ESG funds set for first annual outflows in a decade after bruising year

LONDON, Dec 19 (Reuters) – Investors pulled more money from funds marketed as “sustainable” than they added for the first time in more than a decade in 2022, hit by fallout from the Ukraine war, tumbling financial markets and a political backlash against the industry.

The funds, which reflect a range of environmental, social and governance (ESG) issues, are also set to lag the performance of non-ESG funds for the first time in five years, data shows, after the fossil fuel shares they typically shun soared.

Combined with a drop in corporate fundraising through sustainable bonds, 2022 has been a tough year and 2023 may prove difficult too, given market volatility and investors’ need to preserve capital.

“There has been a lot of questioning of ESG this past year,” said Marie Niemczyk, Head of ESG Client Portfolio Management at asset manager Candia, citing market turbulence, some political hostility towards the sector in the United States and inflation, which has hit demand for riskier assets.

“They (ESG funds) are subject to the same market movements,” she added.

WITHDRAWING

Investors have withdrawn a net $13.2 billion from ESG stock, bond and mixed-asset funds this year to end-November, based on Refining Lipper data, the first net outflow since 2011. It follows years of rising net inflows.

However, non-ESG funds have also suffered withdrawals, losing $420 billion in the first 11 months of 2022, the data shows.

Total net assets managed in ESG funds are down 29% so far in 2022, against a 21% drop in non-ESG fund assets, driven by investors pulling cash and the decline in asset values as markets tumbled.

UNDERPERFORMING

After several years of outperform – thanks partly to large holdings of U.S. technology stocks – ESG equity funds, which make up the bulk of assets in the sector, have fallen back to earth.

ESG equity funds have lost 18% to end-November, versus a 15.8% fall in non-ego equity funds, based on Refining Lipper data.

The MSCI World Index and the MSCI World ESG Leaders Index are both down nearly 20% this year to Dec. 16.

CAPITAL RAISING SLOWS

The amount of cash companies has raised through sustainable bonds such as green bonds, as well the volume of capital firms in sustainable industries have raised on debt or equity capital markets has fallen in 2022 with the economic outlook worsening.

Industries that Refining regards as sustainable include renewable energy, electric vehicles, and organic farming.

(Reporting by Tommy Reggiori Wilkes and Patturaja Murugaboopathy. Editing by Jane Merriman)

China, Hong Kong to expand cross-border Stock Connect scheme

SHANGHAI, Dec 19 (Reuters) – Chinese and Hong Kong securities regulators said on Monday that they have agreed in principle to further expand the scope of eligible stocks under the mainland-Hong Kong Stock Connect.

The move is aimed at “deepening mutual stock market access between the mainland and Hong Kong, and promote the development of both capital markets,” the China Securities Regulatory Commission (CSRC) and the Hong Kong Securities and Futures Commission (SFC) said in the joint statement.

The scope of eligible stocks will be expanded for both the Northbound and Southbound trading links, and preparation for the expansion will take about three months, the regulators said.

Specifically, Northbound trading, which allows offshore investors to buy China-listed shares, will include stocks with a market capitalization of 5 billion yuan or above and meet certain liquidity criteria.

The scheme will also include stocks of companies that have issued both A shares and Hong Kong-traded H shares, according to the statement.

In Southbound trading, which allows mainland investors to buy Hong Kong stocks, the scope will be expanded to include stocks of foreign companies with primary listings in Hong Kong which are constituents of Hang Seng Composite Indices.

The proposal will be launched only after the preparation for relevant trading and clearing rules and systems has been completed and all regulatory approvals have been granted, according to the statement.

(Reporting by Shanghai newsroom; Editing by Toby Chopra)

Oil rises on hopes for China’s economy; recession fears limit gains

NEW YORK, Dec 19 (Reuters) – Oil prices rose on Monday, as optimism around China relaxing its COVID-19 restrictions outweighed fears of a global recession that would weigh on energy demand.

China, the world’s top crude oil importer, is experiencing its first of three expected waves of COVID-19 cases after Beijing relaxed mobility restrictions but said it plans to step up support for the economy in 2023.

“There is no doubt that demand is being adversely influenced,” said Naeem Aslam, analyst at brokerage Avatrade. “However, not everything is so negative as China has vowed to fight all pessimism about its economy, and it will do what it takes to boost economic growth.”

Brent crude gained 76 cents to settle at USD 79.80 a barrel, while US West Texas Intermediate crude rose 90 cents to USD 75.19.

Prices pared gains earlier before rising again in a volatile session.

“The reality here is that we still have a fear of a great recession looming on the horizon that has not gone away,” said Bob Yawger, director of energy futures at Mizuho. “It’s going to be difficult to make big gains here.”

Oil surged toward its record high of USD 147 a barrel earlier in the year after Russia invaded Ukraine in February. It has since unwound most of this year’s gains as supply concerns were edged out by recession fears.

European Union energy ministers on Monday agreed to a gas price cap, after weeks of talks on the emergency measure that has split opinion across the bloc as it seeks to tame the energy crisis.

The cap can be triggered starting from Feb. 15 2023, the document detailing the final deal showed. The deal will be formally approved by countries in writing, after which it can enter into force.

The US Federal Reserve and European Central Bank raised interest rates last week and promised more. The Bank of Japan, meanwhile, could shift its ultra-dovish stance when it meets on Monday and Tuesday.

“The prospect of further rate rises will hit economic growth in the new year and in doing so curb demand for oil,” said Stephen Brennock of oil broker PVM.

Oil was supported by the US Energy Department saying on Friday that it will begin repurchasing crude for the Strategic Petroleum Reserve – the first purchases since releasing a record 180 million barrels from the reserve this year.

(Reporting by Stephanie Kelly; Additional reporting by Alex Lawler; Editing by David Goodman, Barbara Lewis, Andrea Ricci, Deepa Babington and Mark Porter)

Festivity on hold for stocks as rate hikes beckon

SINGAPORE, Dec 19 (Reuters) – Asia’s stock markets made a wobbly start to the final full trading week of 2022, with the prospect of interest rates rising further next year taking the edge off festive cheer.

The Federal Reserve and European Central Bank hiked rates and promised more last week, and speculation is even building that the Bank of Japan, which meets on Monday and Tuesday, is eying a shift in its ultra-dovish stance in future.

Japan’s Nikkei fell 1% in early trade and the yen, which rose about 0.5% to 136.00 per dollar, was the biggest mover in quiet currency trade. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.4%.

Citing government sources, news agency Kyodo reported on Saturday that Japan is set to tweak its 2% inflation targeting policy, possibly giving the central bank more wiggle room.

“Where there’s smoke, eventually there is fire,” said National Australia Bank strategist Rodrigo Catril in Sydney.

“This sort of news we’re getting plays to this view that the government will open the door for the BOJ to have a more flexible approach,” he said, “and that some of this uber-undervaluation of the yen can be reversed.”

The yen has been the worst-performing G10 currency this year, with a 15% loss against the dollar, driven mainly by the gap between rising US rates and anchored Japanese rates. Japanese government bonds were sold on Monday morning.

US rates were steady last week, despite the Fed projecting further hikes ahead, as traders fret that interest rates are already high enough to start hurting economic growth.

The S&P 500 dropped 2% last week. It is down 20% for the year and has failed in several attempts at sustainably trading above its 200-day moving average. S&P 500 futures ESc1 rose 0.2% in early Asia trade.

In Europe, the bond market was caught off guard by an unexpectedly hawkish tone from the ECB.

FEEL-GOOD VIBE AWOL

Softening economic data heading to year-end isn’t offering much help to the mood either, leaving markets wondering where to look for the feel-good vibe that has rallied US stocks in the last two weeks of December 11 times in the last 15 years.

“The Santa rally normally kicks in around mid-December on the back of festive cheer and new year optimism, the investment of any bonuses, low volumes and no capital raisings at this time of year,” said AMP Capital strategist Shane Oliver.

“It has tended to be weaker or less reliable in years when the market is down year to date, though,” he added.

European, Japanese and US business activity shrank in December, surveys showed last week, keeping a bid for the safe-haven dollar and pausing gains for the euro. The euro hit a six-month high of USD 1.0737 last week, though last bought USD 1.0598.

Business confidence in China has also hit its lowest the World Economics Survey began collecting data in January 2013 and China’s stockmarkets have struggled to extend a rally unleashed by easing COVID controls. The Hang Seng opened steady.

Hopes for improvements in demand stabilised oil prices on Monday, with Brent crude futures LCOc1 up 1% at USD 79.93 a barrel, but it has barely gained for the year. Gold was steady at USD 1,793 an ounce. Bitcoin remained trading below USD 17,000.

(Editing by Edwina Gibbs)

Oil climbs on optimism over China’s demand recovery

SINGAPORE, Dec 19 (Reuters) – Oil prices reclaimed ground on Monday after tumbling more than USD 2 a barrel in the previous session as optimism from China’s reopening and oil demand recovery outweighed concerns of a global recession.

Brent crude futures rose 72 cents, or 0.9%, to USD 79.76 a barrel by 0103 GMT while US West Texas Intermediate crude was at USD 74.89 a barrel, up 60 cents, or 0.8%.

China, the world’s top crude oil importer and No. 2 oil consumer, is experiencing its first of three expected waves of COVID-19 cases after Beijing relaxed mobility restrictions.

“Despite a surge in COVID cases, the reopening optimism and accommodative policy improve oil’s demand outlook,” CMC Markets analyst Tina Teng said.

On Friday, news outlet Caixin reported that China’s plans to increase flights with a goal to restore the country’s average daily passenger flight volumes to 70% of 2019 levels by Jan. 6.

China’s diesel and gasoline exports continued to surge in November to their highest level in over a year as refiners dashed to use up their 2022 export quotas and sell down rising inventory.

Brent and WTI rose more than 3% last week as a Canada to US pipeline remained shut with its operator TC Energy Corp focused on cleaning up an oil spill. The shutdown of the pipeline, with a capacity to send 622,000 barrels per day of Canadian crude to US refiners, has supported prices for US heavy crude grades.

An announcement by the US Energy Department on Friday that it will begin repurchasing crude oil for the Strategic Petroleum Reserve also supported outlook for stronger prices.

This will be the United States’ first purchase since this year’s record 180 million barrel release from the stockpile.

(Reporting by Florence Tan; Editing by Stephen Coates)

Gold inches lower on expectations of more rate hikes

Dec 19 (Reuters) – Gold prices eased in early Asian hours on Monday, as the market expected more interest rates hikes in the next year by the US Federal Reserve.

* Spot gold was down 0.1% at USD 1,791.25 per ounce as of 0010 GMT. US gold futures were little changed at USD 1,800.70.

* Fed policymakers may need to lift US borrowing costs above the peak 5.1% they penciled in just this week, and keep them there perhaps into 2024 to squeeze high inflation out of the economy, three of them signaled on Friday.

* Higher interest rates tend to weigh on the bullion’s appeal, as it increases the opportunity cost of holding the non-yielding asset.

* The dollar index was up 0.1%. A stronger greenback makes gold more expensive for overseas buyers.

* Indian gold dealers offered bigger discounts to attract consumers who delayed purchases due to a spike in prices last week, while China’s reopening plans have kept premiums firm in the world’s top bullion buyer.

* SPDR Gold Trust GLD, the world’s largest gold-backed exchange-traded fund, said its holdings fell 0.4% to 910.40 tonnes on Friday.

* Spot silver fell 0.3% to USD 23.14, platinum rose 0.3% to USD 994.53 and palladium was up 1.1% to USD 1,732.59.

DATA/EVENTS (GMT, Dec)

0900 Germany Ifo Business Climate New

0900 Germany Ifo Curr Conditions New

0900 Germany Ifo Expectations New

(Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Rashmi Aich)

MORNING BID-Santa rally? Ho ho ho

There’s a reason investors are warned not to fight the Fed, but sometimes they still need to learn the hard way.

When the second most powerful central bank in the world is standing shoulder to shoulder with the Fed too, markets are bound to get a bloody nose.

This is essentially what happened last week – a sea of red across Wall Street and world stocks after the Fed and European Central Bank raised interest rates by 50 basis points and gave the clearest signals to date that they are far from done.

Of course, the Fed is nearer the end of its rate-hiking cycle than the ECB, which is perhaps why rates markets continue to bet on a pivot by Fed Chair Jerome Powell later next year even though he is adamant there won’t be one.

US recession and global slowdown fears ratcheted up on Friday after the weakest US PMI figures in over two years were released. Earlier in the week, US retail sales and a swathe of Chinese data significantly undershot forecasts too.

And this is the economy into which central banks around the world are still jacking up interest rates?

This sets the tone for the week in Asia, where the set pieces will be monetary policy decisions in Japan and Indonesia, the minutes of the RBA’s last policy meeting, and inflation readings from Japan, Hong Kong, Malaysia and Singapore.

The BOJ is expected to keep its key lending rate at -0.10% and reaffirm its ‘yield curve control’ commitment to cap the 10-year government bond yield at 0.25%.

But in a notable departure from the past few decades, hawkish voices within the BOJ are making themselves heard, just as Governor Haruhiko Kuroda’s tenure draws to a close in March.

The decision comes three days before November inflation figures are released. Annual core CPI inflation is expected to inch up to 3.7% in November from 3.6% in October, marking a fresh 41-year high.

Indeed, Kyodo reported on Saturday that Japan’s government is set to revise a decade-old joint statement with the BOJ that commits the central bank to reach 2% inflation “at the earliest date possible,” making the 2% inflation target a more flexible goal.

Bank Indonesia, meanwhile, is expected to do its version of the Fed shuffle, stepping down the pace of rate hikes to 25 bps from three consecutive 50 bps moves. Most analysts expect the seven-day reverse repo rate to be raised to 5.50% from 5.25%.

A bruising year is drawing to a close. Will there be a Santa rally, even a mini one, in the last week before Christmas?

Three key developments that could provide more direction to markets on Monday:

– German Ifo index (December)

– ECB’s de Guindos speaks

– U.S. NAHB housing market index (December)

(Reporting by Jamie McGeever in Orlando, Fla.; Editing by Diane Craft)

Morning Bid: On the ropes

Dec 16 (Reuters) – All the signs – hawkish rhetoric from the Fed and ECB, the selloff on Wall Street and dismal Chinese economic data – point to Asian markets ending a bruising week firmly on the ropes.

Whether they end the year on the canvas will be decided in the few full trading days of 2022 that remain, but right now investors will surely welcome the weekend bell.

After the Fed’s 50 basis point rate hike on Wednesday, the Bank of England, European Central Bank and Swiss National Bank all followed suit on Thursday, with the ECB and SNB in particular loudly banging the anti-inflation drum.

MSCI’s Asia ex-Japan index fell nearly 2% on Thursday – before the broad-based European policy tightening – its biggest fall since Nov. 3. Unless it rallies by a similar amount on Friday it will register its first weekly decline in seven.

That seems unlikely. The Chinese economic data released on Thursday – investment, retail sales and industrial output – undershot already tepid expectations, and the global outlook was cooled further by surprisingly weak US retail sales figures and Philly Fed index on Friday.

On top of that, China’s long-awaited retreat from its national ‘zero-COVID’ policy is turning messy. The death toll could soar and hopes of a quick and widespread economic reopening may have to be tempered.

If Asia takes its cue from Wall Street, Friday will be a down day, with the S&P 500 and Nasdaq both on course to fall for a second straight week, something not seen since September.

That said, traders may be reluctant to cave to the hawkish noises coming from the Fed – and now the ECB – quite just yet.

More than 24 hours after Powell gave his clearest signal to date that there will be no policy easing in 2023, US rates markets are still implying around 50 basis points of rate cuts next year. The battle lines between the Fed and rates markets remain firmly drawn.

(Reporting by Jamie McGeever in Orlando, Fla.; Editing by Josie Kao)

No Santa rally for markets as central banks dampen peak rate hopes

LONDON, Dec 15 (Reuters) – Forget a year-end rally in financial markets. The message from major central banks is loud and clear: the battle to tame inflation is far from over.

Central banks in the United States, euro zone, Britain and Switzerland met on Wednesday and Thursday and all slowed the pace of aggressive rate moves.

But their signalling was not what markets, which have rallied hard in recent weeks on the notion of peak inflation and peak interest rates, wanted to hear.

European Central Bank President Christine Lagarde said to expect more 50-basis-point rate increases for a period of time and that the ECB was not “pivoting” yet.

It hiked rates by 50 bps on Thursday after delivering two back-to-back 75 bps moves to tame double-digit inflation.

Government bond markets took a beating. As prices slid, the yields on interest rate-sensitive two-year German bonds surged 24 bps, their biggest one-day jump since 2008.

Italian borrowing costs were last up almost 30 bps at 4.13%, while European shares slid nearly 3% and stocks on Wall Street tumbled 2%.

“The reaction in European bond markets has been brutal,” said Antoine Lesne, head of EMEA strategy and research for State Street’s SPDR ETF business.

A slight drop in euro area inflation in November, to an annual rate of 10%, had sparked market speculation that the ECB might pivot away from its fight against soaring prices.

“The market had been getting ahead of itself about the euro area in the past few weeks … they’re now repricing the fact that the ECB is going to have to remain hawkish,” Lesne said.

Ed Hutchings, head of rates at Aviva Investors, said he expected peripheral European bonds to “struggle” from here and European bonds in general to be somewhat less supported.

TOO COMPLACENT?

Federal Reserve chief Jerome Powell meanwhile warned on Wednesday that recent signs US inflation may be slowing have not brought any confidence yet that the fight has been won.

“Forget the Santa rally … the Fed looks more like the Grinch this Christmas,” said John Leiper, CIO of Titan Asset Management.

On Thursday, the S&P 500 fell to its lowest level in a month. On Tuesday, the index had jumped as much as 2.76% to a three-month high as an unexpectedly small rise in consumer price inflation buoyed hopes that the Fed could soon dial back its rate hikes. The S&P has lost more than 16% this year.

Switzerland’s central bank chief Thomas Jordan also weighed in after a 50 bps hike, saying it was too early to “sound the all-clear” on inflation.

“It does feel like the major central banks, including the Fed, are having to fight a market narrative of relief that we’ve hit peak rates,” said Hetal Mehta, senior European economist at Legal & General Investment Management.

Recent data showing inflation in the United States and Europe easing slightly caused bond yields to come off multi-year highs and the S&P 500 to rally over 10% from a low in October.

While US 10-year Treasury yields are still set to end the year up 200 bps, they are down 32 bps in Q4, in what is set to be their biggest quarterly drop since early 2020. German benchmark Bund yields are also up 200 bps over 2022 but stand almost 50 bps lower than a multi-year high of 2.5% reached in October.

Such sharp moves loosen the very financial conditions that central banks are trying to tighten in order to contain inflation.

Speaking at Thursday’s post-decision news conference, the ECB’s Lagarde referenced financing conditions and said further tightening was needed.

“A market rally would be an easing of financial conditions that jars with the idea that they (policymakers) need to get interest rates into restrictive territory,” said Mehta.

(Reporting by Dhara Ranasinghe and Naomi Rovnick; Editing by Catherine Evans)

Gold broods over US Fed’s higher-for-longer rate hike stance

Dec 15 (Reuters) – Gold prices on Thursday fell by as much as 2% to their lowest in about a week as the dollar advanced after the US Federal Reserve said it will deliver more interest rate hikes next year.

Spot gold dropped 1.6% to USD 1,777.88 per ounce, as of 1:46 p.m. ET (1846 GMT), having earlier slid to a low of USD 1,771.89. US gold futures settled 1.7% lower at USD 1,787.80.

“The Fed is maintaining its hawkish messaging for the time being, despite the declining growth outlook, and in turn without a cut on the horizon, it’ll be very difficult for speculators to move their capital towards gold,” said Daniel Ghali, commodity strategist at TD Securities.

The Fed on Wednesday raised interest rates by 50 basis points as expected, but bullion fell as much as 0.8% after comments from Fed Chair Jerome Powell indicated that the US central bank expected interest rates to stay higher for longer.

“The inflation data received so far in October and November show a welcome reduction in the pace of price increases, but it will take substantially more evidence to give confidence inflation is on a sustained downward path,” Powell had said.

Bullion is often considered a hedge against big spikes in consumer prices, but interest rate hikes may curb inflationary pressures while also reducing the appeal of non-yielding gold.

The European Central Bank and the Bank of England also raised their key interest rates by half a percentage point on Thursday and indicated that more hikes were likely.

Making gold more expensive for other currency holders, the dollar rose 0.9%.

Gold and silver prices are sharply lower “on profit-taking pressure from the shorter-term futures traders, after recent gains,” Jim Wyckoff, senior analyst at Kitco Metals said.

Elsewhere, silver dipped 3.4% to USD 23.07 per ounce, platinum fell 2.8% to USD 1,000.01 and palladium was down 7.4% at USD 1,775.89.

(Reporting by Kavya Guduru in Bengaluru; Editing by Barbara Lewis, Elaine Hardcastle and Shounak Dasgupta)

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