Stocks ease, dollar perks up as focus returns to Fed and inflation

LONDON/SINGAPORE, April 19 (Reuters) – Global stocks eased on Wednesday, while the dollar pulled further above last week’s one-year lows, as investor focus honed in on what the Federal Reserve may have to do to tame inflation, rather than on the recent problems in the US banking sector.

The MSCI All-World index fell 0.2%, thanks to a broad-based decline in equities around the world.

S&P 500 and Nasdaq 100 futures fell between 0.3-0.5%, suggesting a touch of weakness at the opening bell.

Tesla reports earnings later in the day, as does Morgan Stanley, on the heels of solid earnings at rivals that seem to have soothed some concern about the sector’s stability.

“So far the major banks that have reported have largely helped to settle market nerves,” said Khoon Goh, head of Asia research at ANZ in Singapore. “With those stresses easing away, markets are now back to focusing on the Fed.”

A slew of Fed speakers are in the frame over the rest of this week ahead of the pre-meeting blackout period that begins on the weekend.

The Fed’s “beige book” of economic conditions is published on Wednesday and appearances are due from Chicago Fed President Austan Goolsbee and New York Fed President John Williams.

Markets are pricing an 86% chance the Fed raises rates by 25 basis points (bps) at the May meeting, and are winding back expectations of cuts later in the year – moves that have put the brakes on US dollar selling.

In an interview with Reuters on Tuesday, St Louis Fed President James Bullard said that, far from pausing, the central bank should keep raising interest rates, based on how persistent inflation has proven to be.

Still, the inversion between three-month Treasury yields and 10-year yields, at more than 160 bps, is the deepest since 1981 when the Fed funds rate was retreating from peak of 19% – suggesting markets expect rates to fall.

Ten-year yields were last up 5 bps at 3.6176%.

Surface calm

Earnings seasons is underway in earnest in Europe too.

Dutch-listed chip equipment maker ASML – one of the region’s most valuable companies by market capitalisation – beat first-quarter profit expectations, according to Refinitiv data.

Shares in the company fell 2.4%, which in turn contributed to a 0.2% drop in the STOXX 600 index.

As investors consider the possibility that the Fed may well have to raise rates even more, the US dollar has found some support, but data shows the pressure is also on other central bankers to do something about inflation.

UK inflation fell to 10.1% in March, from February’s 10.4% – above expectations for a decline to 9.8% and the highest in western Europe, according to data on Wednesday.

Sterling was last up 0.3% at USD 1.2458, just below last week’s 10-month high of USD 1.2545, gaining for a second day after strong wages data on Tuesday.

“This fact, along with the stronger than expected wage growth data yesterday, provide compelling reason for the BoE (Bank of England) to now hike by 25bps at the next meeting on 11th May,” MUFG chief strategist Derek Halpenny said, on the inflation figures.

The euro hit a one-year high above USD 1.10 last week and was down 0.1% at USD 1.0962.

Brent crude LCOc1 futures eased 0.9% to USD 84.00 a barrel, roughly where they have traded for a few weeks since OPEC+ announced surprise production cuts. Gold dipped below USD 2,000 an ounce, given the strength in the dollar.

(Additional reporting by Tom Westbrook in Singapore; Editing by Jacqueline Wong and Mark Potter)

Euro zone yields hit one-month high on expectations of tighter policy

LONDON, April 19 (Reuters) – Euro zone government bond yields jumped to their highest level in more than a month on Wednesday, with investors bracing for interest rates to rise further as worries about the financial system fade and policymakers called for tighter policy.

European Central Bank chief economist Philip Lane on Tuesday backed a further interest rate increase at the bank’s May policy decision but said the size would depend on incoming data.

Markets are now fully pricing in a 25 basis point rate hike at next month’s meeting, with around a 20% chance that the ECB raises rates by a larger 50 basis points.

Germany’s 10-year government bond yield, the euro area’s benchmark, hit its highest level since March 10 at 2.54%. It was last up 5 bps at 2.518%.

The country’s two-year yield, most sensitive to changes in interest rate expectations, rose 6 bps to 2.948%.

Danske Bank chief analyst Jens Peter Sørensen highlighted further signs of normalisation in the banking sector for today’s move in bonds, after Sumitomo Mitsui Financial Group became the first major bank to sell additional tier-1 (AT1) debt since similar bonds were wiped out in the takeover of Credit Suisse.

“Things are getting back to normal, we can put the banking worries behind us,” Sørensen said.

“We can now focus on fundamentals and inflation. And inflation is too high so the ECB has to do more,” Sørensen added, forecasting a peak ECB deposit rate of 4%.

Goldman Sachs raised its terminal rate forecast for the ECB to 3.75% from 3.5%, given “receding banking tensions, strong indications of underlying inflation and generally hawkish ECB commentary”.

The November 2023 ECB euro short-term rate forward stood at 3.7%, implying market expectations for the deposit facility rate to peak above 3.8%, which would be reached with three 25-basis-point rate hikes.

ECB policymakers Isabel Schnabel, Klaas Knot, Pablo Hernández de Cos and Lane are all scheduled to deliver remarks throughout the day.

“Given that worries about the banking sector have receded, they will be likely to home in on inflation and on the ECB’s appropriate response,” said Daniel Lenz, head of euro rates strategy at DZ Bank in a note.

A final reading of March euro area inflation is published at 0900 GMT, with economists polled by Reuters expecting the flash consumer prices estimate to be confirmed at 6.9%.

Italy’s 10-year government bond yield rose 6 bps to 4.35%, pushing the closely-watched spread between Italian and German 10-year yields, a gauge of confidence in the euro zone’s more indebted countries, up to around 182 bps.

Britain’s 10-year yield rose 7.5 bps after inflation fell by less than expected in March, which will likely see the Bank of England raise its key rate at its policy meeting next month.

On the supply front, Germany is set to tap its 10-year benchmark for up to four billion euros.

(Reporting by Samuel Indyk Editing by Raissa Kasolowsky)

London stocks drop as UK’s high inflation raises bets for BoE hike

April 19 (Reuters) – Britain’s FTSE 100 slipped on Wednesday, snapping an eight-day rally as consumer prices fell less than expected, boosting bets for one more rate hike from the Bank of England (BoE) at its May monetary policy meeting.

The blue-chip FTSE 100 fell 0.3%, while the mid-cap FTSE 250 was down 0.5%, as of 0708 GMT.

Data showed Britain now has Western Europe’s highest rate of consumer price inflation, after it fell by less than expected in March to 10.1% from February’s 10.4%.

Traders now see a 95.3% in a 25-basis-point hike in May, with interest rates peaking in November.

Leading declines, Antofagasta fell 2.7% after the Chilean miner’s copper output fell in the March quarter from the previous three months due to lower water availability and reduced ore grades.

Industrial miners were down 1.1%.

(Reporting by Shristi Achar A in Bengaluru; Editing by Rashmi Aich)

Japan’s SMFG is first global bank to sell AT1 bonds since C.Suisse wipeout

TOKYO, April 19 (Reuters) – Japan’s Sumitomo Mitsui Financial Group (SMFG) 8316.T sold USD 1 billion of additional tier-1 (AT1) debt on Wednesday, becoming the first major global bank to sell the risky securities since similar bonds issued by Credit Suisse were wiped out last month.

The deal shows confidence in the banking sector of Asia’s second-largest economy and that risk appetite is returning as the turmoil in financial markets sparked by the collapse of two US regional lenders fades.

AT1 bonds – the riskiest tranche of a bank’s bonds also known as “contingent convertibles” or “CoCo” bonds – can be converted into equity or written off if a bank’s capital level falls below a certain threshold.

The market for AT1s froze after the government-brokered takeover of Credit Suisse by rival UBS in March. The Swiss regulator determined that more than USD 17 billion worth of Credit Suisse’s AT1 bonds will be written down to zero, even as shareholders, who sit below bonds in the priority ladder for repayment in a bankruptcy process, will receive over USD 3 billion.

The resultant tumult cast doubts on whether SMFG would move ahead with its planned AT1 offer, and led to Japan’s biggest bank, Mitsubishi UFJ Financial Group Inc, putting on hold its issuance until at least mid-May.

“SMFG had a choice of not selling them but they went ahead, likely signalling that the Japanese financial system may be more stable than those in other countries,” said Nana Otsuki, senior fellow at Pictet Japan.

SMFG sold the bonds in two tranches, in 89 billion yen (USD 662.50 million) five-year notes, and 51 billion yen 10-year bonds.

The 89 billion yen issuance carries a coupon rate of 1.879% for the initial five years and two-month period, a regulatory filing showed. That compared with an initial 1.534% coupon on similar bonds issued by the bank in December.

The 51 billion yen one has a coupon of 2.180% for the first 10 years and two months, compared with 1.750% on the 10-year bonds sold in December.

The terms were attractive for investors, some analysts said.

“In Japan, where spreads over corporate bonds are thin, the terms for these AT1 bonds were reasonably good, provided that the banking sector is credible,” said Pictet’s Otsuki.

Japanese banks’ AT1 bonds had been configured in a way the value is secured even if the government is involved in restructuring, and SMFG’s new issues are seen to have the same features, she said.

(Additional reporting by Kaori Kaneko; Editing by Muralikumar Anantharaman)

Once booming Indian startups set for more pain as funding crunch worsens

MUMBAI, April 19 (Reuters) – A funding squeeze at Indian startups that has already led to layoffs and delayed stock listings is set to worsen as investors reckon with stretched valuations and faltering consumption growth, likely laying the ground for industry consolidation.

Startups in India raised just USD 2 billion in the first quarter of 2023, 75% lower than the same period of last year, and the smallest quarterly number in nearly three years, figures from data firm CB Insights showed.

At this run rate, startups may end up raising less than USD 10 billion this year, a far cry from the record USD 30 billion garnered in 2021 and USD 20 billion in 2022.

The slowdown is a setback for startups as well as Prime Minister Narendra Modi who has lauded their success by calling such companies the “backbone of new India”. It could hurt India’s economic growth and its jobs market.

“This is a fundamental reset, not just another blip,” said V.T. Bharadwaj, a former India managing director of Sequoia Capital who now leads venture capital firm A91 Partners. “I don’t think I’ll again see a record fund raise year like 2021 at least for a decade.”

The prospect of fast rising consumption both offline and in India’s digital space helped many startups clock multi-billion-dollar valuations in recent years, with the likes of Sequoia and Tiger Global betting big on businesses which burnt cash to lure consumers in the country of 1.4 billion people.

Global factors such as high rates and inflation have weighed on the investment climate in India and elsewhere – startup funding in the US dropped by around half to USD 32.5 billion in the first quarter, while in China it fell 60% to USD 5.6 billion

But India’s startups – which are far more reliant on foreign capital than global peers – have seen a more severe squeeze, which some executives say is also partly due to investors realising that they misjudged consumption growth.

Indian VC firm Blume Ventures said in an April report consumption outside the top 30 million Indian households dropped sharply, and is driven by a “tiny superuser set”.

Despite India’s billion-plus population, food-delivery company Zomato ZOMT.NS has just 50 million annual transacting users and state-backed digital money transfer service UPI is used by just 260 million, the report said.

“Indian startups are not catering to a billion consumers. All of them are selling to the same 100 million. The (consumer) market seems 2-3 times inflated,” said Ankit Nagori, a former top executive of Walmart’s e-commerce arm Flipkart who now runs cloud kitchen startup Curefoods.

FEWER DEALS, CONSOLIDATION IN SIGHT

The first signs of discontent in the Indian market came after the flop listing of loss-making digital payments firm Paytm (PAYT) in 2021, following which investors and regulators raised questions on whether valuations of many startups were unrealistic.

Since then, things have gotten worse.

Six investor sources and three startup founders told Reuters they expect the funding environment to worsen and many multi-billion-dollar firms to cut valuations within two years.

In recent weeks, BlackRock (BLK) internally halved the valuation of Indian online education firm Byju’s it has invested in to USD 11.15 billion from USD 22 billion, while Invesco (IVZ) slashed food delivery firm Swiggy’s valuation by a quarter to USD 8 billion, disclosures from the US investors show.

And only 271 Indian startups raised funding in Q1 2023, compared with 561 last year, according to CB Insights.

After leading the funding boom in India for years, Japan’s SoftBank 9984.T has not made a single new investment in the country in the last one year as it waits for a further correction in valuations, two people familiar with its planning said.

SoftBank did not respond to a request for comment. It invested USD 3 billion in Indian companies in 2021 and another USD 500 million in 2022, by April that year, Reuters calculations show.

Amid all the pain, banker Shivakumar Ramaswami has sensed an opportunity and is setting up a new M&A desk at his tech-focused investment banking firm Indigoedge as he sees a wave of consolidation – two of his colleagues are only tasked to scout for M&A opportunities.

“So many funded companies hit some scale and then stalled. Everyone needs to find a home, and many of these companies can’t go for an IPO. We are preparing to work with them,” he said.

Startup funding falls to lowest level in nearly 3 years Startup funding falls to lowest level in nearly 3 years.

(Reporting by M. Sriram; Editing by Aditya Kalra and Muralikumar Anantharaman)

Gold prices inch up as US dollar eases

April 19 (Reuters) – Gold prices edged higher on Wednesday, helped by a softer US dollar, while traders assessed prospects of the Federal Reserve raising interest rates just once more in May before pausing.

FUNDAMENTALS

* Spot gold was up 0.1% at USD 2,006.09 per ounce, as of 0023 GMT. US gold futures eased 0.1% to USD 2,018.20.

* The dollar index was slightly lower, making gold less expensive for buyers holding other currencies.

* The US central bank should continue raising interest rates on the back of recent data showing inflation remains persistent while the broader economy seems poised to continue growing, even if slowly, St. Louis Fed President James Bullard said on Tuesday.

* But Atlanta Fed President Raphael Bostic said the US central bank probably has one more rate rise ahead of it.

* The CME FedWatch tool shows that markets are pricing in an 83.2% chance of a 25 basis-point hike in May.

* Gold is considered a hedge against inflation and economic uncertainties, but higher interest rates dim the non-yielding asset’s appeal.

* Meanwhile, the European Central Bank’s (ECB) chief economist backed a further rate increase at the ECB’s next meeting but said its size would depend on incoming data, especially a survey of euro zone banks.

* SPDR Gold Trust GLD, the world’s largest gold-backed exchange-traded fund, said its holdings fell 0.16% to 924.25 tonnes on Tuesday from 925.70 tonnes on Monday. GOL/ETF

* Spot silver edged up 0.1% to USD 25.23 per ounce, platinum was 0.1% lower at USD 1,081.66 and palladium gained 1.2% to USD 1,627.03.

DATA/EVENTS (GMT)

0600 UK Core CPI, CPI YY March

0900 EU HICP Final MM, YY Feb

1800 US Federal Reserve issues the Beige Book

(Reporting by Kavya Guduru in Bengaluru; Editing by Subhranshu Sahu)

Oil prices edge higher on falling US inventories, China data

April 19 (Reuters) – Oil prices rose in early Asian trade on Wednesday as US crude inventories were seen falling and on strong Chinese economic data, signaling strengthening fuel demand.

Brent crude futures gained 7 cents to USD 84.84 a barrel at 0020 GMT. West Texas Intermediate US crude was up 3 cents to USD 80.89 a barrel.

Keeping prices from moving higher were concerns that potential increases in US interest rates could dampen growth in the top oil-consuming country.

The US Federal Reserve likely has one more interest rate rise in store to fight inflation, Atlanta Fed President Raphael Bostic said.

Prices got a lift from an industry report showing that US crude stocks fell by about 2.68 million barrels in the week ended April 14, according to market sources citing American Petroleum Institute figures on Tuesday.

Gasoline inventories fell by about 1.02 million barrels, while distillate stocks fell by about 1.9 million barrels, according to the sources, who spoke on condition of anonymity because they were not authorized to speak to media.

The official inventory report by the Energy Information Administration, the statistical arm of the US Department of Energy, is due at 1430 GMT on Wednesday.

Meanwhile, the economy of top crude oil importer China grew by a faster-than-expected 4.5% in the first quarter, while the country’s oil refinery throughput rose to record levels in March, data showed.

(Reporting by Laila Kearney in New York; Editing by Kenneth Maxwell)

Central banks on pause patrol

April 19 (Reuters) – Whisper it, but Wednesday could be a pretty quiet day in Asia after Wall Street closed little changed on Tuesday and with Malaysian trade and Australian leading indicators the only potential market-moving releases on the regional data calendar.

In fact, the main cue could come late in the session from Europe – UK and euro zone consumer price inflation figures for March could go a long way to molding Bank of England and European Central Bank rate expectations for the coming months.

Unlike a growing number of central banks in Asia who have pressed the pause button or are close to doing so, the BoE and ECB are both expected to continue raising rates in their battle to get inflation back down towards target.

The Fed is also close to the end of its cycle if you believe current market pricing, with one more quarter point hike expected next month. St Louis Fed president James Bullard is much more hawkish though, as he confirmed in an interview with Reuters.

Having marched up the hill last year, some policymakers in Asia are taking a breather. The central banks of Australia, Indonesia, India, Singapore, and South Korea have all paused, and the Philippine central bank governor signaled a pause in May.

Research from the Bank for International Settlements shows that the global tightening cycle since the start of last year is the most synchronized and strongest over the past 50 years, with more than 95% of central banks raising their policy rates.

Historically, this share rarely exceeded 50%.

One notable absentee from that band is the People’s Bank of China (PBOC). It cut rates in 2020, 2021 and 2022, and is expected to maintain a supportive stance this year even though the economy grew at a faster-than-expected pace in the first quarter.

Figures on Tuesday showed that GDP grew 4.5% in Jan-March year-on-year, the strongest in a year, faster than 2.9% the prior quarter, and comfortably above consensus 4.0% forecasts.

But the road ahead looks bumpy, and other indicators for March were mixed – retail sales smashed forecasts, but investment fell short.

The PBOC sets its one- and five-year loan prime rates on Thursday. They have been anchored at 3.65% and 4.30%, respectively, since last August.

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

– Malaysia trade (March)

– Australia composite leading indicator index (March)

– UK inflation, euro zone revised inflation (March)

(By Jamie McGeever)

S&P 500 ekes out gain as tech supports, J&J, Goldman disappoint

April 18 (Reuters) – The S&P 500 eked out a slim gain on Tuesday after strength in some big technology stocks countered disappointing quarterly reports from Johnson & Johnson and Goldman Sachs as first-quarter earnings season kicked into gear.

The Dow and Nasdaq ended with fractional declines on the day.

J&J (JNJ) shares fell 2.8% after the healthcare conglomerate cautioned investors over the lingering impact of inflation-driven costs this year. Goldman (GS) shares dropped 1.7% after the Wall Street firm’s profit fell 19% as deal making and bond trading slumped.

The early quarterly results from S&P 500 companies come as investors have been bracing for a gloomy reporting season, fearing the economy may be on the cusp of a downturn.

“What we are seeing here is the calm before the storm as far as earnings go,” said Brad McMillan, chief investment officer of Commonwealth Financial Network. “The market is just trying to see, do we have some upside here or not, and I think it is really going to come down to earnings over the next couple of weeks.”

The Dow Jones Industrial Average fell 10.55 points, or 0.03%, to 33,976.63, the S&P 500 gained 3.55 points, or 0.09%, to 4,154.87 and the Nasdaq Composite dropped 4.31 points, or 0.04%, to 12,153.41.

The CBOE Volatility index, also known as Wall Street’s fear gauge, fell to its lowest point since January 2022 during the session.

The heavyweight technology sector rose 0.4%, helped by a 2.5% increase in shares of Nvidia Corp (NVDA) after HSBC raised its recommendation on the graphics chipmaker to “buy” from “reduce.”

The healthcare sector dropped 0.7%, weighed down by J&J shares.

S&P 500 company earnings are expected to have declined 4.8% in the first quarter from a year earlier, according to Refinitiv IBES data as of Friday. Investors have zeroed in on bank results after the failure of Silicon Valley Bank last month set off concerns about potential systemic risks.

“While the big money center banks did very well as a whole, the focus I think is going to be on the regional banks because that is really where the center of the fallout was,” said Paul Nolte, senior wealth advisor and market strategist at Murphy & Sylvest Wealth Management.

Shares of Netflix Inc (NFLX) fell in initial after-hours trading on Tuesday following the company’s quarterly report.

The S&P 500 is trading near two-month highs as investors await a deluge of earnings and assess the interest rate path ahead of an expected 25 basis point increase at the Federal Reserve’s meeting early next month.

St. Louis Federal Reserve President James Bullard told Reuters on Tuesday the US central bank should continue raising rates on the back of recent data showing persistent inflation. Separately, Atlanta Fed President Raphael Bostic said the Fed most likely has one more rate hike ahead.

In other earnings news, Lockheed Martin Corp’s (LMT) shares rose 2.4% after the US weapons maker’s first-quarter results surpassed Wall Street targets despite parts and labor shortages.

Advancing issues outnumbered decliners on the NYSE by a 1.01-to-1 ratio; on Nasdaq, a 1.29-to-1 ratio favored decliners.

The S&P 500 posted 28 new 52-week highs and no new lows; the Nasdaq Composite recorded 66 new highs and 143 new lows.

About 9.8 billion shares changed hands in US exchanges, compared with the 10.7 billion daily average over the last 20 sessions.

(Reporting by Lewis Krauskopf in New York, Sruthi Shankar, Ankika Biswas and Vansh Agarwal in Bengaluru; Editing by Sriraj Kalluvila, Vinay Dwivedi and Richard Chang)

Dollar slips after upbeat China data; euro, pound rise

NEW YORK/LONDON, April 18 (Reuters) – The US dollar fell against most major currencies on Tuesday after better-than-forecast growth data from China, while strong pay figures from Britain supported the pound.

China’s gross domestic product (GDP) grew 4.5% year on year in the first three months of the year, data showed, beating analyst forecasts for a 4% expansion as the end of COVID-19 curbs lifted the world’s second-largest economy.

Separate data on March activity in China also showed retail sales growth quickened to 10.6%, beating expectations and hitting a near two-year high, while factory output growth also sped up but was just below expectations.

“The view on the dollar getting a bit weaker from here against the majors is predicated on a strong China,” said Thierry Wizman, Macquarie global FX & rates strategist in New York. “When you have the rest of the world doing well or better than US in terms of activity… that’s usually bad for the dollar.”

Also driving dollar weakness is that there is likely US disinflation at the moment, a reason the Federal Reserve is going to pause hiking interest rates, Wizman said.

“There’s a good chance that the euro and sterling continue to do well,” he said. “It starts with the disinflation story in the US, which is something that people are not really latching on to.”

The euro rose 0.37% to USD 1.0966 after two consecutive daily declines of more than 0.5%, while the dollar index, a measure of the greenback against six major currencies,
slid 0.372%. The index rose over 1% in the last two trading sessions.

China’s offshore yuan fell 0.02% at USD 6.8799 per dollar.

Britain’s pound jumped despite an unexpected rise in the unemployment rate in the three months to February as pay growth stayed higher than forecast, which could prompt the Bank of England to hike its interest rate again in May.

“The surprise this year has been how strong the Euro has been and Sterling, especially, given that we were coming out of the second half of last year with a multitude of crises in Europe,” Wizman said.

Sterling was last trading at USD 1.2433, up 0.48% on the day.

Futures traders are pricing in an 87.4% chance of the Fed raising rates by 25 basis points at its next meeting in May, with traders still expecting rate cuts towards the end of the year.

US single-family homebuilding increased for a second straight month in March, while permits for future construction surged, offering a bit of hope for the depressed housing market ahead of the busy spring selling season.

“The dollar can remain sensitive to the strength, or not, of the economic data as the Fed likely nears the end of their tightening cycle,” said Kristina Clifton, an economist at Commonwealth Bank of Australia (CBA).

The Australian dollar rose 0.34% versus the greenback at USD 0.672 after Reserve Bank of Australia (RBA) minutes showed the central bank considered an 11th-consecutive rate hike in April before deciding to pause.

The RBA, however, said it was ready to tighten further if inflation and demand failed to cool.

The yen strengthened 0.38% at 133.99 per dollar.

The Mexican peso lost 0.33% versus the dollar at 18.07.

(Reporting by Herbert Lash, additional reporting by Samuel Indyk in London and Ankur Banerjee in Singapore; Editing by Marguerita Choy and Mark Potter)

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