[1/2]The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, September 26, 2023. REUTERS/Staff/File Photo Acquire Licensing Rights
LONDON/HONG KONG, Sept 27 (Reuters) – Global stocks inched higher on Wednesday as investors found a footing after a sharp sell-off the previous day, while U.S. Treasury yields dipped after hitting their highest level since 2007.
Stocks and bonds have dropped in recent weeks as investors come to terms with the idea that central banks will hold interest rates “higher for longer” than previously expected, as officials try to squeeze inflation out of economies.
The Europe-wide STOXX 600 index (.STOXX) was up 0.2% on Wednesday, after falling 0.6% in the previous session in its fourth straight daily drop.
MSCI’s index of global stocks (.MIWD00000PUS) was little changed after falling 1.2% the previous day. The index has fallen 4.5% since the start of September.
Germany’s Dax index (.GDAXI) was up 0.05% while Britain’s FTSE 100 (.FTSE) was flat. In Asia overnight, Japan’s Nikkei 225 index (.N225) rose 0.18%.
At the root of the recent equity sell-off, said Jan von Gerich, chief analyst at Nordea, has been a sharp rise in bond yields as traders have cut their bets that central banks will lower interest rates any time soon.
“The latest catalyst has been the increase in bond yields, so if that stabilises then maybe the equity market stabilises as well,” he said.
“The big picture outlook is that we’re probably close to the peak (in bond yields) but the near-term momentum is still upwards.”
On Wednesday, the yield on the 10-year U.S. Treasury note was down 5 basis points to 4.507%, after touching its highest level since October 2007 on Tuesday at 4.566%. A bond’s yield rises as its price falls, and vice versa.
Also on investors’ minds is a looming U.S. government shutdown; further signs of an economic slump in China; and a recent rise in oil prices.
U.S. equity futures picked up as bond yields fell, with contracts for the benchmark S&P 500 stock index 0.43% higher. Dow Jones futures were 0.35% higher while Nasdaq futures were up 0.46%.
The Dow posted its biggest one-day percentage drop since March on Tuesday, while all three major averages ended at their lowest closing levels in well over three months.
In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) was 0.12% higher. The index is down 3.7% so far this month.
Chinese corporate health was a focal point. Profits at China’s industrial firms fell 11.7% in the first eight months of the year, albeit a smaller decline than the 15.5% drop for the first seven months.
“The stabilising industrial profits are simply not significant enough to override concerns about risks, especially in real estate,” said Gary Ng, Asia Pacific senior economist at Natixis.
As stress spreads in the Chinese property sector, Bloomberg reported that the chairman of beleaguered Chinese property group Evergrande has been placed under police surveillance.
The dollar index , which tracks the greenback against a basket of currencies, was roughly flat at 106.2. It climbed to 106.32 earlier in the session, its highest since Nov. 30.
U.S. crude oil was 1.14% higher to $91.42 a barrel. Brent crude rose 0.85% to $94.76 per barrel.
The U.S. Senate on Tuesday took a step forward on a bipartisan bill meant to stop the government from shutting down in just five days, but the House remains hamstrung by divisions between Republican members.
Meanwhile, investors were also on the lookout for government intervention in the Japanese yen after it fell past the 149 per dollar mark on Tuesday for the first time in just under a year.
Reporting by Harry Robertson in London and Julie Zhu in Hong Kong; Editing by Jamie Freed, Edwina Gibbs and Anil D’Silva
Our Standards: The Thomson Reuters Trust Principles.
WASHINGTON, Sept 26 (Reuters) – U.S. consumer confidence dropped to a four-month low in September, weighed down by persistent worries about higher prices and rising fears of a recession, though households remained generally upbeat about the labor market.
The second straight monthly decline in confidence reported by the Conference Board on Tuesday also reflected higher interest rates and concerns about the political environment.
The nation faces a potentially disruptive shutdown of the federal government on Saturday amid political wrangling. Confidence fell across all age groups, and was most pronounced among consumers with annual incomes of $50,000 or more.
“Inflation is slowing, but prices are still higher than they were before the pandemic and this is taking a toll on consumer confidence,” said Christopher Rupkey, chief economist at
FWDBONDS in New York.
The Conference Board said its consumer confidence index dropped to 103.0 this month, the lowest reading since May, from an upwardly revised 108.7 in August. Economists polled by Reuters had forecast the index easing to 105.5 from the previously reported 106.1. Consumers’ perceptions of the likelihood of a recession over the next year ticked back up.
A sharp decrease in the expectations measure accounted for the decline in confidence, which economists partially attributed to the looming government shutdown, with Congress so far failing to pass any spending bills to fund federal agency programs in the fiscal year starting on Oct. 1.
Hundreds of thousands of federal workers will be furloughed and a wide range of services, from economic data releases to nutrition benefits, suspended beginning on Sunday.
“Consumers also expressed concerns about the political situation and higher interest rates,” said Dana Peterson, chief economist at The Conference Board in Washington.
The cutoff date for the preliminary survey was Sept. 18. Millions of Americans will also start repaying their student loans in October and most have run down their pandemic savings.
The survey showed consumers increasingly concerned about their family finances.
The Federal Reserve last week left its benchmark overnight interest rate unchanged at the 5.25%-5.50% range. The U.S. central bank, however, stiffened its hawkish stance, projecting another rate hike by year end and monetary policy staying significantly tighter through 2024 than previously expected.
The Fed has hiked the policy rate by 525 basis points since March 2022.
Though consumers continued to fret over the higher cost of living, their inflation expectations over the next year remained stable and they showed no intentions of drastically pulling back on purchases of motor vehicles and other big-ticket items like television sets and refrigerators over the next six months.
Fewer, however, expected to buy a house, with the rate on the popular 30-year fixed-mortgage the highest in more than 22 years and home prices reaccelerating.
Consumers’ 12-month inflation expectations were unchanged at 5.7% for the third straight month.
Consumer spending remains underpinned by a tight labor market, which is keeping wage growth elevated.
The survey’s so-called labor market differential, derived from data on respondents’ views on whether jobs are plentiful or hard to get, widened to 27.3 this month compared to 26.7 in August. This measure correlates to the unemployment rate in the Labor Department’s closely followed employment report.
Stocks on Wall Street fell. The dollar rose against a basket of currencies. U.S. Treasury prices were lower.
HOUSE PRICES ACCELERATE
A separate from the Commerce Department showed new home sales plunged 8.7% to a seasonally adjusted annual rate of 675,000 units in August after racing to a 17-month high in July.
Economists had forecast new home sales, which account for a small share of U.S. home sales, falling to a rate of 700,000 units. New home sales are counted at the signing of a contract, making them a leading indicator of the housing market. They, however, can be volatile on a month-to-month basis. Sales increased 5.8% on a year-on-year basis in August.
Though new home sales remain supported by a dearth of previously owned homes on the market, the resurgence in mortgage rates is reducing affordability for prospective home buyers.
The rate on the 30-year fixed mortgage vaulted above 7% in August and climbed to an average of 7.19% last week, the highest since July 2001, according to data from mortgage finance agency Freddie Mac. Mortgage rates are rising in tandem with U.S. Treasury yields, which have surged on worries that soaring oil prices could hamper the Fed’s fight against inflation.
“While we expect higher rates to hurt new home sales, we think they will be more resilient than existing home sales as builders seem willing to scale up their use of incentives to motivate sales,” said Nancy Vanden Houten, lead U.S. economist at Oxford Economics in New York.
A third report from the Federal Housing Finance Agency showed annual home price growth quickened for a second straight month in July, largely reflecting the tight supply in the market for previously owned homes. House prices jumped 4.6% on a year-over-year basis in July after rising 3.2% in June. Prices shot up 0.8% month-on-month after advancing 0.4% in June.
The resurgence in house prices was seen feeding through to higher inflation, likely giving the Fed cover to maintain its hawkish posture for some time.
“The Fed will see the reacceleration of house prices as a reason to keep interest rates higher for longer,” said Bill Adams, chief economist at Comerica Bank in Dallas. “Renting households are seeing some relief in new lease prices, but since two thirds of Americans are homeowners, the Fed cannot afford to look past house prices’ influence on the cost of living.”
Reporting by Lucia Mutikani; Additional reporting by Amina Niasse; Editing by Chizu Nomiyama and Andrea Ricci
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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 Swedish flag flutters in front of residential houses in Stockholm, Sweden, September 14, 2023. REUTERS/Marie Mannes/File Photo Acquire Licensing Rights
FRANKFURT/OSLO, Sept 25 (Reuters) – Troubled Swedish landlord SBB is exploring the sale of a controlling stake in its residential arm, which owns 23,000 apartments, as it overhauls its business to meet debt deadlines next year, its chief executive told Reuters.
CEO Leiv Synnes said the company’s sale of control in a schools property business to Canadian investor Brookfield was just the start of a sweeping overhaul of its operations, and that selling a minority or controlling stake in its residential arm could be next.
“This is the first step,” Synnes said, referring to the sale of control in EduCo that allowed the repayment of an inter-company loan, releasing 7.8 billion Swedish crowns ($706 million) of cash. “We need to take more steps.”
Synnes said he was in discussions with investors about its 39-billion-crown ($3.5 billion) residential arm as he seeks to close a financing gap. The company said it was also mulling a stock-market listing for that business.
“There are many investors that are looking to expand their business in the Nordics,” said Synnes.
SBB’s problems are unfolding as Sweden struggles to contain a wider property crisis, triggered by high debts, rising interest rates and a wilting economy.
TURNING FOCUS TO COMMUNITY ARM
Selling control of this business would focus SBB on its community arm, which owns care homes, government buildings, hospitals, police stations, fire stations and army barracks.
Long popular with investors, SBB is at the epicentre of a property crash that threatens to engulf the Nordic state’s economy.
The $13 billion group, which owns swathes of property across Sweden, racked up a pre-tax loss of 11 billion Swedish crowns ($1.09 billion) in the second quarter, while its cash dwindled.
The EduCo deal, which will make Brookfield majority owner, with the Swedish firm left with a 49.84% stake, secures extra cash, sending SBB’s (SBBb.ST) shares up by roughly a third and boosting its bonds.
“The fact that SBB is freeing up 8 billion crowns must be seen in a very positive light. In a crisis, it is almost all about having liquidity, and SBB is getting it now,” Carlsquare analyst Bertil Nilsson said.
SBB group built up vast debt by buying public property, including social housing, government offices, schools and hospitals.
It is now scrambling to salvage its finances after seeing its credit rating downgraded to junk, with some looking at the government as a potential saviour. Its shares have lost more than 90% of their value since peaking in 2021.
The Swedish real estate industry’s issues have alarmed investors and prompted the Swedish central bank to issue several warnings.
Earlier this year, it cautioned that problems in heavily indebted commercial property companies could spill over and hit the economy more widely, threatening a domino effect on banks, who have lent ever more to property companies.
($1 = 11.0415 Swedish crowns)
Reporting by Terje Solsvik, Jesus Calero and Chiara Elisei; writing by John O’Donnell; editing by Anna Ringstrom, Alexander Smith and Bernadette Baum
Our Standards: The Thomson Reuters Trust Principles.
A Wall Street sign is pictured outside the New York Stock Exchange in New York, October 28, 2013. REUTERS/Carlo Allegri/File Photo Acquire Licensing Rights
Sept 22 (Reuters) – Shares in real estate companies fell on Friday, adding to a massive sell-off the previous day, when bond yields jumped to their highest levels in 16 years after the Federal Reserve signaled that U.S. interest rates would stay high for longer.
The S&P 500 real estate index (.SPLRCR) lost 0.7% on Friday after falling 3.5% on Thursday, which was its biggest daily decline since March when the banking sector was in crisis.
The U.S. Treasury 10-year yield , fell slightly on Friday, after rising on Thursday to around 4.5%, its highest since 2007. This provided tempting returns for fixed-income assets, making the relatively high dividend payouts of Real Estate Investment Trusts (REITs) a little less tempting.
REITs also tend to borrow heavily so the prospect of higher rates for longer puts pressure on their profit outlook. While the Fed decided not to hike interest rates after its meeting on Wednesday, it indicated that rates could stay at elevated levels for longer than investors had expected.
“Not only are REIT’s bond substitutes but they also rely on borrowing so that just makes them doubly interest-rate-sensitive,” said Jack Ablin, chief investment officer of Cresset Capital who says that even though the sector seems cheap by some measures, he is not ready to step in right now.
The S&P 500 real estate index is the second weakest performer among the benchmark S&P 500’s 11 major sectors with a decline 6.5% so far this year, second only to utilities’ (.SPLRCU) 10.3% drop. This compares with year-to-date a gain of about 15% for the benchmark index.
But Gina Szymanksi, portfolio manager for REITs at AEW Capital Management, said she expects Treasury yields will peak around current levels, which will help REIT stocks that have “already baked in” 10-year Treasury yields in this range.
“The knee-jerk reaction is, as interest rates rise, you sell REITs. It’s not totally unrealistic. They are capital intensive businesses that require financing,” said Szymanski, adding that if 10-year yields rise sharply from here it would add pressure to REIT stocks.
But if the economy weakens, REITs often outperform.
“When the Fed tries to slow the economy, it’s usually successful. That usually results in declining earnings for companies in general and when that happens it’s the time for REITs to shine,” says Szymanksi who estimates a roughly 20% total return for real estate stocks in the next two years.
On Friday the biggest real estate loser was American Tower (AMT.N), which finished down 1.8% while the biggest gainer was Extra Space Storage (EXR.N), up 1.2%.
Alexandria Real Estate Equities (ARE.N) fell 1.6% on Friday, after losing 8% on Thursday and hitting its lowest level since 2016.
Reporting By Sinéad Carew, editing by Lance Tupper and David Gregorio
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Construction sites are photographed in Frankfurt, Germany, July 19, 2023. REUTERS/Kai Pfaffenbach Acquire Licensing Rights
BERLIN, Sept 22 (Reuters) – German housing prices fell by the most since records began in the second quarter as high interest rates and rising materials costs took their toll on the property market in Europe’s largest economy, government data showed on Friday.
Residential property prices fell by 9.9% year-on-year, the steepest decline since the start of data collection in 2000, the federal statistics office said. Prices fell by 1.5% on the quarter, with steeper declines in larger cities than in more sparsely populated areas.
In cities such as Berlin, Hamburg and Munich, apartment prices fell by 9.8% and single and two-family house prices dropped by 12.6% on the year.
For a decade, low interest rates have fuelled a property boom in Europe’s largest real estate investment market. A sharp rise in rates and increasing construction costs have put an end to the run, tipping a string of developers into insolvency as deals froze and prices fell.
Building permits for apartments in Germany declined 31.5% in July from a year earlier, the statistics office disclosed on Monday, as construction prices rose by almost 9% on the year.
Germany aims to build 400,000 apartments a year, but has struggled to meet the goal.
German housing industry association GdW on Friday sounded the alarm over the situation calling for government support for construction companies.
“The construction crisis in Germany is getting worse day by day and is increasingly reaching the middle of society,” GdW, which represents around 3,000 housing companies nationwide, said in a statement.
GdW called for a cut in value added tax (VAT) to 7% from the current level of 19% for affordable rentals and government funding loans with a 1% interest rate to support companies.
The government is scheduled to hold a summit with the industry on Monday to discuss the situation.
GdW and the Haus&Grund owner’s association said they were boycotting the summit as they had too little influence on its agenda.
The German cabinet plans to present an aid package for the industry by the end of month after announcing plans to promote the construction sector, including reducing regulatory and bureaucratic requirements.
Reporting by Riham Alkousaa and Klaus Lauer, editing by Kirsti Knolle and Sharon Singleton
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WASHINGTON, Sept 21 (Reuters) – The number of Americans filing new claims for unemployment benefits dropped to an eight-month low last week, pointing to persistent labor market tightness even as job growth is cooling.
The report from the Labor Department on Thursday also showed unemployment rolls in early September were the smallest since January. It was published a day after the Federal Reserve held interest rates steady but stiffened its hawkish stance, with a further rate increase projected by the end of the year and monetary policy to be kept significantly tighter through 2024 than previously expected.
“This economy is just not showing any sign of slowing down which hints that inflation will not be coming back down to target,” said Christopher Rupkey, chief economist at FWDBONDS in New York. “The Fed was wise to keep another interest rate hike in their back pockets just in case, and it now looks like another rate hike is warranted.”
Initial claims for state unemployment benefits dropped 20,000 to a seasonally adjusted 201,000 for the week ended Sept. 16, the lowest level since January. Economists polled by Reuters had forecast 225,000 claims for the latest week. Claims are in the lower end of their 194,000-265,000 range for this year.
Claims could, however, increase in the coming weeks as a partial strike by the United Auto Workers (UAW) union forces automobile manufacturers to temporarily lay off workers because of shortages of some materials.
The UAW last week launched a targeted strike against Ford (F.N), GM (GM.N) and Stellantis (STLAM.MI), impacting one assembly plant at each company. It has threatened to broaden the work stoppages, which for now only involve about 12,700 of the affected 146,000 UAW members.
Though striking workers are not eligible for unemployment benefits, the walkout has snarled supply chains.
Ford has furloughed 600 workers who are not on strike, while GM expected to halt operations at its Kansas car plant, affecting 2,000 workers. Chrysler parent Stellantis said it would temporarily lay off 68 employees in Ohio and expects to furlough another 300 workers in Indiana.
Unadjusted claims rose by only 67 to 175,661 last week. There were notable declines in filings in Indiana and California, which mostly offset sizeable increases in South Carolina, New York and Georgia.
Fed Chair Jerome Powell said on Wednesday that “the labor market remains tight, but supply and demand conditions continue to come into better balance.”
Employment growth has been slowing and job openings falling. Labor market resilience is propping up the economy even as recession fears linger. The leading indicator, a gauge of future U.S. economic activity, fell 0.4% in August after dropping 0.3% in July, the Conference Board said in a second report on Thursday.
It has dropped for 17 straight months. Since March 2022, the U.S. central bank has raised its benchmark overnight interest rate by 525 basis points to the current 5.25%-5.50% range.
The claims data together with the Fed’s hawkish stance pushed stocks on Wall street lower. The dollar gained versus a basket of currencies. U.S. Treasury prices fell, with the yield on the benchmark 10-year bond rising to a nearly 16-year high.
HOUSING FALTERING
The claims data covered the period during which the government surveyed business establishments for the nonfarm payrolls component of September’s employment report.
The strike is unlikely to have an impact on payrolls as it started towards the end of the survey week. Workers most likely received pay for that week. Claims fell between the August and September survey period.
Data next week on the number of people receiving benefits after an initial week of aid, a proxy for hiring, will offer more clues on the state of the labor market in September.
The so-called continuing claims declined 21,000 to 1.662 million during the week ending Sept. 9, also the lowest level since January, the claims report showed. That suggests laid-off workers are quickly finding employment.
While the labor market remains unbowed, the housing market is faltering after showing signs of stabilizing earlier this year as mortgage rates resume their upward trend in tandem with the 10-year Treasury note, which has spiked on worries soaring oil prices could hamper the Fed’s fight against inflation.
Existing home sales slipped 0.7% last month to a seasonally adjusted annual rate of 4.04 million units, the National Association of Realtors said in a third report.
Existing home sales are counted at the closing of a contract. Last month’s sales likely reflected contracts signed in July, before the recent run-up in mortgage rates, which lifted the rate on the popular 30-year fixed mortgage above 7%.
Home sales last month were restrained by persistently tight supply, with inventory falling 14.1% from a year earlier to 1.1 million, the lowest on record for any August.
As a result, the median house price accelerated 3.9% from a year earlier to $407,100, the fourth-highest reading. It hit a record $413,000 in June 2022.
“The prospects for improved sales in the coming months look bleak,” said Ben Ayers, senior economist at Nationwide in Columbus, Ohio. “2023 could end in a whimper for the real estate sector as any substantial pull-back in rates is likely far off into 2024.”
News on manufacturing was downbeat. Manufacturing together with housing have borne the brunt of the Fed’s aggressive monetary policy tightening.
A fourth report from the Philadelphia Fed showed factory activity in the mid-Atlantic region slumped in September. Firms in the region that covers eastern Pennsylvania, southern New Jersey and Delaware reported decreases in new orders and shipments. They continued to report a decline in employment.
The Philadelphia Fed’s business conditions index fell to -13.5 this month from 12.0 in August. It was the index’s 14th negative reading in the past 16 months.
“Softer demand for goods and higher borrowing costs are hurdles for activity,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York. “But re-shoring of supply chains, infrastructure projects and a stabilization in demand could provide support to manufacturing output over time.”
Reporting by Lucia Mutikani; Editing by Chizu Nomiyama, Paul Simao and Andrea Ricci
Our Standards: The Thomson Reuters Trust Principles.
Sept 18 (Reuters) – Growth in India’s commercial vehicle sales volume will slow down to low-to-mid-single digits due to rising ownership costs, Fitch Ratings said in a report on Monday.
The ratings agency said increasing regulatory requirements, elevated inflation and high interest rates have pushed up the ownership costs, thereby weighing on purchase decisions.
There was a 34% growth in commercial vehicle sales at nearly 962,000 units in the financial year 2023, up from the 569,000 units sold in fiscal year 2020, according to data from the Society of Indian Automobile Manufacturers (SIAM).
“The 3.3% Y/Y drop in commercial vehicle wholesale volume in the second quarter of FY23 marked the first yearly decline since March 2020,” Fitch said, adding that this was a result of the purchases made ahead of the price hikes by automakers and vehicle availability issues after the adoption of new emission norms.
The latest rules require the measurement of emissions in real time, leading to a near-5% rise in prices of commercial vehicles from April 2023.
“We expect faster volume for medium and heavy commercial vehicles than for light commercial vehicles, due to India’s rising infrastructure activities and the vulnerability of light commercial vehicles to potentially weaker rural demand due to uneven rainfall,” Fitch wrote in the report.
Reporting by Ashna Teresa Britto; Editing by Sohini Goswami
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A woman walks past a screen displaying the Hang Seng Index at Central district, in Hong Kong, China March 21, 2023. REUTERS/Tyrone Siu/File Photo Acquire Licensing Rights
SYDNEY, Sept 18 (Reuters) – Asian shares fell and the dollar was firm on Monday as investors looked ahead to policy meetings from the Federal Reserve, the Bank of Japan and other central banks this week.
Europe is set for a subdued open, with EUROSTOXX 50 futures off 0.1%. S&P 500 futures advanced 0.2% while Nasdaq futures edged up 0.1%.
Oil prices hit fresh 10-month peaks, further stoking inflationary pressures. U.S. West Texas Intermediate crude futures gained 0.8% to $91.52, their highest level since November, while Brent crude futures rose 0.7% to $94.55 per barrel.
In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell 0.7%. Japan’s Nikkei (.N225) is closed for a public holiday.
Technology shares in the region retreated, with Taiwan’s TSMC (2330.TW), the world’s top contract chipmaker, falling 3% after Reuters reported that it has told its major suppliers to delay the delivery of high-end chipmaking equipment
In China, better-than-expected factory output and retail sales in the world’s second largest economy have aided Chinese bluechips (.CSI300) which were up 0.4%.
But property sector woes dragged Hong Kong’s Hang Seng (.HSI) 1% lower.
Zhongrong International Trust, which has exposure to Chinese property developers, said over the weekend it was unable to make payments on some trust products on time.
“Despite the encouraging sign of stabilization, the property market continues to be the missing puzzle piece in the economic picture,” said Tommy Xie, head of Greater China Research at OCBC Bank.
“The on-the-ground feedback indicates a rise in property viewing activities; however, most prospective buyers are not in a hurry to finalize deals due to the increasing supply of apartments post relaxation.”
Shares in embattled China Evergrande Group (3333.HK) fell as much as 25% after police in southern China detained some staff at its wealth management unit, though they later pared losses to be down 1.6%.
This week, global central banks will take centre stage, with five of those overseeing the 10 most heavily traded currencies holding rate-setting meetings. A swathe of emerging market central banks will also hold meetings.
Markets are fully priced for a second straight pause from the Fed on Wednesday, with its targeted range expected to be unchanged at 5.25% to 5.5%, so the focus will be on the updated economic and rates projections. They see about 80 basis points of cuts next year.
“In theory, the FOMC meeting should be a low-volatility affair, but it is a risk that needs to be managed,” said Chris Weston, head of research at Pepperstone.
Weston added that if the Fed revises up its rate projections for 2024, that would see rate cuts being priced out, resulting in renewed interest in the U.S. dollar and downward pressure on global shares.
On Thursday, Bank of England is tipped to hike for the 15th time and take benchmark borrowing costs to 5.5%.
Bank of Japan is the key risk event on Friday. Markets are looking for any signs that the BOJ could be moving away from its ultra-loose policy faster than previously thought, after recent comments by Governor Kazuo Ueda sent yields much higher.
Last Friday, Wall Street ended sharply lower as U.S. industrial labour action weighed on auto shares. Rising Treasury yields also pressured Amazon (AMZN.O) and other megacap growth companies.
Cash Treasuries were not traded in Asia with Tokyo shut. Treasury yields edged higher on Friday, with the two-year above the 5% threshold.
In the currency markets, the U.S. dollar was still standing strong near its six-month top at 105.25 against a basket of major currencies.
The euro gained 0.1% to $1.0667, after slumping to a 3-1/2 month low of $1.0632 last week as the European Central Bank signalled its rate hikes could be over.
The price of gold was 0.2% higher at $1,928.13 per ounce.
Reporting by Stella Qiu; Editing by Shri Navaratnam and Edwina Gibbs
Our Standards: The Thomson Reuters Trust Principles.
STOCKHOLM, Sept 15 (Reuters) – For months, Sweden’s government has sought to play down a property crisis that has throttled confidence in the Nordic state, repeating a simple message: While some companies are in trouble, the country is not.
Now Heimstaden Bostad, a $30 billion property investor with swathes of homes from Stockholm to Berlin, is grappling with a multibillion dollar funding crunch, which has rebounded on one of its owners – the country’s biggest pension fund.
That undoubtedly raises the stakes for Sweden, the European nation hardest hit by a global property rout triggered by the steep rise in interest rates last year that abruptly ended a decade of virtually free money.
Sweden is one of Europe’s wealthiest states and the biggest Nordic economy, but it has an Achilles Heel – a property market where banks have lent more than 4 trillion Swedish crowns ($360 billion) to homeowners. Weighed down by these home loans, Swedes are twice as heavily indebted as Germans or Italians.
Earlier this year, the International Monetary Fund flagged Sweden’s historically high household borrowing coupled with debt-driven commercial property firms and their dependence on local banks as a financial stability risk.
The property crisis accelerated this month when pension fund Alecta, which owns a 38% stake in Heimstaden Bostad, said Sweden’s biggest residential landlord needed cash and it may contribute.
Swedbank estimates the current shortfall for Heimstaden Bostad could be roughly 30 billion crowns ($2.7 billion).
Sweden’s financial regulator launched an inquiry into why and how Alecta had invested $4.5 billion in the property giant, in the first place. Its troubled investment accounts for 4% of its funds.
Christian Dreyer, a spokesperson for Heimstaden, said it had made “good progress covering 2024 bond repayments”, and was “not reliant on immediate capital injection for meeting our obligations”.
But he also signaled that the company was open to other support.
GOVT GETS READY
As the property crisis widens, Sweden’s government is readying for action while crossing its fingers that it will not be needed.
Earlier this year, Karolina Ekholm, Director General of Sweden’s Debt Office, said the government had a light debt load and could afford to borrow more to intervene, addressing the possibility of giving credit guarantees or subsidised loans.
One person familiar with government thinking said that while the state was willing to help in principle, it was conscious of the potential political backlash of supporting companies which had taken big risks.
Heimstaden’s Dreyer said it was examining a “potential recapitalisation from existing shareholders” and was confident it could “mitigate financial risk” in part through bank financing but expressed openness to other forms of support.
“While we’re not dependent on external support, we could consider suitable governmental programs if available,” Dreyer said.
In public, the government has sought to play down the crisis.
“There are potential problems that we must keep close eyes on,” Financial Markets Minister Niklas Wykman told Reuters, shortly before Heimstaden Bostad’s problems became public. “We know that rain and snow is coming. But we have shelters.”
“The government is ready to act to secure financial stability if there should be any threats or turmoil,” he said, cautioning that the problems of individual firms did not mean the wider sector was in trouble.
Sweden is among the first European countries to find itself struggling as interest rates climb because much of its property debt is short-term, making it a harbinger for the wider region, where the rising cost of money has also rocked Germany.
Roughly half of Swedish homeowners have floating-rate mortgages, meaning rate hikes quickly trigger higher bills for them.
Its developers, meanwhile, often relied on shorter-term loans or bonds that have to be replaced with pricier credit.
Heimstaden Bostad and other companies such as struggling SBB (SBBb.ST) grew quickly, in part by selling cheap short-term Eurobonds, which has since become tougher.
“We’ve seen a crazy housing boom. We’re not seeing a bust – yet,” said David Perez, a Sweden Democrat lawmaker. “If interest rates continue to rise and it’s coupled with unemployment, that’s what we are afraid of.”
With interest rates still climbing, analysts such as Marcus Gustavsson of Danske Bank, believe the worst is not yet over.
He reckons that Swedish residential property prices have fallen by roughly 10% and that the property market may only be half way through the rout.
“Until recently Swedes were bidding up the price of homes with funny money,” said Andreas Cervenka, author of “Greedy Sweden”, a book examining inequality driven partly by the housing boom.
“With rising interest rates, that funny money has turned into real money and it is painful.”
($1 = 11.1242 Swedish crowns)
Additional reporting by Simon Johnson and Johan Ahlander in Stockholm, Greta Rosen Fondahn in Gdansk, Chiara Elisei in London; Writing by John O’Donnell; Editing by Hugh Lawson
Our Standards: The Thomson Reuters Trust Principles.
