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HONG KONG, Jan 25 (Reuters) – Asian shares and U.S. futures tumbled on Tuesday after a tumultuous Wall Street session, with investors nervous about the situation in Ukraine and eyeing the U.S. Federal Reserve amid worries about a move to tighter monetary policy globally.
NATO said on Monday it was putting forces on standby and reinforcing eastern Europe with more ships and fighter jets, in what Russia denounced as Western “hysteria” in response to its build-up of troops on the Ukraine border. read more
There were sharp declines around the region. Hong Kong (.HSI) lost 1.64% and Korea’s KOSPI (.KS11) fell 1.67%. The Australian benchmark (.AXJO) tumbled 2.73% to hit an eight-month low, hurt also by a high inflation print Tuesday morning that stoked fears of approaching rate hikes Down Under. AZN0236PW
Asian markets were being dragged lower by concerns about faster U.S. rate hikes, mounting tensions over Ukraine, rising inflation and higher oil prices, said Carlos Casanova, senior economist at UBP.
“But on the upside, valuations are becoming more attractive and earnings growth are still robust for some sectors. So I think we will see a tug of war in the market for this week,” he said.
U.S. futures also fell in Asian hours, Nasdaq futures (.NQc1) shed 1.2% and S&P500 futures lost 0.95%, after U.S. stock markets had recovered strongly late in the session to close higher, recouping steep losses made early in the day, as bargain-seeking investors snapped up shares.
Keeping traders on their toes, the Federal Reserve will begin its two-day meeting later on Tuesday, with investors starting to speculate that there is a small possibility that they will announce a surprise rate hike.
Investors are also anxiously looking out for any hints about the timing and pace of rate hikes expected later this year. Money markets are priced for a first rate hike in March, with three more quarter-point increases by year-end.
However, U.S. benchmark Treasuries were sitting out some of the speculation. Yields on benchmark 10 year notes were at 1.76%, steady on the day, having finished a choppy day of trading Monday near where they started.
Singapore’s central bank also tightened monetary policy on Tuesday in an out-of-cycle move. read more
Market nerves sent the dollar higher against most peers. The dollar index was at 95.922, hovering near a two-week high, having gained 0.29% overnight. FRX
The Aussie dollar gained briefly after the high inflation print, but failed to hold on to its gains and the risk friendly currency was still hovering near the one-month low hit the day before.
Oil prices were also elevated, further worrying stock investors. U.S. crude rose 0.5% to $83.73 per barrel and Brent crude was at $86.83, up 0.65%.
Gold held on to its recent gains as investors sought safety. The spot price was at $1,841 an ounce, flat on the day but near last week’s two-month high of $1,847.7.
Reporting by Selena Li, Xie Yu and Alun John; editing by Richard Pullin
Our Standards: The Thomson Reuters Trust Principles.
Canada’s big banks are battling to keep a lid on rising costs that could eat into profits as they face pressure to keep growing revenue in the midst of mounting economic unease over the impact of inflation and rising interest rates.
On Friday, National Bank of Canada wrapped up a solid second-quarter earnings season for the country’s major banks with an 11-per-cent increase in profit, year over year. The Montreal-based bank’s revenue was up 9 per cent for the quarter ended April 30, with higher loan balances and fees as consumers and businesses spend and borrow more.
But the bank’s expenses were up 8 per cent as it hired staff, increased salaries and invested in technology.
Surging expenses leave banks with little margin for error if revenue growth slows. Though banks have churned out higher profits through most of the COVID-19 pandemic, and fared better than many companies in other sectors, they are not immune to the high inflation driving up prices.
Expenses spiked by 13 per cent at Canadian Imperial Bank of Commerce in the quarter, compared with a year earlier, and by 5 per cent at Toronto-Dominion Bank, which included a 9-per-cent increase in costs in its Canadian retail banking unit.
Salaries are a major force pushing up expenses, as tight labour markets that have kept many consumers financially stable also create intense competition for talent. Investments by banks in technology to improve customer experiences and automate routine tasks, as well as resurgent travel and marketing spending as economies reopen, have also made it harder to restrain spending.
The impact from inflation “is fairly broad,” Hratch Panossian, CIBC’s chief financial officer, said in an interview. “You’re seeing impacts across various categories across the bank,” and the recent pressure that has put on the bank’s costs has “been a little bit higher than what we expected.”
The fight to retain employees is adding hundreds of millions of dollars to banks’ expenses, and the pressure is felt everywhere, from executive and technology roles to staff in branches, call centres and back offices.
In mid-April, TD announced it will give most of its non-executive employees a 3-per-cent pay raise in July, and RBC soon followed suit, boosting base pay for low-salaried staff. Last week, Bank of Montreal matched those raises, promising a 3-per-cent pay increase for certain salary tiers, according to CFO Tayfun Tuzun.
For TD, the base salary increases will cost an extra $290-million a year, CFO Kelvin Tran said Thursday.
“Salaries and benefits will go up, inflation is high. There are certain expenses that will go up naturally because of what’s happening around us,” said Raj Viswanathan, CFO of Bank of Nova Scotia, which reported a 3-per-cent rise in second-quarter costs. He predicted those costs will increase more rapidly in the coming quarters, “but we have a number of levers that we use in this bank” to control them.
Mr. Panossian said CIBC has “paced” some of its planned investments, “so we’ve already been reacting and we have the ability to react through the rest of the year.”
For now, loan balances are increasing at healthy rates even as demand for mortgages is expected to cool, credit-card spending is picking up, commercial lending is strong and central bank interest-rate increases are boosting profit margins on loans. “That is a good combination to be able to absorb this,” Ebrahim Poonawala, an analyst at Bank of America Securities Inc., said in an interview.
But if the economy falls into a downturn, as economists increasingly fear it could, “I don’t think … these banks have a lot of levers to pull in terms of absolute cost cuts,” Mr. Poonawala said.
“These are like giant ships. … None of this happens overnight,” he said. “When you’re doing these across-the-board [salary] increases, there is very little room to flex lower on expenses.”
On a call with analysts on Friday, National Bank CFO Marie Chantal Gingras said cost increases are “tied to our business growth.” But she said the bank is looking for areas to cut back as it has raised salaries to keep pace in “a highly competitive environment” and has boosted spending in an array of areas that include automation, cybersecurity and regulatory compliance.
“The team constantly works on identifying and realizing efficiencies in our expense base, especially in an inflationary context,” she said.
National Bank earned $893-million, or $2.55 a share, in the second quarter. That compared to $801-million, or $2.25 a share, in the same period last year. On average, analysts were expecting earnings of $2.27 a share, according to Refinitiv.
The bank raised its quarterly dividend by 5 cents, or 6 per cent, to 92 cents a share.
Profits rose across the banking sector in the fiscal second quarter, with four of six major banks beating analysts’ expectations by comfortable margins.
Royal Bank of Canada had the most success at containing costs in the quarter, reporting an increase of just 1 per cent, year over year. Yet the bank’s salaries rose 7 per cent from a year earlier, “representing nearly 40 per cent of the increase in our more controllable costs,” CFO Nadine Ahn said. Higher professional fees and technology costs accounted for another 30 per cent of increases, and marketing and travel for 20 per cent, she said.
One reason RBC was able to rein in second-quarter costs was the weaker performance of its capital markets division, where revenue fell 14 per cent from high levels last year. That provides a “natural, built-in hedge” because it means the bank is doling out less bonus pay to traders and investment bankers, chief executive officer Dave McKay said.
For the past two years, soaring capital markets revenues were “a big boon for positive operating leverage,” which is the industry term for revenue outpacing expenses, Mr. Poonawala said. But as frenzied activity in trading, IPOs and equity issuances has fallen off this year – with quarterly profit from capital markets falling 26 per cent at RBC and 20 per cent at BMO, for example – “you see that pain,” he said.
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A collective of Twitter shareholders are banding together to try and keep the world’s richest man from weaseling his way out of buying Twitter.
In a proposed class-action lawsuit filed earlier this week, Twitter shareholders accused Musk of engaging in market manipulation during his acquisition bid, alleging he violated California’s corporate laws along the way. Twitter itself was also named as a defendant.
The complaint, filed in a San Francisco federal district court, accuses Musk of intentionally lowering Twitter’s stock value. The suit alleges Musk did this because the $12.5 billion he pledged as collateral for the acquisition was secured using his Tesla stock which has since declined by 37%. That decline, the suit alleges, put Musk in the uncomfortable position of potentially having to fork over more of his own money to make up the difference. Purposely lowering Twitter’s value, in this scenario, could theoretically serve as a corporate get out of jail free card.
The suit claims Musk “proceeded to make statements, send tweets, and engage in conduct designed to create doubt about the deal and drive Twitter’s stock down substantially in order to create leverage.” That leverage could potentially allow Musk to back out of the deal entirely or renegotiate for a substantially lower price. The shareholders also call bullshit on Musk’s supposed concern with bots on the platform and claim he “knew all about the fake accounts.”
“Musk’s conduct was, and continues to be illegal, in violation of the California Corporation’s Code, and contrary to the contractual terms he agreed to in the deal,” the lawsuit reads.
At least the first half of that alleged plan—intentional or not—seems to have worked. According to the suit, Twitter has lost $8 billion in valuation since the buyout was first announced. It’s worth noting though that Twitter’s far from the only tech stock to see a dip in recent weeks.
The shareholders’ beef with Musk predates the acquisition. Specifically, the suit takes issue with Musk’s April disclosure that he had acquired a 9% stake in the company. The suit alleges Musk didn’t disclose that in time with the Securities and Exchange Commission, an omission that benefits Musk by more than $156 million.
Musk’s actions, the suit claims, harmed both Twitter shareholders and Twitter employees. The suit seeks damage for all Twitter shareholders and calls for injunctive relief from the court, which if granted could potentially force Musk to follow through with the acquisition at the original price.
Twitter declined to comment.
You read the full lawsuit below.
U.S. stocks jumped on Friday, with the major indexes ending a weeks-long losing streak after a string of more upbeat corporate results at least temporarily offset fears of a steep economic slide.
The S&P 500 rallied into the close, gaining 2.5% to end at 4,158.24. The blue-chip index ended a seven-week losing streak and posted its best week since Nov. 2020, rising by more than 6.5% since last Friday. The S&P 500 also erased its losses for the month of May to date.
The Dow Jones Industrial Average rose by 576 points, or 1.8%, on Friday to end at 33,212.96, and the Nasdaq Composite added more than 3% to close at 12,131.13.
Investors digested a fresh set of economic data earlier on Friday, including the latest print on core personal consumption expenditures (PCE) — the Federal Reserve’s preferred gauge of underlying inflation. These showed inflationary pressures eased only modestly in April compared to March, echoing results from the still-elevated Consumer Price Index and Producer Price Index released from earlier this month. Headline PCE increased 6.3% in April over last year compared to March’s 6.6% increase, and core PCE rose by 4.9% compared to 5.2% in the prior month. But separate data also showed personal spending, adjusted for inflation, accelerated in April compared to March.
Over the past several sessions, investors have weighed favorably the most recent batch of quarterly results and guidance from retailers like Macy’s (M), Nordstrom (JWN), Dollar General (DG) and Dollar Tree (DLTR). These companies largely exceeded Wall Street’s estimates, helping assuage concerns that the profit pressures reported recently by Walmart (WMT), Target (TGT) and Kohl’s (KSS) were reverberating equally across all consumer-facing firms. And outside of retail, airlines including JetBlue (JBLU) and Southwest (LUV) raised their sales guidance for the current quarter, suggesting demand remained strong for discretionary travel.
“Overall the U.S. consumer still remains in great shape. They came into these price hikes, this inflation, with cushion on their balance sheet. Certainly employment is high, so the overall U.S. consumer remains in a very strong place,” Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management, told Yahoo Finance Live.
“The big fear was that inflation was going to continue to run away and cause the Fed to have to tighten the U.S. economy into a recession,” he added. “I think we’re all starting to gradually wake up to the reality that goods spending … was pulled forward. Inventories have been rebuilt, and goods spending has caused the inflation that you’re seeing. That’s going to roll over as people move over to service sector spending.”
“And so it may feel like a recession in some parts of the economy, but other parts of the economy are going to do well,” Schutte said. “Inflation is going to fall, and the Fed is going to go a bit easier.”
However, other strategists cast doubt on the staying power of gains seen in the market so far this week, especially as inflation has shown few meaningful signs of coming down in a substantial way to date.
“This is nothing more than a bear bounce in our opinion. When you look at these bounces we’ve had, they’ve been on very light volume, there’s not a lot of conviction,” Eddie Ghabour, co-founder and managing partner of Key Advisors Group, told Yahoo Finance Live. “The data that we’re getting now that’s been causing this sell-off, remember, is first-quarter data. The data coming in the second quarter is going to be worse than the first quarter. And we’re not going to get that news until July … So I think we’re going to have a very treacherous market in the next few months.”
Here’s where markets closed out the session on Friday:
S&P 500 (^GSPC): +100.43 (+2.47%) to 4,158.27
Dow (^DJI): +576.36 (+1.77%) to 33,213.55
Nasdaq (^IXIC): +390.48 (+3.33%) to 12,131.13
Crude (CL=F): +$1.01 (+0.89%) to $115.10 a barrel
Gold (GC=F): +$3.40 (+0.18%) to $1,857.30 per ounce
10-year Treasury (^TNX): -1.3 bps to yield 2.7430%
Here were the main moves in markets as of 11:54 a.m. ET:
S&P 500 (^GSPC): +72.05 (+1.78%) to 4,129.89
Dow (^DJI): +344.28 (+1.05%) to 32,981.47
Nasdaq (^IXIC): +299.88 (+2.55%) to 12,040.53
Crude (CL=F): +$0.12 (+0.11%) to $114.21 a barrel
Gold (GC=F): +$4.50 (+0.24%) to $1,858.40 per ounce
10-year Treasury (^TNX): -2.7 bps to yield 2.7290%
Consumer sentiment fell further in late May, largely on account of concerns around inflation and business conditions in the near-term.
The University of Michigan’s final monthly sentiment index decreased to 58.4, which was downwardly revised from the 59.1 previously reported for the month. Subindices tracking consumers’ views on current conditions and future expectations were each also slightly downwardly revised, and one-year inflation expectations were little changed at 5.3%.
The latest sentiment drop “was largely driven by continued negative views on current buying conditions for houses and durables, as well as consumers’ future outlook for the economy, primarily due to concerns over inflation,” Joanne Hsu, Surveys of Consumers director, wrote in a statement. “At the same time, consumers expressed less pessimism over future prospects for their personal finances than over future business conditions.”
“Looking into the long term, a majority of consumers expected their financial situation to improve over the next five years; this share is essentially unchanged during 2022,” Hsu added. “A stable outlook for personal finances may currently support consumer spending. Still, persistently negative views of the economy may come to dominate personal factors in influencing consumer behavior in the future.”
Here were the main moves in markets as of 9:32 a.m. ET:
S&P 500 (^GSPC): +32.86 (+0.81%) to 4,090.70
Dow (^DJI): +56.27 (+0.17%) to 32,693.46
Nasdaq (^IXIC): +165.04 (+1.41%) to 11,905.69
Crude (CL=F): -$0.12 (-0.11%) to $113.97 a barrel
Gold (GC=F): +$10.30 (+0.56%) to $1,864.20 per ounce
10-year Treasury (^TNX): -3.1 bps to yield 2.7250%
The U.S. goods trade gap declined more than anticipated in April after reaching an all-time high of nearly $126 billion in March.
The advance goods trade balance showed a deficit of $105.9 for the U.S. in April, the Commerce Department said Friday. This followed a gap of $125.9 billion in March, which was upwardly revised from $125.3 billion last month.
The print suggests trade produced slightly less of a drag on the U.S. economy at the start of the second quarter compared to the first. In the first quarter, net exports shaved 3.23 percentage points off headline U.S. gross domestic product (GDP). GDP fell at a 1.5% annualized rate in the first three months of the year.
U.S. consumers kept spending last month even as inflation remained elevated, as one of the key contributors to U.S. economic activity held up into the spring. However, the personal saving rate dwindled to the lowest level in over a decade, raising some concerns over how much longer spending might manage to prop up the economy.
Real personal spending rose 0.7% month-on-month in April, the Bureau of Economic said Friday, accelerated from March’s 0.2% rise. Unadjusted for inflation, personal spending was up 0.9%, exceeding consensus economist expectations for a 0.8% increase, according to Bloomberg data. This metric had risen by 1.1% in March.
Personal income, however, decelerated slightly last month, rising 0.4% after March’s 0.5% increase. And the personal saving rate, or proportion of disposable personal income set aside to savings, fell to 4.4% from March’s 5.0%, reaching the lowest level since 2008. After soaring during the pandemic, the saving rate has now come in well below the average of 2019 before the outbreak, when the saving rate had averaged over 7%.
Inflation as measured by the Bureau of Economic Analysis’ personal consumption expenditures (PCE) index eased only modestly in April compared to March, with fast-rising prices showing few signs of slowing down across the U.S. economy.
The broadest measure of PCE rose 0.2% in April month-on-month, which matched consensus economist expectations, according to Bloomberg data. This compared to a 0.9% monthly increase in March. On a year-over-year basis, however, PCE still soared by 6.3%, coming in slightly hotter than expected and moderating only slightly from March’s 6.6% annual rise.
Core PCE, which excludes volatile food and energy prices, also remained hot and rose 4.9% in April over last year. That matched estimates, and followed a 5.2% rise in March. February’s reading of 5.3% had been the highest since 1983.
Here’s where markets were trading Friday morning:
S&P 500 futures (ES=F): +11 points (+0.27%) to 4,066.75
Dow futures (YM=F): +26 points (+0.08%) to 32,626.00
Nasdaq futures (NQ=F): +54.25 points (+0.44%) to 12,333.50
Crude (CL=F): -$0.46 (-0.40%) to $113.63
Gold (GC=F): +$8.80 (+0.47%) to $1,862.70 per ounce
10-year Treasury (^TNX): -3.3 bps to yield 2.725%
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter.
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