UPDATE 2-With China in focus, Biden makes $150 million commitment to ASEAN leaders

Adds Chinese foreign ministry response

By Trevor Hunnicutt

WASHINGTON, May 12 (Reuters) – U.S. President Joe Biden opened a gathering of Southeast Asian leaders with a promise to spend $150 million on their infrastructure, security, pandemic preparedness and other efforts aimed at countering the influence of rival China.

On Thursday, Biden started a two-day summit with the 10-nation Association of Southeast Asian Nations (ASEAN) in Washington with a dinner for the leaders at the White House ahead of talks at the State Department on Friday.

Biden smiled broadly as he took a group photo on the South Lawn of the White House before the dinner with representatives from Brunei, Indonesia, Cambodia, Singapore, Thailand, Laos, Vietnam, Malaysia and the Philippines.

While Russia’s invasion of Ukraine is on the agenda, Biden’s administration hopes the efforts will show the countries that Washington remains focused on the Indo-Pacific and the long-term challenge of China, which it views at the country’s main competitor.

Responding to Biden’s latest move, Chinese foreign ministry said it welcomes any cooperation that promotes sustainable development and prosperity in the region.

“China and ASEAN do not engage in zero-sum games and do not promote bloc confrontation,” ministry spokesman Zhao Lijian told reporters in Beijing on Friday.

In November alone, China pledged $1.5 billion in development assistance to ASEAN countries over three years to fight COVID and fuel economic recovery.

“We need to step up our game in Southeast Asia,” a senior U.S. administration official told reporters. “We are not asking countries to make a choice between the United States and China. We want to make clear, though, that the United States seeks stronger relationships.”

The new financial commitment includes a $40 million investment in infrastructure intended to help decarbonize the region’s power supply and $60 million in maritime security, as well as some $15 million in health funding to aid in early detection of COVID-19 and other respiratory pandemics, an official said. Additional funding will help the countries develop digital economy and artificial intelligence laws.

The U.S. Coast Guard will also deploy a ship to the region to help local fleets counter what Washington and countries in the region have described as China’s illegal fishing.

Still, the commitments pale in comparison to China’s deep ties and influence.

Biden is working on more initiatives, including “Build Back Better World” infrastructure investment and an Indo-Pacific Economic Framework (IPEF). But neither are finalized.

The summit marks the first time that ASEAN’s leaders gather as a group at the White House and their first meeting hosted by a U.S. president since 2016.

Eight ASEAN leaders are expected to take part in the talks. Myanmar’s leader was excluded over a coup last year and the Philippines is in transition after an election, though Biden spoke to the country’s president-elect, Ferdinand Marcos Jr., on Wednesday. The country was represented by its foreign affairs secretary at the White House.

ASEAN leaders also visited Capitol Hill on Thursday for a lunch with congressional leaders.

CONCERN OVER CHINA

The countries share many of Washington’s concerns about China.

China’s assertion of sovereignty over vast swathes of the South China Sea has set it against Vietnam and the Philippines, while Brunei and Malaysia also lay claim to parts.

Yet countries in the region have also been frustrated by a U.S. delay in detailing plans for economic engagement since former President Donald Trump quit a regional trade pact in 2017.

“The U.S. should adopt a more active trade and investment agenda with ASEAN, which will benefit the U.S. economically and strategically,” said Malaysian Prime Minister Ismail Sabri Yaakob on Thursday. nL2N2X42YP

The IPEF is set to be launched on Biden’s trip to Japan and South Korea next week. But it does not currently offer the expanded market access Asian countries crave, given Biden’s concern for American jobs.

Analysts say that even though ASEAN countries share U.S. concerns about China, they remain cautious about siding more firmly with Washington, given their predominant economic ties with Beijing and limited U.S. economic incentives.

Kao Kim Hourn, an adviser to Cambodian Prime Minister Hun Sen, told Reuters that the country would not “choose sides” between Washington and Beijing although U.S. investment in his country is growing. nL2N2WY21Y

On Wednesday, Hun Sen was the target of a shoe-throwing protester prior to his first visit to the White House over a tenure that began in 1985. The Cambodian leader has faced criticism from activists for suppressing dissent. nL2N2X4378

(Reporting by Trevor Hunnicutt, Michael Martina, David Brunnstrom, Simon Lewis and Doina Chiacu; additional reporting by Martin Quin Pollard in Beijing
Editing by Mary Milliken, Alistair Bell and Daniel Wallis)

((trevor.hunnicutt@tr.com; +1 (332) 219 1571; twitter.com/TrevorNews; Reuters Messaging: trevor.hunnicutt.thomsonreuters.com@reuters.net))

Australia shares likely to open lower, NZ slips

May 13 (Reuters) – Australian shares are expected to open marginally lower on Friday amid a volatile market as major Wall Street indexes seesawed on fears of a global recession and commodity prices slipped on demand outlook worries.

The local share price index futures YAPcm1 fell 0.1%, a 30-point discount to the underlying S&P/ASX 200 index .AXJO close. The benchmark fell 1.8% on Thursday.

New Zealand’s benchmark S&P/NZX 50 index .NZ50 fell 0.2% to 11,156.59 in early trade.

(Reporting by Himanshi Akhand in Bengaluru)

((Himanshi.Akhand@thomsonreuters.com))

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UPDATE 2-Argentina hikes interest rate to 49% in bid to tame inflation

Recasts with central bank announcing the decision

BUENOS AIRES, May 12 (Reuters) – Argentina’s central bank on Thursday said it hiked the country’s benchmark interest rate by 200 basis points to 49% as it tries to rein in surging inflation.

The monetary authority’s move came after the government published inflation data earlier in the day showing inflation in the 12 months through April running at a 58% pace. nE1N2WP014

The 6% increase in consumer prices in April from the previous month landed slightly above analysts’ forecast for a 5.9% gain.

(Reporting by Jorge Otaola; Writing by Gabriel Araujo; Editing by Christian Plumb and Leslie Adler)

((Gabriel.Araujo2@thomsonreuters.com; +55 11 5644 7745;))

With China in focus, Biden plans $150 million commitment to ASEAN leaders

By Trevor Hunnicutt, Michael Martina and David Brunnstrom

WASHINGTON, May 12 (Reuters) – U.S. President Joe Biden will open a gathering of Southeast Asian leaders with a promise to spend $150 million on their infrastructure, security, pandemic preparedness and other efforts aimed at countering the influence of rival China.

On Thursday, Biden starts a two-day summit with the 10-nation Association of Southeast Asian Nations (ASEAN) in Washington with a dinner for the leaders at the White House before talks at the State Department on Friday.

His administration hopes the efforts will show the countries that Washington remains focused on the Indo-Pacific and the long-term challenge of China, which it views at the country’s main competitor, despite the war in Ukraine.

In November alone, China pledged $1.5 billion in development assistance to ASEAN countries over three years to fight COVID and fuel economic recovery.

The new financial commitment includes a $40 million investment in infrastructure intended to help decarbonize the region’s power supply and $60 million in maritime security as well as some $15 million in health funding to aid in early detection of COVID-19 and other respiratory pandemics, an official said. Additional funding will help the countries develop digital economy and artificial intelligence laws.

The U.S. Coast Guard will also deploy a ship to the region to help local fleets counter what Washington and countries in the region have described as China’s illegal fishing.

Still, the commitments pale in comparison to China’s deep ties and influence in the region.

Biden is working on more initiatives involving the region, including an infrastructure investment project called Build Back Better World and an Indo-Pacific Economic Framework (IPEF). But neither are finalized yet and are not expected to feature prominently in the announcements at this meeting.

The summit marks the first time that ASEAN’s leaders gather as a group at the White House and their first meeting hosted by a U.S. president since 2016.

Up to eight ASEAN leaders are expected. Myanmar’s leader has been excluded over a coup last year and the Philippines is in transition after an election, though Biden spoke to the country’s president-elect, Ferdinand Marcos Jr., on Wednesday.

ASEAN countries also share concerns about China and are broadly keen to boost ties with Washington.

China’s assertion of sovereignty over vast swathes of the South China Sea has set it against ASEAN members Vietnam and the Philippines, while Brunei and Malaysia also lay claim to parts.

But countries in the region have also been frustrated by a U.S. delay in detailing plans for economic engagement since former President Donald Trump quit a regional trade pact in 2017.

The IPEF is set to be launched on Biden’s trip to Japan and South Korea next week. But analysts and diplomats say only two of the 10 ASEAN countries – Singapore and the Philippines – are expected to be among the initial group of counties to sign up for the negotiations under IPEF, which does not currently offer the expanded market access Asian countries crave, given Biden’s concern for American jobs.

An adviser to Cambodian Prime Minister Hun Sen, in office since 1985 but making his first White House visit, told Reuters Biden should spend more time with leaders if he is serious about elevating ties with the region. nL2N2WY21Y

The adviser, Kao Kim Hourn, said Cambodia, which has close economic ties to China, would not “choose sides” between Washington and Beijing although U.S. investment in his country is growing.

(Reporting by Trevor Hunnicutt, Michael Martina, David Brunnstrom and Doina Chiacu;
Editing by Mary Milliken and Alistair Bell)

((trevor.hunnicutt@tr.com; +1 (332) 219 1571; twitter.com/TrevorNews; Reuters Messaging: trevor.hunnicutt.thomsonreuters.com@reuters.net))

Powell says Fed will fix inflation

WASHINGTON, May 12 (Reuters) – Calling stable prices the “bedrock” of the economy, Federal Reserve Chair Jerome Powell said on Thursday that the US central bank’s battle to control inflation would “include some pain” as the impact of higher interest rates is felt, but that the worse outcome would be for prices to continue speeding ahead.

“We fully understand and appreciate how painful inflation is,” Powell said in an interview with the Marketplace national radio program, repeating his expectation that the Fed will raise interest rates by half a percentage point at each of its next two policy meetings while pledging that if data turn the wrong way “we’re prepared to do more.”

“Nothing in the economy works, the economy doesn’t work for anybody without price stability,” Powell said. “We went through periods in our history where inflation was quite high … The process of getting inflation down to 2% will also include some pain, but ultimately the most painful thing would be if we were to fail to deal with it and inflation were to get entrenched in the economy at high levels, and we know what that’s like. And that’s just people losing the value of their paycheck.”

The US economy is facing its toughest inflation problem since the 1970s and early 1980s, when prices at one point rose at an annual rate of 14.5% and then-Fed chief Paul Volcker used punishing interest rates to twice throw the economy into recession. The unemployment rate climbed above 10%.

Powell, who was confirmed earlier on Thursday to a second four-year term as Fed chief on a bipartisan 80-19 vote in the US Senate, has paid frequent homage to Volcker’s commitment to beating inflation, while also saying he believes the US central bank this time can navigate the economy to a “soft landing” where inflation falls without a downturn or significant increase in joblessness.

Interest rates are rising sharply as a result of the policy steps engineered by Powell. While neither inflation nor borrowing costs are approaching Volcker-era levels, the quick run-up in the cost of food, gas, housing and other daily staples has become a politically explosive issue for President Joe Biden’s administration. Consumer prices in April were 8.3% higher than a year ago.

Biden now has filled the top two Fed jobs and seen two of his other appointees confirmed to the central bank’s seven-seat Board of Governors. The president made clear this week he was giving them full sway to try to lower inflation.

“Tackling inflation is my top domestic priority,” Biden said following Powell’s confirmation by the Senate. The Fed “will bring the skill and knowledge needed at this critical time for our economy and families across the country.”

Powell, who opened a news conference after last week’s policy meeting by saying he wanted to “restore price stability on behalf of American families,” used the radio interview on Thursday to amplify that broad message to the public.

(Reporting by Howard Schneider; Editing by Paul Simao)

Oil settles mixed amid Beijing lockdown fears, tight supplies

May 12 (Reuters) – Oil prices settled mixed on Thursday as supply concerns and geopolitical tension in Europe got the upper hand over the economic fears dogging financial markets as inflation soars.

Brent crude fell 6 cents to settle at USD 107.45 a barrel. WTI crude rose 42 cents, or 0.4%, to settle at USD 106.13.

“The trading has been thin and nobody knows what’s going to move the needle,” said John Kilduff, partner at Again Capital LLC in New York.

A pending European Union ban on oil from Russia, a key supplier of crude and fuels to the bloc, is anticipated to further tighten global supplies.

The EU is still haggling over details of the Russian embargo, which needs unanimous support. However, a vote has been delayed as Hungary opposes the ban because it would be too disruptive to its economy.

More broadly, oil prices and financial markets have been under pressure this week amid jitters over rising interest rates, the strongest US dollar in two decades, concerns over inflation and possible recession.

Prolonged COVID-19 lockdowns in the world’s top crude importer, China, have also impacted the market.

“The slide in demand growth could not come at a better time, with China seemingly on the brink of locking down the capital of Beijing at any given moment,” said Bob Yawger, director of energy futures at Mizuho.

US headline CPI for the 12 months to April jumped 8.3%, fueling concerns about bigger interest rate hikes, and their impact on economic growth.

“Soaring pump prices and slowing economic growth are expected to significantly curb the demand recovery through the remainder of the year and into 2023,” the International Energy Agency (IEA) said on Thursday in its monthly report.

“Extended lockdowns across China … are driving a significant slowdown in the world’s second largest oil consumer,” the agency added.

The Organization of the Petroleum Exporting Countries (OPEC) cut its forecast for growth in world oil demand in 2022 for a second straight month, citing the impact of Russia’s invasion of Ukraine, rising inflation and the resurgence of the Omicron coronavirus variant in China.

On Wednesday, oil prices jumped 5% after Russia sanctioned 31 companies based in countries that imposed sanctions on Moscow following the Ukraine invasion.

That created unease in the market at the same time that Russian natural gas flows to Europe via Ukraine fell by a quarter. It was the first time that exports via Ukraine have been disrupted since the invasion.

(Reporting by Laura Sanicola; Additional reporting by Bozorgmehr Sharafedin in London, Florence Tan in Singapore and Stephanie Kelly in New York; Editing by Kirsten Donovan and Lisa Shumaker)

Fed’s Daly backs half-percentage-point rate hikes at next meetings

May 12 (Reuters) – San Francisco Federal Reserve President Mary Daly on Thursday said she backs the plan to hike interest rates laid out by Fed Chair Jerome Powell and would like to see financial conditions tighten further to help bring inflation down.

“Going up in 50-basis-point increments to me makes quite a bit of sense and there’s no reason right now that I see in the economy to pause on doing that in the next couple of meetings,” Daly told Bloomberg News, adding that she expects and wants financial conditions to tighten so as to bring supercharged demand in better line with constrained supply.

The Fed raised its benchmark overnight lending rate last week by half a percentage point, and Powell signaled the central bank would deliver at least two more rate hikes of the same size at its next two policy meetings. Since then, Fed officials have largely voiced public assent to that blueprint.

(Reporting by Ann Saphir; Editing by Paul Simao)

US STOCKS-S&P drops on fears of prolonged inflation

For a Reuters live blog on U.S., UK and European stock markets, click LIVE/ or type LIVE/ in a news window

New throughout, updates prices, market activity and comments to close

By Stephen Culp

NEW YORK, May 12 (Reuters) – U.S. stocks ended a whipsaw session lower on Thursday, as investors fretted inflation could remain elevated for longer than expected, which could prompt the Federal Reserve to hike interest rates ever more aggressively.

All three major U.S. stock indexes seesawed and the S&P 500 settled within striking distance of confirming it entered a bear market after swooning from its all-time high reached on Jan. 3.

The indexes have gyrated wildly in recent sessions, often reversing initial rallies or sell-offs by the closing bell.

“These wild swings of upwards of 2% up or down are extremely rare, and showcase a very fragile investor psyche for that amount of volatility to happen in such a short time frame,” said Ryan Detrick, chief market strategist at LPL Financial in Charlotte, North Carolina. “Continued concerns over inflation, which looks like it has peaked yet is staying stubbornly high, continues to concern investors, pushing the S&P to the brink of a bear market.”

Market leading megacap names, which thrived in the low interest rate environment of the pandemic era, weighed the heaviest.

Market participants were digesting economic data, most recently the Producer Prices report released before the opening bell, which suggested price growth reached its zenith in March. nL2N2X419C

Even so, the Fed is expected to hike key interest rates by at least 50 basis points at least three times in the coming months, in an effort to toss cold water on demand and rein in soaring prices. nL2N2X32K3

The U.S. Senate on Friday confirmed Jerome Powell for a second term as Fed Chairman.

The move “was widely expected and it opens the door for the Fed to continue to battle the 40-year inflation highs, with many more interest rate hikes likely coming this year,” Detrick added.

Geopolitical tensions surrounding Russia’s war on Ukraine were dialed up by Finland’s announcement that it would apply for NATO membership, with Sweden expected to follow suit. The Kremlin vowed to retaliate. nL3N2X34FS

The conflict, dubbed by Russian President Vladimir Putin as a “special military operation,” has fanned the flames of inflation by pressuring global energy and grain supplies.

According to preliminary data, the S&P 500 .SPX lost 4.21 points, or 0.09%, to end at 3,931.48 points, while the Nasdaq Composite .IXIC gained 6.99 points, or 0.12%, to 11,371.23. The Dow Jones Industrial Average .DJI fell 88.75 points, or 0.28%, to 31,745.36.

Earnings season is nearing the final stretch, and according to the most recent data, 79% of the S&P 500 companies who have posted results delivered better-than-expected earnings, according to Refinitiv.

Analysts now see aggregate first-quarter S&P 500 earnings growth of 11%, up from 6.4% at quarter-end, per Refinitiv.

Shares of luxury accessories company Tapestry Inc TPR.N surged after expressing confidence in a rebound in Chinese demand once COVID restrictions are lifted. nL3N2X42R4

Walt Disney Co DIS.N dipped following the media company’s disappointing quarterly report. nL3N2X33M7

Inflationhttps://tmsnrt.rs/3w3QkLc

(Reporting by Stephen Culp; additional reporting by Devik Jain and Amruta Khandekar in Bengaluru; Editing by Chizu Nomiyama and David Gregorio)

((stephen.culp@thomsonreuters.com; 646-223-6076;))

S&P drops on fears of prolonged inflation

All three major U.S. stock indexes seesawed and the S&P 500 settled within striking distance of confirming it entered a bear market after swooning from its all-time high reached on Jan. 3.

The indexes have gyrated wildly in recent sessions, often reversing initial rallies or sell-offs by the closing bell.

Market leading megacap names, which thrived in the low interest rate environment of the pandemic era, weighed the heaviest.

Market participants were digesting economic data, most recently the Producer Prices report released before the opening bell, which suggested price growth reached its zenith in March.

Even so, the Fed is expected to hike key interest rates by at least 50 basis points at least three times in the coming months, in an effort to toss cold water on demand and rein in soaring prices.

The U.S. Senate on Friday confirmed Jerome Powell for a second term as Fed Chairman.

The move “was widely expected and it opens the door for the Fed to continue to battle the 40-year inflation highs, with many more interest rate hikes likely coming this year,” Detrick added.

The conflict, dubbed by Russian President Vladimir Putin as a “special military operation,” has fanned the flames of inflation by pressuring global energy and grain supplies.

According to preliminary data, the S&P 500 lost 4.21 points, or 0.09%, to end at 3,931.48 points, while the Nasdaq Composite gained 6.99 points, or 0.12%, to 11,371.23. The Dow Jones Industrial Average fell 88.75 points, or 0.28%, to 31,745.36.

Analysts now see aggregate first-quarter S&P 500 earnings growth of 11%, up from 6.4% at quarter-end, per Refinitiv.

Shares of luxury accessories company Tapestry Inc. (TPR) surged after expressing confidence in a rebound in Chinese demand once COVID restrictions are lifted.

Walt Disney Co. (DIS) dipped following the media company’s disappointing quarterly report.

(Reporting by Stephen Culp; additional reporting by Devik Jain and Amruta Khandekar in Bengaluru; Editing by Chizu Nomiyama and David Gregorio)

CANADA FX DEBT-Canadian dollar hits 18-month low as global economic worries rise

Adds dealer quotes and details throughout; updates prices

Canadian dollar weakens 0.1% against greenback

Trades in a range of 1.2978 to 1.3047

Price of U.S. oil rises 0.4%

Canadian bond yields fall across curve

By Fergal Smith

TORONTO, May 12 (Reuters) – The Canadian dollar extended recent declines against its U.S. counterpart on Thursday as investors grew more worried about the global economy and the Bank of Canada played down prospects of interest rates rising by more than half a percentage point in any one move.

The loonie CAD= was trading 0.6% lower at 1.3070 to the greenback, or 76.51 U.S. cents, after touching its weakest level since November 2020 at 1.3076.

“The Canadian dollar is caught along with other commodity currencies in a risk-off loop,” said Rahim Madhavji, president at KnightsbridgeFX.com.

Wall Street extended recent declines as investors worried that persistently high inflation could provoke increasingly aggressive policy tightening by the Federal Reserve. nL2N2X42EI

“Everyone is trying to figure out how high is inflation really running … what is the Fed going to do and what are the longer-term prospects for the economy and oil prices,” Madhavji said.

The price of oil, one of Canada’s major exports, rose as recession fears were offset by supply concerns and geopolitical tensions in Europe. U.S. crude CLc1 prices settled 0.4% higher at $106.18 a barrel. nL2N2X403C

Meanwhile, Bank of Canada Deputy Governor Toni Gravelle said the Canadian central bank’s policy rate, at 1%, is “too stimulative” given soaring inflation and needs to return to more neutral levels “quickly.”

Still, it would not be easy to hike rates by 75 basis points in one go due to the unusually uncertain outlook, Gravelle added. nL2N2X41XB

Canadian government bond yields were lower across the curve, tracking the move in U.S. Treasuries. The 10-year CA10YT=RR hit its lowest level since May 2 at 2.888% before recovering slightly to 2.897%, down 10.7 basis points on the day.

(Reporting by Fergal Smith
Editing by Paul Simao)

((fergal.smith@thomsonreuters.com; +1 647 480 7446;))

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