Economy

In an effort to steer record inflation towards its 2% target, the ECB has hiked rates by a combined 300 basis points to 2.5% since last July and promised to deliver a further 50 basis point increase in March.In a speech to financial analysts, Villeroy, who is also governor of the French central bank, said that rates would then “probably” reach their peak in the summer, at the latest by September.Markets took the ECB’s February policy statement as a signal that rates could peak at a lower level than earlier thought and investors quickly priced out a 25 basis point rate hike. Subsequent pushback by a plethora of policymakers reversed market moves, however, and the terminal rate is now seen around 3.75%, suggesting another 125 basis points of rate hikes, including the 50 basis point move in March. Villeroy said that how long interest rates are kept at the peak were also key, adding that they would be kept high as long as necessary to steer inflation back towards the ECB’s 2% target.He said that the question of when rate cuts could come lay further in the future and was “surely not for this year”. He added that it would depend on not only on overall inflation coming down, but also underlying inflation, which excludes volatile items like energy prices. More

WASHINGTON/LONDON (Reuters) -U.S.-based investment firm BlackRock (NYSE:BLK) said on Friday it would join a new sovereign debt roundtable set up to accelerate progress on stalled relief efforts for distressed countries with Britain’s Standard Chartered (OTC:SCBFF) also joining according to sources. The Global Sovereign Debt Roundtable, chaired by the International Monetary Fund, the World Bank and India – this year’s leader of the Group of 20 major economies – will hold its first virtual meeting on Friday, a gathering aimed at setting the agenda for an in-person meeting on Feb. 25 on the sidelines of a G20 finance leaders meeting in Bengaluru, India.”We welcome the Global Sovereign Debt Roundtable and look forward to engaging constructively in the dialogue alongside other key stakeholders,” a spokesperson for BlackRock told Reuters. Three people with knowledge of the matter said Standard Chartered would also join. A spokesperson for Standard Chartered declined to comment.Unlike the Common Framework platform for bilateral debt restructuring, the roundtable talks include public and private creditors as well as borrowing countries. Such setup aims at finding common ground on standards, principles and definitions for how to restructure debts of distressed countries, officials have said.Participants include officials from creditor countries China, India, Saudi Arabia, the United States and other wealthy Group of Seven democracies, as well as six borrowing countries – Ethiopia, Zambia, Ghana, Sri Lanka, Suriname and Ecuador.BURDEN SHARINGWorld Bank President David Malpass, who helped organize the roundtable, said he hoped bringing the private sector into the process earlier – and facilitating its dialogue with China and other big creditors – would help speed up debt relief.”To actually have debt relief that’s meaningful, there has to be a burden sharing among the various creditors,” Malpass told Reuters in an interview on Thursday.Including specific financial institutions in the roundtable and having them join China, India and other bilateral creditors that are not part of the Paris Club marked a big step forward, he said.Private sector creditors now hold a much bigger share of the debt owed by developing and emerging market economies than official sovereign creditors, but have been largely absent from the Common Framework process.The World Bank’s International Debt Report showed that the external debt of the poorest countries nearly tripled to $1 trillion in 2021 from a decade earlier, and 60% of those countries were in or at risk of debt distress. Low and middle-income countries owed 61% of their debt to private creditors.China – now the largest official creditor – has been holding back to see how other bilateral and private creditors participate in debt reductions, or haircuts. At the end of 2021, China was the largest bilateral lender to the poorest countries, accounting for 49% of their bilateral debt stock, up from 18% in 2010, according to World Bank data. “Private creditors are major players in many debt restructurings and need to share the responsibility for achieving a successful restructuring,” Malpass added. More

European stocks fell and yields on US Treasuries rose on Friday as robust economic data and hawkish comments from central bank officials fanned fears that the Federal Reserve would keep interest rates high to combat inflation.By late morning the Europe-wide Stoxx 600 was down 0.7 per cent, slightly higher than earlier in the session, while Germany’s Dax was 0.95 per cent lower. France’s Cac 40 had also lost 0.7 per cent, after reaching a record intraday high on Thursday. Those declines followed falls overnight on Wall Street, where the blue-chip S&P 500 index had its worst day in a month. Investors were unnerved by producer price inflation data, which tracks wholesale prices, that rose at an annual rate of 6 per cent in January. This was down from 6.2 per cent in December but well above the consensus estimate of 5.4 per cent.Futures tracking the blue-chip S&P 500 were down 0.7 per cent, while contracts for the tech-heavy Nasdaq 100 lost 0.9 per cent.Stocks had risen earlier in the week after the release of stronger than expected retail sales, and as traders awaited further clues on the Fed’s next moves.However, the release of the producer price index data has all but punctured any remaining optimism. Yields on 10-year US Treasuries rose 0.06 percentage points on Friday to 3.9 per cent, the highest since November. Yields on the two-year bond, which is more sensitive to interest rate changes, rose 0.08 percentage points to 4.7 per cent.Yields on 10-year German Bunds rose 0.04 percentage points to 2.52 per cent, the highest level in a year.Fund managers and economists have been watching closely for signs of persistent inflation, with recent data pushing up the level at which the market expects interest rates to peak and reducing the number of Fed rate cuts that are being priced in for later this year.Meanwhile, more US central bank officials have come out in favour of staying the course on high interest rates, with Federal Reserve Bank of Cleveland president Loretta Mester saying on Thursday she had seen a “compelling case” for a half percentage point rise at the next meeting, and St Louis Fed president James Bullard also saying he wouldn’t rule out an increase of the same size.The dollar index, which measures the greenback against a basket of six peer currencies, was up 0.6 per cent, while the euro slid 0.4 per cent.“We’ve been calling for the dollar to strengthen on the back of US data. The producer price index was high and the growth story is looking better,” said Francesco Pesole, FX Strategist at ING. “We had a lot of hawkish commentary from the Fed in the last week, while its clearer in the ECB that there’s a spectrum of ideas, and we haven’t seen much European data.”Brent crude prices fell 2.4 per cent to $83.11 per barrel, while the US WTI crude index dropped 2 per cent to $76.46.Hong Kong’s Hang Seng index was down 1.3 per cent, while the Chinese CSI 300 fell 1.4 per cent. More

Economic data over the week signaled that while inflation rose in January, a tight job market and resilience in consumer spending could offer more room for the Fed to raise borrowing costs.Goldman Sachs (NYSE:GS) said it was expecting the Fed to raise rates three more times this year and by a quarter of a percentage point each, while money markets are pricing in a terminal rate of 5.3% by July.All three main indexes clocked their worst annual losses in 2022 since the 2008 financial crisis, dented by the Fed’s fastest monetary tightening in four decades. In January, hopes that the central bank might be nearing the end of its rate-hiking cycle sparked a renewed interest in beaten-down growth stocks.However, halfway into February, the indexes have barely been able to match the optimism seen in January, with the blue-chip Dow eyeing a 1% loss, as markets price in the Fed to stay hawkish year-long.At 6:47 a.m. ET, Dow e-minis were down 186 points, or 0.55%, S&P 500 e-minis were down 31 points, or 0.76%, and Nasdaq 100 e-minis were down 120.5 points, or 0.97%.Traders will parse commentary by central bank officials including Richmond Fed President Thomas Barkin and Governor Michelle Bowman on Friday to assess the Fed’s monetary policy tone looking ahead. Moderna (NASDAQ:MRNA) Inc fell 6.3% in premarket trading after the drugmaker said its experimental messenger RNA-based influenza vaccine failed to show it was at least as effective as an approved vaccine versus less prevalent influenza B.Manchester United rose 4.4% after hitting a record close in the previous session. The Telegraph reported on Thursday that Saudi Arabia has submitted a bid for the British soccer club ahead of Friday’s deadline.DoorDash Inc climbed 6.2% after the food delivery company said it would buy back $750 million worth of stock and projected a key profit measure above Wall Street estimates. More

A report from the Labor Department on Thursday showed monthly producer prices accelerated in January, while the producer price index for final demand rebounded 0.7% last month after decreasing 0.2% in December.On Tuesday, consumer price index data showed inflation accelerated in January and was more than expected on an annualized basis. Refinitiv Lipper data showed investors withdrew a net $958 million out of U.S. bond funds, marking the first weekly net selling since Jan. 4. U.S. taxable bond funds suffered $855 million worth of outflows compared with $1.89 billion worth of net buying in the previous week. Investors also sold $311 million worth of municipal bond funds. GRAPHIC: Fund flows: US equities, bonds and money market funds (https://fingfx.thomsonreuters.com/gfx/mkt/zgpobkqwnvd/Fund%20flows%20US%20equities%20bonds%20and%20money%20market%20funds.jpg) U.S. high yield, general domestic taxable fixed income, and emerging markets debt funds witnessed outflows worth $3.04 billion, $1.2 billion, and $1.1 billion, respectively; short/intermediate investment-grade funds received $2.87 billion in inflows. GRAPHIC: Fund flows: US bond funds(https://fingfx.thomsonreuters.com/gfx/mkt/akveqmdgevr/Fund%20flows%20US%20bond%20funds.jpg) Meanwhile, U.S. equity funds booked $3.56 billion worth of net selling, the biggest weekly outflow in six weeks. U.S. large and mid-cap equity funds faced $4.01 billion and $915 million worth of withdrawals, but small-cap funds remained in demand for a third-straight week, with a net $725 million in inflows.Meanwhile, investors secured $6.9 billion worth of money market funds in their first weekly net buying in three weeks. GRAPHIC: Fund flows: US equity sector funds (https://fingfx.thomsonreuters.com/gfx/mkt/byvrlkzoxve/Fund%20flows%20US%20equity%20sector%20funds.jpg) More

LONDON (Reuters) – NatWest warned on Friday that rising interest rates may not deliver the long-lasting earnings bonanza investors hope for, even though profit jumped by 33% last year.Shares in the bank fell as much as 9% as investors digested forecasts for profitability and costs for 2023, even as the bank reported annual pretax profit rose to 5.1 billion pounds ($6.1 billion) from 3.8 billion pounds.”We think broadly the results are likely to be seen as a miss on 2023 expectations today,” Credit Suisse analysts said, citing the bank’s unchanged returns target and guidance that costs would be 300 million pounds higher than analysts thought.NatWest shares were down 6% at 1153 GMT. Rival Lloyds Banking Group (LON:LLOY), also focused on the UK market, was down 3%.State-backed NatWest did increase payouts for shareholders, announcing a 10 pence per share final dividend and an 800 million pound share buyback.NatWest CEO Alison Rose said the bank’s strategy was delivering and it had been clear on its economic forecasts – including a prediction that Bank of England rates would hold at 4% this year. It also raised the staff bonus pool by nearly a quarter to 368 million pounds, prompting criticism because it is still 44% owned by taxpayers following its state bailout at the height of the 2008-2009 financial crisis.”NatWest is using bumper profits to deepen its bonus pool, not to support the public, who bailed it out just 15 years ago,” said Fran Boait, executive director at Positive Money, which campaigns for a fair financial system.Rose’s total pay package for 2022 jumped nearly 50% to 5.2 million pounds, up from 3.6 million pounds the previous year.NatWest Chairman Howard Davies said the figures reflected executive directors receiving an annual bonus for the first time since 2010 and also included long-term awards earned in prior years.NatWest said the government will receive a total of 2.6 billion pounds for 2022 via the bank’s payouts to shareholders.BAD LOAN CHARGES Britain’s economy narrowly avoided a technical recession at the end of 2022, official data showed last week, but inflation could still squeeze households and lead to more loan defaults.Inflation, although trending downward, has crushed spending power of British households and businesses, and has slowed the housing market and investment supported by credit.NatWest set aside 337 million pounds over the year to cover potential soured loans, though this was lower than 400 million-plus figure analysts expected.”Despite not yet seeing significant signs of financial distress among our customers, we are acutely aware that many people and businesses are struggling right now,” Rose said.While higher rates hurt borrowers, lenders benefit from the widening gap between what they charge borrowers and pay savers.NatWest’s revenue leapt more than a quarter over the year to 13.2 billion pounds, boosted by growth in its mortgage book. The lender is aiming to deliver a cost-to-income ratio below 52%, excluding costs linked to litigation and conduct, it added. ($1 = 0.8372 pounds) More

LONDON/SINGAPORE (Reuters) – The dollar rose to a six-week high on Friday as strong U.S. economic data and comments from Federal Reserve officials led to traders betting more interest rate rises are coming.Data on Thursday showed the number of Americans filing new claims for unemployment benefits unexpectedly fell last week, and that monthly producer prices increased by the most in seven months in January.St Louis Fed President James Bullard said on Thursday he backed further rate increases that would take borrowing costs to around 5.25% to 5.5%. The Fed’s target range currently stands at 4.5% to 4.75%, having risen rapidly from 0% to 0.25% in March 2022.The euro fell 0.38% to its lowest since Jan. 6 at $1.063.”The Fed is now allowed to sound as hawkish as it wants to be because the data has been so strong,” said Francesco Pesole, FX strategist at Dutch bank ING. “Since the jobs data, pretty much all new releases in the U.S. have come in on the strong side,” he said, referencing the blockbuster employment report on Feb. 3.”The dollar is moving higher. Markets are definitely moving towards higher rate expectations.”The U.S. dollar index was last up 0.64% at 104.52, its highest since mid-January.Economists at Goldman Sachs (NYSE:GS) on Thursday increased their expectations for Fed interest rate increases this year. Having previously expected two more, they told clients in a note that they now expected three consecutive 25 bp rises, in March, May and June, “in light of the stronger growth and firmer inflation news”. That would take rates to 5.25% to 5.5%.Against Japan’s yen, the dollar rose 0.85% to 135.06, the highest since mid-December. It was on track for a weekly gain of roughly 2.8%, its largest rise since June.Japan’s government picked academic Kazuo Ueda as its new central bank chief on expectations he can help keep inflation on target and sustain economic growth and wage increases, finance minister Shunichi Suzuki said on Friday.Sterling was down 0.45% to $1.193, its lowest since Jan. 6. That was despite British consumers unexpectedly increasing their shopping in January.The Swiss franc was also caught up in the dollar’s surge. The dollar rose 0.79% to 0.933 francs, its highest level since mid-January.Benchmark U.S. Treasury yields have surged as investors have raised their expectations for where interest rates will end up. Yields move inversely to prices.The yield on the two-year U.S. Treasury hit a more than three-month high of 4.718% on Friday.European Central Bank (ECB) officials have also made clear that they expect euro zone rates to keep rising.”There is a risk that inflation proves to be more persistent than is currently priced by financial markets,” German ECB official Isabel Schnabel told Bloomberg on Friday. Euro zone bond yields rose sharply to end the week. More

Producer prices of industrial products were up 17.8% on the same month last year, the Federal Statistical Office reported, compared with analysts’ expectations for the rate of increase to ease to 16.4%.Compared with December 2022, prices fell 1.0%, which was above consensus for a drop of 1.6%. The decline was driven by a 5.0% drop in energy prices, with a particularly strong dip in electricity prices.However, energy prices were also largely responsible for the year-on-year increase, being up 32.9% on the year. The overall producer prices index disregarding energy was up 10.7% on year.Apart from energy costs, prices also rose significantly for non-durable consumer goods, intermediate goods, durable consumer goods and capital goods, which shows that price pressures are widespread.”Firmer price pressures continue to be evident within investment and consumer goods,” David Muir, senior economist at Moody’s (NYSE:MCO) Analytics, told Reuters.Moody’s expects easing supply constraints, lower energy prices and the impact of tighter monetary policy to contribute to a more broad-based moderation of producer price inflation through this year.The figures for January are preliminary and are expected to be revised, as they do not account for relief measures to help consumers and businesses with gas and electricity bills, which will be paid out in March and cover January and February retroactively.Revised figures for the producer prices in the first two months of the year will be published together with the preliminary results for March. More