Economy

BERLIN (Reuters) -Sticking with growth plans for green energy is the best response to Donald Trump after the U.S. president’s “fatal” move to withdraw from the Paris climate accord, German vice chancellor Robert Habeck said on Tuesday.”We have to bring our own technologies to the fore,” said Habeck, the architect of plans to make 80% of electricity green in Germany by 2030, speaking at the Handelsblatt annual energy conference in Berlin.The move by Trump, a climate change sceptic, to withdraw from the Paris climate treaty was widely expected and further threatens the agreement’s central goal to limit a rise in global temperatures to 1.5 degrees Celsius above pre-industrial levels.Germany, Europe’s biggest economy, holds a national election on Feb. 23, where Habeck’s Greens are trailing in opinion polls as a cost-of-living crisis and an economic downturn has shifted some voters’ focus away from climate protection.Economy minister Habeck said self-reliance through domestic green energy remained the best response to dependency on energy imports and high costs, especially as Russian gas supplies to Europe dwindle following the invasion of Ukraine in 2022. Habeck urged parliament to pass a draft bill giving more digital control of expanding renewable capacity to help rein in rising costs and bring down consumer bills.Another unfinished plan, a capacity market for power, was also a priority, he said. Otherwise, coal-burning power plants, which offer stable supply, would have to operate beyond the targeted 2030 cut-off date.The chief executive of power transmission firm TenneT said the new German government needed to take a number of key steps to support the green energy roll-out.Renewable producers needed to pay a part of grid costs, Tim Meyerjuergens said. Currently, they pay nothing.Grid operators should also be allowed to raise their fees as they are too low to attract international investors to grids, he added. More

According to Barclays, long-only equity exposure has increased notably since the election, while hedge funds still appear to have the capacity to enhance their positions. This trend is particularly evident in global macro and multi-strategy hedge funds, which have shown limited activity in re-grossing their investments. Despite a sell-off in the bond market, bond funds have not shown signs of a large-scale exit.In the wake of the election, the US dollar has strengthened, leading speculative investors to amplify their short positions in other global currencies, reflecting a growing belief in US economic outperformance.Systematic funds, which include Volatility Control, Commodity Trading Advisors (CTAs), and Risk Parity funds, have recently reduced their long positions in equities, aligning their allocations closer to historical averages. Volatility Control funds have the potential to increase their equity exposure, but any inflows are expected to be incremental, given the volatility anticipated with the implementation of President Trump’s policies. CTAs have notably taken a large short position in the Russell 2000 index, while maintaining a relatively higher position in the NASDAQ index. With rising rates and volatility in the bond market due to inflation concerns, CTAs have also established significant short positions in bonds, and Risk Parity funds have similarly decreased their allocations.The strong US dollar post-election has led to CTAs taking extended long positions on the currency, particularly against the euro. However, recent benign inflation data has created conditions that could lead to a partial reversal of these extended positions in bonds and the EUR/USD currency pair.The EEI aims to provide insights into the underlying dynamics of the stock market by analyzing derivatives flows, including volatility technicals and option flows. Despite recent downturns in the equity market, the EEI indicates a level of investor optimism not seen since the dot-com bubble of the early 2000s, suggesting that investors should proceed with caution. Current equity positions are largely filled, prompting investors to protect against downside risks while showing skepticism towards significant upside potential. This is reflected in the options market, where there is evidence of increased buying of downside protection and selling of upside potential. Notably, institutional investors, rather than retail investors, have been the primary drivers of call overwriting flow, with the supply of gamma from buy-write funds remaining at historically significant levels. Additionally, the positive intra-day auto-correlation signals that dealers are short in this environment.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

The report outlined the reasons behind the firm’s belief in the dollar’s continued strength. Wolfe Research had initially identified a stronger U.S. dollar as a primary investment theme at the beginning of the year. The firm’s stance remains unchanged, as they foresee the currency gaining further ground.Wolfe Research also addressed the future of interest rates, particularly the U.S. 10-year yield, which has been primarily driven by the term premium since mid-September of 2024. The firm anticipates that rates will gradually decrease throughout 2025. This forecast is based on inflation moving closer to the Fed’s 2% target, which could lead to additional rate cuts, and a reduction in term premiums following a significant increase due to concerns over Trump Administration policies.In light of the expected stronger dollar, Wolfe Research has provided a screening of S&P 500 companies that generate a high percentage of their revenue from outside the United States. These companies could potentially experience weaker growth due to the currency implications.The report serves as a guide for investors who might be considering the impact of currency strength and interest rate changes on their portfolios, specifically targeting companies with significant international exposure that may be affected by these macroeconomic trends.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

ORLANDO, Florida (Reuters) -As Donald Trump begins his second term as U.S. president, currency speculators are giving the dollar their strongest backing since before he was first given keys to the White House.The question now is whether this signals more USD strength ahead or marks the peak of the current cycle for the “mighty dollar”, as Trump referred to the greenback late last year.The bullish dollar trade has had a remarkable run since late September when investors began betting on a stronger U.S. economy, ‘higher for longer’ U.S. interest rates, and a Trump victory. In the three and a half months since then, Commodity Futures Trading Commission funds have flipped a leveraged net short dollar position against major and key emerging market currencies worth around $15 billion to a leveraged net long position worth over $35 billion. That’s the biggest ‘long’ since January 2016. A long position is essentially a bet that an asset will rise in value, and a short position is a wager its price will fall.At the same time, the dollar index, a measure of the dollar’s value against its G10 peers, rose 10% to its highest level in more than two years, posting multi-year peaks against sterling and the Canadian dollar as well as record highs against emerging market currencies like the Brazilian real and Indian rupee.As the ‘Trump 2.0′ era begins, the dollar index is some 20% higher than its average over the past quarter of a century and at levels rarely seen since the 1980s. As Societe Generale (OTC:SCGLY)’s Kit Juckes notes, the dollar might be “mighty” but may also be “getting a little bit ahead of itself.”TARIFF TENSIONS COOL?Analysts at Morgan Stanley (NYSE:MS) agree, announcing on Friday that they were turning bearish on the dollar and recommend selling it against the euro, sterling and yen. They argue that most of the economic fundamentals and dynamics that have strengthened the dollar recently – and there have been many – are fully priced into the dollar’s exchange rate or even over-priced in some cases.They suggest that Treasury yields have topped out, the “U.S. exceptionalism” narrative has little juice left in it, investors are too optimistic on the size and scope of Trump’s dollar-friendly tariffs, and the doom and gloom surrounding Europe’s fortunes is overdone.Put all that together, and the near-term outlook for the dollar isn’t all that rosy, at least from a tactical if not long-term fundamental perspective, especially with fund and investor positioning so one-sided.As Morgan Stanley’s FX strategists wrote on Friday, “we acknowledge that there is considerable uncertainty about the sequencing and outcome of U.S. policy. But in the near term, we think the asymmetric risk clearly favors dollar weakness alongside lower yields.”Their take on the dollar certainly isn’t unanimous. For example, analysts at Goldman Sachs last week upgraded their bullish dollar outlook citing continued U.S. economic outperformance, supportive Treasury yields, and the belief that the dollar-positive impact of Trump’s expected tariffs has not yet fully been priced in.Still, given speculators’ stretched dollar positions, it might not take much to send the “mighty dollar” sliding from this lofty height.And right on cue, a Trump administration official on Monday said that tariffs will not be slapped on U.S. trading partners immediately. This pushed the dollar down more than 1%, putting it on track for its worst day since August. (The opinions expressed here are those of the author, a columnist for Reuters) (By Jamie McGeever; Editing by Andrea Ricci) More

“We regret Mr. Trump’s announcement to leave the Paris Agreement, which was not a surprise,” Villeroy, who is also the French central bank chief, said in an interview with Bloomberg TV from the annual gathering in Davos, Switzerland.Even before Trump returned to office on Monday, the U.S. Federal Reserve withdrew from the Central Banks and Supervisors Network for Greening the Financial System, a group launched in 2017 to police environmental risks in finance. But Villeroy said the group, which still has more than 140 members, “is more committed and active than ever.” More

Prices in the food category moved to minus 1.0% after posting 0.0% in November. In the non-food category, prices changed to minus 2.9% on the month from minus 3.1% in November.Inflation is likely to remain low in the next six months after Sri Lanka reduced its household power tariffs by 20% earlier this month. Under the latest revision, industries will get a reduction of 30% while businesses in the tourism sector, a key foreign exchange earner for the island nation, will see their power prices slump by 31%. “We are likely to see inflation reach positive territory of about 2%-3% by mid-year,” said Shehan Cooray, head of research at Acuity Stockbrokers.Sri Lanka’s central bank also expects inflation to reach their target of 5% by mid-2025. Sri Lanka suffered record inflation after its worst financial crisis in decades triggered by a record fall in dollar reserves pummeled the economy in 2022.Helped by a $2.9 billion International Monetary Fund (IMF) program the island nation has posted a rebound and is estimated to have grown by 5% last year, latest central bank data showed. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The EU urgently needs to classify a substance used to line furnaces and kilns for making cement, glass and steel as a critical raw material or supplies will become hostage to China, the world’s biggest producer of high-end industrial ceramics has warned.Stefan Borgas, chief executive of London-listed RHI Magnesita, told the Financial Times that while magnesite was essential to basic chemical processes underlying Europe’s industrial base, its absence from a list of strategically important materials had disincentivised homegrown production.Magnesite is used to make refractories, materials that allow furnaces to handle extremely high temperatures above 1,200C. Europe imports most of its magnesite from China, which controls two-thirds of global production.“We have enough magnesite in Europe that we could secure supply to the European heavy industries,” Borgas said, adding that EU critical materials designation was helping to boost investment in the mining and processing of lithium, nickel and other metals where China also dominated supply.RHI Magnesita’s plant in Kufstein, Austria More