UK’s FTSE 100 nears 6-month highs on signs of slower interest rate hikes

By Shashwat Chauhan

(Reuters) – London’s blue-chip shares edged toward six-month highs on Thursday after a strong performance in November, on signs the U.S. Federal Reserve will temper its pace of interest rate hikes.

The FTSE 100 index edged up 0.1%, hovering near its strongest level since June 8, even as oil stocks fell 1.5%, as crude prices dipped with uncertainty lingering ahead of Sunday’s OPEC+ meeting. [O/R]

The domestically focussed FTSE 250 jumped 0.7%, mirroring an upbeat mood in global equities after Fed Chair Jerome Powell on Wednesday signalled a slowdown in the pace of monetary tightening.

“The macro environment is going to continue to drive market sentiment up,” said Richard Flax, chief investment officer at Moneyfarm.

“If we continue to see macro data that is favourable, indicating that inflationary pressures will continue to weaken, central banks will be able to reach peak policy rates at perhaps a slightly lower level than was expected a few months ago.”

Real estate stocks led gains, up 1.9% even as data showed house prices tumbled 1.4% in November compared with a 0.9% fall in October, the biggest monthly drop since June 2020.

“Housebuilder shares, already heavily beaten down this year, were higher on the Nationwide data. This shows how the market has already priced in a lot of bad news regarding the property market,” said Russ Mould, investment director at AJ Bell.

Food delivery stocks like Ocado gained 5.1% after Jefferies said in a note there is an attractive EBITDA stream in the sector currently mispriced by the market.

Shares of education group Pearson fell 3.4% after Exane BNP Paribas downgraded the stock rating to “neutral” from “outperform”.

(Reporting by Shashwat Chauhan in Bengaluru; Editing by Sherry Jacob-Phillips and Shinjini Ganguli)

Marketmind: Stop making sense

A look at the day ahead in European and global markets from Ankur Banerjee:

With a Fed pivot coming in to view, thanks to Jerome Powell, and optimism about China’s reopening prospects, investors have rediscovered their risk appetite, pouring into equities and sending safe-haven U.S. dollar lower.

All it took was for Fed Chair Powell to suggest that the central bank could slow the pace of its interest hikes when it next meets in two weeks, without giving any new hawkish hints.

“It makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down,” Powell said.

Job done?

Perhaps not, but markets are moving ahead with an assumption we’re nearly there.

European futures indicate stocks in the region will spike higher, tracking Asian equities, which were tracking Wall Street. The dollar remains in descent mode, while U.S Treasuries are rallying.

Also helping investor sentiment were signs from China that the country was softening its stance on COVID-19 restrictions as several cities in the world’s second-largest economy lift district lockdowns even as cases rise.

The market seems to shrug off China’s factory activity, which shrank in November, and the risk that the path out of COVID controls is long and messy. Lockdowns in China along with slowing demand have weighed on factory output across Asia.

Meanwhile, the lone “dove” among major central banks, the Bank of Japan, will aim to keep interest rates ultra-low until wage growth gets a boost, board member Asahi Noguchi said in a speech to business leaders. “To promote wage growth, the BOJ needs to patiently maintain its current monetary easing.”

Key developments that could influence markets on Thursday:

Economic events: Germany Oct retail sales; Nov PMI’s globally final 

Speakers: Fed Reserve Bank of Dallas President Lorie Logan

Earnings: Dollar General, Kroger

Bond auctions: UK, Japan, Spain, France sell bonds  

(Reporting by Ankur Banerjee; Editing by Sam Holmes)

IMF strategy chief heads to China, to focus on speeding up debt treatments

By Andrea Shalal

WASHINGTON (Reuters) -International Monetary Fund strategy chief Ceyla Pazarbasioglu said she will travel to China next week for high-level meetings, part of efforts to press the world’s largest sovereign creditor for quicker progress on debt restructurings for countries in need.

Pazarbasioglu welcomed China’s participation in a debt treatment package for Chad, the first country to complete the process under the Common Framework set up in late 2020 by the Group of 20 major economies.

All eyes are on Zambia now, whose creditors are still hammering out a debt treatment solution, Pazarbasioglu told reporters on Wednesday. She described Zambia’s larger and more complicated debt restructuring as the real test case for the Common Framework.

Zambia’s finance minister told the Reuters NEXT conference on Wednesday that his country was pushing to complete the restructuring of nearly $15 billion of external debt in the first quarter of 2023 and was engaging actively with its largest bilateral creditor China.

Pazarbasioglu said it was critical to move forward and that “outreach to China next week is very important, at the highest levels.” She noted that President Xi Jinping was the only leader to mention the framework in remarks at the G20 summit in Indonesia.

U.S. Treasury Secretary Janet Yellen and other officials from the Group of Seven advanced economies have accused China of delaying efforts to restructure the debts of heavily indebted countries.

China has argued that multilateral development banks should also participate in debt restructurings and that private creditors should be more engaged from the start of such processes.

About a quarter of emerging market economies – and 60% of low-income countries – are at or near debt distress, the IMF has said, and it is urging countries to seek help early rather than wait until they were in full-blown crisis.

Pazarbasioglu said China was hosting a meeting of the “Premiere Plus,” including international financial institutions and officials from China Development Bank and the Export-Import Bank of China. Such meetings used to take place regularly, but were cancelled during the height of the COVID-19 pandemic.

“It’s moving – very slowly, but it’s moving,” Pazarbasioglu said, noting that the participation of mining company Glencore Plc in the Chad treatment was also “a very good sign” that “even the most difficult private sector participants” were participating.

She said the Paris Club of official bilateral creditors had taken years to hammer out their debt relief processes, and China was learning, although she noted that the debt issues facing borrowing countries now were acute.

“The problem we have is that we don’t have that time right now because these countries are very fragile and dealing with debt vulnerabilities,” she said. “What we need is speed.”

Pazarbasioglu said the IMF would continue to press for changes to the Common Framework, including a freeze in debt payments when countries apply for a debt treatment, as well as clearer procedures and timelines for action, and ensuring comparable treatment for private creditors.

One key issue was that large creditors needed to work out internal institutional mechanisms to deal with the unviable debts and prepare for haircuts.

(Reporting by Andrea Shalal in Washington; Editing by Matthew Lewis and Edwina Gibbs)

Commodity stocks help UK’s FTSE 100 log its best month in two years

By Shashwat Chauhan and Shristi Achar A

(Reuters) -UK’s FTSE 100 index closed with sharp gains on Wednesday and marked its best monthly performance in two years, lifted by commodity-linked and consumer stocks on hopes of Chinese demand recovery and easing domestic political concerns.

The blue-chip index jumped 0.8%, to log its best month since Nov 2020. The domestically focused FTSE 250 midcap index closed 0.1% down. The indexes gained 6.7% and 7.1%, respectively, this month.

Energy stocks along with precious and base metal miners were up between 1.6% and 1.9%.

Mining companies like Glencore, Rio Tinto, Anglo American led the gains on the commodity-heavy FTSE 100 helped by Jefferies’ optimism about the sector.

The FTSE 100 has climbed 12.9% since its Oct. 13 lows, when a bungled mini-budget sent markets into a tailspin, as new government leadership tries to restore investor confidence in the economy amid surging inflation and a severe cost-of-living crisis.

Hani Redha, portfolio manager at PineBridge Investments cites decreasing risk of energy rationing aiding views for cooling inflation.

“There is a lot of room for inflation to come down, and that’s what the market is picking up on and that has positive implications for consumer discretionary.”

Flutter Entertainment was among the biggest gainers in the consumer discretionary sector, up 2.2%, after JP Morgan raised the stock’s price target.

Focus has turned to Jerome Powell, who speaks later in the day in what will be the U.S. Fed chief’s last opportunity to steer sentiment ahead of the central bank’s December meeting.

Michael Hewson, chief market analyst at CMC Markets, however says Powell’s comments is not likely to have much effect on the market.

“Central bankers got it massively wrong when they said that inflation was transitory. Now they’re telling us inflation is likely to remain high for quite some time. Yet all the data is pointing to inflation starting potentially peaking and starting to come down,” he said.

“Various Fed officials have been quite hawkish in the past week or so, and yet bond and (equity) markets have ignored them.”

Among single stocks, Pennon Group lost 2.4% after the utilities company reported a lower half-year pre-tax profit.

Shares of Rolls-Royce rose 2% after Barclays initiated coverage of the engineering company with an “overweight” rating.

(Reporting by Shashwat Chauhan and Shristi Achar A in Bengaluru; Editing by Sherry Jacob-Phillips and Shailesh Kuber)

BlackRock backs banks, cuts European, EM debt as part of ‘new playbook’

By Davide Barbuscia and Marc Jones

NEW YORK (Reuters) -Asset manager BlackRock has said 2023 will require a new investment playbook, backing banks and energy sectors to do well, while slapping ‘underweights’ on longer-term European government bonds and emerging market local currency debt.

The BlackRock Investment Institute (BII) said in its 2023 global outlook that while the case for investment credit had brightened and short-term government debt yields looked attractive, the pressures of higher interest rates would weigh on longer-term sovereign bonds.

“The macro damage we expect for next year is yet to be fully reflected in market pricing,” said Wei Li, global chief investment strategist at the BII.

BlackRock expects global central banks to over-tighten financial conditions in their fight against stubbornly high inflation to the point of causing a recession next year.

It said it therefore maintained a tactical underweight on developed market equities, while recommending investors to gravitate towards high-quality corporate debt and short-dated U.S. Treasury bonds, given the returns they offer after this year’s rapid increase in interest rates.

“We are going to see inflation falling … but at the same time we don’t think we’re going to be settling back to the 2% world we’ve been accustomed to, at least not anytime soon,” BII head Jean Boivin said at a media briefing in New York.

“We don’t think the inflation outcome we’ll end up living with, which is going to be more like 3% than 2%, is reflected in markets at this juncture,” he said.

Sustained higher inflation could mean central banks will unlikely cut interest rates rapidly to support contracting economies, BlackRock said, so the old playbook of adding exposure to long-term and safe government bonds in a recessionary environment may not work next year.

“Policy rates may stay higher for longer than the market is expecting … As a result, we remain underweight long term government bonds in tactical and strategic portfolios,” BII said in its outlook report.

As part of that stance, it has moved underweight on longer term European government debt as well as UK Gilts. Gilts have seen a strong rebound in recent weeks after been thrown into turmoil by the unfunded tax plans of former UK leader Liz Truss and her finance minister Kwasi Kwarteng.

(Reporting by Marc Jones and Davide BarbusciaEditing by Karin Strohecker and Mark Potter)

Credit Suisse shares and bonds hit by further market shake-out

By Chiara Elisei and Danilo Masoni

(Reuters) – Credit Suisse’s planned $2.4 billion fundraising to help pay for a major overhaul faced mounting market headwinds on Wednesday, with the cost of insuring exposure to its debt hitting a record high, while the bank’s shares and bonds tumbled.

The rights issue is part of the Swiss bank’s broader capital raising worth 4 billion francs, which got shareholder approval last week, to help fund Credit Suisse’s recovery from the biggest crisis in its 166-year history.

“Investor confidence has not been restored yet,” said Joost Beaumont, head of bank research at ABN Amro.

Credit Suisse declined to comment on the market moves.

Five-year credit default swaps on Credit Suisse, the cost of insuring against a default on its debt by the Swiss bank, rose to around 446 basis points (bps) from 409 bps at the open, S&P Global Market Intelligence data showed.

This level compares with 57 bps at the start of the year and is not far off levels for Italian bailed-out bank Monte dei Paschi di Siena at 466 bps.

CDS for other European lenders such as Commerzbank, Santander or Swiss peer UBS are between 69-81 bps.

After opening higher, Credit Suisse’s shares tumbled 2% to a new record low, marking their ninth straight session in the red. The stock has lost more than 66% since the start of the year.

Credit Suisse rights for its 2.24 billion Swiss francs ($2.4 billion) share issue were down 8%, having reversed initial gains. This came on top of a 30% tumble on Tuesday.

Holders of the rights to subscribe to new shares have time until 8 December to exercise them but investor response has been so far lukewarm.

Credit Suisse bonds also weakened, with additional tier 1 dollar bonds down over 4 cents and many sinking below the levels seen during a sell off in the bank’s shares and bonds in early October, Tradeweb data showed.

Switzerland’s second-largest bank last week flagged that it was on course for a pre-tax loss of up to 1.5 billion Swiss francs in the fourth quarter, and revealed that wealthy clients had made hefty withdrawals.

Battered by a series of scandals and mounting losses, Credit Suisse last month embarked on a turnaround plan.

“The bonds had a little rebound when the strategic review was announced, but it is still a difficult story, with question marks on the execution of the strategic review,” Beaumont said.

The euro-denominated bond issued by Credit Suisse’s holding company in mid November at a record coupon of 7.75% also fell. It is quoted at a below par price of 98.5 cents, which suggests investors require a discount to buy the bond.

The bond’s price was as high as 103 cents on 22 November.

($1 = 0.9501 Swiss francs)

(Reporting by Chiara Elisei and Danilo Masoni; Editing by Karin Strohecker, Jane Merriman and Alexander Smith)

Bank of England sells 1.5 billion pounds of gilts

LONDON (Reuters) – The Bank of England said on Wednesday it had sold 1.5 billion pounds ($1.79 billion) of index-linked and long-dated gilts to investors, a significant step up from the 346 million pounds it sold at its first such sale on Tuesday.

The BoE is seeking to sell off more than 19 billion pounds of long-dated and index-linked gilts it bought from Sept. 28 to Oct. 14 in an operation aimed at restoring financial market stability.

The BoE said it received bids worth 1.907 billion pounds on Wednesday, up from 481 million pounds the day before.

($1 = 0.8373 pounds)

(Reporting by David Milliken, Editing by Kylie MacLellan)

Marketmind: Uneasy Chair

A look at the day ahead in U.S. and global markets from Mike Dolan.

Even as disinflation takes hold and recession looms, Federal Reserve Chair Jerome Powell may have to deliver another uncomfortable message of more monetary tightening ahead before the Fed hunkers down for its final meeting of the year.

World markets will be in thrall to Powell’s speech at 1330 Washington time (1830 GMT), not least because it’s one of the final set pieces before the Fed’s self-imposed blackout period ahead of its December 14 policy decision.

But unless he goes very much against the grain of his colleagues, Powell will likely reinforce market expectations of downshift in the size of interest rate rises but point to a terminal rate of 5% or higher next year and push back on hopes of any early easing from there.

While inflation looks past its peak, labour markets remain super tight and Powell speaks before another crucial nationwide employment report on Friday. However, he will get a glimpse on Wednesday of this month’s private sector payrolls from the ADP survey and a readout on closely monitored job openings.

Futures market expectations for peak Fed rates next May ticked back above 5% ahead of the speech, with about 35 basis points of rate cuts from there still priced by yearend. Ten-year Treasury yields were steady at 3.70% and Wall St stock futures were mostly flat after closing in red on Tuesday for the third day running.

While New York Fed chief John Williams indicated this week that rate cuts would not come before 2024, Bank of America economists on Tuesday reckoned a recession hitting by the middle of 2023 may force that cut shortly after.

Many expect Powell to focus today on the longer-term horizon for interest rates, not least as a long-running debate on possibly raising the 2% inflation target has resurfaced in the background this week.

Hopes of peak global inflation were reinforced on Wednesday by data showing euro zone consumer price growth falling back more than forecast to 10% this month from 10.6% in October, lifting euro stocks and bonds and the currency.

The dollar slipped back a touch, especially against China’s yuan.

China and Hong Kong shares extended gains on Wednesday as market participants cheered an easing of COVID-19 measures in Guangzhou city. Southern Guangzhou city relaxed COVID prevention rules in multiple districts – even as protests and clashes with police escalated – offsetting the gloomier factory and service sector business readings for this month

China’s factory activity contracted at a faster pace this month, weighed down by the COVID curbs and softening global demand.

Key developments that may provide direction to U.S. markets later on Wednesday:

* US Nov ADP private sector payrolls and Oct JOLTS data on job openings, Q3 GDP revision, Oct international trade, retail and business investores, pending home sales

* US Federal Reserve Chair Jerome Powell speaks in Washington. Fed Board Governors Michelle Bowman and Lisa Cook both speak.

* US Federal Reserve releases Beige Book on economic conditions

* US corporate earnings: Salesforce, Synopsys, Hormel Foods

* U.S. President Joe Biden welcomes French President Emmanuel Macron for state visit to the United States

Graphic: What Wall Street thinks of the Fed’s messaging https://graphics.reuters.com/USA-FED/POWELL/lbpgnwkodvq/chart.png

Graphic: Analysts lower Brent and WTI forecasts for 2023 https://graphics.reuters.com/OIL-PRICES/POLL/klvygkogrvg/chart.png

Graphic: China’s factory activity falls in November https://graphics.reuters.com/CHINA-ECONOMY/PMI/zgpobmlqavd/chart.png

Graphic: Euro zone inflation drops https://graphics.reuters.com/GLOBAL-MARKET/byprljdmmpe/chart.png

(By Mike Dolan, editing by Alexandra Hudson mike.dolan@thomsonreuters.com. Twitter: @reutersMikeD)

Sri Lanka’s debt to China close to 20% of public external debt -study

By Jorgelina do Rosario and Rachel Savage

LONDON/JOHANNESBURG (Reuters) – Sri Lanka owed Chinese lenders $7.4 billion – nearly a fifth of its public external debt – by the end of last year, calculations by the China Africa Research Initiative (CARI) published on Wednesday showed, an estimate higher than many others.

The figure was above the “often-quoted 10 to 15 percent figures,” the study said, adding a “significant portion” of the country’s debt to China had been recorded under lending to state-owned enterprises rather than central government.

Crisis-hit Sri Lanka is in the midst of a debt restructuring after years of economic mismanagement combined with the COVID-19 pandemic saw the country plunge into the worst economic crisis since independence from Britain in 1948 and tip into default.

Export-Import Bank of China (EximBank) and China Development Bank are the two largest Chinese lenders, accounting for $4.3 billion and $3 billion respectively, according to the data collected by CARI at the Johns Hopkins University School of Advanced International Studies.

China is Sri Lanka’s largest bilateral creditor and, with India and Japan, part of official creditor talks to restructure the country’s debt.

“China will have to play a major role in Sri Lanka’s debt restructuring process,” CARI researchers Umesh Moramudali and Thilina Panduwawala wrote in the report.

The island nation kicked off talks with bilateral creditors in September after securing a staff level agreement of $2.9 billion with the International Monetary Fund. But financing will not flow until the fund’s board approves the deal, a step that requires financial assurances from bilateral lenders.

The latest talks initially expected earlier this month were postponed, casting doubt over how fast the debt rework can progress.

The island nation’s total external debt is $37.6 billion, according to the report. Adding central bank foreign currency debt, including a $1.6 billion currency swap with China, public external debt rises to $40.6 billion, of which 22% is from Chinese creditors.

CARI’s total debt numbers differ from the $46.6 billion tally published by the government in September as it excludes local hard-currency debt and loans to some state-owned enterprises.

The CARI study also identified six different loans to the deep water port in Hambantota from EximBank between 2007 and 2013 for around $1.3 billion. The loan agreements have clauses that “submit the loans to Chinese governing law and arbitration before the China International Economic and Trade Arbitration Commission”.

(Reporting by Jorgelina do Rosario and Rachel Savage; editing by Karin Strohecker and Stephen Coates)

Marketmind: How to be hawkish by J.Powell

By Wayne Cole

SYDNEY (Reuters) – A look at the day ahead in European and global markets from Wayne Cole.

So Tuesday’s bout of post-pandemic euphoria in Chinese markets has cooled today, perhaps a recognition of just how long it will likely take to materially raise vaccination rates there.

Even when restrictions ease, it will mean more infections and illness which could hamper growth over the first half of next year. Disappointing Chinese PMI surveys for November just underline the damage already done.

But neither have markets given back yesterday’s gains, so there’s clearly an expectation Beijing is now set on opening up which has to be positive for the global economy and supply chains over time.

Which leaves investors waiting on Powell, again. The analyst view is that he will have to play Grinch to stop U.S. markets from further easing financial conditions. Since the Fed hiked by 75 basis points on Nov. 2, 10-year yields have fallen 38 basis points and undone much of that good work.

So the message will likely be: “Hold your horses on rate cuts people.” The labour market is drum tight and inflation of 7.7% is not 2%. The terminal rate will have to be higher than first thought to be sufficiently restrictive and stay there for longer.

Whether he can be hawkish enough is another matter given the signs of a turning point in inflation are mounting. Here in Australia today, a new monthly measure of inflation rose just 0.2% in October when some analysts had looked for a jump of 1.0%. The annual pace slowed to 6.9%, from 7.3%, and suggests a peak is nearby.

That echoes the inflation data from Germany and Spain which both surprised on the downside and saw markets take 10bps off pricing for ECB rates at the December policy meeting. That suggests today’s EU-wide inflation figure will undershoot the forecast of 10.4%, even if the core measures prove stickier.

Key developments that could influence markets on Wednesday:

Federal Reserve Chair Jerome Powell speaks on the economic outlook and the labour market before a hybrid Brookings Institution event at 1830 GMT, including a q&a.

A horde of U.S. data including JOLTS job openings, ADP employment, Chicago PMI and the second estimate of Q3 GDP and PCE prices.

(Editing by Stephen Coates)

FTSE 100 climbs on hopes of easing Chinese COVID curbs; HSBC leads gains

By Shashwat Chauhan and Shristi Achar A

(Reuters) – The internationally focused FTSE 100 rose on Tuesday, led by gains in commodity-linked stocks on the possibility of less string@ent COVID curbs in China, while HSBC Holdings topped the index after agreeing to sell its Canadian business to RBC.

The blue-chip FTSE 100 closed 0.5% up to hit its highest level Sept. 13, while the domestically focused FTSE 250 midcap index ended 0.6% lower.

Financial companies led the gains on the FTSE 100, with HSBC Holdings and Standard Chartered climbing 4.4% and 5%, respectively.

Britain will change its rulebook to allow banks to take more risks to help to keep the City of London’s status as a leading global financial centre, a government minister said on Tuesday.

HSBC announced the sale of its Canadian business to Royal Bank of Canada for C$13.5 billion ($10 billion) in cash, paving the way for a potential bumper payout for shareholders later down the line.

World markets were rattled on Monday as protests against strict COVID-19 restrictions flared up in major Chinese cities over the weekend.

Officials have come out with efforts to address the rising dissent, saying China will speed up COVID-19 vaccinations for elderly people.

“The announcement has added to expectations that perhaps this wave of COVID might not be as bad and that supply chains and demand won’t take too much of a hit,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

British markets have sharply recovered from their October lows, when a bungled mini-budget sent markets into a tailspin, as new leadership tries to restore investor confidence in the economy amid surging inflation and a severe cost-of-living crisis.

Base metal miners’ shares climbed 3.1% to their highest level since June 10 as prices rebounded on support for the property sector in top metals consumer China. [MET/L]

Heavyweight oil majors BP and Shell rose 1.8% and 1.7%, respectively, as crude prices climbed on hopes of China easing its COVID controls. [O/R]

EasyJet fell 2.6% after the airline reported a full-year loss, while oilfield services and engineering firm John Wood Group Plc plunged 15.9% on weak short-term forecast.

Asset manager Record Plc jumped 11.1% after reporting a higher first-half pretax profit.

(Reporting by Shashwat Chauhan and Shristi Achar A in Bengaluru; Editing by Saumyadeb Chakrabarty, Savio D’Souza and Maju Samuel)

BoE sells 346 million stg of gilts in first unwinding of emergency intervention

LONDON (Reuters) – The Bank of England on Tuesday said it had sold 346.4 million pounds ($416 million) of the long-dated and index-linked gilts it had bought earlier this year to help stabilise financial markets.

The bank said it had received bids worth 480.5 million pounds at the first such sales window for the 19 billion pounds of bonds it bought in the wake of September’s mini-budget which caused leveraged pension funds to ditch British debt.

($1 = 0.8330 pounds)

(Reporting by David Milliken, writing by William James)

Credit Suisse pitches covered bond programme to international investors – memo

LONDON (Reuters) – Credit Suisse has mandated banks to introduce international investors to its covered bond programme and an inaugural, euro-denominated, short-dated covered bond transaction may follow, according to a memo seen by Reuters on Tuesday.

Credit Suisse has mandated Commerzbank, Credit Suisse, Danske Bank, DZ BANK, Helaba, ING and Natixis to arrange a series of virtual investor meetings, the memo said.

The bonds are expected to be rated AAA by Fitch, according to the memo.

A separate memo seen by Reuters showed that the investor meetings were scheduled to take place on Tuesday and Wednesday.

(Reporting by Chiara Elisei, writing by Dhara Ranasinghe; editing by Karin Strohecker)

China lift, rates shift, crypto crunch

By Mike Dolan

LONDON – A look at the day ahead in U.S. and global markets from Mike Dolan.

Although Beijing’s moves to defuse tensions over its COVID-19 management stabilised local and world markets, there was far less relief from western central bankers and global recession angst persists.

Chinese stocks and the yuan rebounded on Tuesday as some investors bet extraordinary civil discontent may accelerate the rollback of COVID curbs more than spurring greater political risk. They also cheered a relaxation of regulations on developer fundraising that eases the smouldering property sector bust.

Aiding a 3% jump in China’s CSI300 and a 5% jump in Hong Kong’s Hang Seng index, Chinese health officials said the government will speed up COVID-19 vaccinations for elderly people and acknowledged recent unrest stemmed from overzealous implementation of existing restrictions.

A crackdown on demonstrations happened simultaneously, with Chinese authorities making inquiries into some protesters as police flooded the city’s streets.

Crude prices also regained Monday’s sharp losses on the China developments, aided by speculation the Organization of the Petroleum Exporting Countries and allies including Russia may discuss yet another production cut at a Dec. 4 meeting.

But a combination of the energy price rebound and a barrage of hawkish rhetoric from U.S. and European central bankers kept markets on edge about a looming recession next year, and there was little or no bounce in European stocks or U.S. futures after Monday’s hefty selloff.

U.S. 10-year Treasury yields continued to probe below 3.65%, with the yield curve between 3 months and 10 years inverting ever deeper to 22-year lows of 73 basis points. The dollar gave back some of Monday’s gains too.

New York Federal Reserve chief John Williams on Monday said a recession was not yet his baseline and he didn’t see interest rate cuts until 2024.

Strikingly, hawkish Dutch central banker Klaus Knot also said forecasts of recession may be overdone and fears of “overtightening” policy were a “joke”.

His boss European Central Bank President Christine Lagarde said euro zone inflation, which is expected to ease this month but remain above 10%, has not yet peaked, encouraging speculation of another swingeing 75 basis point interest rate rise next month.

Spanish and German regional inflation readings on Tuesday, however, showed a faster decline than forecast.

Back stateside, spending on Cyber Monday was estimated to have hit a record $11.6 billion as discounts on everything from pajamas to AirPods tempted shoppers to click.

Little was clicking in the imploding crypto universe, however. Cryptocurrency lender BlockFi filed for Chapter 11 bankruptcy protection on Monday, the latest industry casualty after the firm was hurt by exposure to the spectacular collapse of the FTX exchange earlier this month. Crypto exchange Bifront also said it was shutting down.

And Apple’s turbulent week doesn’t end in China. Elon Musk accused Apple of threatening to block Twitter from its app store on Monday, adding the iPhone maker had stopped advertising on the social media platform.

Much like Morgan Stanley, Goldman Sachs and Deutsche Bank before it, Bank of America on Monday said it expects the S&P500 to have a volatile 2023 but end the year pretty much where it is now.

Key developments that may provide direction to U.S. markets later on Tuesday:

* U.S. Nov. consumer confidence, Sept. house prices, Dallas Fed Nov. services index

* European Central Bank board member Isabel Schnabel, ECB vice president Luis de Guindos speak; Bank of England Governor Andrew Bailey and BoE policymaker Catherine Mann speak

* U.S. corporate earnings: Intuit, NetApp, Hewlett Packard

* U.S. President Joe Biden welcomes French President Emmanuel Macron for state visit to the United States

Graphic: Fed Terminal Rate https://fingfx.thomsonreuters.com/gfx/mkt/byprljnqape/One.PNG

Graphic: Cyber Monday sales over the years https://graphics.reuters.com/HOLIDAYSHOPPING-RETAIL/dwpkdrqxdvm/chart.png

Graphic: JOLTS and the job market https://graphics.reuters.com/USA-FED/JOLTS/xmvjkoqdbpr/chart.png

(By Mike Dolan, mike.dolan@thomsonreuters.com. Twitter: @reutersMikeD; Editing by Kirsten Donovan)

Australia court dismisses customer fees lawsuit against CBA

(Reuters) -The Australian Federal Court has dismissed proceedings initiated by the country’s securities regulator against top lender Commonwealth Bank of Australia over alleged incorrect charging of monthly fees to customers, the regulator said on Tuesday.

Australian Securities & Investments Commission (ASIC) had alleged that between June 2010 and September 2019, CBA incorrectly charged about A$55 million ($36.86 million) in monthly fees to nearly a million customers and over 800,000 accounts, despite their entitlement to fee waivers under a contract.

The court, however, found that the bank had not breached its general obligation to ensure that financial services were provided efficiently.

The court found that CBA’s terms and conditions acknowledged that sometimes the bank “can get things wrong, and when this happens” the bank is “determined to make them right again”, ASIC said, citing the judgement.

ASIC Deputy Chair Sarah Court said the regulator “pursued this case because we believed CBA did not have robust compliance systems to ensure customers were being correctly charged”.

It added that as of Sept. 13, 2021, CBA had paid about A$64 million in remediation to almost one million customers who were overcharged, but clarified that some customers had yet to be paid.

CBA in a statement acknowledged the court order as well as “errors” in charging monthly account fees to some customers.

“We confirm that CBA has completed the customer remediation program in relation to the issues in the proceedings,” the bank said.

ASIC did not immediately respond to a Reuters request for clarification on the bank’s outstanding payments to some customers.

In September, another ASIC proceeding against CBA over allegations of improperly collecting commissions was dismissed by the federal court, dealing a blow to consumer advocates seeking tougher regulations.

($1 = 1.4923 Australian dollars)

(Reporting by Sameer Manekar in Bengaluru; Editing by Savio D’Souza and Dhanya Ann Thoppil)

Marketmind: Nearing the top?

A look at the day ahead in European and global markets from Anshuman Daga

Support for weary Chinese property developers boosted Chinese and Asian stocks on Tuesday but inflation clearly tops the agenda for European investors this session.

German and Spanish consumer prices will set the tone for markets ahead of Wednesday’s preliminary reading of euro zone inflation for November.

Though the numbers are set to show a slight cooling from the record levels hit in October, it might take a lot more to convince the European Central Bank that it can slow the pace of rate hikes.

ECB President Christine Lagarde warned on Monday that euro zone inflation had not peaked and risks turning out even higher than currently expected.

Adding to the hawkish sentiment, Bundesbank President Joachim Nagel said inflation would likely stay above 7% next year in Germany.

The double whammy of rising rates and the prospect of a recession spells bad news for European stocks as they head into next year, a Reuters poll of fund managers and strategists showed.

Money markets are pricing in more than 150 basis points of ECB interest rate increases by the end of June.

Inflation in the euro zone hit a record 10.6% on an annualised basis last month, but economists polled by Reuters expect it to ease to 10.4% in a flash reading due to be published on Wednesday.

One swing factor could be weak oil prices as concerns about China’s strict COVID-19 curbs have pulled global benchmarks to their lowest levels in nearly a year.

In Britain, focus will be on Bank of England governor Andrew Bailey’s address to the ‘State of the Nation.’

Meanwhile, cryptocurrency lender BlockFi became the latest industry casualty as it filed for Chapter 11 bankruptcy protection, after the firm was hurt by exposure to the spectacular collapse of FTX exchange earlier this month.

Key developments that could influence markets on Tuesday:

Economic data: Germany Nov state, national inflation, Spain Nov flash CPI, UK Oct mortgage lender, Euro zone Nov sentiment index

U.S. economic data: Sept home price data

Speakers: ECB vice president Luis de Guindos, ECB board member Isabel Schnabel, Bank of England Monetary Policy Committee member Catherine Mann

(Reporting by Anshuman Daga; Editing by Ana Nicolaci da Costa)

Oil stocks drag FTSE 100 lower as China’s COVID protests shake markets

By Shashwat Chauhan and Shristi Achar A

(Reuters) -UK’s FTSE 100 closed lower on Monday, with commodity-linked stocks weighing heavy on the index, as global markets watched the rare protests in China against strict COVID-19 restrictions, leaving its economic outlook uncertain.

The blue-chip FTSE 100 fell 0.2%, following two weekly gains that lifted the index to its highest levels in more than two months. The more domestically focused FTSE 250 midcaps index dropped 1.3%.

Energy stocks were the biggest drags on the FTSE 100, with oil majors BP and Shell down 1% and 0.3%, respectively. Banks and Insurers were the second biggest sectoral losers.

Commodity prices dipped on worries about demand from top consumer China where protests against COVID restrictions flared up. China’s zero-COVID policy has already slowed the economy and pressured global growth, but failed to stem the rise in infections. [O/R] [MET/L]

“It’s a very hard thing to price, even the markets are not used to seeing demonstrations in China,” said Chris Beauchamp, chief market analyst at IG Group.

“It looks quite serious, worries about how that will affect the government’s reopening strategy and what kind of response you will get from Beijing, that’s definitely causing a bit of caution.”

Real estate stocks lost more than 1%. A survey showed British property market activity stalled in October and house price growth slowed to its lowest quarterly level since February 2020 due to a disastrous “mini-budget” and a cost-of-living crisis.

“Consumer sensitive stocks have had a tremendous run from their lows in October amid hopes for the central bank’s slow down on interest rates,” said Russ Mould, investment director at AJ Bell.

“But the ongoing difficulties that consumers face may be that they are pausing a little bit for breath as well.”

British retailers fell 1%. With the worsening cost-of-living crisis, focus will now be on Cyber Monday sales after data showed Black Friday shopper numbers across Britain rose 3.7% year-on-year, albeit still down 21.3% on pre-pandemic levels.

Among individual stocks, BT Group PLC slid 2.4% after the broadband and mobile operator announced a special pay rise reflecting the rising cost of living.

Persimmon dropped 3.7% as brokerage UBS downgraded the homebuilder’s stock to “sell” from “neutral”.

(Reporting by Shashwat Chauhan and Shristi Achar A in Bengaluru; Editing by Savio D’Souza and Marguerita Choy)

Marketmind: China, COVID and Crude

A look at the day ahead in U.S. and global markets from Mike Dolan.

Rare anti-government unrest across China’s cities over the weekend has unnerved world markets, weakening crude oil prices and adding fresh political risks to a fragile year-end.

As demonstrations over strict COVID-19 curbs flared across the country over the weekend and infections climbed, protesters made a show of civil disobedience unprecedented since leader Xi Jinping assumed power a decade ago.

Wary that both the unrest and the COVID crunch compound the economic hit to China and the world, the initial market reaction on Monday was to sell Chinese stocks, the yuan and oil – with crude oil prices falling to close to $80 per barrel, their lowest since January. Other Asia bourses weakened in tandem.

A U.S. regulatory clampdown on Chinese tech giants, citing national security concerns, also weighed on shares of tech firms.

And developments on the street meant little solace was taken from Friday’s central bank decision to cut banks’ required reserve ratios, even though this and the prospect of further easing added pressure to the Chinese currency.

European stocks and U.S. futures fell too on Monday. Broad dollar gains reversed quickly, however, as 10-year U.S. Treasury yields skidded to their lowest in almost two months.

The recession signal from the U.S. yield curve between 3 months and 10 years inverted further to almost 70 basis points – its most negative in almost 22 years.

Financial markets have for weeks looked positively at even the vaguest hint of China’s curbs easing – with many asset managers still assuming the restrictions will eventually lift by the end of the first quarter of 2023.

This now may seem harder to parse.

Whether the widening unrest creates a new level of unpredictable political risk in China or merely accelerates some government exit from the draconian ‘zero COVID’ strategy – or even a U-turn on buying foreign vaccines – remains unclear.

As U.S. markets return after the Thanksgiving weekend, attention will return to Federal Reserve tightening, the labour market and inflation picture. Fed Chair Jerome Powell speaks on Wednesday, with the November U.S. jobs report out on Friday.

A bear market rally in equities may continue into next year before relapsing as a recession in the world economy takes hold, Deutsche Bank said in its 2023 economic outlook published on Monday. The German banking giant said it expected U.S. output to drop 2% over the whole year, euro zone output to decline 1% and world economic growth to slow to a recessionary 2%.

It also sees the euro/dollar exchange rate rising steadily to $1.10 by the end of 2023, 10-year Treasury yields staying constant at 3.65%, Brent crude falling to $80 per barrel and credit spreads widening.

Developments that may provide direction to U.S. markets later on Monday:

* Dallas Fed Nov manfacturing index; New York Federal Reserve President John Williams speaks

* European Central Bank President Christine Lagarde at European Parliament. ECB board member Elizabeth McCaul speaks in London

* UK Prime Minister Rishi Sunak speaks at Lord Mayor’s Banquet

Graphic: Protests across China over COVID curbs https://graphics.reuters.com/HEALTH-CORONAVIRUS/CHINA/znvnbeqdwvl/chart.png

Graphic: Crude crash https://graphics.reuters.com/GLOBAL-OIL/myvmonqjqvr/chart.png

Graphic: China COVID-19 spike https://graphics.reuters.com/GLOBAL-MARKETS/mypmonqkqpr/chart.png

(By Mike Dolan, editing by Barbara Lewis mike.dolan@thomsonreuters.com. Twitter: @reutersMikeD)

FTSE 100 rises on energy boost; retail stocks slip on Black Friday

By Shashwat Chauhan and Shristi Achar A

(Reuters) – The FTSE 100 rose on Friday helped by gains in energy shares while the domestically-focused midcap index was subdued amid concerns about a gloomy holiday season as a cost-of-living crisis worsens.

The blue-chip FTSE 100 closed 0.3% higher and the domestically focussed FTSE 250 midcap was flat. Both the indexes logged weekly gains of 1.4% on hopes of smaller rate hikes from the U.S. Federal Reserve and as worries about domestic politics eased.

Retail stocks slipped 0.5% on Black Friday, which typically marks the beginning of the holiday shopping season.

Britons will spend 8.7 billion pounds ($10.5 billion) over the Black Friday weekend (Nov. 25 to Nov. 28), according to research by GlobalData for VoucherCodes – up 0.8% year-on-year but masking a big drop in volumes once inflation is accounted for.

As of 1300 GMT, Barclaycard Payments, which processes one pound ($1.21) in every three pounds spent in the UK, had seen a 0.7% increase in the volume of payments versus 2021.

Craig Erlam, senior market Analyst at Oanda pointed out the effect of Black Friday for businesses.

“One thing that we going to learn from this is how well household spending is expected to keep up over the holiday period,” he said.

“Retailers need to have a strong Black Friday because they need to use some hope. If we get more data which suggests that people are not spending, then that would be very worrying time.”

Energy stocks were a bright spot, gaining 1% on higher oil prices.

REITS fell the most during the day, while residential property services provider LSL Property Services was down 9.9% after flagging a bleak fiscal 2022 outlook.

Berenberg does not expect the trough in UK homebuilders’ earnings to occur until 2024, the brokerage said in a note on Friday, reiterating its cautious view on the sector.

Among individual stocks, Devro surged 62% after Saria Nederland B.V. agreed to acquire the collagen casings maker in a deal valued at about 540 million pounds.

Man Group lost 1.1% after UBS cut the investment manager’s rating to “neutral” from “buy”.

(Reporting by Shashwat Chauhan and Shristi Achar A in Bengaluru; Editing by Savio D’Souza, Shounak Dasgupta, William Maclean)

Ghana bondholders dismayed by debt confusion

By Rachel Savage and Marc Jones

JOHANNESBURG/LONDON (Reuters) – Some of Ghana’s international creditors voiced dismay on Friday after 24 hours of conflicting signals from the country’s authorities left a full-blown debt restructuring looking increasingly certain.

Deputy Finance Minister John Kumah said on Thursday his country was considering a “haircut” of up to 30% on its “foreign” debt, just hours after the country’s finance minister had referred only to the risk of debt distress and an unspecified debt exchange in the country’s state budget.

“We are negotiating on principal (haircut) of up to 30%,” Kumah had told radio station JoyFM.

In an attempt to walk back the comments, the finance ministry then sent a statement saying the “details of the different layers of the debt operation, including the terms of principal payments and interest on the public debt, are still being discussed”.

Ghana’s bond prices dipped fractionally on Friday, but with so little trading in international markets due to the U.S. Thanksgiving holiday most bondholders said the true reaction would only be seen on Monday.

“It’s not helping the situation,” one investor who requested anonymity, said of the confusion caused by the flurry of government comments.

“It gives the impression it is all a bit disorganised,” and that “It feels a bit like a band-aid too, when what we actually need is surgery here”.

Ghana, a producer of cocoa, gold and oil, is negotiating a relief package with the IMF. It has seen its cedi currency plummet against the dollar this year, while consumer inflation has soared to a 21-year high of more than 40%.

“While we are disappointed with Ghana’s decision to restructure its debt, we are not surprised,” said Anders Faergemann, an emerging market portfolio manager at PineBridge.

“The economic and financial developments this year have been deteriorating steadily, with no sense of urgency by the authorities to reverse course.”

Ghana’s Eurobonds initially fell on Friday and then pared losses, with some in the afternoon trading slightly higher than Thursday’s level.

In an analyst note, Morgan Stanley said: “While recovery values on eurobonds are higher than current prices under the initial proposal, we think the market reaction will be neutral to negative as a 3-year interest holiday will likely prove unpalatable.”

(Reporting by Rachel Savage and Marc Jones, Editing by Jorgelina do Rosario, Gareth Jones and Alex Richardson)