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Business

Feds seized nearly $700 million from FTX founder Bankman-Fried

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Jan 20 (Reuters) – Federal prosecutors have seized nearly $700 million in assets from FTX founder Sam Bankman-Fried in January, largely in the form of Robinhood stock, according to a Friday court filing.

Bankman-Fried, who has been accused of stealing billions of dollars from FTX customers to pay debts incurred by his crypto-focused hedge fund, has pleaded not guilty to fraud charges. He is scheduled to face trial in October.

The Department of Justice revealed the seizure of Robinhood shares earlier this month, but it provided a more complete list of seized assets Friday, including cash held at various banks and assets deposited at crypto exchange Binance.

The ownership of the seized Robinhood shares, valued at about $525 million, has been the subject of disputes between Bankman-Fried, FTX, and bankrupt crypto lender BlockFi.

The most recent asset seizure reported by the DOJ took place on Thursday, when prosecutors seized $94.5 million in cash from an account at Silvergate Bank which was associated with FTX Digital Markets, FTX’s subsidiary in the Bahamas. The DOJ seized more than $7 million from other Silvergate accounts associated with Bankman-Fried and FTX.

The DOJ previously seized nearly $50 million from an FTX Digital Markets account at Moonstone Bank, a small bank in Washington state.

DOJ also said that assets in three Binance accounts associated with Bankman-Fried were subject to criminal forfeiture, but did not provide an estimate of the value in those accounts.

Reporting by Dietrich Knauth; Editing by Noeleen Walder and Daniel Wallis

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Fed to deliver two 25-basis-point hikes in Q1, followed by long pause

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BENGALURU, Jan 20 (Reuters) – The U.S. Federal Reserve will end its tightening cycle after a 25-basis-point hike at each of its next two policy meetings and then likely hold interest rates steady for at least the rest of the year, according to most economists in a Reuters poll.

Fed officials broadly agree the U.S. central bank should slow the pace of tightening to assess the impact of the rate hikes. The Fed raised its benchmark overnight interest rate by 425 basis points last year, with the bulk of the tightening coming in 75- and 50-basis-point moves.

As inflation continues to decline, more than 80% of forecasters in the latest Reuters poll, 68 of 83, predicted the Fed would downshift to a 25-basis-point hike at its Jan. 31-Feb 1 meeting. If realized, that would take the policy rate – the federal funds rate – to the 4.50%-4.75% range.

The remaining 15 see a 50-basis-point hike coming in two weeks, but only one of those was from a U.S. primary dealer bank that deals directly with the Fed.

The fed funds rate was expected to peak at 4.75%-5.00% in March, according to 61 of 90 economists. That matched interest rate futures pricing, but was 25 basis points lower than the median point for 2023 in the “dot plot” projections issued by Fed policymakers at the end of the Dec. 13-14 meeting.

“U.S. inflation shows price pressures are easing, yet in an environment of a strong jobs market, the Federal Reserve will be wary of calling the top in interest rates,” noted James Knightley, chief international economist at ING.

The expected terminal rate would be more than double the peak of the last tightening cycle and the highest since mid-2007, just before the global financial crisis. There was no clear consensus on where the Fed’s policy rate would be at the end of 2023, but around two-thirds of respondents had a forecast for 4.75%-5.00% or higher.

The interest rate view in the survey was slightly behind the Fed’s recent projections, but the poll medians for growth, inflation and unemployment were largely in line.

Inflation was predicted to drop further, but remain above the Fed’s 2% target for years to come, leaving a relatively slim chance of rate cuts anytime soon.

In response to an additional question, more than 60% of respondents, 55 of 89, said the Fed was more likely to hold rates steady for at least the rest of the year than cut. That view lined up with the survey’s median projection for the first cut to come in early 2024.

However, a significant minority, 34, said rate cuts this year were more likely than not, with 16 citing a plunge in inflation as the biggest reason. Twelve said a deeper economic downturn and four said a sharp rise in unemployment.

“The Fed has prioritized inflation over employment, therefore only a sharp decline in core inflation can convince the FOMC (Federal Open Market Committee) to cut rates this year,” said Philip Marey, senior U.S. strategist at Rabobank.

“While the peak in inflation is behind us, the underlying trend remains persistent … we do not think inflation will be close to 2% before the end of the year.”

Reuters Poll- U.S. Federal Reserve outlook

In the meantime, the Fed is more likely to help push the economy into a recession than not. The poll showed a nearly 60% probability of a U.S. recession within two years.

While that was down from the previous poll, several contributors had not assigned recession probabilities to their forecasts as a slump was now their base case, albeit a short and shallow one as predicted in several previous Reuters surveys.

The world’s biggest economy was expected to grow at a mere 0.5% this year before rebounding to 1.3% growth in 2024, still below its long-term average of around 2%.

With mass layoffs underway, especially in financial and technology companies, the unemployment rate was expected to rise to average 4.3% next year, from the current 3.5%, and then climb again to 4.8% next year.

While still historically low compared to previous recessions, the forecasts were about 1 percentage point higher than a year ago.

(For other stories from the Reuters global economic poll:)

Reporting by Prerana Bhat; Polling by Milounee Purohit; Editing by Ross Finley and Paul Simao

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Business

Wall St slips as labor market data fuels Fed worry

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  • Procter & Gamble falls after commodity cost pressure warning
  • Netflix down ahead of quarterly results
  • Dow down 0.76%, S&P 500 down 0.76%, Nasdaq down 0.96%

NEW YORK, Jan 19 (Reuters) – U.S. stock indexes closed lower on Thursday after data pointing to a tight labor market renewed concerns the Federal Reserve will continue its aggressive path of rate hikes that could lead the economy into a recession.

A report from the Labor Department showed weekly jobless claims were lower than expected, indicating the labor market remains solid despite the Fed’s efforts to stifle demand for workers.

Expectations the central bank would further dial down the size of its interest rate increases at its policy announcement next month were unchanged by the report.

Investors have been looking for signs of weakness in the labor market as a key ingredient needed for the Fed to begin to slow its policy tightening measures.

Jobless claims

Other data showed manufacturing activity in the mid-Atlantic region was subdued again in January, while data from the commerce department confirmed the recession in the housing market persisted.

“What we are seeing is the market carving out a bottom in the uncertainty so the news is having less of an effect and what we are seeing today is really just a continuation of that,” said Brad McMillan, chief investment officer for Commonwealth Financial Network, an independent broker-dealer in Waltham, Massachusetts.

“The fact we are not seeing more of a reaction says a lot of the bad news is out there.”

The Dow Jones Industrial Average (.DJI) fell 252.4 points, or 0.76%, to 33,044.56, the S&P 500 (.SPX) lost 30.01 points, or 0.76%, to 3,898.85 and the Nasdaq Composite (.IXIC) dropped 104.74 points, or 0.96%, to 10,852.27.

Traders work at the post where Carvana Co. is traded on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., December 7, 2022. REUTERS/Brendan McDermid

Recent comments from Fed officials continue to highlight the disconnect between the central bank’s view of its terminal rate and market expectations.

Boston Fed President Susan Collins echoed comments from other policymakers to support the case for interest rates to rise beyond 5%.

But stocks moved off their session lows after Fed vice chair Lael Brainard said the Fed is still “probing” for the level of interest rates that will be necessary to control inflation.

Markets, however, see the terminal rate at 4.89% by June and have largely priced in a 25-basis point rate hike from the U.S. central bank in February, with rate cuts in the back half of the year. .

Both the S&P 500 and the Dow fell for a third straight session, their longest streak of declines in a month.

On the earnings front, Procter & Gamble Co (PG.N) declined 2.11% after warning of commodity costs pressuring profits, despite raising its full-year sales forecast.

Analysts now expect year-over-year earnings from S&P 500 companies to decline 2.8% for the fourth quarter, according to Refinitiv data, compared with a 1.6% decline in the beginning of the year.

Netflix Inc (NFLX.O) closed 3.23% lower ahead of its results scheduled for release after the closing bell on Thursday. But the stock rebounded to gain 3.33% after posting subscriber gains for the quarter and the departure of co-founder Reed Hastings as chief executive to an executive chairman role.

Declining issues outnumbered advancing ones on the NYSE by a 1.49-to-1 ratio; on Nasdaq, a 1.70-to-1 ratio favored decliners.

The S&P 500 posted 1 new 52-week highs and 3 new lows; the Nasdaq Composite recorded 46 new highs and 33 new lows.

Reporting by Chuck Mikolajczak, editing by Deepa Babington

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Business

Wall St stumbles after weak data, hawkish Fed comments

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  • Fed’s Bullard, Mester back rate increases
  • U.S. retail sales drop in December
  • Indexes down: Dow 1.28%, S&P 1.07%, Nasdaq 0.78%

Jan 18 (Reuters) – Wall Street’s main indexes fell on Wednesday after weak economic data and hawkish comments from Federal Reserve officials sparked worries that the central bank may not pause interest rate hikes any time soon.

Before the market opened, U.S. economic data showed retail sales and producer prices declined more than expected in December. Also production at U.S. factories fell more than expected in December and output in the prior month was weaker than previously thought.

With Wall Street’s major averages showing gains so far for 2023, Sam Stovall, chief investment strategist at CFRA research, said some investors saw the week data as an opportunity to take profits while others worried about the prospects for a recession.

“The market was overbought. Today’s economic data served as a trigger to initiate a profit taking spell and the groups with most profits to take have been the ones that have done best last year,” said Stovall.

By 2:14PM ET, the Dow Jones Industrial Average (.DJI) fell 434.27 points, or 1.28%, to 33,476.58, the S&P 500 (.SPX) lost 42.57 points, or 1.07%, to 3,948.4 and the Nasdaq Composite (.IXIC) dropped 87.02 points, or 0.78%, to 11,008.10.

The weakest sectors on the day are the defensive consumer staples (.SPLRCD), down more than 2%, and utilities (.SPLRCU), which was last down 1.8%.

The benchmark S&P and the blue-chip Dow were both on track for their second straight day of losses, while the Nasdaq, if it ends lower, would snap a seven-day winning streak.

U.S. stocks had started 2023 on a strong footing, with the S&P having closed up almost 4% year-to-date on Tuesday, on hopes that a moderation in inflationary pressures could give the Fed cover to dial down the size of its interest rate hikes.

Roughly halfway through January, the S&P was up 2.7% for the month so far while the Nasdaq was up more than 5% and the Dow, the best performer of the three for 2022, was up 0.9%.

Earlier, St. Louis Fed President James Bullard and Cleveland Fed President Loretta Mester stressed on the need to raise rates beyond 5% to bring inflation to heel.

The Fed commentary also highlighted the disparity between the U.S. central bank’s estimate of its terminal rate and market expectations, which were of the rate peaking at 4.88% by June. Traders are now betting on a 25-basis point rate hike in February.

“This market is very hopeful that we’re going to get a soft landing and every time you have hawkish comments from the Fed, it feels you’re not going to get that,” Dennis Dick, trader at Triple D Trading.

Investors are also focused on the fourth-quarter earnings season as a window into how corporate America is doing against the backdrop of higher interest rates.

Analysts now expect year-over-year earnings from S&P 500 companies to decline 2.6% for the quarter, according to Refinitiv data, compared with a 1.6% decline in the beginning of the year.

IBM Corp (IBM.N) was down 2.6% after Morgan Stanley downgraded the company’s shares to “equal weight” from “overweight”.

Early gainers Microsoft Corp (MSFT.O) and Tesla Inc (TSLA.O) erased gains by late afternoon trading with Microsoft down 1.2% and Tesla off 2.7%.

Moderna Inc (MRNA.O) rose 3.6% after reporting data which demonstrated the effectiveness of its respiratory syncytial virus (RSV) vaccine.

PNC Financial Services Group Inc (PNC.N) was down 5.4% after the company missed estimates for fourth-quarter profit.

Declining issues outnumbered advancing ones on the NYSE by a 1.38-to-1 ratio; on Nasdaq, a 1.66-to-1 ratio favored decliners.

The S&P 500 posted 9 new 52-week highs and 2 new lows; the Nasdaq Composite recorded 71 new highs and 14 new lows.

Reporting by Sinéad Carew in New York, Shreyashi Sanyal and Amruta Khandekar in Bengaluru; Additional reporting by Shubham Batra; Editing by Shounak Dasgupta and David Gregorio

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Business

Exclusive: ECB union says staff losing faith in leadership over inflation, pay

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  • 40% of ECB staff has low or no trust
  • Two-thirds say confidence is damaged
  • 63% worried about ECB’s ability to protect purchasing power

FRANKFURT, Jan 18 (Reuters) – (This Jan. 17 story has been corrected to restore the dropped words in paragraph 11)

European Central Bank staff are losing confidence in the institution’s leadership following the ECB’s failure to control inflation and a pay award that lagged the leap in prices, according to a survey by trade union IPSO.

The responses underline that even central banks, whose primary responsibility is fighting inflation, are not immune to staff dissatisfaction with the sharply rising cost of living.

The survey was organised in the context of a dispute between IPSO, which holds six out of nine seats on the ECB’s staff committee, and the central bank’s board over pay and remote-working arrangements.

An ECB spokesperson did not comment directly on IPSO’s findings when asked but pointed to a separate staff survey, run by the ECB itself last year, showing that 83% of nearly 3,000 respondents were proud to work for the ECB and 72% would recommend it.

Results of IPSO’s survey, which largely focused on pay and remote-working arrangements but also included questions about trust in the board, were sent to ECB staff on Tuesday in an email, seen by Reuters.

They showed two-thirds of roughly 1,600 respondents said their trust in Lagarde and the rest of the six-member ECB board had been damaged by recent developments such as high inflation and a pay increase that did not match the rise in prices.

Asked how much trust they had in Lagarde and the board when it comes to leading and managing the ECB, the central bank for the 20 countries that use the euro, just under half of respondents said “moderate” (34.3%) or “high” (14.6%).

But over 40% of respondents said they had “low” (28.6%) or “no” (12%) trust, while 10.5% could not say.

“This is a serious concern for our institution, as no one can correctly lead an organisation without the trust of its workforce,” the union said in its email.

INFLATION SURGE, PAY BATTLES

The survey was the first by IPSO to ask about trust in top management since Christine Lagarde took over as ECB President in late 2019.

A similar IPSO survey of ECB staff, taken just before her predecessor Mario Draghi stepped down, showed 54.5% of 735 respondents rated his presidency “very good” or “outstanding”, with support for his policy measures even higher.

Then, however, inflation in the euro zone had been low for a decade. Its recent surge to multi-decade highs in countries around the world has seen a revival in battles over pay between workers and the companies and institutions that employ them.

And a majority of respondents in the October 2019 survey also complained about a lack of transparency in recruitment and perceived favouritism under Draghi.

The most recent Bank of England staff survey, also conducted in 2019, showed 64% of respondents had “trust and confidence in the Bank’s leadership”.

A 2022 U.S. government survey of employees at departments and federal agencies found that 61% of respondents had “a high level of respect” for their organisation’s senior leaders – roughly stable compared to the previous two years.

The ECB spokesperson also pointed to internal surveys in 2020-21 that found roughly 80% of respondents were satisfied with health-and-safety measures taken by the ECB in response to the coronavirus pandemic.

The latest IPSO survey showed 63% of staff who responded were worried about the ECB’s ability to protect their purchasing power after being handed a pay increase of just 4% last year – or roughly half the rise in consumer prices.

The ECB has been criticised by politicians, bankers and academics for initially underestimating a surge in the cost of living and then making up for it with large and painful increases in borrowing costs.

Lagarde, who is not an economist and had not been a central banker before joining the ECB, colourfully defended her board at an event with staff last month.

“If it wasn’t for them I’d be a sad, lonely cowgirl lost somewhere in the Pampa of monetary policy,” Lagarde said, according to a recording of the Dec. 19 town hall seen by Reuters.

She and fellow board members have long worried about the risk of a potential “wage-price spiral”, where higher salaries feed into prices, which they argue would make it harder for the ECB to bring inflation back down to its 2% target.

But IPSO said that concern is misplaced and workers should not be made to bear the brunt of the current bout in inflation.

“The ECB might be preaching lower real wages, but this is not our stance as your staff union,” it wrote in its message to ECB employees.

Editing by Catherine Evans

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Business

Goldman misses profit estimates as dealmaking slumps, consumer business hit

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Jan 17 (Reuters) – Goldman Sachs Group Inc (GS.N) on Tuesday reported a bigger-than-expected 69% drop in fourth-quarter profit as it struggled with a slump in dealmaking, a drop in asset and wealth management revenue and booked losses at its consumer business.

Wall Street banks are making deep cuts to their workforce and streamlining their operations as dealmaking activity, their major source of revenue, stalls on worries over a weakening global economy and rising interest rates.

Goldman is also curbing its consumer banking ambitions as Chief Executive Officer David Solomon refocuses the bank’s resources on strengthening its core businesses such as investment banking and trading.

Solomon confirmed that the bank was cutting 6% of its headcount, or around 3,200 jobs, and was making changes to the consumer business to navigate an uncertain outlook for 2023.

“We tried to do too much too quickly,” he said about the consumer business such as its direct-to-consumer unit Marcus. “We didn’t execute perfectly on some so we’ve taken a hard look at those, and you make adjustments.”

Goldman reported a net loss of $660 million at its platform solutions unit, which houses transaction banking, credit card and financial technology businesses, as provisions for credit losses grew while the business was expanding.

Full-year net loss for the platform solutions business was $1.67 billion, the bank said, even though net revenue of $1.50 billion for 2022 was 135% above 2021.

Goldman on Tuesday confirmed that it is planning to stop making unsecured consumer loans after it moved Marcus into its asset and wealth management arm. The checking account launch for Marcus has also been postponed.

Goldman’s investment banking fees fell 48% in the latest quarter, while revenue from its asset and wealth management unit dropped 27% due to lower revenue from equity and debt investments.

Solomon said the investment banking outlook could be better in the “back half” of 2023, as people are softening their views on the economic outlook for this year.

Shares were down nearly 7% at $347.66 in midday trade.

[1/2] The logo for Goldman Sachs is seen on the trading floor at the New York Stock Exchange (NYSE) in New York City, New York, U.S., November 17, 2021. REUTERS/Andrew Kelly

Reuters Graphics Reuters Graphics

GROWING COSTS

Wall Street’s biggest banks have stockpiled more rainy-day funds to prepare for a possible recession, while showing caution about forecasting income growth in an uncertain economy and as higher rates increase competition for deposits.

Total operating expenses at Goldman rose 11% to $8.1 billion in the quarter. A source told Reuters last week that the bank would lay off 3,000 employees in an attempt to rein in costs.

Goldman Chief Financial Officer Denis Coleman said severance charges will be adjusted in 2023.

The bank reported a profit of $1.19 billion, or $3.32 per share, for the three months ended Dec. 31, missing the Street estimate of $5.48, according to Refinitiv IBES data.

“Widely expected to be awful, Goldman Sachs’ Q4 results were even more miserable than anticipated,” said Octavio Marenzi, CEO of consultancy Opimas.

“The real problem lies in the fact that operating expenses shot up 11% while revenues tumbled. This strongly suggests more cost cutting and layoffs are going to come,” he added.

Goldman’s trading business was a bright spot as it benefited from heightened market volatility, spurred by the Federal Reserve’s quantitative tightening.

Fixed income, currency and commodities trading revenue was up 44% while revenue from equities trading fell 5%.

Overall net revenue was down 16% at $10.6 billion.

Reporting by Niket Nishant and Noor Zainab Hussain in Bengaluru and Saeed Azhar in New York; Additional reporting by Bansari Mayur Kamdar; Editing by Anil D’Silva and Mark Porter

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Business

Cryptoverse: Bitcoin is back with a bonk

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Jan 17 (Reuters) – Bitcoin is on the charge in 2023, dragging the crypto market off the floor and electrifying bonk, a new meme coin.

The No.1 cryptocurrency has clocked a 26% gain in January, leaping 22% in the past week alone, breaking back above the $20,000 level and putting in on course for its best month since October 2021 – just before the Big Crypto Crash.

Ether has also risen, by 29% this year, helping drive the value of the overall global cryptocurrency market above $1 trillion, according to CoinGecko.

“After a rough year last year for cryptos, we are seeing a form of mean reversion,” said Jake Gordon, analyst at Bespoke Investment Group, referring to the theory of asset prices returning to long-term averages.

Researchers said investor bets on a rosier macroeconomic picture were driving a jump in riskier assets across the board.

Few crypto tokens have benefited more than bonk, which was launched at the end of December on the Solana blockchain and had rocketed 5,000% by early January. It has since fallen back, though remains up 910% since the start of the year.

It is the latest entrant to the hyper-volatile world of meme coins, cryptocurrencies inspired by online memes and jokes, and is modeled after the same grinning Shiba Inu dog as dogecoin – which itself was catapulted to fame by Elon Musk tweets.

Bonk’s a puppy, though.

Even at its peak it was worth just $0.000004873759 with a market capitalization of about $205 million.

Other meme tokens are also up, with dogecoin and Shiba Inu up 19% and 27% respectively in 2023.

But buyers beware.

“Investors need to be especially cautious when it comes to coins like doge, Shiba Inu and bonk,” said Les Borsai, co-founder of digital assets services firm Wave Financial.

“They fall just as hard as they surge.”

Nonetheless, some market players pointed to the relative cheapness of these tokens – doge is worth about eight cents – as a reason why speculators were willing to place bets on them.

“Meme coins belong to crypto, it’s part of the culture,” said Martin Leinweber, digital assets product specialist at MarketVector Indexes. “It just takes a few lines of codes to create a meme token and if you have a community for it, people love that.”

RUMORS OF SOL’S DEATH EXAGGERATED

Bonk is a meme coin with a mission. It was created, in part, to support the Solana blockchain, which has seen an exodus of funds and users since crypto exchange FTX filed for bankruptcy in November, and its native Solana token drop over 37%.

The Solana token has now indeed jumped as bonk has gained traction: it’s up 131% in 2023, the biggest gainer among major cryptocurrencies.

“Rumors of Solana’s death seem to have been greatly exaggerated,” said Tom Dunleavy, senior research analyst at data firm Messari. “Despite the recent price appreciation seemingly being driven by speculation, the underlying ecosystem remains quite strong.”

Reuters Graphics

TOO EARLY TO CALL A CRYPTO REVERSAL

Some researchers chalked the crypto gains up to optimism that inflation had peaked, reducing the need for tighter central bank policy.

“Bitcoin and crypto tend to front-run everything, which is why we’ve seen notable relative strength in this asset class of late,” said Wave Financial’s Borsai.

There’s certainly been an increase in activity.

The dollar value of bitcoin trading volumes on major exchanges over a 7-day period jumped to $151 million, the highest in nearly two months, according to data from Blockchain.com.

Total bitcoin flows – representing all uses including trading and payments – have increased by 13,130 bitcoin on average in the last 7 days, the largest rise in 64 days, Chainalysis data showed.

However, market watchers warned against celebrating too soon, noting trading volumes remained low and the macroeconomic environment uncertain.

“It’s too early to declare a definitive reversal for the crypto market despite the recent strength we’ve seen of late,” said Aaron Kaplan, co-founder of Prometheum, a digital asset securities trading platform.

“If interest rate increases are below what the market expects, then risk assets will benefit and crypto prices will likely continue the uptrend, but there’s just too much uncertainty right now.”

Reporting by Medha Singh and Lisa Mattackal in Bengaluru; Editing by Pravin Char

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Business

Shares slip as China data stokes economic slowdown fears

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  • Euro STOXX 600 down 0.2%
  • China reports weak Q4 data
  • Asia shares slip 0.4%
  • Yen close to 7-month highs

LONDON/HONG KONG, Jan 17 (Reuters) – European shares paused their new year rally and Asian equities slipped after China reported weak fourth-quarter economic data on Tuesday, keeping investors on edge over the prospects of a global recession.

The Euro STOXX 600 (.STOXX) lost 0.2%, slipping from its nine-month high hit on Monday. Global equities have enjoyed a rally so far in 2022, spurred by hopes of a rebound in China’s economy and an easing of prices pressures in the United States and Europe.

But the Chinese data showed that the world’s second-biggest economy grew 2.9% in the fourth quarter of last year, beating expectations but underscoring the toll exacted by Beijing’s stringent “zero-COVID” policy.

China’s growth for 2022 of 3% was far below the official target of about 5.5%. Excluding a 2.2% expansion after COVID-19 first hit in 2020, it was the worst showing in nearly half a century.

Asia Pacific shares outside Japan (.MIAPJ0000PUS) widened losses in response, and were last down 0.4%. Shares in Hong Kong’s (.HSI) dropped 0.8% and China’s benchmark CSI300 Index (.CSI300) clawed back losses to close flat.

In Europe, China-exposed financials HSBC (HSBA.L) and Prudential (PRU.L) fell 1% and 0.4% respectively. Economy-sensitive consumer staples such as Unilever and Danone (DANO.PA) also fell more than 1% each.

Market players said investors were taking stock of how economies would expand as inflation peaks and central bank tightening of monetary policy slows, with the China data underscoring doubts over whether it could act as a spur.

“What will be the thing that reinvigorates growth?” said Gaël Combes, head of fundamental research at Unigestion. “China is probably unlikely to provide the lift is has provided in the past, like during the global financial crisis.”

Wall Street was set to open slightly lower after a public holiday on Monday, with E-mini futures for the S&P 500 down 0.3%.

BOJ UNDER PRESSURE

The dollar index bounced from a seven-month low of 101.77 made a day ago, holding at 102.30, while the Japanese yen stayed close to seven-month highs as investors held their breath for a potential policy shift at the Bank of Japan (BOJ).

The yen steadied around 128.51 on Tuesday after hitting a top of 127.22 per dollar on Monday, with traders braced for sharp moves when the Bank of Japan (BOJ) concludes a two-day meeting on Wednesday.

The BOJ is under pressure to change its interest rate policy as soon as Wednesday, after its attempt to buy itself breathing room backfired, emboldening bond investors to test its resolve.

Euro zone bond yields inched up from month lows hit late last week, but trading in bonds globally was cautious ahead of the result of the BOJ meeting.

Across the world, the R-word continues to loom large.

Two-thirds of private and public sector chief economists surveyed by the World Economic Forum in Davos expected a global recession this year, with some 18% considering it “extremely likely” – more than twice as many as in the previous survey conducted in September 2022.

As equities rallied this year, other riskier assets also gained. The No.1 cryptocurrency bitcoin has clocked a gain of about a quarter in January, leaping over 20% in the past week alone, putting in on course for its best month since October 2021. It was last trading flat at $21,208.

Spot gold was down 0.5% at $1909.23 per ounce.

Reporting by Tom Wilson in London and Kane Wu in Hong Kong; Editing by Gerry Doyle, Neil Fullick and Alex Richardson

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World

Davos 2023: Recession casts long shadow over opening of WEF summit

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DAVOS, Switzerland, Jan 16 (Reuters) – The prospect of imminent global recession cast a long shadow over Davos on Monday as participants gathering for the opening of the World Economic Forum’s annual meeting counted the likely cost for their economies and businesses.

Two-thirds of private and public sector chief economists surveyed by the WEF expect a global recession this year, with some 18% considering it “extremely likely” – more than twice as many as in the previous survey conducted in September 2022.

“The current high inflation, low growth, high debt and high fragmentation environment reduces incentives for the investments needed to get back to growth and raise living standards for the world’s most vulnerable,” WEF Managing Director Saadia Zahidi said in a statement accompanying the survey results.

The WEF’s survey was based on 22 responses from a group of senior economists drawn from international agencies including the International Monetary Fund, investment banks, multinationals and reinsurance groups.

Meanwhile, a survey of CEO attitudes by PwC released in Davos on Monday was the gloomiest since the “Big Four” auditor launched the poll a decade ago, marking a significant shift from optimistic outlooks in 2021 and 2022.

The World Bank last week slashed its 2023 growth forecasts to levels close to recession for many countries as the impact of central bank rate hikes intensifies, Russia’s war in Ukraine continues, and the world’s major economic engines sputter.

Definitions of what constitutes recession differ around the world but generally include the prospect of shrinking economies, possibly with high inflation in a “stagflation” scenario.

On inflation, the WEF survey saw large regional variations: the proportion expecting high inflation in 2023 ranged from just 5% for China to 57% for Europe, where the impact of last year’s rise in energy prices has spread to the wider economy.

A majority of the economists see further monetary policy tightening in Europe and the United States (59% and 55%, respectively), with policy-makers caught between the risks of tightening too much or too little.

“It is clear that there is a massive drop in demand, inventories are not clearing up, the orders are not coming through,” Yuvraj Narayan, deputy chief executive and chief financial officer of Dubai-based global logistics company DP World told Reuters.

“There are far too many constraints imposed. It is no longer a free-flowing global economy and unless they find the right solutions it will only get worse,” he said, adding the group expects freight rates to drop by between 15% and 20% in 2023.

AVOIDING LAY-OFFS

Few sectors expect to be totally immune.

Matthew Prince, chief executive of cloud services company Cloudflare Inc (NET.N), said internet activity was pointing to an economic slowdown.

“Since New Year’s, when I catch up with other tech company CEOs, they’re like, ‘have you noticed the sky is falling?'” he told Reuters.

PwC’s survey found confidence among companies in their growth prospects dropped the most since the 2007-08 global financial crisis, although a majority of CEOs had no plans to cut the size of their workforce in the next 12 months or to slash remuneration as they try to retain talent.

“They’re trying to do cost reduction without human capital changes and large layoffs,” said PwC global chairman Bob Moritz.

Jenni Hibbert, a partner at Heidrick & Struggles in London, said activity was normalising and the executive search firm was seeing “a little less flow” after two years of strong growth.

“We are hearing the same mixed picture from most of our clients. People expect a market that’s going to be more challenged,” Hibbert told Reuters.

AID CUTS

Nowhere is the real-world impact of recession more tangible than in efforts to tackle global poverty.

Peter Sands, executive director of the Global Fund to fight AIDS, Tuberculosis and Malaria, said overseas development aid was being cut in budgets as donors started to feel the pinch, while recession would hit local health provision hard.

A common concern among many Davos participants was the sheer level of uncertainty for the year ahead – from the duration and intensity of the Ukraine war through to the next moves of top central banks looking to lower inflation with deep rate hikes.

The chief financial officer of one U.S. publicly traded company told Reuters he was preparing widely-varying scenarios for 2023 in light of economic uncertainty – in large part related to how interest rates will trend this year.

While there were few silver linings on the horizon, some noted that an all-out recession could give pause to the policy-tightening plans of the U.S. Federal Reserve and other major central banks that is making borrowing increasingly dear.

“I want the outlook to become a little weaker so that the Fed rates start going down and that whole sucking-out of liquidity by global central banks eases,” Sumant Sinha, chairman and CEO of Indian clean energy group ReNew Power, told Reuters.

“That will benefit not just India but globally,” he said, adding the current round of rate hikes was making it dearer for clean energy companies to fund their capital-intensive projects.

Reporting by Mark John, Maha El Dahan, Jeffrey Daskins, Leela de Kretser, Divya Chowdhury and Paritosh Bansal; Editing by Alexander Smith

Our Standards: The Thomson Reuters Trust Principles.

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Shares rise, yen climbs as BOJ battles bond bears

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  • BOJ under intense pressure as it defends yield policy
  • Yen hits 7-mth high, yuan climbs as dollar eases
  • More earnings ahead, many central bank speakers
  • Britain’s FTSE flirts with record high

SYDNEY/LONDON, Jan 16 (Reuters) – Shares firmed on Monday as optimism over corporate earnings and China’s reopening offset concerns the Bank of Japan (BOJ) might temper its super-sized stimulus policy at a pivotal meeting this week, while a holiday in U.S. markets made for thin trading.

The yen climbed to its highest since May after rumours swirled the BOJ might hold an emergency meeting on Monday as it struggles to defend its new yield ceiling in the face of massive selling. read more

That had local markets in an anxious mood, and Japan’s Nikkei (.N225) slipped 1.3% to a two-week low.

Yet MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) added 0.27%, with hopes for a speedy Chinese reopening giving it a gain of 4.2% last week.

And European shares opened positively with the STOXX 600 (.STOXX) up 0.1% by 0850 GMT driven by healthcare stocks (.SXDP) which gained 0.6%.

Britain’s benchmark FTSE index (.FTSE) edged close to the record high of 7903.50 it hit in 2018, with banks and life insurance companies among the top gainers.

Earnings season gathers steam this week with Goldman Sachs (GS.N), Morgan Stanley (MS.N) and Netflix (NFLX.O) among those reporting.

World leaders, policy makers and top corporate chiefs will be attending the World Economic Forum in Davos, and there are a host of central bankers speaking, including no fewer than nine members of the U.S. Federal Reserve.

The BOJ’s official two-day meeting ends on Wednesday and speculation is rife it will make changes to its yield curve control (YCC) policy given the market has pushed 10-year yields above its new ceiling of 0.5%. read more

The BOJ bought almost 5 trillion yen ($39.12 billion) of bonds on Friday in its largest daily operation on record, yet 10-year yields still ended the session up at 0.51%.

Early on Monday, the bank offered to buy another 1.3 trillion yen of JGBs, but the yield stuck at 0.51%.

“There is still some possibility that market pressure will force the BOJ to further adjust or exit the YCC,” JPMorgan analysts said in a note. “We can’t ignore this possibility, but at this stage we do not consider it a main scenario.”

“Although domestic demand has started to recover and inflation continues to rise, the economy is not heating up to the extent that a sharp rise in interest rates and potential risk of large yen appreciation can be tolerated,” they added.

THE YEN UN-ANCHORED

The BOJ’s uber-easy policy has acted as a sort of anchor for yields globally, while dragging down the yen. Were it to abandon the policy, it would put upward pressure on yields across developed markets and most likely see the yen surge.

The dollar has been undermined by falling U.S. bond yields as investors wager the Federal Reserve can be less aggressive in raising rates given inflation has clearly turned the corner.

The Japanese yen rose to a more than seven-month peak against the dollar on Monday, as market sentiment was dominated by expectations that the BOJ would make further tweaks to, or fully abandon, its yield control policy.

The yen jumped roughly 0.5% to a high of 127.215 per dollar, before easing to 128.6 by 0915 GMT.

The dollar index, which measures the U.S. unit against a basket of major currencies, recovered from a 7-month low touched earlier in the session to be at 102.6 .

Futures now imply almost no chance the Fed will raise rates by half a point in February, with a quarter-point move seen as a 94% probability.

Yields on 10-year Treasuries are down at 3.498%, having fallen 6 basis points last week, close to its December trough, and major chart target of 3.402%.

Alan Ruskin, global head of G10 FX Strategy at Deutsche Securities, said the loosening of global supply bottlenecks in recent months was proving to be a disinflationary shock, which increases the chance of a soft landing for the U.S. economy.

“The lower inflation itself encourages a soft landing through real wage gains, by allowing the Fed to more readily pause and encouraging a better behaved bond market, with favourable spillovers to financial conditions,” Ruskin said.

“A soft landing also reduces the tail risk of much higher U.S. rates, and this reduced risk premia helps global risk appetite,” Ruskin added.

Commodities prices which had rallied last week, dipped on Monday.

The drop in yields and the dollar had benefited the gold price, which jumped 2.9% last week, but the precious metal slipped 0.4% to $1,911 an ounce in early trading on Monday .

Oil prices slid as a rise in COVID cases clouded the prospects for a surge in demand as China reopens its economy.

Brent crude fell 73 cents, or 0.83%, to $84.57 a barrel by 0857 GMT, while U.S. West Texas Intermediate crude CLc1 was down 61 cents, or 0.6%, at $79.24 a barrel.

($1 = 127.8000 yen)

Reporting by Wayne Cole and Lawrence White;
Editing by Shri Navaratnam and Emelia Sithole-Matarise

Our Standards: The Thomson Reuters Trust Principles.

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