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Analysis-Colombia’s first leftist leader Gustavo Petro targets inequality; investors on edge

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© Reuters. FILE PHOTO: Colombia’s Gustavo Petro of the Historic Pact coalition shows his ballot before casting his vote at a polling station during the second round of the presidential election in Bogota, Colombia June 19, 2022. REUTERS/Luisa Gonzalez/File Photo

By Julia Symmes Cobb and Oliver Griffin

BOGOTA (Reuters) -The election of Colombia’s first leftist president, Gustavo Petro, is indicative of widespread yearning for a more equal and inclusive society, analysts and business leaders said, but the former guerrilla will need to act fast to reassure investors.

Petro, a 62-year-old former mayor of the capital Bogota and current senator, won some 50.4% of votes on Sunday, handily beating construction magnate Rodolfo Hernandez.

The election of a former guerrilla marks a radical change for a country still scarred by decades of conflict and highlights the depth of frustration with the right-leaning political establishment accused of overseeing a wide gap between rich and poor.

Petro has pledged to fight inequality with free university education, pension reforms and high taxes on unproductive land in the Andean country, where nearly half the population lives in poverty.

His proposals – especially a ban on new oil projects for environmental reasons – have startled some investors, though he has promised to respect current contracts.This campaign was Petro’s third presidential bid and his victory adds the Andean nation to a list of Latin American countries that have elected leftists in recent years.

Petro will take office at a time when Colombia is struggling with low credit ratings, a large trade deficit and national debt which is predicted to end the year at 56.5% of GDP.

Oil accounts for nearly half of exports and close to 10% of national income.

“Colombia was governed for so many years by the economic and political elite,” said Gimena Sanchez-Garzoli, Andes Director for the think tank Washington Office on Latin America. “In many ways this election is basically the voice of most of the population in the country, especially the rural poor, women, Afro-Colombians, the indigenous.”

“People didn’t want a change at any cost, they wanted a change that would actually be with actual proposals which include making the peace accord a priority,” said Sanchez-Garzoli referring to the 2016 peace deal with the Revolutionary Armed Forces of Colombia (FARC), which brought an end to that group’s role in the nearly 60-year-old internal conflict.

Petro has pledged to fully implement the FARC accord – which detractors accuse current President Ivan Duque of failing to adequately support – and to seek talks with the still-active ELN rebels.

“Petro’s election may have just saved the peace process,” said Oliver Kaplan, associate professor at the University of Denver’s Josef Korbel School of International Studies.

On Sunday night, as he celebrated his win, Petro told his supporters: “Peace is someone like me being able to be president.”

BUSINESS JITTERS

Petro regularly praises the mostly young protesters who have taken to the streets over the last three years to decry inequality and police violence, in demonstrations where more than 40 people were killed.

The president-elect, who was arrested by the military in 1985 while carrying weapons for the M-19 rebels, has said he was tortured during his 16-month detention. His victory has high-ranking armed forces officials bracing for change.

“There’s a segment of the population that is totally opposed to him because of his M-19 past,” Kaplan said. “Maintaining security and protection of civilians will depend on good civil-military relations, and it’s uncharted waters in that regard.”

But Petro’s proposals will face challenges, not least because of a deeply divided congress where a dozen parties hold seats.

“Petro is going to have a very strong opposition from day one, we’re going to have a congress that all of a sudden is disjointed from the executive branch,” said Colombia Risk Analysis founder Sergio Guzman.

“I think this means people’s priorities have moved beyond the conflict,” Guzman said. “This marks a really stark departure from where we’ve been as a country.”

Business leaders and the market were awaiting ministerial appointments, especially for key positions like finance minister, and have predicted volatility in the peso and in bonds when trading opens on Tuesday after a holiday weekend.

Petro has floated some moderates as possible finance ministers, including Alejandro Gaviria, a centrist economist and former health minister, as well as ex-ministers like Rudolf Hommes and Jose Antonio Ocampo.

“It will be very important that total confidence between everyone is restored, that there is confidence for businesses, citizens, that there is confidence for investors, that there is confidence with the rule of law,” Bruce Mac Master, president of the Colombian Business Association (ANDI), said in a statement following Petro’s victory.

“In us, he can expect a constructive partner,” he said.

Petro was emphatic that business and development had important roles to play under his government. He has pledged to strengthen agriculture, tourism and manufacturing.

“We are going to develop capitalism in Colombia,” told supporters on Sunday. Development is needed to overcome the “feudalism” and “pre-modernity” from which Colombia still suffers, he said.

Economy

Asia stocks edge down after Wall Street falls; oil rises

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© Reuters. FILE PHOTO: A man wearing a protective mask, amid the coronavirus disease (COVID-19) outbreak, walks past an electronic board displaying graphs (top) of Nikkei index outside a brokerage in Tokyo, Japan, March 10, 2022. REUTERS/Kim Kyung-Hoon

By Julie Zhu

HONG KONG (Reuters) – Asian shares edge down in early trade on Tuesday with investors taking their cue from a volatile Wall Street session overnight, while oil prices climbed following last week’s rout.

Oil continued to rise with investors still weighing worries over an economic slowdown against concern over lost Russian supply amid sanctions related to the conflict in Ukraine.

“A seam of tight supply news bolstered the (oil) market,” analysts at Commonwealth Bank of Australia (OTC:CMWAY) said in a research note. “Political unrest might curtail supply from a couple of second-tier producers, Ecuador and Libya. And then there’s the G7’s proposed price cap on Russian oil.”

Early in the Asian trading day, MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.7%. The index is down 3.8% so far this month. U.S. stock futures, the S&P 500 e-minis, were up 0.27%.

Australian shares were up 0.25%, while Japan’s Nikkei stock index rose 0.5%.

China’s blue-chip CSI300 index was 0.4% lower in early trade. Hong Kong’s Hang Seng index opened down 0.36%.

On Monday, U.S. stocks ended a volatile trading session slightly lower with few catalysts to sway investor sentiment as they approach the half-way point of a year in which the equity markets have been slammed by heightened inflation worries and tightening Fed policy.

The major U.S. stock indexes lost ground after oscillating earlier in the session, with weakness in interest rate sensitive megacaps such as Amazon.com Inc (NASDAQ:AMZN), Microsoft Corp (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) Inc providing the heaviest drag.

The Dow Jones Industrial Average fell 0.2%, the S&P 500 lost 0.30% and the Nasdaq Composite dropped 0.72%.

Oil prices rose as the Group of Seven nations promised to tighten the squeeze on Russia’s finances with new sanctions that include a plan to cap the price of Russian oil.

U.S. crude ticked up 0.99% to $110.65 a barrel. Brent crude rose to $116.22 per barrel.

Treasury yields climbed on Monday following capital and durable goods orders data and as pending home sales surprised to the upside from the previous month.

The yield on benchmark 10-year Treasury notes last reached 3.1847% on Tuesday, compared with its U.S. close of 3.194% on Monday. The two-year yield, which rises with traders’ expectations of higher Fed fund rates, touched 3.0974% compared with a U.S. close of 3.123%.

Also, the U.S. dollar edged lower versus major rivals as investors weighed expectations on inflation and interest rate hikes. The dollar index, which tracks the greenback against a basket of currencies of other major trading partners, was down at 103.91.

Gold was slightly higher. Spot gold was traded at $1,824.28 per ounce. [GOL/]

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Japan says hard to confirm impact from Russia’s debt default

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© Reuters. FILE PHOTO: Japan’s new Finance Minister Shunichi Suzuki wearing a protective mask, amid the coronavirus disease (COVID-19) outbreak, speaks at a news conference in Tokyo, Japan, October 5, 2021. REUTERS/Kim Kyung-Hoon

TOKYO (Reuters) -Japanese Finance Minister Shunichi Suzuki said on Tuesday that it was “a little difficult” at present to confirm the definite impact on Japan from Russia’s debt default.

Suzuki, who commented on the issue after being asked about it by reporters at a news conference following a regular cabinet meeting, added that any moves in Russian government bonds were likely to have a limited impact on Japanese investors.

“The ratio of investments in Russia as part of Japan’s overall foreign bond investments is limited,” Suzuki said.

“Moves in Russian government bonds are likely to result in limited direct losses for Japanese investors, including financial institutions,” he said.

The White House and Moody’s (NYSE:MCO) credit agency on Monday said Russia had defaulted on its international bonds for the first time in more than a century.

The Kremlin, which has the money to make payments thanks to oil and gas revenues, has rejected the claims that it has defaulted on its external debt.

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Economy

Euro gains traction ahead of inflation data, dollar steadies

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© Reuters. A shopper pays with a ten Euro bank note at a local market in Nice, France, June 7, 2022. REUTERS/Eric Gaillard

By Tom Westbrook

SINGAPORE (Reuters) – The euro won support on Tuesday as traders braced for European inflation figures to run hot this week and awaited a speech from central bank chief Christine Lagarde, while worries about a recession kept the U.S. dollar firm.

The euro rose 0.3% overnight and at one point poked above its 50-day moving average. It last sat at $1.0578.

The dollar held modest overnight gains on other currencies and traded at 135.37 yen and $0.6936 per Australian dollar early in the Asia session.

German inflation figures are due on Wednesday, French data on Thursday and euro zone numbers on Friday. European Central Bank President Lagarde is also due to speak at the ECB forum in Sintra, Portugal, at 0800 GMT on Tuesday.

“This set of inflation data will have a significant influence on the ECB’s monetary policy forward guidance, especially on the trajectory … of its interest rate hike cycle that is expected to kick start in July,” said CMC analyst Kelvin Wong.

Hike expectations have the euro trading firmly against the yen and it last bought 143.28 yen, close to last week’s seven-year high of 144.24. It also has momentum on sterling and has gained 1.2% this month to 86.15 pence.

The weak spot is against the Swiss franc which has rocketed to test parity on the common currency following a surprise rate hike by the Swiss National Bank earlier in June.

Moves elsewhere were modest as traders try and navigate between relief that signs of weakness in recent global economic data can moderate rate hikes, and worry that it could be a harbinger of the onset of a difficult period of stagflation.

Some of the heat has come out of bets on U.S. interest rate rises, with the peak in the Federal Reserve’s benchmark funds rate now seen hovering around 3.5% next year rather than 4% or above, but the dollar has not yet fallen far from lofty peaks.

The U.S. dollar index struck a two-decade high of 105.79 this month and was last steady at 103.93.

The risk-sensitive Australian and New Zealand dollars have been left behind in last week’s stock market bounce. The kiwi was steady at $0.6306 on Tuesday.

Sterling was similarly becalmed at $1.2274.

“Stay long the dollar until some of the uncertainty has reduced,” said Societe Generale (OTC:SCGLY) strategist Kit Juckes.

“The dollar will fall likely only when the global economy is on a more sustainable growth path … markets are forward-looking, but all we can see ahead today is danger.”

========================================================

Currency bid prices at 0130 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar

$1.0579 $1.0583 +0.00% -6.91% +1.0586 +1.0571

Dollar/Yen

135.3050 135.4600 -0.12% +17.63% +135.5850 +135.3000

Euro/Yen

143.15 143.35 -0.14% +9.84% +143.4500 +143.1300

Dollar/Swiss

0.9558 0.9562 -0.07% +4.75% +0.9567 +0.9555

Sterling/Dollar

1.2274 1.2265 +0.07% -9.24% +1.2283 +1.2263

Dollar/Canadian

1.2866 1.2872 -0.05% +1.76% +1.2878 +1.2858

Aussie/Dollar

0.6929 0.6925 +0.09% -4.65% +0.6938 +0.6918

NZ

Dollar/Dollar 0.6300 0.6302 -0.02% -7.96% +0.6307 +0.6293

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

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