Bank stocks sink on Moody’s downgrades, Italy’s windfall tax

Aug 8 – US and European bank stocks dropped on Tuesday on renewed investor worries about the health of the industry after ratings agency Moody’s downgraded several US lenders and Italy approved a surprise 40% windfall tax on its lenders.

Moody’s cut credit ratings of several US regional lenders on Monday and placed some banking giants on review for a potential downgrade. It warned US banks will find it harder to make money as interest rates remain high, funding costs climb, and a recession looms. It also cited some lenders’ exposure to commercial real estate as a concern.

“What we’re doing here is recognizing some headwinds – we’re not saying that the banking system is broken,” Ana Arsov, managing director of financial institutions at Moody’s, told Reuters in an interview.

The failures of three US lenders earlier this year sparked the biggest industry crisis since 2008 and precipitated UBS Group’s (UBSG) government-backed takeover of Credit Suisse. While the turmoil has subsided in recent months, investors remain cautious.

“This is just another reminder that there are still challenges in the regional banking space,” said Macrae Sykes, portfolio manager at Gabelli Funds in New York. “High exposure to commercial real estate, rising deposit and funding cost are some of the key concerns that the banks are facing.”

The KBW Regional Banking Index lost 1.38% on Tuesday, while the shares of some of the banks downgraded by Moody’s, including M&T Bank MTB.N, Pinnacle Financial Partners (PNFP), and BOK Financial Corp (BOKF), fell between 1.7% and 2.1%.

Banks that were placed on review for potential downgrade closed lower, including Bank of New York Mellon (BK), State Street (STT), and Truist Financial (TFC). Truist and BNY Mellon declined to comment, while the others did not immediately respond to requests for comment.

The gloom also affected major lenders that were not mentioned by Moody’s, with the broader S&P 500 Banks Index sliding almost 1.07%.

Investors have scaled down their expectations for future bank earnings, and markets have already priced in some of the factors Moody’s cited, said Mike Mayo, a bank analyst at Wells Fargo.

“We are probably in the later stages of this downward revision,” Mayo told Reuters. “This is the toll of higher rates for longer, the potential of a recession. It’s different from what happened in the March crisis, this is more an issue about rates, recession, and risk.”

Christopher Marinac, director of research at Janney Montgomery Scott, took a more sanguine view. “Nothing has changed on US banks,” said Marinac. “Second-quarter earnings proved that banks can experience weak revenues and still have improved capital ratios and stable tangible book value.”

Major Italian banks Intesa Sanpaolo (ISP), Banco BPM (BAMI), and UniCredit (CRDI) fell between 5.9% and 9% after the government set a one-off 40% tax on profits reaped from higher interest rates.

Italian lenders weighed on the European bank index, which slid 3.54%.

Citigroup analysts calculated the tax could wipe nearly a fifth of Italian banks’ 2023 net income, while Bank of America estimates showed the measure could generate up to 3 billion euros (USD 3.3 billion) for the government.

(Reporting by Niket Nishant, Bansari Mayur Kamdar, and Shashwat Chauhan in Bengaluru and Lananh Nguyen, Nupur Anand, Chibuike Oguh, Tatiana Bautzer, and Davide Barbuscia in New York; Editing by Shounak Dasgupta, Saumyadeb Chakrabarty, Michelle Price, Andrea Ricci, and Jonathan Oatis)

China’s trade slumps, threatening recovery prospects

BEIJING, Aug 8 – China’s imports and exports fell much faster than expected in July as weaker demand threatens recovery prospects in the world’s second-largest economy, heightening pressure for authorities to release fresh stimulus to steady growth.

The grim trade numbers reinforce expectations that economic activity could slow further in the third quarter, with construction, manufacturing and services activity, foreign direct investment and industrial profits all weakening.

Imports dropped 12.4% in July year-on-year, customs data showed on Tuesday, missing a forecast fall of 5% in a Reuters poll and off a 6.8% decline in June. Meanwhile, exports contracted 14.5%, steeper than an expected 12.5% decline and the previous month’s 12.4% fall.

The pace of export decline was the fastest since the onset of the pandemic in early 2020 and the tumble in imports was the biggest since January this year, when COVID infections shut shops and factories.

While the weakness in the value of imports reflects poor demand, falls in commodities prices have also exacerbated the headline declines, analysts say.

“Most measures of export orders point to a much greater decline in foreign demand than has so far been reflected in the customs data,” said Julian Evans-Pritchard, head of China economics at Capital Economics.

“And the near-term outlook for consumer spending in developed economies remains challenging, with many still at risk of recessions later this year, albeit mild ones.”

The yuan hit a three-week low and Asian stocks and the Australian and New Zealand dollars, seen as proxies for Chinese growth, turned weaker after the data.

Added pains
China’s economy grew at a sluggish pace in the second quarter as demand weakened at home and abroad, prompting top leaders to promise further policy support and analysts to downgrade their growth forecasts for the year.

The value of China’s exports declined 5% year-on-year in the first half of the year despite total cargo throughput increasing an annual 10% in the second quarter and 8% in the first, according to Fitch.

The headline import figure was worse than forecast because “economists may be misunderstanding the price factors underlying commodities, which dominate Chinese imports,” explained Xu Tianchen, senior economist at the Economist Intelligence Unit.

“For example, China is importing more oil but at lower prices, as a result the volume of crude oil accelerated in July, but the import value slowed. Similar logic holds for grains and soybeans.”

Crude oil shipments to the world’s biggest oil importer were 17% higher in July than the same period last year, but fell 18.8% from the previous month to the lowest daily rate since January, while soybean imports in July jumped 23.5% from a year ago, off the back of near-record production in Brazil.

Exports to the United States – the top destination for Chinese goods – tumbled 23.1% year-on-year, while shipments to the European Union fell 20.6%, as diplomatic tensions mount over chip technology and “de-risking” from China.

South Korean exports to China, a leading indicator of Chinese demand for global goods, fell 25.1% in July from a year earlier, the sharpest decline in three months.

Beijing is looking for ways to boost domestic consumption without easing monetary policy too much lest it triggers large capital outflows.

The state planner last week said stimulus would be forthcoming, but investors have so far been underwhelmed by proposals to expand consumption in the automobile, real estate and services sectors.

(Reporting by Joe Cash. Editing by Sam Holmes)

Oil prices fall as weak China trade data offsets supply concerns

SINGAPORE, Aug 8 – Oil prices slipped on Tuesday after data showed China’s imports and exports fell much more than expected in July in a further sign of weak growth in the world’s largest oil importer, although losses were limited by expected supply tightness.

Brent crude futures were at USD 85.05 a barrel, down by 29 cents, or 0.34%, at 0641 GMT, while US West Texas Intermediate crude was at USD 81.69 a barrel, down by 25 cents, or 0.31%.

Oil imports to China in July were 43.69 million metric tons, or 10.29 million barrels per day (bpd), data from the General Administration of Customs showed on Tuesday. That was down 18.8%from imports in June, but still up 17% from a year ago.

At the same time, China’s overall imports dropped 12.4% and exports fell 14.5% from a year earlier. The pace of export decline was the fastest since February 2020 and worse than analysts’ expectations.

Despite the gloomy data, some analysts were still positive on China’s fuel demand outlook for August to early October as crude processing rates remained high.

It is the peak season for construction and manufacturing activities starting September and gasoline consumption should benefit from summer travel demand, said CMC Markets analyst Leon Li. Demand is expected to gradually decrease after October, he added.

On the supply side, Saudi Arabia, the world’s top exporter, has said it would extend a voluntary oil output cut of 1 million bpd for another month to include September, adding that it could extend the cut beyond that date or make a deeper cut to production after September.

Russia also said it would cut oil exports by 300,000 bpd in September.

“Saudi Arabia’s decision to extend production cuts into September despite Brent futures rising above $80 per barrel suggests that the kingdom may be targeting a higher price than $80,” said Vivek Dhar, mining and energy commodities strategist at Commonwealth Bank of Australia.

Investors are also awaiting U.S. oil and fuel products inventory data. A Reuters poll on Monday showed forecasts for a 200,000-barrel drawdown in crude inventories and a rise in gasoline stocks of 200,000 barrels.

(Reporting by Emily Chow and Trixie Yap; Editing by Cynthia Osterman, Christian Schmollinger and Sonali Paul)

Oil edges up on higher US economic growth outlook; China import slump weighs

NEW YORK, Aug 8 – Oil prices edged higher on Tuesday as a US government agency projected a rosier outlook on the economy, but bearish data on China’s crude imports and exports weighed.

Brent crude futures gained 83 cents to settle at USD 86.17 a barrel. US West Texas Intermediate crude rose 98 cents to USD 82.92.

Both contracts had fallen by USD 2 earlier in the session, but prices reversed course after a monthly report from the US Energy Information Administration projected gross domestic product growth to rise by 1.9% in 2023, up from 1.5% in a previous forecast.

The EIA also expects Brent crude oil prices to average USD 86 in the second half of 2023, up about USD 7 from the previous forecast.

US crude production is expected to rise by 850,000 barrels per day (bpd) to a record 12.76 million bpd in 2023, the report added, overtaking the last peak of 12.3 million bpd in 2019.

Crude prices have been rising since June, primarily because of extended voluntary cuts to Saudi Arabia’s production as well as increasing global demand, the EIA said.

“We expect these factors will continue to reduce global oil inventories and put upward pressure on oil prices in the coming months,” the EIA added.

Weighing on prices on Tuesday, however, China’s July oil imports were down 18.8% from the previous month to the lowest daily rate since January, but still up 17% from a year earlier.

Overall, China’s imports contracted by 12.4% in July, far steeper than the expected 5% drop. Exports fell by 14.5%, compared with a fall of 12.5% tipped by economists.

Despite the gloomy data, some analysts were still positive about China’s fuel demand outlook for August to early October.

The peak season for construction and manufacturing activity starts in September and gasoline consumption should benefit from summer travel demand, said CMC Markets analyst Leon Li. Demand is expected to decrease gradually after October, he added.

Last week’s decision by Saudi Arabia to extend a voluntary output cut of 1 million bpd into September, despite Brent rising above USD 80, suggested Riyadh might be targeting a higher price than USD 80, said Vivek Dhar, mining, and energy commodities strategist at Commonwealth Bank of Australia.

Still, some analysts were skeptical about how much supply the cuts were actually taking off the market, as other members of the Organization of the Petroleum Exporting Countries such as Libya and Venezuela have increased production, said Andrew Lipow, president at Lipow Oil Associates in Houston.

“The production cuts have been far less than the announced quota cuts,” Lipow said.

US crude oil stocks rose last week, while gasoline and distillate stockpiles dropped, according to market sources citing American Petroleum Institute figures on Tuesday. API/S

Crude stocks rose by about 4.1 million barrels in the week ended Aug. 4, according to the sources, who spoke on condition of anonymity. Gasoline inventories fell by about 400,000 barrels, while distillate inventories fell by about 2.1 million barrels.

US government data on stockpiles is due on Wednesday.

(Reporting by Stephanie Kelly; additional reporting by Natalie Grover, Emily Chow, and Trixie Yap; Editing by Mark Potter, Alex Richardson, and Jamie Freed)

Awaiting another China exports slump

Aug 8 (Reuters) – Wall Street and world stocks may have shrugged off a spike in long-term US bond yields on Monday, but investors in Asia are likely to be in a more cautious mood on Tuesday as they brace for the biggest fall in Chinese exports since the pandemic.

The median forecast in a Reuters poll of economists is for a 12.5% year-on-year slump in Chinese exports in July, which would follow a 12.4% slide in June and mark the worst reading since February 2020.

China’s July trade data top a heavy regional economic calendar on Tuesday, with current account, bank lending, and household spending reports from Japan, current account data from South Korea, and Australian consumer sentiment also on tap.

Chinese imports are also forecast to have fallen in July, by 5.0% year on year, although that would be less than the 6.8% rate of decline in June. But for the world’s manufacturing and factory engine, the focus is on the alarming weakness in exports.

Chinese factory activity fell for a fourth straight month in July, further depressing the outlook for growth and increasing pressure on Beijing to inject substantial stimulus. The services and construction sectors are also teetering on the brink of contraction.

Citi’s Chinese economic surprises index remains deeply negative, but has crept up off its lows recently. At -54.7, it is at its ‘highest’ level since June 30, but will soon be heading lower again if Tuesday’s trade data disappoint.

Looking at markets and risk appetite more broadly, the trading week got off to a solid start on Monday as investors swatted away another rise in US Treasury yields and a steepening of the yield curve.

The curve steepening was again led by a selloff at the long end and spike higher in long-dated borrowing costs, but was less aggressive than some recent moves. Investors were also heartened to hear New York President John Williams say interest rates could begin to come down early next year.

The S&P 500 and Nasdaq snapped a four-day losing streak, and the Dow jumped more than 1%. Equity and currency market volatility eased back on Monday although bond market volatility was more resilient.

On the corporate front on Tuesday, Japan’s Softbank Group is expected to report a profit of 75 billion yen (USD 525 million) for the April-June period, marking a return to profit after two consecutive years of losses.

Nikon and Mazda are among the raft of Japanese companies also publishing results on Tuesday as the reporting season picks up pace.

Here are key developments that could provide more direction to markets on Tuesday:

– China trade (July)

– Japan current account, bank lending, household spending (June)

– Australia consumer sentiment (July)

(By Jamie McGeever)

US recap: Dollar firms after Friday’s NFP dive with CPI up next

Aug 7 (Reuters) – The dollar index was flat after Monday’s initial rebound from Friday’s jobs report induced slide as shorter-term Treasury yields slipped in case Thursday’s US inflation report reinforces expectations the Fed’s tightening cycle is over and rate cuts are likely in 2024.

As with so many US economic releases recently, Friday’s jobs report presented contradictory evidence regarding the state of the labor market, and thus the need for more Fed tightening that generally supports the dollar.

It’s clear the still historically tight labor market is becoming less so, but when it will go from cooler to cold, making Fed cuts far more likely, remains to be seen. That as the economy has so far outperformed expectations in the face of the biggest Fed rate hikes in four decades.

Also, perplexing markets is whether tight policy is needed, regardless of where the labor market is, if inflation continues to trend toward the target.

Fed’s Bowman and Williams put forward hawkish and dovish policy outlooks, respectively, on Monday. That divergence of opinions hints at the Fed leaning toward pausing until there is clear evidence more or less restrictive policy is needed. Whether Thursday’s CPI can break that tie is debatable.

EUR/USD fell 0.05%, unable to better Friday’s initial post-payrolls highs. Last week’s ECB assessment that underlying inflation in the region had likely already peaked came amid ongoing growth concerns exacerbated by Chinese economic anxiety. These risks may need to recede to make another ECB hike a higher probability.

USD/JPY rose 0.5% after the post-payrolls lows attracted buyers above 141.50. That as BoJ meeting minutes hopeful of rising wages was met with lower JGB yields, which remain very low compared to Treasuries.

Sterling gained 0.3% after a weak start, aided by 2-year gilts-Treasury yields spreads rising roughly 9bps and after last week’s price lows held important support following the BoE’s latest rate hike.

(Editing by Terence Gabriel; Randolph Donney is a Reuters market analyst. The views expressed are his own.)

Gold slips as comments from US Fed governor dent sentiment

Aug 7 (Reuters) – Gold prices were on the back foot on Monday after Federal Reserve Governor Michelle Bowman indicated that additional interest rate hikes would likely be needed to rein in inflation.

Spot gold was down 0.3% at USD 1,936.44 per ounce by 03:28 p.m. EDT (1928 GMT). US gold futures settled 0.3% lower at USD 1,970.00.

Bowman, in remarks prepared for delivery to a “Fed Listens” event in Atlanta that largely repeated comments she made to a banking group on Saturday, said she backed the latest interest rate increase because inflation remains too elevated.

“The dollar index and Treasury yields drafted a bit higher on that and gold futures having a muted to lower reaction,” said Phillip Streible, chief market strategist at Blue Line Futures, in Chicago.

“If we get lower-than-expected CPI data, we could get some of these Fed officials to stop with their hawkish outlook on rate hikes and we have a much better shot at getting some stabilization in prices.”

John Williams, president of the Federal Reserve Bank of New York, expects that interest rates could begin to come down next year, the New York Times reported.

Although gold is seen as a hedge against inflation, higher interest rates increase the opportunity cost of holding non-yielding bullion.

Focus this week will be on US consumer price index (CPI) data due on Thursday that could offer more clarity on the Fed’s policy stance.

“Our expectation is still that the trend points to low inflation and therefore the Fed doesn’t have to hike rates,” UBS analyst Giovanni Staunovo said.

Silver fell about 2.2% to USD 23.09 an ounce, while platinum slipped 0.1% to USD 920.89. Palladium dropped 1.2% to USD 1,241.20.

“Palladium prices could be near a temporary bottom as supply risks could resurface driven by geopolitical tensions,” Intesa Sanpaolo economist Daniela Corsini wrote in a note.

(Reporting by Brijesh Patel and Anjana Anil in Bengaluru; Editing by Maju Samuel and Shailesh Kuber)

S&P 500 quarterly earnings have been upbeat; revenue not so much

Aug 7 (Reuters) – S&P 500 companies have been reporting upbeat bottom lines for the June quarter, but not such impressive increases in their revenue.

With second-quarter reporting season nearly complete, 79% of companies have posted earnings that beat analysts’ expectations, according to fresh data from Refinitiv.

In a typical US earnings season, most companies report results that are higher than analysts’ average estimates, but the number of beats and misses varies by quarter.

This quarter’s beat rate for earnings per share is the highest since the third quarter of 2021, and it suggests an uncertain economy has hurt companies less than feared.

However, nearly 64% of companies have posted revenue that exceeded Wall Street’s expectations, the lowest beat rate for that metric since the first quarter of 2020.

The recent upbeat earnings performance of many S&P 500 companies follows waves of job cuts this year, prompted by worries the US Federal Reserve’s aggressive interest rate hikes might throw the US economy into a downturn.

Major technology-related companies including Meta Platforms (META), Amazon (AMZN), and Alphabet (GOOGL) have laid off tens of thousands of workers, solidifying their profit margins while their revenue continued to grow.

Amazon.com’s stock surged over 8% on Friday after it reported sales growth and profit that both beat Wall Street’s expectations.

In quarterly reporting seasons going back over two decades, 66% of companies have beaten on earnings and 62% have exceeded revenue estimates.

While mostly beating estimates, second-quarter earnings are on track for an overall decline of 4.2% year over year, according to Refinitiv.

Excluding the energy sector, S&P 500 earnings have climbed 2.0%, moving into positive territory for the first time after the four previous quarters.

Second-quarter revenue so far has increased 0.2%, and grown 4.0% excluding energy companies.

(Reporting by Noel Randewich; Editing by Cynthia Osterman)

Oil prices drop 1% on fears of weaker demand

HOUSTON, Aug 7 (Reuters) – Oil prices settled down 1% on Monday, after six straight weekly gains, as investors braced for weaker demand from China and the United States, the world’s two biggest economies.

Brent crude settled 90 cents, or 1.04% lower, at USD 85.34 a barrel. US West Texas Intermediate crude settled down 88 cents, or 1.06%, at USD 81.94 a barrel.

Analysts noted the six straight weekly gains and pointed to the impending early September end of the US summer driving season and lower-than-expected demand from China.

“The China story is the headwind on this market,” said John Kilduff, partner at Again Capital, pointing to a drop in tourism.

“The summer driving season is winding down in the United States,” said Robert Yawger, director of energy futures for Mizuho Securities USA. “If you don’t need as much gasoline, you don’t need as much oil.”

The dollar index rose against major currencies on Monday, recovering from Friday’s losses as a Federal Reserve official made comments supporting additional interest rate hikes. A stronger dollar makes crude more expensive for investors holding other currencies.

Fed Governor Michelle Bowman said additional interest rate hikes will likely be needed to lower inflation to meet the Fed’s 2% target.

Also, Polish pipeline operator PERN said it expects to resume flows on Tuesday on a pipeline that transports oil to Europe, easing worries of supply constraints.

PERN had halted pumping through a section of the Druzhba pipeline after detecting a leak in central Poland on Saturday.

Saudi Arabia, the world’s top oil exporter, last week extended its production cut to the end of September, and said more could follow.

In line with production cuts, Saudi Aramco on Saturday raised the official selling prices for most grades it sells to Asia for a third month in September.

Russia added to the supply tightness with an announcement it will cut oil exports by 300,000 bpd in September.

Chinese economic data this week will be in focus as the market seeks to gauge Beijing’s appetite for more stimulus measures to support the world’s second-largest economy.

Investors will also monitor the US consumer price index reading on Thursday for clues on the Federal Reserve’s monetary policy path.

(Reporting by Erwin Seba; Additional reporting by Natalie Grover, Florence Tan, and Emily Chow; Editing by Louise Heavens, Barbara Lewis, Sharon Singleton, Christina Fincher, Paul Simao, and David Gregorio)

PH may extend reduced import tariffs on rice, other commodities

MANILA, Aug 7 – The Philippines may extend reduced import tariffs on rice and other commodities beyond 2023 to ease pressure on inflation, which remained above target last month, officials said.

The lowered tariffs, also applying to corn and pork imports, are due to expire by the end of the year.

But supply side challenges, including a potential limit on rice shipments from Vietnam – the country’s biggest supplier – and the impact of El Niño dry weather on the local harvest, may warrant keeping tariffs where they are.

“We’re reviewing the possible extension,” Finance Secretary Benjamin Diokno told reporters on Friday in comments embargoed for publication until Sunday night.

Under a modified scheme introduced in 2021, tariffs on rice imported from outside Southeast Asia fell to 35% – in line with the rate for suppliers from inside the region, including Vietnam – from a previous range of 40%-50%.

The “comprehensive” review of tariffs also covers other commodities that could potentially fuel inflation, said Zeno Abenoja, undersecretary and chief economic counselor at the Department of Finance.

Annual headline inflation eased for a sixth straight month in July to 4.7%, still above the official 2%-4% target range, while food inflation fell to 6.3%.

The Philippines, one of the world’s top rice buyers, is encouraging private traders to ramp up imports, though it is worried about supply from Vietnam as other buyers crowd in.

Diokno said the government will expedite measures to mitigate the impact of El Niño on agricultural production and food security.

Such measures could help lessen pressure on the central bank to resume hiking interest rates, said Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona, who joined Diokno’s briefing.

The BSP, which next meets on Aug. 17 to review monetary policy, on Friday said it was ready to resume tightening as necessary to tackle price pressures.

(Reporting by Karen Lema; writing by Enrico Dela Cruz; editing by John Stonestreet)

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