jumped 2% on Friday. [GOL/]Oil prices edged higher, with Brent up 10 cents at $82.88 a barrel, while U.S. crude rose 26 cents to $76.94 per barrel. More

China is set to tighten its grip on global cobalt supply, as the price of the key metal for electric-car batteries hits a 32-month low off the back of a surge in production.Over the next two years, China’s share of cobalt production is expected to reach half of global output, up from 44 per cent at present, according to a report by Darton Commodities, a UK-based cobalt trader.The increase comes despite western efforts to gain control over supply chains for critical minerals such as cobalt, lithium and nickel, which are essential for making electric-car batteries. Chinese refining activity reached 140,000 tonnes in 2022, more than double its level of five years ago, as volumes processed in the rest of the world stagnated at the 40,000 tonnes mark, handing Asia’s largest economy a 77 per cent global share of refining capacity.China’s growing role in cobalt supply comes as a 12-month rally for the metal has spun into reverse, with prices dropping 60 per cent to $16 a pound, from their peak above $40 a pound in May.“A lot of things converged at the same time to push the market down: the relaxation of logistics issues, weak consumer electronic sales and a technology shift towards lower or no cobalt EV batteries,” said Caspar Rawles, chief data officer at Benchmark Mineral Intelligence, a pricing agency. Global cobalt output increased 23 per cent or by 35,000 tonnes in 2022 over the previous year, according to Darton. That was driven by Swiss commodities group Glencore ramping up production at Mutanda, the world’s largest cobalt mine in the Democratic Republic of Congo, as well as Indonesia emerging as a major producer.The supply surge was more than double the demand increase, leading to the price collapse. Demand was hit by soft sales of portable electronics globally, draconian Covid-19 lockdowns in China, and a shift in the Chinese electric vehicle market towards lower-range batteries that do not use cobalt.One trader said there was a “double whammy” as Chinese cobalt refineries and consumers destocked due to weaker consumer demand, but the market was now asking “when does China come back” in terms of demand.Lower cobalt prices provide some relief to automakers worried about the cost of raw materials for electric batteries, but raise big challenges for getting projects outside of China off the ground. In the US, Washington’s concerns over China’s dominance of the cobalt supply chain have led to substantial incentives for cobalt production domestically or in countries deemed friendly to America. However, those incentives, codified in the Inflation Reduction Act, will take years to yield any results. Automakers have been pushing to develop battery chemistries that use less cobalt because of concerns over child labour in the DRC, which generates three-quarters of global supply.Cobalt is a byproduct from copper or nickel mines, prices of which have remained relatively strong, meaning supply is not readily reduced even when cobalt prices drop.However, industry sources said small-scale informal mining, which contributes between 15 and 30 per cent of DRC output, has already cut back, with some artisanal producers shifting to copper instead.Steven Kalmin, Glencore’s chief financial officer, said last month during an analysts call that “we will look to be dynamic around managing cobalt production and sales” to manage lower prices.Cobalt prices could fall further if Tenke Fungurume, the world’s second-largest cobalt mine owned by China’s CMOC, is allowed to resume exports from the DRC after a tax dispute led to an export ban last July. It has kept producing despite the ban, stockpiling 10,000 to 12,000 tonnes of material, equivalent to 6 per cent of last year’s demand, according to market estimates.The projected increase in China’s share of global cobalt mining is largely due to the start up at CMOC’s Kisanfu copper-cobalt mine in the DRC this year. More

WASHINGTON (Reuters) -Earlier this month the U.S. Federal Reserve in a report to Congress gave what has become a standard reassurance: Banks were strong and the overall financial system in solid shape.That confidence is now being tested as the Fed and other regulators watched the failure of Silicon Valley Bank last week rapidly morph into a potential systemic shock, threatening to undermine confidence in bank deposits and touch off more destabilizing runs.Just days after delivering the all clear to Congress, the Fed rolled out a crisis playbook honed during the housing collapse in 2008 and expanded during the Covid-19 pandemic, announcing its latest go-big and go-fast effort to keep the financial system stable.Banks will now be allowed to borrow essentially unlimited amounts from the Fed as long as the loans could be collateralized with safe government securities, a way to prevent financial firms from having to sell a class of investments that have been losing value because of the Fed’s own high interest rate policies.The response from regulators on Sunday also included a pledge to make whole all depositors, even those with accounts above the Federal Deposit Insurance Corp’s standard $250,000 limit, at Silicon Valley Bank and a second smaller institution, Signature Bank (NASDAQ:SBNY), that failed over the weekend.By allowing loans for a year against the full face value of government bonds and mortgage backed securities, banks will be able to “easily leverage (the new Fed facility) to access liquidity, rather than have to realize significant losses and flood the markets with paper” they are forced to sell to meet depositor demands, economists from Jefferies wrote. “Monday will surely be a stressful day for many in the regional banking sector, but today’s action dramatically reduces the risk of further contagion.”The Fed has standing programs that are always available to shore up the financial system, including direct loans to banks with adequate collateral through its so-called discount window. The Fed made changes at the start of the coronavirus pandemic to encourage such borrowing, some of which, including a lowered interest rate on discount window loans relative to its benchmark policy rate, remain in place. But in this case, as in crises dating back to the 2007-to-2009 housing collapse, the discount window was considered inadequate to address the developing risks, problems that to some degree stemmed from the Fed’s own aggressive monetary policies. SVB’s collapse highlighted whether the Fed’s aggressive rate increases, which took rates from near zero percent a year ago to more than 4.5% today, had finally caused something important to “break” as holders of low-yielding Treasury bonds face capital losses and banks, particularly smaller ones, faced tougher terms to attract the deposits needed for operations. ‘IDIOSYNCRATIC’Fed officials have been surprised to some degree by how little turmoil their rate increase have triggered until now, with some policymakers saying the lack of clear stress made them more inclined to keep raising rates as they work to tame inflation. That may change now, with some analysts suggesting it could tilt the Fed toward a lower endpoint in its rate-hiking cycle. The initial sense was that SVB’s problems were “idiosyncratic,” as Bank of America (NYSE:BAC) analysts put it, with others noting that markets still looked at the largest financial institutions as immune from fallout. Those firms in particular are buffered by the higher levels of capital under reforms enacted a decade ago to cushion them against failure.When it was closed Friday, SVB had a balance sheet of around $200 billion and was the country’s 16th largest bank. That is far from the league of the large, systemic players, but big enough to rattle the stock prices of other mid-sized institutions and prompt calls for depositors to be protected beyond the Federal Deposit Insurance Corp’s standard $250,000 limit.The concern was the type of herd behavior that might develop if SVB’s depositors faced losses, and confidence began to erode more broadly.The Fed’s response was described by Fed officials as classic central banking, lender-of-last-report behavior – offering funds on a virtually unlimited basis against safe collateral. But it also was framed by the lessons and restrictions of prior crisis. The situation had to be judged systemic, a finding unanimously endorsed by the Fed’s Board of Governors, Treasury Secretary Janet Yellen, and others.Its structure was meant to match the size of the problem, potentially big enough, Fed officials said, to match all currently uninsured deposits – which amounted to more than $9.2 trillion across the banking system at the end of last year – should account holders march en masse to their bank and demand their money.Yet it also highlighted the still limited scope regulators have on how and where potential crises may develop.SVB’s collapse appears driven by the sort of rate and funding dynamics the Fed watches for in semiannual reports devoted to financial stability and in documents like the Monetary Policy Report to Congress delivered earlier this month.In its report to Congress on March 3, that funding risk was judged “low” in the system overall. “Large banks continue to have ample liquidity to meet severe deposit outflows,” the Fed report said. “Against the backdrop of a weaker economic outlook, higher interest rates, and elevated uncertainty over the second half of the year, financial vulnerabilities remain moderate overall.” More

The official said the steps were taken to stabilize the financial system and protect depositors, and did not constitute a bailout of either firm. No losses of either bank will be borne by U.S. taxpayers, the official said.Together with the Federal Reserve’s decision to make funds available to eligible financial institutions and ensure they can meet the needs of all their depositors, the steps would “restore market confidence,” the official said. More

SYDNEY (Reuters) -Markets were set for a bumpy ride this week as the fallout from collapsed startup-focused lender Silicon Valley Bank (SVB), the biggest U.S. bank failure since the 2008 financial crisis, coincides with key economic data and policy meetings. S&P500 futures rose 1.4% after U.S. authorities guaranteed SVB customers would have access to their deposits starting on Monday. Futures later eased to be up 0.7% “No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer,” a statement from the U.S. Treasury, Federal Reserve and Federal Deposit Insurance Corp said.In Australia, the first major market to start trading in Asia Pacific, the S&P/ASX200 was down 0.3% in early trade.”What investors have to expect coming into tomorrow and beyond is that we are going to be dealing with a lot of event risk,” said Michael Purves, chief executive officer at Tallbacken Capital Advisors in New York. “There are still going to lingering questions with other regional banks. Under such a such a scenario, it’s hard not to expect sustained very high rate volatility.”U.S. February inflation numbers are due out on Tuesday, followed by the UK’s budget on Wednesday and the European Central Bank’s interest-rate meeting on Thursday, adding to risk factors for markets. “There’s a rough ride ahead,” said Pooja Kumra, senior European and UK rates strategist at TD Securities in London.U.S. stock market volatility as measured by the “fear index,” the VIX, had already shot up on Friday to its highest since October, while the ICE (NYSE:ICE) BofA Move Index, a measure of volatility in the U.S. fixed income market, rose to its highest since mid-December.Stock markets in the Middle East ended lower on Sunday, with the Egyptian bourse leading the declines. In Qatar, almost all the shares were in negative territory, including Qatar Islamic Bank, which tumbled 3.9%. In another sign of possible contagion to other assets, stablecoin USD Coin (USDC) lost its dollar peg and slumped to an all-time low on Saturday. It later recovered most of its losses after Circle, the firm behind it, assured investors it would honour the peg despite exposure to Silicon Valley Bank.Still, unease about the banking sector is likely to linger. Investors are going into Monday’s trading day with little time to digest the latest developments. SVB could have a domino effect on other U.S. regional banks and beyond. U.S. regional and smaller bank shares were hit hard on Friday. The S&P 500 regional banks index dropped 4.3%, bringing its loss for the week to 18%, its worst week since 2009.POTENTIAL HIT Britain’s government on Sunday was scrambling to minimize the damage on the country’s tech sector. Prime Minister Rishi Sunak said the British government was working to find a solution to limit the potential hit to companies resulting from the failure of SVB’s UK subsidiary.Advisory firm Rothschild & Co is exploring options for the subsidiary, as insolvency looms, two people familiar with the discussions told Reuters. The BoE has said it is seeking a court order to place the UK arm into an insolvency procedure. In Asia, the SVB failure has left many Chinese funds and tech start-ups in the lurch, as the bank was a key funding bridge for groups operating between China and the U.S, the Financial Times reported on Sunday. The Chinese joint venture of SVB said on Saturday it has a sound corporate structure and an independently operated balance sheet. Having ramped up expectations for further interest rate hikes in the United States and Europe, investors are contemplating whether turmoil in the banking sector could force central banks into a re-think.Investors will be laser-focused on the ECB, which looks set to deliver another hefty interest rate hike on Thursday. A surprise surge in underlying inflation in February has left policymakers fretting that price pressures could prove persistent.The ECB will be vigilant to the risks of possible contagion and will make sure liquidity is plentiful in the system, said Marchel Alexandrovich, European economist and partner of Saltmarsh Economics. And if there is a difficult week in the markets, ECB President Christine Lagarde may “deliver a somewhat more cautious message,” he said. UK finance minister Jeremy Hunt’s UK budget may be overshadowed by the SVB fallout in Britain. Hunt is expected to prioritise keeping public finances steady, resisting giveaways that could destabilise sterling, stocks or gilts.But wide estimates for new public borrowing needs make the outlook for government bonds uncertain. More

WASHINGTON (Reuters) – Silicon Valley Bank customers will have access to their deposits starting on Monday, U.S. officials said on Sunday. “Depositors will have access to all of their money starting Monday, March 13,” the U.S. Treasury, Federal Reserve and Federal Deposit Insurance Corp said in a statement. “No losses associated with the resolution of Silicon Valley Bank will be borne by the taxpayer,” the statement said. More

The “Online News Act,” or House of Commons bill C-18, introduced in April last year laid out rules to force platforms like Meta and Alphabet (NASDAQ:GOOGL) Inc’s Google to negotiate commercial deals and pay news publishers for their content.”A legislative framework that compels us to pay for links or content that we do not post, and which are not the reason the vast majority of people use our platforms, is neither sustainable nor workable,” a Meta spokesperson said as reason to suspend news access in the country. Meta’s move comes after Google last month started testing limited news censorship as a potential response to the bill. Canada’s news media industry has asked the government for more regulation of tech companies to allow the industry to recoup financial losses it has suffered in the years as tech giants like Google and Meta steadily gain greater market share of advertising. In a statement on Sunday, Canadian Heritage Minister Pablo Rodriguez said it was disappointing to see Facebook resorting to threats instead of working with the Canadian government in good faith, and the C-18 bill had nothing to do with how Facebook makes news available to Canadians.”All we’re asking Facebook to do is negotiate fair deals with news outlets when they profit from their work,” Rodriguez said. “This is part of a disappointing trend this week that tech giants would rather pull news than pay their fair share.”Facebook last year raised concerns about the legislation and warned it might be forced to block news-sharing on its platform. More

(Reuters) – A look at the day ahead in Asian markets from Lewis Krauskopf.Monday could kick off a rocky week in financial markets.A banking blow-up in the U.S. is sparking fears of global contagion risks, and those fears could emerge in Asian trading as the week begins. Regulators were scrambling over the weekend to contain the fallout from the sudden collapse of Silicon Valley Bank late last week. The bank’s failure has already taken its toll on markets. Investors unloaded equity risk, with MSCI’s gauge of world stocks ending the week with its biggest two-day drop in about three months. Banking stocks were hit particularly hard, with the S&P 500’s regional banks index tumbling 18% on the week.Meanwhile, measures of volatility in the equity and fixed income markets hit their highest levels of 2023.Even with fresh risks in the banking sector, a critical week of macro data also is likely to continue to drive trading as investors seek to understand how central banks will balance threats to economic growth and still-simmering inflation.U.S. yields ended the week sharply lower, following Friday’s mixed U.S. jobs report that saw strong employment gains but moderating wage growth. Two-year U.S. Treasury yields, which closely follow Federal Reserve policy expectations, saw the biggest drop since the 2008 financial crisis on Friday.Critical inflation information comes with Tuesday’s U.S. consumer price index report, among the last key pieces of data before the Fed decides on its next interest rate move later this month. The European Central Bank appears to be poised for a half-point increase to its rate on Thursday.China’s economy is also in the spotlight. The release of the country’s first retail and factory data of the year is due on Wednesday, after the economy gave one of its weakest performances in decades last year, with GDP up just 3%.Facing economic challenges, China unexpectedly kept its central bank governor and finance minister in their posts at the annual session of the parliament on Sunday.Here are three key developments that could provide more direction to markets on Monday:- India CPI report for February- Malaysia industrial output for Jan- End of parliamentary session in China (By Lewis Krauskopf; editing by Diane Craft) More