China, HK to launch rate ‘Swap Connect’ in boost to financial integration

HONG KONG, July 4 (Reuters) – China and Hong Kong will launch a new “Swap Connect” scheme after six months, allowing mutual access to interest rate swaps trading to promote financial derivatives markets, and also upgraded a separate currency swap agreement.

The move, the latest effort to integrate China’s markets with those overseas, was announced on the same day China and Hong Kong launched ETF Connect and comes after similar ‘connect’ schemes facilitating cross-border stock and bond investments.

“Swap Connect is another major milestone in deepening connectivity between mainland China and international markets,” Nicolas Aguzin, chief executive of the Hong Kong Exchange and Clearing Limited (HKEX), said on Monday.

“Just as Stock Connect and Bond Connect have changed the DNA of equity and fixed-income markets, Swap Connect will do the same for the interbank derivatives market.”

The scheme will support the further development of China’s capital markets, and give international investors an accessible and convenient way to manage their China exposure, he added.

The People’s Bank of China also said on Monday in a separate statement that it has upgraded a currency swap facility with Hong Kong to a permanent agreement – its first standing swap agreement – and expanded the size to 800 billion yuan (USD 119.40 billion) from 500 billion yuan.

Northbound Swap Connect trading, which allows overseas investors to participate in China’s interbank financial derivatives market, will begin first, Chinese and Hong Kong financial regulators said in a joint statement.

Southbound trading, which allows mainland investors to access the Hong Kong financial derivatives market, will be explored in due course.

The scheme, launched days after the 25th anniversary of the handover of Hong Kong to Chinese rule, “is another important measure of the central government to support the development of Hong Kong and enhance mainland-Hong Kong cooperation,” according to the statement.

“It is conducive to the consolidation and enhancement of Hong Kong’s status as an international financial centre”.

Initially, interest rate swaps will be eligible under the scheme, with other products to be included in due course depending on market conditions, the statement said.

“The official launch of Swap Connect will take place after six months from the date of this announcement,” it added.

The statement was jointly published by the People’s Bank of China, the Hong Kong Securities and Futures Commission and the Hong Kong Monetary Authority.

(Reporting by Alun John and Selena Li in Hong Kong and Samuel Shen in Shanghai; Editing by Kim Coghill and Jacqueline Wong)

Asia shares cautious as Wall Street futures slip

SYDNEY, July 4 (Reuters) – Asian share markets started cautiously on Monday as a run of soft US data suggested downside risks for this week’s June payrolls report, while the hubbub over possible recession was still driving a relief rally in government bonds.

The search for safety kept the US dollar near 20-year highs, though early action was light with US markets on holiday.

Cash Treasuries were shut but futures TYc1 extended their gains, implying 10-year yields were holding around 2.88% having fallen 61 basis points from their June peak.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS inched up 0.3%, while Japan’s Nikkei .N225 added 0.9%.

However, both S&P 500 futures ESc1 and Nasdaq futures NQc1 eased 0.4%, after steadying just a little on Friday.

David J. Kostin, an analyst at Goldman Sachs, noted that every S&P 500 sector bar energy saw negative returns in the first half of the year amid extreme volatility.

“The current bear market has been entirely valuation-driven rather than the result of reduced earnings estimates,” he added.

“However, we expect consensus profit margin forecasts to fall which will lead to downward EPS revisions whether or not the economy falls into recession.”

Earnings season starts of July 15 and expectations are being marked lower given high costs and softening data.

The Atlanta Federal Reserve’s much watched GDP Now forecast has slid to an annualized -2.1% for the second quarter, implying the country was already in a technical recession.

The payrolls report on Friday is forecast to show jobs growth slowing to 270,000 in June with average earnings slowing a touch to 5.0%.

Yet minutes of the Fed’s June policy meeting on Wednesday are almost certain to sound hawkish given the committee chose to hike rates by a super-sized 75 basis points.

The market is pricing in around an 85% chance of another hike of 75 basis points this month and rates at 3.25-3.5% by year end. FEDWATCH

“But the market has also moved to price in an increasingly aggressive rate cut profile for the Fed into 2023 and 2024, consistent with a growing chance of recession,” noted analysts at NAB.

“Around 60bps of Fed cuts are now priced in for 2023.”

In currencies, investor demand for the most liquid safe harbor has tended to benefit the US dollar which is near two-decade highs against a basket of competitors at 105.04.

The euro was flat at USD 1.0433 EUR= and not far from its recent five-year trough of USD 1.0349. The European Central Bank is expected to raise interest rates this month for the first time in a decade, and the euro could get a lift if it decides on a more aggressive half-point move.

The Japanese yen also attracted some safe haven flows late last week, dragging the dollar back to 135.00 yen from a 24-year top of 137.01.

A high dollar and rising interest rates have not been kind to non-yielding gold, which was pinned at USD 1,808 an ounce having hit a six-month low last week.

Fears of a global economic downturn also undermined industrial metals with copper hitting a 17-month low having sunk 25% from its March peak.

Oil has generally fared better as supply constraints and the conflict in Ukraine offset concerns about demand. Output restrictions in Libya and a planned strike among Norwegian oil and gas workers were just the latest blows to production.

Still, sellers were out early Monday and Brent slipped 34 cents to USD 111.29, while US crude eased 23 cents to USD 108.20 per barrel.

(Reporting by Wayne Cole; Editing by Sam Holmes)

President Marcos vetoes economic zone bill championed by sister

MANILA, July 2 (Reuters) – In one of his first legislative acts, newly-inaugurated Philippines President Ferdinand Marcos Jr has vetoed a bill sponsored by his lawmaker sister that would have created a special economic zone north of the capital, the presidential office said on Saturday.

Marcos, 64, who took office on June 30 after winning the May election by a landslide, has inherited over USD 200 billion in government debt driven by his predecessor’s pandemic response and the impact on the economy.

“Fiscal prudence must be exercised particularly at times when resources are scarce and the needs are abundant,” Marcos said in a letter on Friday addressed to Congress.

Creating a new special economic zone, which offers lengthy and wide ranging tax perks to investors, would pose a “substantial financial risks to the country”, Marcos said.

In May, the upper chamber of congress passed a bill creating a special economic zone in Bulacan province. It was authored by Senator Imee Marcos, one of the president’s many political allies in Congress.

Senator Marcos did not immediately respond to a request for comment.

The special economic zone would have included a USD 15 billion international airport project of conglomerate San Miguel Corp SMC.PS. The international airport will be designed to handle 100 million passengers annually, compared with the 31-million capacity of the existing main gateway in Manila.

Marcos, the son of the Philippine ruler overthrown in a popular uprising 36 years ago, was sworn in as the country’s president on Thursday, promising to strive for unity and a better future while praising his late father’s legacy.

(Reporting by Neil Jerome Morales; Editing by Mike Harrison)

Wall Street ends first day of third quarter with relief rally

NEW YORK, July 1 (Reuters) – Wall Street rallied to close higher on Friday in light trading, with investors heading into the long holiday weekend and embarking on the second half of year looking for the next market-moving catalyst.

All three major US stock indexes reversed early losses to end in positive territory in the wake of the stock market’s worst first half in decades.

Still, all three indexes posted losses for the week.

“We’re headed into the holiday weekend and having a late-day relief rally,” said Joseph Sroka, chief investment officer at NovaPoint in Atlanta. “But we’ll likely have to wait until investors return from the holiday weekend to see if it’s sustainable at the start of the new quarter.”

Market participants now look to the second-quarter earnings season, the Labor Department’s June employment report, and the Federal Reserve’s monetary policy meeting expected later in July.

The microchip sector dropped sharply after Micron Technology Inc. (MU) warned of cooling demand, its shares pulling the broader semiconductor sector lower.

Worries over waning demand in the face of decades-high inflation were reflected in the Institute for Supply Management’s (ISM) purchasing managers’ index, which showed a deceleration in both new orders input prices.

ISM’s report seemed to back the view that the economy is cooling and inflation appears to be past its peak. This has raised the possibility that the Fed might have wiggle room for a dovish pivot after its second straight 75 basis point interest rate hike expected in July.

“The Fed is going to need to see a lot more evidence to change its mind about further continued interest rate hikes,” said Tim Ghriskey, senior portfolio strategist Ingalls & Snyder in New York. “There’s still a lot of uncertainty about the economy and inflation despite early signs that inflation may have peaked.”

According to preliminary data, the S&P 500 gained 41.01 points, or 1.08%, to end at 3,825.39 points, while the Nasdaq Composite gained 101.49 points, or 0.92%, to 11,130.23. The Dow Jones Industrial Average rose 320.77 points, or 1.04%, to 31,096.20.

Second-quarter reporting season begins in several weeks, and 130 of the companies in the S&P 500 have pre-announced. Of those, 45 have been positive and 77 have been negative, a weaker negative/positive ratio than a year ago, according to Refinitiv data.

The prospect of profit margins taking a hit from bruising inflation and waning consumer demand will have market participants listening closely to forward guidance.

Analysts now expect aggregate second-quarter S&P 500 earnings growth of 5.6%, down from the 6.8% projected at the beginning of the quarter, per Refinitiv.

Meta Platforms Inc. (META) fell after the Facebook parent’s CEO Mark Zuckerberg warned employees to brace for a deep economic downturn.

Department store chain Kohl’s Corp shares KSS.N tumbled following its decision to halt talks of a possible sale to Franchise Group (FRG).

(Reporting by Stephen Culp; Additional reporting by Amruta Khandekar and Sruthi Shankar in Bengaluru; Editing by David Gregorio)

Gold set for weekly dip as India import duty hike adds to headwinds

July 1 (Reuters) – Gold fell below USD 1,800 on Friday en route to a third straight weekly dip as a stronger dollar and prospects of higher interest rates eroded its safe-haven appeal, with an import tax hike by India also seen dampening demand for bullion.

Spot gold fell 0.6% to USD 1,795.89 per ounce by 0925 GMT, after touching its lowest since May 16 at USD 1,791.30.

US gold futures GCv1 dipped 0.7% to USD 1,795.10.

Coming off their worst quarter since early 2021 amidst aggressive monetary policy from top central banks, non-interest bearing gold has lost about 1.7% so far this week, with a stronger dollar heaping further pressure.

The ECB is also likely to start raising rates this month.

“Despite the current risk off mood and with financial markets a ‘sea of red’, the go-to safe haven just now is the US dollar,” rather than precious metals, independent analyst Ross Norman said.

Norman said “the very significant increase in import duties in India” had also hurt prices.

India, the world’s second biggest bullion consumer, raised its basic import duty on gold to 12.5% from 7.5% in a bid to bring down the trade deficit.

Gold’s retreat came despite data showing euro zone manufacturing production fell last month for the first time since the initial wave of the COVID-19 pandemic two years ago.

Spot silver fell 2.1% to USD 19.82 per ounce, and has dropped about 6.3% this week.

Silver was suffering because of its greater industrial exposure with investors fearing a global recession was looming, Rupert Rowling, market analyst at Kinesis Money said, adding that silver “seems unable to find any footholds”.

Platinum slipped 1% to USD 885.31, and faces a fourth consecutive weekly fall. Palladium dropped 1.1% to USD 1,915.04, but has gained about 1.5% this week.

(Reporting by Arundhati Sarkar in Bengaluru; Editing by Edmund Blair)

Downturn fears support dollar, Aussie slumps to two-year low

LONDON, July 1 (Reuters) – Gathering gloom about prospects for the global economy lifted the safe-haven dollar on Friday and pressured risk-sensitive currencies, with the Australian dollar tumbling to a two-year low.

Rampant inflation and a rush by central banks to raise rates and stem the flow of cheap money has fuelled sell-offs across markets and lifted assets seen as safer bets.

Fresh data on Friday showed euro zone inflation hit another record high in June, while separate statistics showed manufacturing production in the bloc fell for the first time in two years.

The dollar index – which tracks the greenback against six counterparts – is on track for a nearly 1% weekly gain, and was last up a quarter of a percent on the day at 105.020.

“It’s a risk-off start to the second half of the year with equities and commodities down, so the dollar is stronger pretty much across the board,” said Kenneth Broux, an FX strategist at Societe Generale in London. “The Fed is committed to bring inflation under control but can it deliver a soft landing?”

The US Federal Reserve has lifted rates by 150 basis points since March, with half of that coming last month in the central bank’s biggest hike since 1994. The market is betting on another of the same magnitude at the end of this month.

The odds were extremely low that the United States would slide into recession without dragging the rest of the world with it, RBC Capital Markets strategists said in a note.

More risk-sensitive currencies fell across the board. The Australian dollar and New Zealand dollar both fell by more than 1% on the day, with the Aussie falling by as much as 1.6% to USD 0.67905, its lowest since June 2020.

The Reserve Bank of Australia decides policy on Thursday, and markets expect a half point hike to its key rate. But that has not helped the Aussie much, which has instead tracked commodity prices lower as the global economic outlook deteriorates.

Sterling fell as much as 0.8% to USD 1.20770, a day after official data showed a record shortfall in Britain’s current account deficit in early 2022.

The euro slipped by as much as 0.5% to USD 1.04330. It was last down 0.3% at USD 1.04545.

The European Central Bank is expected to raise interest rates this month for the first time in a decade, although economists are divided on the size of any hike.

The Japanese yen gained as much as 0.75% on the day, pulling away from a mid-week low of 137.00 – its weakest in 24 years. It was last up a quarter of a percent at 135.415 yen per dollar.

In cryptocurrencies, Bitcoin resumed its slide lower, slipping 2% to trade just above USD 19,000.

(Reporting by Iain Withers, additional reporting by Saikat Chatterjee in London and Kevin Buckland in Tokyo; Editing by Alex Richardson)

Shell, Philippine partner to build 1 GW renewable energy capacity

MANILA, July 1 (Reuters) – Shell Overseas Investments B.V., a unit of Shell plc RDSa.L has signed an agreement with the Philippines’ Emerging Power Inc for an initial 1 gigawatt renewable energy project tapping solar, the companies said on Friday.

Shell and Emerging Power, the energy unit of top Philippine nickel ore miner Nickel Asia Corp. (NIKL), said their venture is targeting 2028 completion and is scalable up to 3 GW.

The focus is on solar but they said opportunities in onshore wind and energy storage systems were also being evaluated. A 1 GW capacity can supply the annual daytime consumption of more than 1.2 million Philippine homes, they said in a statement.

London-based Shell, which aims to become a net zero greenhouse gas emissions company by 2050, currently has 4.7 GW of renewable energy generation capacity globally in operation, under construction or committed to sale.

Shell, which has agreed to sell its 45% stake in the Philippines’ Malampaya natural gas project, has a further pipeline of 38 GW in future renewable energy ventures.

The venture adds to a growing list of renewable power projects in the Southeast Asian country, which is seeking to reduce its fossil fuels dependence.

Last month, unlisted Prime Infrastructure Holdings Inc of tycoon Enrique Razon disclosed plans to construct a solar power facility with 2.5 GW to 3 GW capacity, which would be the world’s biggest of its kind.

The Philippines aims to increase renewables in its power mix to 35% by 2030, from 21% in 2020, and to 50% by 2040. Coal accounted for nearly 60% of the 2020 mix.

New President Ferdinand Marcos has said he would support the push for renewable energy.

(Reporting by Enrico Dela Cruz; Editing by Martin Petty)

Dollar gains with yen, Aussie drops as investors fret over recession risks

TOKYO, July 1 (Reuters) – Worries about the risk of a global recession drove rallies in the safe haven Japanese yen and US dollar on Friday while the risk-sensitive Australian dollar dipped to a two-year low.

The yen gained to 135.105 per dollar, pulling away from the mid-week low of 137.00, which was its weakest in 24 years.

The dollar index – which measures the greenback against six counterparts including the yen, euro and sterling – gained 0.18% to 104.85.

The euro sank 0.31% to USD 1.0449 and sterling lost 0.53% to USD 1.21145.

The Aussie tumbled 1.12% to USD 0.6826, and touched USD 0.6822, a level not seen since June 2020.

The New Zealand dollar plunged 1.15% to USD 0.6175 for the first time since May 2020.

Risk assets were already under pressure in the Asian morning, but losses accelerated quickly in the afternoon.

Regional stocks sank along with US Treasury yields in Tokyo trading.

Wall Street saw selling overnight, setting the tone, after weaker-than-expected US consumer spending data stoked fears for an economic slowdown, driven by aggressive Federal Reserve policy tightening.

The dollar is performing a complex balancing act, rising amid risks of a global downturn but falling on signs of a US recession.

The dollar index slid 0.32% overnight after the spending data, only to rally on Friday as that same data drove declines in Asian equities.

“USD sentiment has been deteriorating on the back of rising recession fears, but focusing on US growth in isolation has never been a good way to trade USD,” RBC Capital Markets strategists wrote in a note to clients.

The odds are extremely low of the United States sliding into recession without dragging the rest of the world with it, the strategists said.

The dollar and other haven currencies like the yen and Swiss franc would benefit at the expense of commodity currencies and sterling for the duration of a global downturn, they added.

For the week, the dollar index is on track for a 0.75% gain, which would be its best week in four.

The Fed has lifted the policy rate by 150 basis points since March, with half of that coming last month in the central bank’s biggest hike since 1994. The market is betting on another of the same magnitude at the end of this month.

Meanwhile, the European Central Bank is expected to raise interest rates this month for the first time in a decade, although economists are divided on the size of any hike.

Markets will look to euro zone inflation data due later in the day for a better sense of how aggressive the ECB might be.

The euro is headed for a 0.94% weekly slide, after touching a two-week low at USD 1.0381 on Thursday, with investors judging Europe’s economic predicament to be more precarious than in the United States, compounded by an energy crisis stoked by the war in Ukraine.

Sterling has dropped 1.21% this week.

The Aussie has tumbled 1.66% since last Friday.

The Reserve Bank of Australia decides policy on Thursday of next week, and markets expect a half point hike to the key rate. But that has not helped Aussie much, which has instead tracked commodity prices lower as the global economic outlook deteriorates.

“We have been arguing for some time for weakness below USD 0.70, and that we would give this dip time to unfold, especially given widespread stagflationary/recessionary pressures,” Westpac strategists wrote in a note, picking USD 0.6750 as “the next obvious target” for the currency.

(Reporting by Kevin Buckland; Editing by Himani Sarkar & Simon Cameron-Moore)

Philippines’ Marcos appoints career diplomat as foreign minister

MANILA, July 1 (Reuters) – Philippine President Ferdinand Marcos appointed career diplomat Enrique Manalo as foreign affairs secretary, the president’s press secretary said on Friday.

Before the appointment, Manalo served as the Philippine Permanent Representative to the United Nations in New York. Prior to that, he was undersecretary for policy at the Department of Foreign Affairs.

Manalo has asked for a few days before he takes over the position previously held by Teodoro Locsin so he could wind up affairs in his previous post, press secretary Trixie Cruz-Angeles said in a text message.

Marcos, who was sworn in as president on Thursday, has said his administration would have an independent foreign policy and recognized that international partnerships were key to a stable region.

“A veteran diplomat is more likely to appreciate the need to navigate difficult nuances and choices in geopolitics,” retired political professor Temario Rivera said.

“By appointing Manalo, (Marcos) might be sending a signal of trying not to antagonize any of the major powers in the region, especially the US and China.”

Manalo, whose foreign service career began in 1979, also served as Philippine Ambassador to the United Kingdom, Ireland Belgium and Luxembourg.

Marcos’ cabinet appointments would have to be approved by a house appointments commission.

(Reporting by Karen Lema; Editing by Ed Davies)

Oil prices up 2% on supply outages

LONDON, July 1 (Reuters) – Oil prices rose 2% on Friday, recouping most of the previous session’s declines, as supply outages in Libya and expected shutdowns in Norway outweighed expectations that an economic slowdown could dent demand.

Brent crude futures were up USD 2.07, or 1.9%, at USD 111.10 a barrel by 0911 GMT, having dropped to USD 108.03 a barrel earlier in the session.

WTI crude futures gained USD 1.80, or 1.7%, to USD 107.56 a barrel, after retreating to USD 104.56 a barrel earlier.

Both contracts fell around 3% on Thursday, ending the month lower for the first time since November.

We “still see risks to prices as skewed to the upside on tight inventories, limited spare capacity and muted non-OPEC+ supply response,” Barclays said in a note.

Libya’s National Oil Corporation declared force majeure on Thursday at the Es Sider and Ras Lanuf ports as well as the El Feel oilfield. Force majeure is still in effect at the ports of Brega and Zueitina, NOC said.

Production has seen a sharp decline, with daily exports ranging between 365,000 and 409,000 bpd, a decrease of 865,000 bpd compared to production in “normal circumstances”, NOC said.

Elsewhere, 74 Norwegian offshore oil workers at Equinor’s (EQNR) Gudrun, Oseberg South and Oseberg East platforms will go on strike from July 5, the Lederne trade union said on Thursday, likely halting about 4% of Norway’s oil production.

Ecuador’s government and indigenous groups’ leaders on Thursday reached an agreement to end more than two weeks of protests which had led to the shut-in of more than half of the country’s pre-crisis 500,000 bpd oil output.

On Thursday, the OPEC+ group of producers, including Russia, agreed to stick to its output strategy after two days of meetings. However, the producer club avoided discussing policy from September onwards.

Previously, OPEC+ decided to increase output each month by 648,000 barrels per day (bpd) in July and August, up from a previous plan to add 432,000 bpd per month.

US President Joe Biden will make a three-stop trip to the Middle East in mid-July that includes a visit to Saudi Arabia, pushing energy policy into the spotlight as the United States and other countries face soaring fuel prices that are driving up inflation.

Biden said on Thursday he would not directly press Saudi Arabia to increase oil output to curb soaring prices when he sees the Saudi king and crown prince during a visit this month.

Oil prices are expected to stay above USD 100 a barrel this year as Europe and other regions struggle to wean themselves off Russian supply, a Reuters poll showed on Thursday, though economic risks could slow the climb.

India introduced export duties on gasoil, gasoline and jet fuel on Friday to help maintain domestic supplies, while also imposing a windfall tax on oil producers who have benefited from higher global crude oil prices.

(Additional reporting by Stephanie Kelly and Yuka Obayashi; editing by Jason Neely)

2024 Mid-Year Economic Briefing: Navigating the Easing Cycle

Investing with Love: A Mother’s Guide to Putting Money to Work

Investor Series: An Introduction to Estate Planning

Inflation Update: Weak demand softens shocks

Monthly Economic Update: Fed cuts incoming