LONDON, Nov 16 (Reuters) – World stocks fell for the first time in five sessions, oil slipped and the dollar saw a slight lift on Thursday, as markets continued to acclimatize to falling borrowing costs after nearly two years of relentless gains.
Europe’s moves saw the STOXX 600 (.STOXX) slip from a more than one-month high, Wall Street look set for an early dip, and Taiwan’s dollar rise after China’s President Xi Jinping and U.S. counterpart Joe Biden agreed to reopen key military communications channels between the two superpowers.
Xi also underscored the point by saying China would not “fight a cold war or a hot war with anyone”.
Global markets have rallied sharply this month as inflation data out of the United States and parts of Europe, such as Britain, have reinforced hopes that major central banks are now done raising borrowing costs.
Robust U.S. retail sales figures on Wednesday were a reminder that it might not be a straight line move, however, with the focus now squarely on weekly U.S. jobless claims data later and a monthly euro zone inflation print on Friday.
“If you don’t get confirmation of the slowing economic direction from every single piece of data every single day we risk running out of momentum on the big trades,” Societe Generale FX strategist, Kit Juckes, said.
“Until we get to the point where rate cuts are just around the corner, everything is going to be very stop-start. The dollar sell-off is stop-start, the bond market rally is really stop-start and the equity market is all over the place.”
Key government bond market borrowing costs resumed their broad downward trend on Thursday, driven by increasing confidence that rate cuts are coming next year.
Germany’s 10-year bond yield dipped to 2.62% but held above the previous day’s two-month low of 2.568%, while sterling sank to a six-month low against the euro as dealers in London inched closer their predictions on when the Bank of England (BoE) will start cutting rates. EUR/GVD
Many now think it might be as soon as May although BoE policymaker Meg Greene warned on Thursday that investors are missing the message that central banks have been pushing recently that interest rates will remain higher for longer.
“I think markets globally haven’t really clocked on to this,” Greene told Bloomberg Television, adding that the BoE was not talking about cutting rates.
CHINA PROPERTY
Asian stocks fell overnight as new Chinese data showed continued weakness in its problem-hit property sector which dented recent optimism about a recovery in the world’s second-largest economy.
While data this week showed China’s industrial and retail sectors are now making a comeback, figures have also shown a sharp drop in property investment and weak home prices, underscoring the ongoing drag the sector is having.
There was mixed news from Japan too, where exports grew for a second straight month in October but at a sharply slower pace due to slumping China-bound shipments of chips and steel.
“The weak economic data from both countries indicate the fact that the global economy is slowing down, highlighting ongoing macro headwinds that businesses face,” said Tina Teng, market analyst at CMC Markets.
XI AND BIDEN
Australian shares (.AXJO) ended their day down 0.7% as strong wage data indicated that inflationary pressures there are still running high.
Japan’s Nikkei (.N225) dipped 0.3%, moving into reverse after it, along with the main MSCI Asian and emerging market indexes, all posted their biggest gains in a year on Wednesday.
Chinese stocks showed some disappointment at Xi and Biden’s first meeting in years, with Shanghai’s blue-chip CSI300 index (.CSI300) closing down 1% and Hong Kong’s Hang Seng index (.HSI) ending 1.3% lower.
While the two leaders agreed to resume military-to-military communications and cooperate on anti-drug policies, a sign ties are improving, some investors were disappointed at a lack of other breakthroughs in the talks.
The MSCI main 47-country global stocks index (.MIWD00000PUS) was down for the first time in five sessions after a near 8% surge this month.
Wall Street futures pointed to a slightly weaker start there too, although there was modest relief that the Senate had overwhelmingly approved a temporary funding measure to avert another U.S. government shutdown for now.
Money market traders have now fully priced in that the Federal Reserve will keep U.S. interest rates steady in December. They see the first rate cut of the cycle in May.
The yield on benchmark 10-year Treasury notes was back under 4.5% compared with its U.S. close of 4.537% on Wednesday. The two-year yield hovered at 4.88% compared with a U.S. close of 4.916%.
In currencies, the euro was flat at $1.0848, having gained 2.5% in a month, while the dollar index , which tracks the greenback against a basket of currencies of other major trading partners, was fractionally higher.
Oil traders, meanwhile, nudged U.S. crude down 0.3% to $76.55 a barrel. Brent crude was at $80.90 per barrel while safe-haven gold was slightly higher at $1,965 per ounce .
Additional reporting by Julie Zhu in Hong Kong; Editing by Christina Fincher and Mark Potter
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A look at the day ahead in U.S. and global markets from Mike Dolan
A more modest yearend schedule of Treasury debt sales than many feared helped bonds rally overnight while the Bank of Japan closed out a scary October for world markets on Tuesday with another modest tightening tweak.
A hectic Halloween of policy meetings, big macro reports and another slew of company earnings is seeing most world markets shave off the sharpest edges of a rough month, just as the Federal Reserve kicks off its latest two-day gathering.
But relief in Treasuries, the villain of the piece for several weeks, is probably the most significant marker for the remainder of the year.
On Monday, the U.S. Treasury said it expects to borrow $776 billion in the fourth quarter of the year, less than $852 billion it has previously indicated and below Wall St forecasts.
Officials said the reduced tally was down to an increased revenue estimate and that was mainly because tax payments from California and other states that had been previously deferred due to natural disasters were now flowing to Treasury coffers.
Given that the announcement in July of third-quarter borrowing of more than trillion dollars was largely responsible for the bond market selloff since, the more benign forecast for the final three months dragged 10-year benchmark yields back further from bruising 16-year peaks above 5%.
With hopes the resurfaced risk premium for holding long-term debt may ease as a result, 10-year yields were as low as 4.82% on Tuesday – some 20 basis points off recent highs.
Even though the Bank of Japan further loosened its grip on long-term interest rates on Tuesday by re-defining 1.0% as a loose “upper bound” rather than a rigid cap, markets took some solace it wasn’t more draconian. Even though 10-year Japanese government yields jumped as much as 7bps to 0.96%, the yen weakened again sharply past 150 per dollar and the Nikkei 225 index of leading stocks rose (.N225).
And there were further soothing noises for world bonds, even if not for global growth, from surprisingly weak Chinese business surveys for October. Chinese stocks (.CSI300) underperformed and closed lower yet again.
Adding to the mix on Monday was a retreat in crude oil prices to their lowest since the October 7 attacks on Israel, as Israel’s land invasion into Gaza advanced slowly and pressure to up stuttering humanitarian aid to the besieged citizens there increased.
Crude prices steadied around $83 per barrel on Tuesday, with market speculation about a rise in U.S. shale oil output circulating following recent major acquisitions by Big Oil firms.
In Europe, falling energy stocks (.SXEP) bucked a more positive wider market due to a 4.2% fall in BP (BP.L) after third-quarter earnings missed analysts’ forecasts.
Overall, the picture pointed to another positive day for Wall Street stocks, with futures marginally positive ahead of the open as the Fed meeting gets underway. The S&P500 (.SPX) rebounded after an awful month on Monday to clock its best day’s gain since August – but it remains on course to record its third straight month of losses since 2020.
The U.S. central bank is expected to leave policy rates unchanged again on Wednesday as it assess the final-quarter trajectory of inflation and the economy after a bumper Q3.
With the October jobs report due Friday, the latest consumer confidence reading for this month tops the economic diary on Tuesday in the meantime. The likes of pharma giant Pfizer and construction bellwether Caterpillar are on a heavy earnings slate.
In other positive news, General Motors (GM.N) and the United Auto Workers struck a tentative deal late on Monday, ending the union’s unprecedented six-week campaign of coordinated strikes that won record pay increases for workers at the Detroit Three automakers.
Key developments that should provide more direction to U.S. markets later on Tuesday:
* U.S. Oct consumer confidence, Oct Chicago business survey, Oct Dallas Fed service sector survey, Q3 employment costs, Aug house prices
* Federal Reserve starts 2-day policy meeting
* U.S. corporate earnings: Pfizer, Caterpillar, AMD, Amcor, Amgen, Marathon, MSCI, Caesars, Global Payments, Sysco, Eaton, Franklin Resources, Allegion, Assurant, AMETEK, Equity Residential, GE Healthcare, First Solar, Incyte, Paycom, Match, Bio-Techne, WEC Energy, Hubbell, Echolab, Zebra, ONEOK, Xylem
* U.S. Treasury auctions 12-month bills
By Mike Dolan, editing by Christina Fincher, <a href=”mailto:mike.dolan@thomsonreuters.com” target=”_blank”>mike.dolan@thomsonreuters.com</a>. Twitter: @reutersMikeD
Our Standards: The Thomson Reuters Trust Principles.
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
CHICAGO, Oct 17 (Reuters) – Arkansas ordered Syngenta to sell 160 acres (65 hectares) of farmland in the U.S. state within two years on Tuesday because the company is Chinese-owned, drawing a sharp rebuke from the global seeds producer.
U.S. farm groups and lawmakers are increasingly scrutinizing foreign land ownership due to concerns about national security.
“This is about where your loyalties lie,” Arkansas Governor Sarah Huckabee Sanders said at a news conference.
Syngenta said it was disappointed and called the decision “a shortsighted action” that will hurt Arkansas farmers. The company owns about 1,500 acres (610 hectares) of U.S. agricultural land for research, development and regulatory trials on products used by U.S. farmers, spokesman Saswato Das said.
“Our people in Arkansas are Americans led by Americans who care deeply about serving Arkansas farmers,” Das said. The company has owned the site in Craighead County for 35 years, he added.
The order is Arkansas’ first enforcement action under a state law passed this year that prohibits certain foreign parties from acquiring or holding land. China is among the prohibited parties because it is subject to U.S. arms export controls known as the International Traffic in Arms Regulations (ITAR), Arkansas Attorney General Tim Griffin said.
A rival of U.S. company Corteva (CTVA.N) and German firms BASF (BASFn.DE) and Bayer (BAYGn.DE), Swiss agrichemicals and seeds group Syngenta was bought for $43 billion by ChemChina in 2017 and folded into Sinochem Holdings Corp in 2021. ChemChina is a “state-owned enterprise” in China, Griffin said.
Syngenta is now pursuing an initial public offering in Shanghai.
If Syngenta fails to sell its land, owned by subsidiary Northrup King Seed Co, Griffin can “force them to get out of our state” with legal action, Huckabee Sanders said. The state also fined Syngenta $280,000 for failure to report foreign ownership in a timely manner.
In a form filed with the U.S. Department of Agriculture about the property last year, Syngenta said: “Ultimately, the foreign person that holds indirectly a significant interest in the person owning the land is from China,” according to a copy of the document posted by Griffin’s office.
But no one from China has ever directed Syngenta executives to buy, lease or otherwise engage in U.S. land acquisitions, Das said. Since Syngenta had Chinese ownership, the company has purchased an additional 200 agricultural acres (80 hectares), he said.
“All Syngenta land holdings have been examined by the U.S. government, through two administrations, as Syngenta was transitioning to ChemChina ownership,” Das said.
Foreign persons held an interest in approximately 40 million acres (16.2 million hectares) of U.S. agricultural land as of Dec. 31, 2021, the USDA said. That was 3.1% of all privately held agricultural land and 1.8% of all land. China had less than 1% of foreign-held land, while Canadian investors had 31%.
Reporting by Tom Polansek; editing by Jonathan Oatis
Our Standards: The Thomson Reuters Trust Principles.
A look at the day ahead in U.S. and global markets by Mike Dolan
A renewed surge in long-term Treasury yields is stifling world markets yet again as Federal Reserve officials hang tough on one more rate rise, some $134 billion of new government debt sales hit this week and a government shutdown looms.
The yield spike has supercharged the U.S. dollar worldwide – both a reflection and aggravator of mounting financial stress far and wide.
Despite wariness of Bank of Japan intervention, the dollar/yen exchange rate hit its highest for the year on Tuesday – as did the dollar’s DXY (.DXY) index and the dollar’s rate against the South Korea’s won . Sterling hit a 6-month low.
Treasury tremors continue to reverberate from last week’s upgraded Fed forecasts, its insistence on signalling one more rate rise in the current tightening cycle and an uncompromising ‘higher-for-longer’ mantra.
Short term Fed futures haven’t moved much. All the action is in longer-dated U.S. Treasuries, which may now be repricing the economy’s resilience over multiple years and more persistent inflation pressures.
Ten-year Treasury yields , which have added a whopping 25 basis points in just a week, hit another 16-year high at 4.5660% early on Tuesday. As Deutsche Bank notes, this is historically significant territory as the average of the 10-year yield going back to 1799 is around 4.50%.
Thirty-year bond yields , meantime, have jumped over 30bp in a week to a 12-year high of 4.6840%.
And as an indication of how the long-term sustainable interest rate structure as whole is being re-thought, the 10-year real, inflation-adjusted yield has also leaped 26bp to 2.20% – its highest since 2009.
Significantly, this is shifting the deeply-inverted 2-to-10 year yield gap – which has for more than a year indicated recession ahead but which now looks to be closing that negative spread to its smallest since May.
The latest wobble – which has seen exchange-traded funds in U.S. Treasuries deepen year-to-date losses to more than 6% and losses over three years to more than 20% – comes as another heavy supply of new paper goes up for auction this week.
The Treasury sells $48 billion in two-year notes on Tuesday, $49 billion in five-year paper on Wednesday and $37 billion in seven-year notes on Thursday.
A government shutdown from this weekend is still looming with no budget deal in Congress yet to avert it and Moody’s warning of sovereign credit rating implications.
The Fed seems in no mood to calm the horses.
Minneapolis Fed Bank President Neel Kashkari said on Monday the Fed probably needs to raise borrowing rates further.
“If the economy is fundamentally much stronger than we realized, on the margin, that would tell me rates probably have to go a little bit higher, and then be held higher for longer to cool things off,” Said Kashkari.
Even a typically more dovish Chicago Fed boss Austan Goolsbee sounded hawkish. “The risk of inflation staying higher than where we want it is the bigger risk,” he said, adding the Fed would now have to “play by ear” in conducting policy.
Private sector bankers are starting to brace for the worst, with JP Morgan chief Jamie Dimon reported overnight as warning: “I am not sure if the world is prepared for 7% (Fed rates).”
Even though the European Central Bank seems shier of even higher rates, the higher-for-longer message there too is clear. ECB chief Christine Lagarde said on Monday the central bank can meet its 2% inflation target if record high rates are maintained for “a sufficiently long duration.”
In a thin data diary on Monday, the Dallas Fed’s September manufacturing survey showed a deterioration of activity there this month. The Chicago Fed’s national business poll for August also fell.
And a retreat in energy prices would have soothed some inflation worries, with U.S. crude falling back to $88 per barrel for the first time in almost two weeks,
Nationwide consumer confidence tops the slate on Tuesday.
Despite a late rally in Wall St stocks on Monday, futures are back about 0.5% in the red – as were bourses in Asia and Europe as the end of the third quarter hoves into view on Friday.
China Evergrande (3333.HK) shares slid for a second day, dropping as much as 8% after a unit of the embattled property developer missed an onshore bond repayment.
There was no sign of a breakthrough in the widening U.S. autoworkers labor dispute, seen as inflationary by some due to potential supply outages.
Key developments that should provide more direction to U.S. markets later on Tuesday:
* US Sept consumer confidence, US Aug new home sales, July house prices, Richmond Fed Sept business survey, Dallas Fed Sept service sector survey, Philadelphia Fed Sept services survey
* Federal Reserve Board Governor Michelle Bowman gives pre-recorded remarks to Washington conference
* U.S. Treasury auctions $48 billion of 2-year notes
* U.S. corporate earnings: Costco, Cintas
Reporting by Mike Dolan; Editing by Christina Fincher
Our Standards: The Thomson Reuters Trust Principles.
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
A sign is seen outside the 11 Wall St. entrance of the New York Stock Exchange (NYSE) in New York, U.S., March 1, 2021. REUTERS/Brendan McDermid Acquire Licensing Rights
A look at the day ahead in U.S. and global markets from Mike Dolan
World markets stayed remarkably buoyant even as the chances of one more U.S. interest rate hike have moved firmly onto the radar, with China’s bourses extending Monday’s rally and the state of U.S. employment now top of mind.
For the first time since before the regional banking crisis in March, U.S. futures now see more than a 50% chance of yet another Federal Reserve rate rise to 5.5-5.75% – where the median of Fed policymaker forecasts from their June meeting still lies. Early Tuesday, futures priced almost a two-thirds chance of that additional quarter-point move in November.
After almost two months of stability in assuming peak rates would be where they are now, the chances of another tightening have been creeping higher again over the past 10 days and appear to be cementing following Fed Chair Jerome Powell’s relatively hawkish speech at Jackson Hole on Friday.
And yet – perhaps with the uncertainty dissipating, the economy still robust and bond markets better priced – world markets appear to be taking the tighter odds in their stride.
Wall St’s S&P500 (.SPX) clocked only its second-consecutive gain of the month so far on Monday, while MSCI’s all-country index (.MIWD00000PUS) is on course for its sixth gain in seven trading days.
More impressively in the circumstances, restive bond markets calmed down and bond yields continued to dial back from their highest in over a decade last week. Two-year Treasury yields fell back below 5%, with 10-year yields eyeing their lowest in almost two weeks at 4.17% and equity risk gauges such as the VIX (.VIX) of implied volatility touching two-week lows too.
The dollar (.DXY) was firm, but stayed off last week’s near three-month high.
With the Atlanta Fed’s real-time estimate of quarterly real GDP growth running as high as 5.9% – about 9% in nominal terms – the Fed will likely need to see some considerable softening of incoming economic data to prevent it moving again.
This week the onus falls largely on the labor markets, with the national payrolls report due Friday but with July readings on job openings due later on Tuesday – alongside August consumer confidence numbers and June house price data.
Friday’s August payrolls report is expected to show a slowdown in monthly hiring to about 150,000 but an unchanged unemployment rate of just 3.5%.
Overseas, China’s embattled stock markets managed to advance for a second day – lifted by a series of support measures and hopes of some detente in the economic and financial standoff between Washington and Beijing amid a three-day visit to China by U.S. Commerce Secretary Gina Raimondo.
Although it gave back the bulk of Monday’s 5% early surge by the close of business, China’s CSI300 (.CSI300) push 1% higher again on Tuesday after weekend measures to slash stamp duty on stock purchases and limit new stock listings. With tech and healthcare sectors leading the way, foreigners were net buyers again on Tuesday.
Just how cash-strapped embattled Country Garden Holdings (2007.HK) is will be the focus when China’s largest private property developer is due to report its first-half results on Wednesday.
Asia bourses more widely and European indices were higher, while Wall St futures were flat ahead of the open.
Tropical Storm Idalia closed in on Florida’s Gulf Coast on Tuesday after skirting past Cuba, headed for a U.S. landfall as a powerful Category 3 storm, prompting authorities to order evacuations of vulnerable shoreline areas.
Events to watch for on Tuesday:
* U.S. August consumer confidence, July JOLTS job openings data, June house prices, Dallas Fed Aug service sector survey
* Federal Reserve Vice Chair for Supervision Michael Barr speaks
* U.S. Treasury auctions 7-year notes
* U.S. corporate earnings: Best Buy, HP, JM Smucker, Catalent, Pinduoduo
By Mike Dolan, editing by Susan Fenton <a href=”mailto:mike.dolan@thomsonreuters.com” target=”_blank”>mike.dolan@thomsonreuters.com</a>. Twitter: @reutersMikeD
Our Standards: The Thomson Reuters Trust Principles.
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
A sign of Wanda is pictured at the headquarters of Dalian Wanda Group, in Beijing’s Central Business District (CBD), China August 8, 2023. REUTERS/Tingshu Wang/File Photo Acquire Licensing Rights
LONDON/FRANKFURT/NEW YORK, Aug 17 (Reuters) – Dalian Wanda Group, owned by China’s once-richest man Wang Jianlin, is seeking to sell its sports marketing unit Infront as financial pressure mounts on the property developer to shore up its finances, four people familiar with the matter told Reuters.
China’s largest commercial property group has tapped Deutsche Bank for advice on the sale of Infront Sports & Media, the sources said, adding the process is in the early stages and could take months to complete.
Private equity firms are looking at Infront, three of the sources said. The successful buyer is likely to be an investor with deep pockets because of the minimum guarantees the company is required to pay for sports rights, one of the sources added.
Headquartered in Switzerland, Infront’s businesses include managing Italy’s Serie A and the UK Premier League’s international media rights, as well as event operations, media rights distribution and sponsorship sales.
In June, Infront was awarded broadcast rights in 22 countries in Central and South East Asia for the Olympic Games from 2026 through 2032.
Wanda and Deutsche Bank declined to comment. Infront did not immediately return requests for comment.
The sources, who requested anonymity as the matter is confidential, cautioned a deal is not certain and is subject to market conditions.
China’s property developers have been battered over the last few years as falling sales and a wave of debt defaults have savaged a sector that previously contributed around a quarter of the country’s gross domestic product.
In July, the three main credit ratings agencies downgraded Dalian Wanda’s commercial management unit, warning of “non-payment risk” ahead of the repayment of a $400 million bond that had been due at the time. It raised $320 million through the partial sale of its entertainment unit Beijing Wanda Cultural Industry to pay it off.
It also stalled on a $22 million-dollar bond coupon payment in June, though it ultimately paid within the grace period. Additionally, it is facing litigation and asset freeze orders from courts in China due to payment disputes.
Wanda bought a majority stake in Infront for 1.05 billion euros ($1.1 billion) in 2015, in what was then an effort to support China in bidding for major sports events. It does not disclose financials for Infront.
Companies in the sports marketing sector have been strapped for cash after a downturn during the COVID pandemic.
Spain’s Mediapro, which manages international media rights for LaLiga, restructured 900 million euros in debt a year ago selling shares to investors including the group’s majority shareholder Southwind.
($1 = 0.9204 euros)
Reporting by Amy-Jo Crowley, Emma-Victoria Farr and Milana Vinn, additional reporting by Andres Gonzalez, Kane Wu and Clare Jim, editing by Elisa Martinuzzi and Sharon Singleton
Our Standards: The Thomson Reuters Trust Principles.
A look at the day ahead in U.S. and global markets from Mike Dolan, Editor-at-Large, financial industry and financial markets
As investors switch attention to the health of the U.S. consumer, a funk in China’s economy, markets and currency appeared to deepen and emerging market ructions spread.
After another disappointing reading for industrial production and retail sales this month, China’s central bank scrambled to cut 1-year lending rates by 15 basis points to 2.50% – the second cut in policy rates in three months – and sent the yuan sliding to 2023 lows against the dollar.
China stocks fell again (.CSI300) and 10-year government bond yields fell to three-year lows.
Perhaps more worrying for those fretting about the broader stability of China’s economy, the corrosive real estate bust saw property investment fall for the 17th straight month amid creeping deflation fears and the government suspended publication of spiralling youth unemployment rates.
The contrast with the U.S. picture is stark right now.
The ongoing reassessment of the U.S. economy now has as many as three in four fund managers around the world assuming there will either be a soft landing or even no landing for the economy over the next 12 months, according to Bank of America’s latest monthly investor poll.
As cash holdings have been reduced in August, asset managers have reduced their underweight equity positions and, rather surprisingly given the hit to bond prices this month, upped global bond allocations to a net 5% overweight. The latter is now some 2.2 standard deviations above long-term averages.
And yet, in part due to a rethink of the long-term sustainable interest rate over the horizon, long-term U.S. Treasury yields continue to climb – even in tandem with a tech-led rebound in stock prices (.SPX) on Monday. Ten-year Treasury yields hit their highest for the year at 4.23%.
With inflation expectations subdued , 10-year inflation-adjusted Treasury yields hit their highest in 14 years at 1.87% – with eyes now trained on any long-term Fed guidance from its annual Jackson Hole conference later this month.
A combination of rising real U.S. yields and robust readings for the U.S. economy – which should be reinforced by the July retail sales report on Tuesday – and increasingly turbulence in China and many emerging economies is supercharging the dollar in many quarters.
Despite news of forecast-beating accelerating growth in Japan in the second quarter, the yen skidded to its lowest in 10 months on Tuesday alongside the yuan slide.
Elsewhere in the so-called BRICS emerging economies – the grouping of Brazil, Russia, India, China and South Africa – the dollar was also in command.
Isolated economically and financially from the West for over a year after its invasion of Ukraine, Russia raced to shore up its plummeting rouble on Tuesday with an emergency interest rate hike of 3.5 percentage points to 12% – with only modest success so far.
Jarred by the surprise emergence of a far-right presidential candidate in Argentina’s primary elections – who has an agenda to dollarize the hyperinflation-dogged economy – the peso was devalued again on Monday. Argentina’s incumbent government wants to join the BRICS grouping too.
And even India’s rupee was on the slide to a 10-month low.
Back stateside, the retail sales report will be accompanied by an earnings update from Home Depot – the first of the big retailers to report this week. Housing market sentiment indicators are also out.
S&P500 futures were off a touch before the open.
Events to watch for on Tuesday:
* U.S. corporate earnings: Home Depot, Agilent Technologies, Cardinal Health, Jack Henry
* U.S. July retail sales, July import/export prices, NAHB August housing index, NY Fed August manufacturing, June TIC data on Treasury holdings, June business inventories; German August ZEW investor survey; Canada July inflation, home sales and June manufacturing
* Minneapolis Federal Reserve President Neel Kashkari speaks
By Mike Dolan, editing by Susan Fenton; <a href=”mailto:mike.dolan@thomsonreuters.com” target=”_blank”>mike.dolan@thomsonreuters.com</a>. Twitter: @reutersMikeD
Our Standards: The Thomson Reuters Trust Principles.
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
LONDON/SYDNEY, July 31 (Reuters) – Commercial real estate investors and lenders are slowly confronting an ugly question – if people never again shop in malls or work in offices the way they did before the pandemic, how safe are the fortunes they piled into bricks and mortar?
Rising interest rates, stubborn inflation and squally economic conditions are familiar foes to seasoned commercial property buyers, who typically ride out storms waiting for rental demand to rally and the cost of borrowing to fall.
Cyclical downturns rarely prompt fire sales, so long as lenders are confident the investor can repay their loan and the value of the asset remains above the debt lent against it.
This time though, analysts, academics and investors interviewed by Reuters warn things could be different.
With remote working now routine for many office-based firms and consumers habitually shopping online, cities like London, Los Angeles and New York are bloated with buildings local populations no longer want or need.
That means values of city-centre skyscrapers and sprawling malls may take much longer to rebound. And if tenants can’t be found, landlords and lenders risk losses more painful than in previous cycles.
“Employers are beginning to appreciate that building giant facilities to warehouse their people is no longer necessary,” Richard Murphy, political economist and professor of accounting practice at the UK’s Sheffield University, told Reuters.
“Commercial landlords should be worried. Investors in them would be wise to quit now,” he added.
WALL OF DEBT
Global banks hold about half of the $6 trillion outstanding commercial real estate debt, Moody’s Investors Service said in June, with the largest share maturing in 2023-2026.
U.S. banks revealed spiralling losses from property in their first half figures and warned of more to come.
Global lenders to U.S. industrial and office real estate investment trusts (REITs), who supplied credit risk assessments to data provider Credit Benchmark in July, said firms in the sector were now 17.9% more likely to default on debt than they estimated six months ago. Borrowers in the UK real estate holding & development category were 4% more likely to default.
Jeffrey Sherman, deputy chief investment officer at $92 billion U.S. investment house DoubleLine, said some U.S. banks were wary of tying up precious liquidity in commercial property refinancings due in the next two years.
“Deposit flight can happen any day,” he said, pointing to the migration of customer deposits from banks to higher-yielding ‘risk-free’ money market funds and Treasury bonds.
“As long as the Fed keeps rates high, it’s a ticking time bomb,” he said.
Some global policymakers, however, remain confident that the post-pandemic shift in the notion of what it means ‘to go to work’ will not herald a 2008-9 style credit crisis.
Demand for loans from euro zone companies tumbled to the lowest on record last quarter, while annual U.S. Federal Reserve ‘stress tests’ found banks on average would suffer a lower projected loan loss rate in 2023 than 2022 under an ‘extreme’ scenario of a 40% drop in commercial real estate values.
Average UK commercial property values have already fallen by around 20% from their peak without triggering major loan impairments, with one senior regulatory source noting that UK banks have far smaller property exposure as a proportion of overall lending than 15 years ago.
But Charles-Henry Monchau, Chief Investment Officer at Bank Syz likened the impact of aggressive rate tightening to dynamite fishing.
“Usually the small fishes come to the surface first, then the big ones – the whales – come last,” he said.
“Was Credit Suisse the whale? Was SVB the whale? We’ll only know afterwards. But the whale could be commercial real estate in the U.S.”.
CUTTING SPACE
Global property services firm Jones Lang LaSalle (JLL.N) – which in May pointed to a 18% annual drop in first quarter global leasing volumes – published data this month showing prime office rental growth in New York, Beijing, San Francisco, Tokyo and Washington D.C. turned negative over the same period.
In Shanghai, China’s leading financial hub, office vacancy rates rose 1.2 percentage points year-on-year in Q2 to 16%, rival Savills (SVS.L) said, suggesting a recovery would depend on nationwide stimulus policies succeeding.
Businesses are also under pressure to slash their carbon footprint, with HSBC (HSBA.L) among those cutting the amount of space they rent and terminating leases at offices no longer considered ‘green’ enough.
More than 1 billion square meters of office space globally will need to be retrofitted by 2050, with a tripling of current rates to at least 3%-3.5% of stock annually to meet net-zero targets, JLL said.
Australia’s largest pension fund, the A$300 billion AustralianSuper, is among those on the sidelines, saying in May it would suspend new investment in unlisted office and retail assets due to poor returns.
Meanwhile, short-sellers continue to circle listed property landlords the world over, betting that their stock prices will sink.
The volume of real estate stocks lent by institutional investors to support shorting activity has grown by 30% in EMEA and 93% in North America over the 15 months to July, according to data provider Hazeltree.
According to Capital Economics, global property returns of around 4% a year are forecast this decade, compared with a pre-pandemic average of 8%, with only a slight improvement expected in the 2030s.
“Investors must be willing to accept a lower property risk premium,” Capital Economics said. “Property will look overvalued by the standards of the past.”
Additional reporting by Dhara Ranasinghe and Huw Jones in London and Clare Jim in Hong Kong; Editing by Kirsten Donovan
Our Standards: The Thomson Reuters Trust Principles.
LONDON, June 29 (Reuters) – Markets are on the alert to which sectors will buckle under the sharpest jump in interest rates in decades, with big rate moves this month in Britain and Norway a reminder that the tightening is not over.
Central banks may need longer to lower inflation and a fresh bout of financial turbulence could make the process even more protracted, the International Monetary Fund warns.
Stability has returned since March’s banks turmoil, but warning lights are flashing elsewhere and tensions in Russia provide another possible trigger for stress.
Here is a look at some of the pressure points.
1/ REAL ESTATE: PART 1
Just as hopes for an end to Federal Reserve rate hikes boost the U.S. housing market, European residential property is suffering under rate hikes.
UK rates have jumped to 5% from 0.25% two years ago and 2.4 million homeowners will roll off cheap fixed rate mortgages onto much higher rates by end-2024, banking trade body UK Finance estimates.
Sweden, where rates rose again on Thursday, is one to watch with most homeowners’ mortgages moving in lockstep with rates.
London Business School economics professor Richard Portes said, euro zone housing markets appear to be “freezing up” as transactions and prices fall. “You can expect worse in 2024 when the full effects of rate hikes come forth,” he said.
2/ REAL ESTATE: PART 2
Having taken advantage of the low rates era to borrow aplenty and buy up property assets, the commercial real estate sector is grappling with higher debt refinancing costs as rates rise.
“The single most important thing is interest rates. But not just interest rates; what it is equally important is the predictability of rates,” said Thomas Mundy, EMEA head of capital markets strategy at real estate firm JLL.
“If we were settled on an interest rate, real estate prices could adjust. But at the moment, the lag in the adjustment to real estate pricing is creating an uncertain environment.”
In Sweden, high debts, rising rates and a wilting economy has produced a toxic cocktail for commercial property.
And HSBC‘s decision to leave London’s Canary Wharf for a smaller office in the City highlights an office downsizing trend rocking commercial real estate markets.
3/ BANK ASSETS
Banks remain in focus as credit conditions tighten.
“There is no place to hide from these tighter financial conditions. Banks feel the pressure of every central bank,” said Lombard Odier Investment Managers’ head of macro Florian Ielpo.
Banks hold two types of balance sheet assets: those meant for liquidity and those that work like savings meant to earn additional value. Rising rates have pushed many of these assets 10%-15% lower than their purchase price, Ielpo said. Should banks need to sell them, unrealised losses would emerge.
Most at risk are banks’ real estate assets. Federal Reserve chief Jerome Powell says the Fed is monitoring banks “very carefully” to address potential vulnerabilities.
Lending standards for the average household are also a concern. Ielpo expects consumers will stop paying loan payments in the third and fourth quarters.
“This will be the Achilles heel of the banking sector,” he added.
4/ DEFAULT
Rising rates are taking a toll on corporates as the cost of their debt balloons.
S&P expects default rates for European sub-investment grade companies to rise to 3.6% in March 2024 from 2.8% this March.
Markus Allenspach, head of fixed income research at Julius Baer, notes there were as many defaults globally in the first five months of 2023 as there were during 2022.
French retailer Casino is in debt restructuring talks with its creditors. Sweden’s SBB has been fighting for survival since its shares plunged in May on concern over its financial position.
“We are starting to see distress building up in the corporate space, especially at the low end where you have most floating rate debt,” said S&P Global Ratings’ Nick Kraemer.
5/ RUSSIA AFTER WAGER MUTINY
The Wagner mutiny, the gravest threat to Russia’s Vladimir Putin’s rule to date, might have been aborted, but will long reverberate. Any changes to Russia’s standing – or to the momentum behind the war in Ukraine – could be felt near and far.
There’s the immediate fallout for commodity markets from crude oil to grains, the most sensitive to domestic changes in Russia. And knock on effects, from inflation pressures to risk aversion in case of a major escalation, could have far reaching consequences for countries and corporates already feeling the heat from rising rates.
“Putin can no longer claim to be the guarantor of Russian stability and you don’t get that kind of fragmentation and challenges to the system in a stable and popular regime,” said Tina Fordham, geopolitical strategist and founder of Fordham Global Foresight.
Reporting by Chiara Elisei, Naomi Rovnick, Nell Mackenzie and Karin Strohecker, Graphics by Vincent Flasseur, Kripa Jayaram, Sumanta Sen and Pasit Kongkunakornkul, Editing by Dhara Ranasinghe and Alison Williams
Our Standards: The Thomson Reuters Trust Principles.
LONDON, June 27 (Reuters) – HSBC’s (HSBA.L) move to ditch its 45-floor Canary Wharf tower in favour of a much smaller development in central London is one of the most visible examples yet of an office downsizing trend that’s rocking commercial real estate markets globally.
Europe’s largest bank told staff on Monday that it planned to quit the skyscraper that bears its name in the east London financial district and move some 8,000 workers to a redeveloped office complex overlooking St Paul’s Cathedral.
A recent spate of downsizing moves by major employers comes as landlords and real estate developers already face a crunch from soaring financing costs, adding to pressure on the sector.
Companies globally are ditching large office buildings at an unprecedented rate as home working takes hold after the COVID-19 pandemic and as businesses opt for greener offices to meet testing sustainability targets.
It’s a trend that’s already challenging the business models of large office landlords and has the potential to reshape cities, property analysts and experts say.
“Home working has shrunk the amount of space HSBC need. That won’t be unique to them,” said Tony Travers, director of the London School of Economics’ London research group.
London’s traditional financial hub the City of London and Canary Wharf have competed for company headquarters since the 1980s, but competitive rents may lure companies that had previously balked at the cost back to city centres, Travers added.
Around half of the world’s largest employers plan to reduce office space in the next three years, typically by 10% to 20%, a survey by property agent Knight Frank last month found.
The ripple effects of so many companies slashing office space has significantly impacted wider markets.
Real estate came top of an index of Europe’s most distressed sectors for the first quarter of 2023, according to data compiled by law firm Weil Gotshal & Manges, driven by a squeeze on valuations, liquidity and investment.
Sweden in particular has been under the spotlight, given the high exposure its households and investors have to the real estate market. High debts, rising interest rates and a wilting economy have produced a toxic cocktail for local commercial property companies, with several cut to junk by rating agencies.
The other major factor prompting office moves is the ticking clock of green targets set by many companies under pressure from investors, environmentalists and regulators.
“For large businesses, the operational model has to change and the companies need to stand alongside – as far as they are able – the pursuit of green policies,” said Gerardine Davies, co-founder of investor Perenna Capital Management.
‘GENIE OUT OF THE BOTTLE’
HSBC for its part has one of the most aggressive targets to cut office space among major employers, with a commitment to axe around 40% globally.
The bank intends to move its headquarters to the revamped former offices of telecoms giant BT in late 2026.
The so-called Panorama St Paul’s development has 556,000 square foot of space, according to the project’s website, around half the size of the 1.1 million sq ft tower HSBC leaves behind.
BT itself relocated to a new smaller headquarters in nearby Aldgate in the City in 2021, which houses around 3,500 people and includes more flexible spaces for hybrid workers.
HSBC’s move comes at an awkward time for Canary Wharf, when Swiss bank Credit Suisse’s long-running presence in the Docklands estate is also uncertain after its emergency takeover by UBS, which plans to axe thousands of jobs.
The City of London Corporation, which runs the Square Mile financial district, was quick to trumpet HSBC’s shift on Monday, calling it a “huge vote of confidence for the City”. Canary Wharf Group, the Docklands commercial landlord, declined to comment.
Canary Wharf Group has been trying to adapt to the times by diversifying away from its core area of strength of financial sector occupiers by developing a giant life sciences campus and building more flats, restaurants and bars.
Credit rating agency Moody’s nonetheless downgraded the landlord’s ratings in May due to the tough outlook for the real estate sector.
One of the Canary Wharf estate’s newer developments, the YY building – a recently completed redevelopment of Thomson Reuters’ former headquarters opposite Canary Wharf station – remains vacant, Bloomberg has reported. Property agents for YY did not respond to a Reuters request for comment.
“The genie is out of the bottle,” said Andrew Mawson, founder of consultancy Advanced Workplace Associates. “Employees aren’t coming back to the office in the way that they used to.”
Reporting by Iain Withers and Chiara Elisei
Additional reporting by Sinead Cruise and Paul Sandle
Editing by Mark Potter
Our Standards: The Thomson Reuters Trust Principles.
