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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.
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.
LITTLETON, Colorado, Sept 19 (Reuters) – The deepening debt crisis in China’s construction sector – a key engine of economic growth, investment and employment – may trigger an unexpected climate benefit in the form of reduced emissions from the cement industry.
Cement output and construction are closely correlated, and as China is by far the world’s largest construction market it is also the top cement producer, churning out roughly 2 billion tonnes a year, or over half the world’s total, data from the World Cement Association shows.
The heavy use of coal-fired kilns during manufacturing makes the production of cement a dirty business. China’s cement sector discharged 853 million tonnes of carbon dioxide in 2021, according to the Global Carbon Atlas, nearly six times more than the next largest cement producer, India.
The cement sector accounts for roughly 12% of China’s total carbon emissions, according to Fidelity International, and along with steel is one of the largest greenhouse gas emitters.
But with the property sector grinding to a halt due to spiralling debt worries among major developers, the output and use of cement are likely to contract over the next few months, with commensurate implications for emissions.
HOUSING SLUMP
The property markets account for roughly a quarter of China’s economy, and for years Beijing has used the sector’s substantial heft to influence the direction of the rest of the economy by spurring lending to would-be home buyers and fostering large scale construction projects.
But the big property developers racked up record debt loads in recent years that have forced borrowing levels to slow, stoked concerns among investors, and slowed spending across the economy.
China Evergrande Group, once the second largest developer, defaulted on its debt in late 2021, while top developer Country Garden has drained cash reserves to meet a series of debt payment deadlines in recent months.
Fears of contagion throughout the property industry has spurred households to rein in consumer spending, which has in turn led to deteriorating retail sales and further economic headwinds.
Beijing has stepped in with a slew of measures designed to right the ship, including easing borrowing rules for banks and lowering loan standards for potential home buyers.
But property prices in key markets remain under pressure, which has served to stifle interest among buyers and add to the pressure on investors and owners.
CEMENT CUTS
With construction activity across China slowing, and several major building sites stopped completely while tussles over debt payments among developers continue, cement output is likely to shrink to multi-year lows by the end of 2023.
During the March to August period, the latest data available, total cement output was 11.36 million short tons, down 2 percent from the same period in 2022 and the lowest for that period in at least 10 years, China National Bureau of Statistics data shows.
In addition to curtailing output in response to the bleak domestic demand outlook in the property sector, cement plants may be forced to curb output rates over the winter months as part of annual efforts to cap emissions from industrial zones during the peak season for coal heating.
Some cement producers will likely look to boost exports in an effort to offset lower domestic sales, and in July China’s total cement exports hit their highest since late 2019.
But Chinese firms will face stiff competition from lower-cost counterparts in Vietnam, which are by far the top overall cement exporters and already lifted overall cement shipments by close to 3% in the first half of 2023, data from the Vietnam National Cement Association (VNCA) shows.
Some Chinese firms may be prepared to sell exports at a loss for a spell while they await greater clarity over the domestic demand outlook.
But given the weak state of global construction activity amid high interest rates in most countries, as well as the high level of cement exports from other key producers such as India, Turkey, United Arab Emirates and Indonesia, high-cost Chinese firms may be forced to quickly contract output to match the subdued construction sector.
And if that’s the case, the sector’s emissions will come down too, yielding a rare climate benefit to the ongoing property market disruption.
The opinions expressed here are those of the author, a columnist for Reuters.
Reporting By Gavin Maguire; Editing by Miral Fahmy
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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.
TOKYO, Sept 19 (Reuters) – Asian shares sank on Tuesday as worries about the Chinese property sector weighed on markets from Hong Kong to Australia, while Japanese investors sold chip stocks on their return from a holiday-extended weekend.
Benchmark U.S. Treasury yields hovered near 16-year peaks and the dollar held close to six-month highs as traders braced for a Federal Reserve rate decision on Wednesday, in a week that also sees policy decisions from the Bank of Japan and Bank of England, among others.
Crude oil continued its rally amid tightening supply, stoking worries about stagflation.
MSCI’s broadest index of Asia-Pacific shares (.MIAP00000PUS) slipped 0.3%.
Japan’s Nikkei (.N225) tumbled 1.1% under the weight of big losses for chip-related stocks including Tokyo Electron (8035.T) and Advantest (6857.T).
Japanese markets were closed Monday, when Asian tech stocks sold off following a Reuters report that TSMC (2330.TW) had asked its major vendors to delay deliveries.
That stock sank 0.4% on Tuesday, flipping from an earlier gain of as much as 0.6%. It tumbled 3.2% on Monday.
John Pearce, CIO at Unisuper, called the TSMC news “surprising.”
“The one thing you were almost certain of was that demand for semiconductors was only one way,” he said.
Hong Kong’s Hang Seng (.HSI) declined 0.1%, with a subindex of tech stocks (.HSTECH) sliding 0.6%. An index of mainland blue chips (.CSI300) fell 0.3%.
Chinese property stocks were volatile, with a subindex of Hang Seng developers (.HSMPI) dropping as much as 1.2% at one point, before flipping to positive territory around lunchtime, although it was last off 0.4%.
Australia’s stock benchmark (.AXJO) dropped 0.4%, sagging under the weight of mining stocks (.AXMM) amid pessimism over Chinese demand.
Providing some rays of hope, though, Country Garden (2007.HK) won approval from creditors to extend repayment on another onshore bond, the last in the batch of eight bonds it has been seeking extensions for, sources said.
Peer Sunac China Holdings (1918.HK) got creditor approval for its $9 billion offshore debt restructuring plan, the first green light of a debt overhaul by a major Chinese developer.
Weakness in Asian equities weighed on U.S. stock futures , which pointed 0.1% lower. Pan-European Stoxx 50 futures were flat.
Currency markets were subdued, with the U.S. dollar index – which measures the currency against six major peers – rising 0.09% to 105.17, edging back toward last week’s six-month peak of 105.43.
The dollar added 0.1% to 147.75 yen , bringing it closer to last week’s 10-month top of 147.95.
The euro eased 0.1% to $1.0679.
Ten-year yields were little changed at just above 4.31%, holding close to the 4.366% level reached on Aug. 22, which was the highest since 2007.
“You can’t blame people for keeping to the sidelines for now,” with the Fed headlining a parade of central bank meetings this week, Kyle Rodda, senior financial market analyst at Capital.com, wrote in a note.
“Given the variability in outcomes, there will inevitably be crosscurrents in the markets,” Rodda said. “Price action could be choppy, with risk needing to be managed more carefully.”
Traders are all but certain the Fed will leave rates steady again at the conclusion of a two-day meeting that begins later Tuesday, but are split on the chances on another quarter-point increase by year-end.
Fed officials will also release their latest predictions on the economy and where rates are likely to be over the coming quarters.
Meanwhile, oil prices rose in early trade on Tuesday for the fourth consecutive session, as weak shale output in the U.S. spurred further concerns about a supply deficit stemming from extended production cuts by Saudi Arabia and Russia.
U.S. West Texas Intermediate crude futures rose 99 cents, or 1.1%, to $92.47, while global oil benchmark Brent crude futures rose 58 cents, or 0.61%, to $95.01 a barrel.
“Given how supply-constrained energy markets are likely to become, especially amidst harsher weather approaching the end of the year, higher oil prices are both an upside risk to inflation and a downside risk to growth,” Capital.com’s Rodda said.
“Markets that don’t export energy and suffer from energy insecurity could underperform.”
Reporting by Kevin Buckland; Additional reporting by Lewis Jackson; Editing by Stephen Coates
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People walk along the beach on the Suffolk coast as the Sizewell B nuclear power station can be seen on the horizon, near Southwold, Britain, January 31, 2019. REUTERS/Russell Boyce Acquire Licensing Rights
LONDON, Sept 18 (Reuters) – Britain on Monday opened the search for private investment in the Sizewell C nuclear project, inviting potential investors to register their interest.
The building of the plant by French energy giant EDF in southeast England, capable of producing around 3.2 gigawatts of electricity or enough to power around 6 million homes, was approved in July 2022.
“The government, the Sizewell C Company and EDF, the project’s lead developer, are looking for companies with substantial experience in the delivery of major infrastructure projects,” a statement from the Department for Energy Security and Net Zero said.
The British government announced last year that it would support Sizewell C with around 700 million pounds ($895 million) while taking a 50% stake during its development phase.
“The launch of the formal equity raise opens another exciting phase for the project, following a positive response from investors during market testing,” said Sizewell C Company Joint Managing Director, Julia Pyke.
Reporting by Kylie MacLellan, writing by William James
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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
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WASHINGTON, Sept 13 (Reuters) – The U.S. Energy Department has talked to oil producers and refiners to ensure stable fuel supplies at a time of rising gasoline prices, Jared Bernstein, head of the White House Council of Economic Advisers, said on Wednesday.
Rising U.S. gasoline prices were largely behind the largest increase in U.S. consumer prices in 14 months in August.
Gasoline prices jumped 10.6% in August after climbing 0.2% in July, accounting for more than half the increase in the Consumer Price Index. Gasoline prices peaked at $3.984 per gallon in the third week of August, according to data from the U.S. Energy Information Administration, up from $3.676 per gallon during the same period in July.
Reporting By Jeff Mason and Jarrett Renshaw
Editing by Chris Reese and David Gregorio
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SYDNEY, Sept 11 (Reuters) – Asia stock markets started to turn positive later on Monday even though investors in China sold off shares in property developers, remaining unconvinced by authorities’ efforts to revive activity in the mainland real estate market.
MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) reversed earlier losses and was up 0.3%, after U.S. stocks ended the previous session with mild gains.
Australian shares (.AXJO) gained 0.36% and Japan’s Nikkei stock index (.N225) slid 0.49%.
The yen appreciated sharply against the dollar after Bank of Japan governor Kazuo Ueda stoked hopes the central bank could soon see a shift away from negative rates.
The dollar on Monday dropped 1.12% to 146.16 yen and it remains some way off its high this year of 147.87 reached earlier this month.
In Hong Kong, the Hang Seng Index (.HSI) halved its loss from earlier in the day to be off 0.66% by the afternoon session, as investors remained wary of China’s troubled property sector.
A more positive tone was seen across futures markets which pointed towards a better start for most major European indexes.
In early trades, Euro Stoxx 50 futures were up 0.26%, German DAX futures were up 0.17% and FTSE futures were up 0.29%
U.S. stock futures, the S&P 500 e-minis , were up 0.24% at 4,472.3.
Hong Kong’s Hang Seng Property Index (.HSNP), a gauge of Hong Kong’s top developers, was still down 3.24% while the mainland property index (.HSMPI) was off 1.9%. It was earlier more than 3% in the red.
“We need the property market to stabilize first in order for any meaningful kind of economic rebound to happen in China,” said David Chao, Invesco’s Asia Pacific market strategist.
In recent weeks China’s authorities – including the housing ministry, central bank and financial regulator – have rolled out a series of measures, such as easing borrowing rules, to support the debt-riddled property sector, and there are some expectations for more steps to revive demand in major cities like Beijing, Shanghai and Shenzhen.
Hong Kong stocks were also dampened as e-commerce giant Alibaba Group (9988.HK) dropped 2.5% on the surprise departure of outgoing CEO Daniel Zhang from its cloud unit.
China’s bluechip CSI300 Index (.CSI300) rallied during the session and was up 1.23% as investors expected more economic stimulus.
“In the near term investors are cautious towards China but we are quite encouraged that the policies have turned from more piecemeal to more targeted in the past few weeks, especially with property,” said Marcella Chow, JPMorgan Asset Management market strategist said.
In the United States, the Consumer Price Index (CPI) for August, due out on Wednesday, is expected to rise 0.6% month-on-month for August, which would take the year on year rate to 3.6%, according to a Wells Fargo research note.
Investors are pricing in a 93% probability that the Fed will keep rates at current levels after its next meeting ends on Sept. 20 but only a 53.5% change for another pause at the November meeting, according to CME group’s FedWatch Tool.
The yield on benchmark 10-year Treasury notes rose to 4.294% compared with its U.S. close of 4.256% on Friday. The two-year yield , which rises with traders’ expectations of higher Fed fund rates, touched 4.9948% compared with a U.S. close of 4.984%.
The European single currency was up 0.3% on the day at $1.0709, having lost 1.09% in a month, while the dollar index , which tracks the greenback against a basket of currencies of other major trading partners, was down 0.23% at 104.61.
In China, there was an easing of deflationary pressures with consumer price index (CPI) rising 0.1% in August from a year earlier. That was slower than the median estimate for a 0.2% increase in a Reuters poll but much stronger than a 0.3% decline in July.
China also had its smallest drop in factory prices in five months. The producer price index fell 3.0% from a year earlier, in line with expectations, after a drop of 4.4% in July.
China’s central bank yanked the yuan off a 16-year low against the dollar on Monday by setting a daily midpoint guidance rate with the strongest bias on record, signaling increasing discomfort with the currency’s recent weakness.
In the spot market, the onshore yuan was changing hands at 7.3245 per dollar at 0210 GMT, after hitting 7.3510 on Friday, which as 6.1% down from the start of the year and a level last seen during the global financial crisis.
U.S. crude dipped 0.19% to $87.34 a barrel. Brent crude shifted into positive territory to be up 0.2% $90.80 per barrel.
Spot gold was trading slightly higher at $1,927.08 per ounce.
Reporting by Scott Murdoch in Sydney; Editing by Edwina Gibbs & Simon Cameron-Moore
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An Airbus A319 can be seen flying 500 feet above the ground while on final approach to land at LaGuardia Airport in New York City, New York, U.S., January 6, 2022. REUTERS/Bryan Woolston Acquire Licensing Rights
BRUSSELS, Sept 4 (Reuters Breakingviews) – Short flights within Europe are frequent flyers on wish lists of things to ban. In the name of cutting carbon dioxide emissions, countries from Germany to Spain are proposing to prevent brief air trips, and lobbyists like Greenpeace say governments should require travellers to choose trains or other ground transport for shorter journeys. But not all short flights are alike, and banning commercial hops makes less sense than targeting private jets.
In 2022 aviation emitted 800 million metric tons of CO2, around 10% of the world’s 8 billion tons of CO2 emitted annually by various means of transport, according to the International Energy Agency. In the same year European Union emissions were around 2.5 billion tons and in the recent past flying has contributed about 4%. But most of that is long-haul flights. A 2022 study of 31 European countries found that flights shorter than 500 km account for 28% of departures, but under 6% of fuel burnt.
Commercial jets do pollute more than ground transit, but they also have advantages that can’t be easily matched. To avoid a disproportionate impact on disabled passengers and others en route to more distant destinations, train services need to catch up first. Denying a short flight to connecting passengers could just send them to their cars, according to KLM CEO Marjan Rintel.
Limiting private jet travel would make a bigger difference, with fewer broad-based disruptions. Private jets have a far bigger impact per passenger on the environment than their flying-bus counterparts: as much as 45 times the amount of emissions per passenger, according to the Institute for Policy Studies. Greenpeace data shows that private jet flights in Europe put out 3.4 million tons of CO2 in 2022, twice 2021 levels, and mostly on flights with a range of less than 750 km.
Short-haul bans are especially beside the point when they look more like industrial policy than climate action. In France, where domestic connections are already prohibited for journeys of under two and a half hours, only three routes were actually banned, with projected savings of just 55,000 tons of carbon dioxide output per year. Shuttering unprofitable routes and prohibiting new competition on those legs acted more like a leg-up for Air France’s business plan, according to Davy transport analyst Stephen Furlong.
In any case, there’s a positive non-climate economic case for short-haul flights. They have allowed upstart carriers like Norwegian Air to challenge legacy airlines and rebuild after the pandemic. Connecting flights also make it possible for Brussels Airlines to serve as a hub for passengers in and out of Africa, a lifeline for countries whose livelihoods depend on travel routes.
There’s a case for phasing out shorter flights over time, and for surcharges like Belgium’s 10 euro tax on flights of less than 500 km. But banning brief mass-transit trips now is a hop too far.
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CONTEXT NEWS
Countries such as France, Spain, Belgium and Germany have enacted or are considering measures to reduce or ban short flights. The European Union’s long-term mobility plan calls for discouraging plane travel where lower-impact alternatives exist.
Direct emissions from aviation accounted for 3.8% of the EU’s total carbon dioxide emissions in 2017, according to the European Commission. Aviation is responsible for 14% of transportation-sector emissions.
Greenpeace research found that the number of European private jet flights jumped from 118,756 in 2020 to 572,806 in 2022, with carbon dioxide emissions going from about 355,000 metric tons to 3.4 million tons over the same period. More than half of 2022 private jet travel was for distances of less than 750 km.
Editing by George Hay and Oliver Taslic
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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.
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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
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