Global issuance of mortgage-backed securities falls to a 23-year low

May 4 (Reuters) – The issuance of global mortgage-backed securities (MBS) slumped to a 23-year low in the first four months of this year, highlighting the turmoil in the real estate sector as higher mortgage rates hit property sales and refinancing.

According to Refinitiv data, global MBS issuance stood at USD 100 billion in the first four months of this year, the lowest since 2000.

The property sector, often a leading indicator for other economic activity, has seen a slump this year due to a spike in mortgage rates as global central banks increased interest rates to tame inflation.

MBS consist of pools of home loans and other real estate debt and typically carry higher yields than US Treasuries.

Analysts said the slower issuance of bonds could point to more trouble for the sector as there would be a smaller supply of funds for borrowers, who are already hit by banks’ tighter lending standards after the recent banking turmoil.

“The decline in the issuance of MBS could lead to a reduction in the availability of credit, making it harder for homeowners and property developers to secure financing,” said Armstead Jones, strategic real estate advisor at Real Estate Bees.

“This could, in turn, lead to a slowdown in the property sector’s growth and development. The refinancing of existing mortgages may also be affected, as there may be fewer lenders available to refinance existing loans leading to private lenders and higher rates.”

The fall in issuance also comes from less demand from banks as they look to ditch MBS after the failure of Silicon Valley Bank and Signature Bank in March.

The two banks held large amounts of MBS, and the slump in bond prices prompted investors to withdraw deposits for fear the banks would be unable to service their liabilities.

The data showed the issuance of Agency MBS, issued by government agencies such as Fannie Mae, Ginnie Mae, and Freddie Mac, dropped 47% over last year to USD 42 billion.

Issuance by banks dropped to USD 38.3 billion, a 71% fall.

Issuance of MBS shot up since 2020 as central banks slashed interest rates and the Federal Reserve bought them in bulk to bolster credit markets. The Fed holds about a quarter of the total USD 12 trillion US MBS market.

Brian Quigley, a senior portfolio manager of MBS at Vanguard, said the supply of MBS should increase as the Fed and the US Federal Deposit Insurance Corporation offload holdings, including the massive amount of MBS from SVB and Signature Bank.

The spread between the ICE BoFA US Mortgage Backed Securities Index and the 10-year US Treasury index has widened to 105 basis points, up from 85 bps at the start of the year.

“We expect more underperformance in MBS. Because of the turmoil in the banking sector, with MBS being a reason, there is going to be less demand from banks for MBS in the market,” said Vanguard’s Quigley.

“That should pressure spreads to widen as well.”

(Reporting By Patturaja Murugaboopathy and Gaurav Dogra in Bengaluru; Editing by Vidya Ranganathan)

Asian equities receive biggest foreign inflows in three months

May 4 (Reuters) – Foreigners turned net buyers of Asian stocks in April, bolstered by rising expectations the US Federal Reserve will pause its aggressive tightening cycle, and by other factors such as a weaker dollar and strong first-quarter company earnings.

Data from stock exchanges in India, Indonesia, the Philippines, South Korea, Taiwan, Thailand, and Vietnam showed foreigners purchased a net USD 872 million of equities in April – the biggest monthly buying since January.

Bets on more tightening by the Fed have waned recently as the failure of three US regional banks stoked concerns of a recession, while higher interest rates have increased borrowing costs for businesses and consumers.

The Fed raised interest rates by a quarter of a percentage point on Wednesday as expected and signaled it may pause further increases, giving officials time to assess the fallout from recent bank failures and inflation trends.

Chetan Seth, an equity strategist at Nomura, said any weakness in Asian stocks due to US recession concerns will be an opportunity for investors to raise exposure to the region due to supportive factors such as China’s recovery, an expected bottoming out of the tech sector downturn and a strong 2024 earnings recovery.

According to Refinitiv data, Asian companies have beaten net income expectations by 3% in the March quarter.

Indian equities received a net USD 1.42 billion worth of foreign inflows, the biggest since November 2022, thanks to a rally in local shares.

Indian shares were the best performers in the region last month, with Nifty 50 marching 4.1% in its biggest monthly rise since November 2022.

Foreigners also purchased Indonesian, South Korean, and Philippine equities of USD 830 million, USD 616 million, and USD 34 million, respectively.

Meanwhile, Taiwan saw USD 1.73 billion worth of net selling, and Thai equities saw outflows of USD 231 million.

Yeap Jun Rong, a strategist at IG, said the US dollar staying near a one-year low was also supportive of EM Asia equities.

The greenback fell 0.94% in a second straight month of decline against a basket of major world currencies in April as expectations of further Fed rate hikes eased.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Kim Coghill)

Next up ECB: Will it be a hawkish 25 or dovish 50?

The spotlight moves swiftly from the Fed’s “possible pause or pivot” message overnight to the European Central Bank, where the direction of rates is not in question.

It will be a seventh rate rise for the ECB, the central bank for a 20-country zone whose headline inflation is 7%, and it has so far dismissed the ongoing banking crisis as US-specific.

Will the ECB go for a heavier 50 basis-point hike and signal a possible pause, allowing President Christine Lagarde to echo Fed Chair Jerome Powell’s “credit tightening” excuse? The odds are for a smaller rise.

The Fed on Wednesday delivered what markets are convinced will be the last rate hike of the cycle. It signalled it may pause further increases, giving officials time to assess the fallout from the bank failures, wait on a political resolution to the US debt ceiling, and monitor inflation.

Another bank soon reported trouble. PacWest Bancorp fell nearly 60% after announcing it is exploring strategic options, including a potential sale or capital raise. A liquidity boost it announced in March failed to inspire confidence in its ailing share price.

Those worries left Asian markets pricing in not just a possible peak in US rates but even a fall. Fed Funds futures: imply a 52% chance of a rate cut in July.

The focus will move back to the tech sector later in post-market hours in the United States when the world’s most valuable company, Apple Inc AAPL.O, may report a more than 4% drop in revenue, its second straight quarterly decline, weighed down by consumers shunning non-essential purchases such as iPhones and Mac computers and slowing growth at its services business.

Key developments that could influence markets on Thursday:

– Economic events: ECB rate decision, Eurozone March PPI, Germany trade balance, US initial jobless claims

– Earnings: Apple, Shell, Shopify, ArcelorMittal, Shell

USD index selling in the wake of FOMC may be overdone

May 4 (Reuters) – The USD index fell to 101.05 Thursday after the US Federal Reserve hiked rates by 25 basis points as expected, with a hint at a possible pause in the statement, but the selling looks overdone.

Focus is now on the 100.78 year-to-date low. Failure to break below it would risk a bounce back towards the 102 handle.

The selloff in the index is overdone, and should be regarded as more of an indication of concern over the turmoil in US regional banks after PacWest Bancorp said it is considering a sale of strategic assets.

Traders may soon re-focus on the key takeaway from Fed chair Jerome Powell’s speech: that the Fed has not made a firm decision on whether it will stop raising rates. This should not be ignored.

Though there are potential negatives for the US economy ranging from tightening credit conditions to bank failures, consumption remains strong, while the labor market is still tight–as Powell highlighted. Unless core inflation eases, the chance of another rate hike or two remains on the cards. The Fed remains strongly committed to bringing inflation back down to 2%.

St Louis Fed President James Bullard, a noted hawk, speaks Friday – he might reiterate the need to hike rates further until inflation is tamed.

(Catherine Tan is a Reuters market analyst. The views expressed are his own. Editing by Ewen Chew and Sonali Desai)

Asia’s crude oil imports slip in April amid softer China, India

LAUNCESTON, Australia, May 4 (Reuters) – The strong start to the year for Asia’s imports of crude oil came to a halt in April, with arrivals dropping to a seven-month low as top buyers China and India trimmed purchases.

A total of 108 million tonnes, or 26.39 million barrels per day (bpd) was imported by Asia last month, according to data compiled by Refinitiv Oil Research.

This was down from March’s 27.6 million bpd, which in turn was lower than February’s 29.4 million bpd and the 29.13 million bpd in January.

The decline in April arrivals was led by China, the world’s largest crude importer, with Refinitiv estimating imports at 10.67 million bpd, down from the 34-month high of 12.37 million bpd in March.

It was always likely that China’s imports would pull back in April as that month and May are the peak season for refinery maintenance.

But after the strong start to the year for China’s crude oil imports, there are now several question marks over the outlook for coming months, as the rebound in the world’s second-biggest economy appears uneven.

The official manufacturing Purchasing Managers’ Index (PMI) dropped to 49.2 in April from 51.9 in March, slipping below the 50-level that demarcates expansion from contraction for the first time since December.

The PMI was also below market expectations for a positive outcome of 51.4.

Manufacturing is one of the key pillars of China’s economy from a commodity demand perspective, the others being construction and infrastructure.

The news here is somewhat mixed, with infrastructure investment rising 8.8% year-on-year in the first quarter, outpacing a 5.1 rise in overall fixed-asset investment, while property investment fell 5.8%.

There is also the question of crude prices and the lag between moves in these and imports, given the time between refiners ordering oil and its delivery can be as long as three months.

Crude oil prices were kicked higher at the start of April when the OPEC+ group of producers surprised the market by announcing an additional 1.16 million bpd of output cuts.

Benchmark Brent futures LCOc1 rose from just below USD 80 a barrel to a peak of USD 87.49 a barrel on April 12, but have since slipped back to end at USD 72.33 on Wednesday as concerns over global growth trumped fears of tighter supply.

Nonetheless, the rise in Brent futures, which was accompanied by higher official selling prices for May cargoes from Middle East exporters such as Saudi Arabia, may put a dampener on Chinese demand for May and June cargoes.

India slows imports

This could extend to other major buyers in Asia, with the region’s second-biggest importer India showing signs of moderating crude appetite in April.

Imports were estimated at 4.60 million bpd in April, down from the eight-month high of 5.02 million bpd in March.

It’s also worth noting that India’s refiners are continuing to switch to cheaper Russian crude, with arrivals in April at 1.68 million bpd, only slightly down from the record high of 1.72 million bpd in March.

Russia has become India’s largest crude supplier, displacing erstwhile OPEC+ ally Saudi Arabia, with India’s April imports from the kingdom dropping to the lowest since September 2021.

Russian crude is also winning against Saudi oil in China, with April arrivals of 2.10 million bpd beating out the 1.73 million bpd from the Middle East’s top exporter.

Outside of the two Asian heavyweights, there was a mixed picture with number three importer Japan recording arrivals of 2.77 million bpd, up slightly from March’s 2.52 million, while fourth-ranked South Korea saw imports slip to 2.56 million bpd in April, a 10-month low and down from 2.96 million bpd in March.

The overall view on Asia’s imports is that April showed a loss of momentum after a strong start to the year.

Whether the slower April imports are mainly because of technical and temporary factors such as refinery maintenance, or if they signal the soft global economy is starting to drag Asian demand will become clearer in May and June.

The opinions expressed here are those of the author, a columnist for Reuters.

(Editing by Kim Coghill)

Wall Street ends down after Fed chair comments on rate hikes

NEW YORK May 3 (Reuters) – US stocks ended lower on Wednesday, reversing gains after comments by Federal Reserve Chair Jerome Powell left investors wondering what the US central bank’s next move would be with interest rate hikes.

Indexes initially held onto gains following the Fed’s statement. It increased interest rates by a quarter of a percentage point, as expected, and signaled it could pause further hikes.

The unanimous decision lifted the US central bank’s benchmark overnight interest rate to the 5.00%-5.25% range, the 10th consecutive increase since March 2022.

At the press conference following the statement, Powell said the Fed still views inflation as too high, and said it was too soon to say the rate hike cycle is over.

“The Fed continues to walk the tightrope, and that is they’re trying to strike a balance between their inflation-fighting credibility while trying to engineer a soft landing,” said Michael Arone, chief investment strategist at State Street Global Advisors in Boston.

Heading into the session, investors had been anxious for any signals from the US central bank on whether Wednesday’s increase would be the last hike for now.

According to preliminary data, the S&P 500 lost 27.65 points, or 0.67%, to end at 4,091.93 points, while the Nasdaq Composite lost 50.62 points, or 0.46%, to 12,025.33. The Dow Jones Industrial Average fell 261.10 points, or 0.78%, to 33,423.43.

“Anybody that was hoping for an inclination toward that scenario, it doesn’t sound like they’re getting that,” said Alan Lancz, president of Alan B. Lancz & Associates Inc., an investment advisory firm based in Toledo, Ohio. “It’s inconclusive.”

Investors worry that higher rates will eventually tip the economy into recession.

Earlier, data showed US private employers boosted hiring in April but showed signs the labor market was slowing following several rate hikes.

A separate report showed US services sector maintained a steady pace of growth in April, but higher input prices indicated inflation could remain elevated for some time.

Advanced Micro Devices (AMD) shares fell after the chipmaker forecast quarterly sales below estimates due to a weak PC market.

(Additional reporting by Chuck Mikolajczak and Herb Lash in New York and Ankika Biswas and Sruthi Shankar in Bengaluru, Additional reporting by Amruta Khandekar; Editing by Shounak Dasgupta and David Gregorio)

Dollar drops after Fed hikes rates and signals pause

NEW YORK, May 3 (Reuters) – The dollar dropped after the Federal Reserve on Wednesday raised interest rates by a quarter of a percentage point and signaled it may pause further increases.

The pause would give officials time to assess the fallout from recent bank failures, wait on the resolution of a political standoff over the US debt ceiling, and monitor the course of inflation.

The dollar index fell to a session low of 101.05 and the euro hit a session high of USD 1.10925. The dollar also fell to 134.82 against the Japanese yen.

(Reporting by Karen Brettell; Editing by Chizu Nomiyama)

Gold firms after Fed signals pause to rate hikes

May 3 (Reuters) – Gold firmed on Wednesday after a brief jump to nearly 1% as the US Federal Reserve delivered a widely expected rate hike and signaled a pause in further increases.

Spot gold was 0.4% higher at USD 2,024.19 per ounce by 3:25 p.m. EDT (19:25 GMT) after touching its highest since April 14 at USD 2,036.15 earlier.

US gold futures settled up 0.7% at USD 2,037.

The Fed raised interest rates by a quarter percentage point to quell the inflationary pressures that have kept price rises well above its 2% target.

It also signaled a pause in further increases to assess the fallout from recent bank failures, wait on the resolution of a political standoff over the US debt ceiling, and monitor the course of inflation.

“Gold’s ability to finish unchanged despite hawkish hints from (Fed Chair Jerome) Powell, positions it well for a fresh push toward all-time highs now that the Fed is on pause and the debt ceiling situation looks increasingly dire,” said Tai Wong, an independent metals trader based in New York.

The Fed chief said “we are prepared to do more” with rate rises if needed, but added they may not be far off, and possibly at, a “sufficiently restrictive” level to return inflation to target.

The US dollar index fell 0.6%, making bullion more expensive for buyers holding other currencies, while benchmark 10-year Treasury yields also lowered.

Non-yielding bullion, a customary safe haven against inflation and economic uncertainty, draws lower demand when higher interest rates boost returns on competing assets with yields.

“Concerns regarding US regional banks and the debt ceiling suggest further price volatility is in the offing,” said Standard Chartered analyst Suki Cooper.

Gold prices had gained 1% in April as the US banking crisis spurred a flight to safety.

Silver was up 0.1% to USD 25.41 per ounce, platinum shed 1.4% to USD 1,050.64 while palladium dropped 0.3% to USD 1,425.68.

(Reporting by Deep Vakil in Bengaluru; Editing by Barbara Lewis, Nick Macfie, Shilpi Majumdar and Aurora Ellis)

Global rate hike push slows to a trickle in April ahead of busy May

LONDON, May 3 (Reuters) – Interest rate hikes from central banks around the globe slowed to a trickle in April thanks to a combination of easing inflation and slowing growth prospects amid a dearth of meetings on monetary policy decisions.

April saw two interest rate hikes across five meetings by central banks overseeing the 10 most heavily traded currencies. Policy makers in New Zealand and Sweden delivered a total of 100 basis points (bps) in rate hikes, while Japan, Australia and Canada held fire at theirs. That compares to six interest rate hikes across eight meetings by G10 central banks in March.

“We are approaching the end of the global hiking cycle, we are at an inflection point,” said Omar Slim, co-head of Asia ex-Japan fixed income at PineBridge Investments.

However, whilst the developed market tightening cycle was in its final throes, policy makers had still some lose ends to tie up in May with Australia’s central bank surprising markets with an interest rate on Tuesday and policy makers at the US Federal Reserve and European Central Bank – neither of which met last month – expected to deliver more hikes in coming days.

“The Fed is widely anticipated to hike but likely to maintain a tightening bias to provide optionality for another hike if inflation doesn’t comply,” said Mark McCormick at TD Securities.

In emerging markets, further signs of a slowdown in the rate hike push became evident. Eleven out of 18 central banks in the Reuters sample of developing economies met to decide on rate moves, but only policy makers in Israel and Colombia hiked by a cumulative 50 bps. China, Indonesia, India, Korea, Russia, Turkey, Hungary, Poland and Chile all decided to stay put.

That compares to fourteen central banks in developing economies meeting in March with five hiking by a total of 150 bps.

In a sign that a pivot to rate cuts was on the cards for emerging markets, Uruguay’s central bank – which is not part of the Reuters sample – cut its benchmark interest rate by 25 basis points last Wednesday, becoming the first to reduce interest rates in the region.

Analysts said policy makers in developing economies elsewhere were not far behind.

Central banks across Central and Eastern Europe provided firmer signs in recent days that with inflation now declining monetary loosening may soon be on the cards, said Nicholas Farr, Emerging Europe Economist at Capital Economics.

“But there are still clearly big concerns that inflation will be slow to fall back to central banks’ targets, and we think that interest rates will be cut by less than most analysts expect over the next couple of years,” Farr added.

(Reporting by Karin Strohecker and Vincent Flasseur; Editing by Lincoln Feast.)

Australian shares drop 1% on heavy financials, energy selloff

May 3 (Reuters) – Australian shares on Wednesday marked their worst day in almost seven weeks, as risk-averse sentiment forced investors to sell banking and energy stocks a day after the central bank stunned markets with a surprise quarter-point rate hike.

The S&P/ASX 200 index fell 1.0% to 7,197.4 points at the close of trade to hit its lowest level since March 31.

The Reserve Bank of Australia on Tuesday stunned markets by raising its cash rate by 25 basis points when traders had looked for an extended pause, saying inflation was way too high and higher rates might be required.

Investors also keenly awaited the US Federal Reserve’s board meeting due later in the day to gauge the future trajectory of monetary policy tightening.

“The selloff started yesterday when the RBA did the surprise 25-point increase and now we’re waiting for the US, which we anticipate will do the same. So the market is understandably nervous about that,” said Brad Smoling, managing director, Smoling Stockbroking.

Back in Sydney, the energy sub-index hit its lowest in more than five weeks after oil prices slumped 5% on US economic concerns.

Sector majors Woodside and Santos closed the day down 2.3% and 2.5%, respectively. Shares of Paladin and Beach Energy ended lower between 2.4% and 3.5%.

Financials dropped 1.5%, tracking a poor performance from US regional banks on Wall Street.

All “Big Four” banks traded in red, with National Australia Bank falling 1.9%.

Local miners lost 0.6% during the day, tracking a broader subdued mood in the mining market. Iron ore giants BHP Group, Rio Tinto, and Fortescue Metals lost 0.8%, 2.1% and 4.1%, respectively.

Among individual stocks, machine learning solutions company Appen ended the day 5.7% higher on teaming with NVIDIA for AI solutions.

Investors opted for safe-haven assets among gold stocks, with the sub-index limiting losses in the benchmark. The AXGD sub-index ended the day 2.5% higher.

New Zealand’s benchmark S&P/NZX 50 index fell 1.1% to finish the session at 11,908 points.

(Reporting by Rishav Chatterjee in Bengaluru; Editing by Sherry Jacob-Phillips)

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