Bets that the Federal Reserve will raise interest rates next week rise after a surprise hike in borrowing costs by the Bank of Canada. Meanwhile, GameStop shakes up its leadership team, terminating its chief executive officer and appointing meme stock community favorite Ryan Cohen as executive chairman.
1. U.S. Treasury yields surge after Bank of Canada rate rise
U.S. yields inched higher on Thursday, tacking on to a big overnight jump, as investors gauged the outlook for Federal Reserve policy following an unexpected interest rate hike by the Bank of Canada.
By 04:57 ET (08:57 GMT), the yield on 10-year Treasury notes edged up to 3.797%, while the yield on the 30-year Treasury bond rose to 3.952%. The 2-year note, which is typically sensitive to Fed rate expectations, also moved up to 4.551%. Prices fall as yields rise.
On Wednesday, the Bank of Canada increased its policy rate, ending a recent pause on policy tightening. The central bank argued that the move was necessary to combat stubbornly elevated inflation.
Coupled with a rate rise by the Reserve Bank of Australia earlier this week, the BoC’s decision boosted bets that the Fed will follow suit at its highly anticipated meeting next week. The chance that the U.S. central bank will hike rates by 25 basis points — and not temporarily halt a long-standing tightening campaign — has now gone up to 32.2% from 21.8% on June 6, according to the CME Group’s FedWatch Tool.
2. Futures flat with Fed meeting approaching
U.S. stock futures hovered largely around the flatline as investors looked ahead to the all-important Federal Reserve policy meeting next week.
By 04:59 ET, the Dow futures contract and S&P 500 futures were both broadly unchanged, while Nasdaq 100 futures dipped by 9 points or 0.06%.
In the prior session, the broad-based Dow Jones Industrial Average gained 0.27%. Meanwhile, the benchmark S&P 500 and Nasdaq Composite both dipped, pumping the brakes on a recent rally.
With a fraught debt ceiling drama in Washington now resolved and earnings season coming to a close, attention is turning to the Fed’s two-day gathering starting on June 13. On the data front, the major release will be the May U.S. consumer price index next Tuesday, which some analysts say could prove to be pivotal in determining whether policymakers choose to hike interest rates or push pause on further tightening.
3. GameStop shares slide after CEO Matt Furlong terminated
Shares in GameStop (NYSE:GME) shed more than 17% of their value in premarket trading on Thursday after the video game retailer announced that it had “terminated” chief executive officer Matt Furlong and appointed Ryan Cohen as executive chairman.
Furlong also stepped down from the board on June 5, GameStop said. The business noted in a regulatory filing that his “resignation did not result from any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.”
Cohen, whose investment in GameStop helped turn him into a darling for investors in meme stocks, previously joined the board in 2021. He later became chairman in June of that year.
The shake-up comes as GameStop attempts to boost sales, which have been under increasing pressure as downloadable console games dissuade shoppers from buying the hard copies sold at its shops. First quarter results released on Wednesday missed Wall Street estimates.
4. State-backed Chinese banks slash deposit rates
China’s four big government-sponsored lenders said they have lowered their rates on yuan deposits, as Beijing seeks to support a post-pandemic recovery that is showing signs of flagging.
Industrial and Commercial Bank of China, Agricultural Bank of China Ltd., Bank of China Ltd., and China Construction Bank Corp., all slashed the rates on deposits by 5 basis points, according to the companies’ websites. Three-year and five-year time deposits were also brought down by 15 basis points.
It is the second time in less than a year that these banks have rolled out deposit cuts.
The moves come as China is attempting to boost consumption and investment in the wake of data that has shown disappointing exports and a struggling property market. The world’s second-largest economy had enjoyed a resurgence in the first quarter following the lifting of harsh COVID-19 restrictions, but that initial sugar rush could now be waning.
5. Oil choppy after mixed U.S. fuel inventories
Oil prices were volatile on Thursday as traders attempted to digest mixed fuel inventories and gauge the outlook for crude demand.
Official data on Wednesday showed that U.S. crude inventories unexpectedly fell last week. But gasoline stockpiles grew for the first time in five weeks — a development that came as a surprise given it occurred at the start of the summer driving season, which usually drives a sharp uptick in U.S. fuel demand.
The numbers were the latest twist in an up-and-down week for the crude market. Early gains spurred on by Saudi Arabia’s unexpected production cut have quickly dissipated after the release of weak Chinese trade data led to worries about the state of the recovery in the world’s biggest oil importer.
By 05:01 ET, U.S. crude futures traded 0.55% lower at $72.13 a barrel and the Brentcontract slipped by 0.58% to $76.50 per barrel.
Fed’s Powell: Economy still working through the impact of the pandemic
© Reuters. FILE PHOTO: U.S. Federal Reserve Chair Jerome Powell holds a press conference in Washington, U.S, September 20, 2023. REUTERS/Evelyn Hockstein/File Photo
By Howard Schneider
YORK, Pa. (Reuters) – The U.S. economy is still dealing with the aftermath of the COVID-19 pandemic, Federal Reserve chair Jerome Powell said during a meeting with community and business leaders in York, Pennsylvania.
“We are still coming through the other side of the pandemic,” Powell said, noting labor shortages in healthcare, ongoing difficulties with access to child care, and other issues heightened by the health crisis. He did not comment on current monetary policy or the economic outlook in brief opening remarks.
Credit Suisse, Mozambique secure out-of-court ‘tuna bond’ settlement
© Reuters. FILE PHOTO: The logo of Credit Suisse is seen outside its office building in Hong Kong, China, August 8, 2023. REUTERS/Tyrone Siu/File Photo
By Noele Illien and Kirstin Ridley
ZURICH (Reuters) -Credit Suisse has reached an 11th-hour out-of-court settlement with Mozambique over the decade-old $1.5 billion-plus “tuna bond” scandal, the Swiss bank’s new owner UBS said on Sunday, drawing a line under a damaging dispute it inherited.
“The parties have mutually released each other from any liabilities and claims relating to the transactions,” UBS said in a statement. “The parties are pleased to have resolved this long-running dispute,” it added without giving further details.
Under the deal, struck one day before a three-month London civil trial was due to start, UBS will forgive part of a loan that Credit Suisse made to Mozambique in 2013, representing less than $100 million, said one source familiar with the situation, who declined to be named because the terms are not public.
In Maputo, the Mozambican Attorney General’s Office and Ministry of Economy and Finance said they were calling a joint news conference for Monday morning.
The tuna bond case dates back to deals between state-owned Mozambican companies and shipbuilder Privinvest – funded in part by loans and bonds from Credit Suisse and backed by undisclosed Mozambican government guarantees in 2013 and 2014 – ostensibly to develop the fishing industry and for maritime security.
But hundreds of millions of dollars went missing and, when the government debt came to light in 2016, donors such as the International Monetary Fund temporarily halted support, triggering a currency collapse, defaults and financial turmoil.
The settlement included most of the creditors involved in funding a 2013 loan to ProIndicus, a state-owned Mozambican company, UBS said.
DRAWING A LINE
UBS, which took over scandal-scarred Credit Suisse amid turmoil in the global banking sector earlier this year, has pledged to resolve Credit Suisse’s legacy legal disputes.
Since completing the mega merger on June 12, it has paid $388 million to U.S. and British regulators over dealings with collapsed private investment firm Archegos Capital Management and settled a dispute with a finance blog.
The latest settlement leaves French shipping mogul Iskandar Safa and his Privinvest group among key remaining defendants in a High Court battle over the funding and maritime deals that have already triggered U.S. and Mozambican criminal proceedings.
Mozambique has alleged it was the victim of a conspiracy and that Privinvest paid bribes to corrupt Mozambican officials and Credit Suisse bankers, exposing the country to a potential liability of at least $2 billion.
Privinvest has alleged it delivered on all of its obligations under the contracts and that any payments it made were either investments, consultancy payments, legitimate remuneration or legitimate political campaign contributions.
The company did not immediately respond to a request for comment.
In another twist to the complex case, Privinvest on Friday secured permission to appeal against a London High Court decision to grant Mozambican President Filipe Nyusi immunity from the proceedings. Privinvest has argued that if it is found liable, Nyusi should contribute to any damages.
Officials in the Maputo government did not immediately respond to a request for comment.
Court of Appeal Judge Elizabeth Laing said it was now up to the trial judge to grant any applications for adjournment, a decision seen by Reuters over the weekend showed.
In 2021, Credit Suisse agreed to pay about $475 million to British and U.S. authorities to resolve bribery and fraud charges and has pledged to forgive $200 million of debt owed by Mozambique.
It has alleged three former bankers, who arranged the bonds and have pleaded guilty in the United States to handling kickbacks, hid their misconduct from the bank.
US Congress averts government shutdown, passing stopgap bill
© Reuters. U.S. House Speaker Kevin McCarthy (R-CA) speaks with reporters after a House Republican conference meeting following a series of failed votes on spending packages at the U.S. Capitol ahead of a looming government shutdown in Washington, U.S. September 29,
By David Morgan, Moira Warburton and Makini Brice
WASHINGTON (Reuters) -The U.S. Congress passed a stopgap funding bill late on Saturday with overwhelming Democratic support after Republican House Speaker Kevin McCarthy backed down from an earlier demand by his party’s hardliners for a partisan bill.
The Democratic-majority Senate voted 88-9 to pass the measure to avoid the federal government’s fourth partial shutdown in a decade, sending the bill to President Joe Biden, who signed it into law before the 12:01 a.m. ET (0401 GMT) deadline.
McCarthy abandoned party hardliners’ insistence that any bill pass the House with only Republican votes, a change that could cause one of his far-right members to try to oust him from his leadership role.
The House voted 335-91 to fund the government through Nov. 17, with more Democrats than Republicans supporting it.
That move marked a profound shift from earlier in the week, when a shutdown looked all but inevitable. A shutdown would mean that most of the government’s 4 million employees would not get paid – whether they were working or not – and also would shutter a range of federal services, from National Parks to financial regulators.
Federal agencies had already drawn up detailed plans that spell out what services would continue, such as airport screening and border patrols, and what must shut down, including scientific research and nutrition aid to 7 million poor mothers.
“The American people can breathe a sigh of relief: there will be no government shutdown tonight,” Democratic Senate Majority Leader Chuck Schumer said after the vote. “Democrats have said from the start that the only solution for avoiding a shutdown is bipartisanship, and we are glad Speaker McCarthy has finally heeded our message.”
DEMOCRATS CALL IT A WIN
Some 209 Democrats supported the bill, far more than the 126 Republicans who did so, and Democrats described the result as a win.
“Extreme MAGA Republicans have lost, the American people have won,” top House Democrat Hakeem Jeffries told reporters ahead of the vote, referring to the “Make America Great Again” slogan used by former President Donald Trump and many hardline Republicans.
Democratic Representative Don Beyer said: “I am relieved that Speaker McCarthy folded and finally allowed a bipartisan vote at the 11th hour on legislation to stop Republicans’ rush to a disastrous shutdown.”
McCarthy’s shift won the support of top Senate Republican Mitch McConnell, who had backed a similar measure that was moving through the Senate with broad bipartisan support, even though the House version dropped aid for Ukraine.
Democratic Senator Michael Bennett held the bill up for several hours trying to negotiate a deal for further Ukraine aid.
“While I would have preferred to pass a bill now with additional assistance for Ukraine, which has bipartisan support in both the House and Senate, it is easier to help Ukraine with the government open than if it were closed,” Democratic Senator Chris Van Hollen said in a statement.
McCarthy dismissed concerns that hardline Republicans could try to oust him as leader.
“I want to be the adult in the room, go ahead and try,” McCarthy told reporters. “And you know what? If I have to risk my job for standing up for the American public, I will do that.”
He said that House Republicans would push ahead with plans to pass more funding bills that would cut spending and include other conservative priorities, such as tighter border controls.
The standoff comes just months after Congress brought the federal government to the brink of defaulting on its $31.4 trillion debt. The drama has raised worries on Wall Street, where the Moody’s (NYSE:) ratings agency has warned it could damage U.S. creditworthiness.
Congress typically passes stopgap spending bills to buy more time to negotiate the detailed legislation that sets funding for federal programs.
This year, a group of Republicans has blocked action in the House as they have pressed to tighten immigration and cut spending below levels agreed to in the debt-ceiling standoff in the spring.
The McCarthy-Biden deal that avoided default set a limit of $1.59 trillion in discretionary spending in fiscal 2024. House Republicans are demanding a further $120 billion in cuts.
The funding fight focuses on a relatively small slice of the $6.4 trillion U.S. budget for this fiscal year. Lawmakers are not considering cuts to popular benefit programs such as Social Security and Medicare.
“We should never have been in this position in the first place. Just a few months ago, Speaker McCarthy and I reached a budget agreement to avoid precisely this type of manufactured crisis,” Biden said in a statement after the vote. “House Republicans tried to walk away from that deal by demanding drastic cuts that would have been devastating for millions of Americans. They failed.”
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