Dreaded ‘down rounds’ shave billions off startup valuations

Aug 9 (Reuters) – Several high-flying startups are being brought down to earth, as a recent carnage in global equity markets and lackluster demand for new listings force companies to raise funds at a substantial discount to their sky-high valuations.

Easy money from venture capital dealmaking is fast evaporating in an inflation-induced high interest-rate environment as many private investors take a hard look at funding startups, many of which could be years away from turning a profit.

Already high-profile companies such as payments firm Stripe, Swedish buy-now-pay-later firm Klarna and delivery startup Instacart have seen their valuations get knocked down by a peg or two this year.

In the United States alone, 81 US companies had to take a hair cut to their valuation during their funding rounds, in what venture capital firms call a ‘down round’, data from PitchBook showed.

Companies that are looking for seed money, or early-stage funding, are also seeing their valuations questioned.

“Without an open IPO market, and a much lower late-stage capital availability now than during the past year, opens up the probability of these companies taking down rounds,” said Kyle Stanford, senior venture capital analyst at PitchBook.

After a stellar run marked by record multi-billion dollar listings, the US IPO market has grounded to a halt, with only eight companies managing a successful floatation this year – a 13-year low, according to reports from PitchBook and the National Venture Capital Association (NVCA).

That gives little room for private investors, including venture capitalists firms, to plan their exits and cash in on their investments, prompting companies to opt for even lower valuations in order to attract fresh funds.

Instacart has cut its valuation by 40%, citing market turbulence due to red-hot inflation and fears of a looming recession.

Cryptocurrency lender BlockFi and payments giant Stripe have reportedly seen a drop of 67% and 28%, respectively, in their valuations.

In July, Klarna raised capital in a down round that cut its valuation by over 80% to USD 6.7 billion, a far cry from the USD 46 billion price tag the fintech attracted last year.

“It will be very difficult for startups to maintain their high-valuations in the current market, and a down round may be better to level-set with founders and investors the reality of the situation,” said Miguel Fernandez, co-founder and CEO of Capchase, a New York-based investor.

US companies have raised USD 4.3 billion in IPOs in the first seven months of the year, a fraction of the record USD 102 billion raised in the same period in 2021, according to data from Refinitiv.

Even if the IPO market stabilizes in 2023, startups, especially those that are struggling to break even or are known for massive cash burn, may have to face tough investor scrutiny on profits and valuations.

“As such, we expect to see a wave of IPO down rounds when they do come to market,” said Matthew Kennedy, senior strategist at IPO research firm Renaissance Capital.

(Reporting by Manya Saini and Niket Nishant in Bengaluru; Editing by Anil D’Silva)

Gold ticks up on softer dollar, spotlight on US inflation data

Aug 9 (Reuters) – Gold prices gained on Tuesday supported by a softer dollar, while market participants awaited US inflation data for cues on the Federal Reserve’s policy tightening path.

Spot gold rose 0.4% to USD 1,794.64 per ounce by 2:11 p.m. ET (1811 GMT), while US gold futures also settled up 0.4% at USD 1,812.3.

A weaker greenback makes gold less expensive for overseas buyers. The dollar index was down 0.1%.

Gold is currently benefiting from a softer dollar and the Russia-Ukraine situation, while the focus is on what happens with CPI on Wednesday, said Daniel Pavilonis, senior market strategist at RJO Futures.

The US consumer price report for July is due at 8:30 a.m. ET (1230 GMT) on Wednesday. A New York Federal Reserve survey showed on Monday that US consumers’ expectations for where inflation will be in a year and three years dropped sharply in July.

Lately, gold has been facing pressure as various central banks have been hiking interest rates to tame surging inflation. The precious metal is considered a hedge against inflation and political uncertainties, but higher rates make non-yielding bullion less attractive.

“A softer inflation number tomorrow, particularly on the core side, could be the catalyst (for gold prices) for a breakout to the upside, while a stronger number could put USD 1,800 out of reach for the foreseeable future,” OANDA analyst Craig Erlam said in a note.

Ahead of the inflation report, analysts polled by Reuters expect annual inflation to have eased to 8.7% from 9.1% in June.

Meanwhile, the Bank of England will probably have to raise interest rates further to tackle inflation pressures that are gaining a foothold in Britain’s economy, BoE Deputy Governor Dave Ramsden said.

Spot silver fell 0.8% to USD 20.49 per ounce, platinum XPT= was down 0.9% at USD 931.50 and palladium inched 0.2% lower to USD 2,226.19.

(Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Shailesh Kuber and Shounak Dasgupta)

Stocks stumble as caution reigns ahead of US inflation data

LONDON, Aug 9 (Reuters) – Shares slipped and the dollar hung off recent highs on Tuesday as investors eyed US inflation data due a day later that will likely yield clues to any further aggressive Federal Reserve rate hikes.

The stakes are high for the July US consumer prices report on Wednesday after an unexpectedly strong US jobs data last week boosted expectations of a sharp interest rate increase to tackle soaring inflation.

The broader Euro STOXX 600 fell 0.6%, after logging its best session in nearly two weeks on Monday, with German stocks down 0.7%. Miners and autos, among top gainers a day earlier, led declines on Tuesday.

Wall Street futures pointed to slim gains.

“The focus is on tomorrow’s US inflation numbers and whether or not they are likely to show any indication of a softening of inflationary pressures,” said Michael Hewson, chief market analyst at CMC Markets.

“Are we near the peak, and will tomorrow’s CPI numbers reflect that?”

On Monday, Wall Street closed mostly flat after blockbuster jobs data last week reinforced expectations the Federal Reserve will crack down on inflation, while a revenue warning from chipmaker Nvidia reminded investors of a slowing US economy.

Investors are now awaiting the consumer price data to gauge whether the Fed might ease slightly in its inflation fight and provide a better footing for the economy to grow.

The dollar also held just below its recent top, with traders wary of a surprise that could heap more upward pressure on interest rates. Against a basket of currencies, the dollar was down a fraction at 106.14.

The MSCI world equity index, which tracks shares in 47 countries, fell 0.1%.

Earlier, MSCI’s broadest index of Asia-Pacific shares outside Japan was flat, after giving up modest gains. Japan’s Nikkei .N225 slid 0.95%, hit by weak quarterly earnings by corporate heavyweights and lowered expectations for the video game market.

Caution abounded in bond markets, too, with euro zone bond yields steady. Germany’s 10-year yield, the benchmark for the bloc, was unchanged at 0.90%.

INFLATION EXPECTATIONS

There were some encouraging signs for the Fed on the prices front, with a New York Fed survey on Monday showing consumers’ inflation expectations fell sharply in July.

“That’ll be music to the Fed’s ears, since if that trend continues then it means that the Fed may not have to be so aggressive in hiking rates,” Deutsche Bank analysts wrote.

“One of their big fears is that higher inflation expectations will lead to a self-fulfilling prophecy of higher actual inflation.”

Soaring prices across the globe are likely to be top of the agenda at the Jackson Hole central banking symposium later this month.

The Bank of England (BoE) will probably have to raise interest rates further from their current 14-year high to tackle inflation pressures that are gaining a foothold in Britain’s economy, BoE Deputy Governor Dave Ramsden said.

Sterling was up 0.4% versus the dollar at USD 1.2128. It is down more than 10% this year versus the greenback.

Brent crude reversed earlier losses to rise USD 1 a barrel to USD 97.41 after reports Russia had suspended oil exports via the southern leg of the Druzhba pipeline.

Oil prices had earlier continued their recent retreat after suffering their biggest weekly drop since April 2020 on worries about stalling global demand as central banks tighten policy.

(Reporting by Tom Wilson in London Additional reporting by Julie Zhu in Hong Kong; Editing by Jan Harvey and Mark Potter)

European shares slip with US inflation data in focus

Aug 9 (Reuters) – European shares dipped on Tuesday as investors cautiously waited for key US inflation data later in the week for hints on the Federal Reserve’s next move on interest rate increases.

The pan-European STOXX 600 index fell 0.3%, retreating after logging its best session in nearly two weeks on Monday.

Declines on Tuesday were led by economically sensitive sectors such as miners and autos, among top gainers in the previous session.

The STOXX 600 has floundered this month after climbing 7% in July on worries over dour economic data, rising geopolitical tensions and fears that higher interest rates could tip the economy into a recession.

“Investor sentiment has improved with the strong rally in July. But for the rally to continue, economic and earnings outlooks will need to stabilize – which is not likely,” said Patrick Armstrong, chief investment officer at Plurimi Wealth LLP in London.

“Risk assets will become more dependent on economic data now that the oversold conditions have dissipated.”

Investors now await an inflation reading from the world’s biggest economy on Wednesday after a surprisingly strong employment data dented hopes that the Fed might go easy in its series of rate hikes aimed at tackling surging inflation.

Swiss duty-free retailer Dufry (DUFN) rose 2.9% to the top of the STOXX 600, as it said it saw strong sales momentum continue in July despite the soaring inflation.

Germany’s Continental (CONG) said it expects a rise in auto production in the second half of the year as supply chains stabilise and availability of semiconductors improves, but shares of the company slipped 0.8%.

Sanofi (SASY) slipped 1.2% to the bottom of France’s CAC 40 as the drugmaker paused its recruitment globally for late-stage studies of its multiple sclerosis drug.

(Reporting by Shreyashi Sanyal in Bengaluru; Editing by Sriraj Kalluvila)

Dollar stuck ahead of key US inflation print

LONDON, Aug 9 (Reuters) – The dollar lurked below recent highs on Tuesday as traders awaited this week’s key US inflation print for any signs that price pressures are finally abating and that the need for further aggressive US interest rate hikes is easing.

Unexpectedly strong US jobs data on Friday had boosted the greenback, which posted its biggest daily percentage gain since mid-June against the yen that day as investors ramped up bets on a 75 basis point (bps) rate rise in September.

But the currency has pulled back since then as focus shifted to Wednesday’s July consumer price index (CPI).

The dollar index, which measures the currency’s value against a basket of other peers, was marginally lower at 106.23. It held below a more than one-week peak hit on Friday at 106.93.

Sterling was little changed at around USD 1.2055 and the euro was 0.2% firmer at USD 1.0213. The dollar was also flat around 134.90 yen.

“I’m a bit concerned about inflation tomorrow. The market has been wrong-footed all year and if we get a strong core inflation print that will nail expectations for a 75 bps rate hike in September,” said Kenneth Broux, a currency strategist at Societe Generale in London.

“It’s too soon to say it’s time to short the dollar as the Fed may have to do more.”

The US Federal Reserve hiked rates by a hefty 75 bps in June and July. Money-market futures show traders see about a two-thirds chance of a 75 bps hike next month and have started pushing expectations for rate cuts deeper into 2023.

Economists polled by Reuters see year-on-year headline inflation at 8.7% – incredibly high, but below last month’s 9.1% figure. The Fed targets inflation at 2%.

Last week’s strong labour data stoked expectations of aggressive near-term hikes, pushing short-dated Treasury yields further above long-term peers.

The gap between two and 10-year Treasury yields, a reliable recession indicator, has grown to its largest in two decades.

On Monday, a New York Fed survey showed consumers’ inflation expectations fell sharply in July, perhaps offering a sliver of hope that the CPI release brings relief.

“The market understandably is waiting for the numbers to then reprice, rather than moving in anticipation of them,” said Ray Attrill, head of foreign exchange strategy at National Australia Bank in Sydney.

The dollar’s haven status, though, makes the greenback’s reaction a little harder to predict, especially as growth and geopolitical worries swirl.

Consumer confidence slid in Australia for a ninth straight month and the Australian and New Zealand dollars edged lower as London trade got under way.

China extended military drills near Taiwan, and the self-ruled island’s foreign minister said China was using the drills launched in protest against US House Speaker Nancy Pelosi’s visit as an excuse to prepare for an invasion.

(Reporting by Dhara Ranasinghe; Additional reporting by Tom Westbrook in Singapore, Editing by Alex Richardson)

Oil slips amid chance of Iran nuclear deal supply boost

LONDON, Aug 9 (Reuters) – Oil dropped over USD 1 a barrel on Tuesday, approaching a multi-month low hit last week, pressured by the latest progress in talks to revive the 2015 Iran nuclear accord, which would eventually allow Tehran to boost exports in a tight market.

The European Union on Monday put forward a “final” text to revive the deal. A senior EU official said a final decision on the proposal, which needs US and Iranian approval, was expected within “very, very few weeks”.

Brent crude 1fell USD 1.34, or 1.4%, to USD 95.31 a barrel at 0815 GMT. US West Texas Intermediate (WTI) crude dropped USD 1.25, or 1.4%, to USD 89.51.

“I’m not sure traders are particularly hopeful considering how long it’s taken to get to this point and with there still reportedly being points of contention,” said Craig Erlam of brokerage OANDA.

Talks have dragged on for months without a deal. Still, Iran’s crude exports, according to tanker trackers, are at least 1 million barrels per day below their rate in 2018 when then US President Donald Trump exited the nuclear agreement, so an agreement could allow a sizeable boost in supply.

Oil soared earlier in the year as Russia’s invasion of Ukraine added to supply concerns, with Brent hitting USD 139 in March, close to its all-time high, in March. Concern of economic slowdown have since weighed.

Brent fell as low as USD 92.78 on Friday, its lowest since February, as the Bank of England’s warning on Thursday of a drawn-out downturn intensified fears of slowing fuel use.

In another bearish sign, China’s crude oil imports in July fell 9.5% from a year earlier, customs data showed. China is the world’s largest crude importer.

Coming into view is the latest round of weekly US oil supply reports, firstly from the American Petroleum Institute at 2030 GMT. Analysts expect a small 400,000-barrel drop in crude inventories.

(Additional reporting by Sonali Paul and Emily Chow, Editing by Louise Heavens)

Gold subdued as investors focus on US inflation data

Aug 9 (Reuters) – Gold prices inched lower on Tuesday as investors awaited U.S. inflation data due later in the week that could offer more clarity on the Federal Reserve’s rate-hike plans to combat rising pricing pressures.

Spot gold was down 0.2% at $1,785.89 per ounce, as of 0710 GMT. U.S. gold futures eased 0.2% to $1,801.90.

On Monday, gold prices rose towards a one-month high scaled last week, as the dollar and Treasury yields pulled back after a rally driven by Friday’s blockbuster U.S. jobs report.

Markets are looking ahead to the U.S. consumer price report for July, which will be released on Wednesday. Analysts polled by Reuters expect annual inflation to have eased to 8.7% from 9.1% in June.

“Investors understand that both the U.S. and global economies are facing significant challenges, but the emphasis will be on the question for how long higher rates will be a weight on the market,” said Clifford Bennett, chief economist at ACY Securities.

“Any surprise softening in the U.S. inflation number could well be the catalyst for a tremendous surge in the gold price.”

Fed funds futures traders are now pricing for a 64.5% chance of another 75-basis-point rate hike at the U.S. central bank’s next policy meeting in September to combat soaring inflation.

Although gold is seen as a hedge against inflation, higher U.S. interest rates dull non-yielding bullion’s appeal.

U.S. consumers’ expectations for where inflation will be in a year and three years dropped sharply in July, a New York Federal Reserve survey showed on Monday, indicating U.S. central bankers are winning the fight.

Meanwhile, Taiwan’s foreign minister said that China was using the military drills it launched in protest against U.S. House Speaker Nancy Pelosi’s visit as an excuse to prepare for an invasion of the self-ruled island.

Spot silver was down 0.2% at $20.60 per ounce, platinum XPT= fell 0.3% to $936.76, and palladium slipped 1.8% to $2,190.13.

(Reporting by Brijesh Patel in Bengaluru; Editing by Subhranshu Sahu and Uttaresh.V)

Philippines’ GDP growth momentum cools in Q2 as inflation soars

MANILA, Aug 9 (Reuters) – The Philippine economy’s recovery momentum slowed in the second quarter amid high inflation, but the government is confident this year’s growth target remains achievable, giving the central bank leeway to further tighten policy to curb price pressures.

The Southeast Asian country’s gross domestic product was 7.4% higher in the June quarter than a year earlier, growing more slowly than the downwardly revised 8.2% annual rate seen in the previous quarter and the median 8.6% forecast in a Reuters poll.

It was the slowest growth since the third quarter of 2021 but the second-fastest so far in Asia for the second quarter of 2022, Economic Planning Secretary Arsenio Balisacan said on Tuesday.

“Our economy is doing relatively well,” he told a media briefing, saying the second-quarter performance was still in line with this year’s target for growth in full-year GDP of 6.5% to 7.5%.

“We can still handle further (central bank) rate hikes.”

Balisacan attributed the second-quarter slowdown to weak agricultural production amid high input costs and to easing growth in manufacturing, which he said might also be partly due to inflationary pressures.

Second-quarter growth is “considered decent”, said Michael Ricafort, economist at Rizal Commercial Banking Corp in Manila. It had been driven by measures to further re-open the economy towards post-pandemic normalcy, he said.

On a seasonally adjusted basis, however, the economy contracted 0.1% in April-June from three months earlier, when quarterly growth had been 1.5%, the government said.

Economists expect the Bangko Sentral ng Pilipinas (BSP) to remain in policy-tightening mode to tame inflation, which is widely projected to exceed the central bank’s target for a 2% to 4% rise in year-average prices.

The BSP has flagged the possibility of raising key interest rates further by 50 basis points at its Aug. 18 policy meeting, confident the economy can withstand a less accommodative policy.

It has raised interest rates by a total 125 basis points since the beginning of the year to tame inflation, which soared to its fastest pace in nearly four years in July.

Accelerating inflation is likely to hit consumption, and growth in full-year GDP could settle at the low end of the government’s target, said Nicholas Mapa, senior economist at ING.

Mapa expects a 50 bps rate increase by the BSP this month, followed by 25 bps hikes at each of the four following monthly meetings.

The administration of President Ferdinand Marcos, whose six-year term began on June 30, is further targeting growth in full-year GDP of 6.5%-8.0% annually from 2023 to 2028.

(Reporting by Neil Jerome Morales, Karen Lema and Enrico Dela Cruz; Editing by Martin Petty and Bradley Perrett)

Asia stocks wobble as focus turns to US inflation data, Fed outlook

HONG KONG, Aug 9 (Reuters) – Asian shares were down on Tuesday as financial markets fretted about persistent global cost pressures, with investors turning their focus this week to US inflation data and the prospects for further aggressive Federal Reserve rate hikes.

The unexpectedly strong US jobs data on Friday have raised the stakes for the July US consumer prices report due on Wednesday, especially for the Fed’s policy outlook.

“US stocks were struggling to hold on to gains, as the focus moves from a robust US labour market to the US CPI data out later this week,” ANZ analysts said in a note.

“The priority of reducing inflation to underpin the expansion in domestic demand and sustainable jobs growth will ring loud and clear from the 25-27 August Jackson Hole symposium.”

Early in the Asian trading day, MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.2%. The index is up 0.5% so far this month. US stock futures rose 0.07%.

Japan’s Nikkei slid 0.81% while Australian shares were flat.

China’s blue-chip CSI300 index was down 0.31% in early trade. Hong Kong’s Hang Seng index opened 0.12% lower.

Investors now await consumer price data on Wednesday to gauge whether the Fed might ease a bit in its inflation fight and provide a better footing for the economy to grow.

There were some encouraging signs for the Fed on the prices front, with a New York Fed survey on Monday showing consumers’ inflation expectations fell sharply in July.

The Dow Jones Industrial Average rose 0.09% while the S&P 500 lost 0.12% and the Nasdaq Composite dropped 0.1%.

Bonds also got a safe-haven bid due to unease over Beijing’s sabre rattling against Taiwan amid days of Chinese military exercises around the island.

The yield on benchmark 10-year Treasury notes rose to 2.7517% compared with its US close of 2.763% on Monday. The two-year yield, which rises with traders’ expectations of higher Fed fund rates, touched 3.2115% compared with a US close of 3.216%.

The dollar index, which tracks the greenback against a basket of currencies of other major trading partners, was up at 106.37.

Oil prices continued their recent retreat after suffering the worst week since April on worries about stalling global demand as central banks keep tightening.

US crude dipped 0.19% to USD 90.59 a barrel. Brent crude fell to USD 96.48 per barrel.

The rise in the dollar was a setback for gold , though it had managed to bounce from the lows hit on Friday and was traded at USD 1788.7731 per ounce.

(Editing by Shri Navaratnam)

Gold holds steady on lower yields, with focus on US inflation data

Aug 9 (Reuters) – Gold prices were flat on Tuesday as dollar and Treasury yields fell, while investors looked forward to US inflation data later this week that could offer more clarity on the Federal Reserve’s rate hike path.

FUNDAMENTALS

* Spot gold were flat at USD 1,786.86 per ounce, as of 0112 GMT, after rising 0.8% in the previous session.

* US gold futures were steady at USD 1,804.70.

* The dollar index moved further away from a one-week peak hit post Friday’s blockbuster US jobs report, making gold less expensive for other currency holders.

* Benchmark US 10-year Treasury yields dipped to 2.7554%, reducing the opportunity cost of holding non-interest bearing gold.

* Markets are looking ahead to US inflation data for July, which will be released on Wednesday. Analysts polled by Reuters expect annual inflation to have eased to 8.7% in July from 9.1% in June.

* Fed funds futures traders are now pricing for a 64.5% chance of another 75-basis-point rate increase at the US central bank’s next policy meeting in September to combat soaring inflation.

* Although gold is seen as a hedge against inflation, higher US interest rates dull non-yielding bullion’s appeal.

* US consumers’ expectations for where inflation will be in a year and three years, respectively, dropped sharply in July, a New York Federal Reserve survey showed on Monday, indicating US central bankers are winning the fight.

* China announced new military drills around Taiwan on Monday, eliciting concern from US President Joe Biden, a day after the scheduled end of Beijing’s largest exercises to protest last week’s visit to the island by US House Speaker Nancy Pelosi.

* Spot silver eased 0.1% to USD 20.63 per ounce, platinum fell 0.1% to USD 938.99, and palladium was unchanged at USD 2,231.82.

(Reporting by Brijesh Patel in Bengaluru; Editing by Rashmi Aich)

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