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For Japan’s hard-hit airlines, demand for Hawaii flights offers glimmer of hope

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4/4

© Reuters. Travelers line up to board a Hawaii-bound flight from Tokyo’s Haneda International Airport during Japan’s “Golden Week” holidays, in Tokyo, Japan April 29, 2022. REUTERS/Maki Shiraki

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By Maki Shiraki

TOKYO (Reuters) -Japan’s airlines are betting on a travel recovery this summer after the COVID-19 doldrums, as many Japanese look to head overseas for the first time in years now that fully vaccinated residents no longer face quarantine curbs on their return.

After encouraging demand for flights to Hawaii during a just concluded popular holiday season, Japan Airlines Co Ltd (JAL) and ANA Holdings Inc are hoping the outbound rise will help fill some of the gap from Japan’s ongoing ban on foreign tourist arrivals.

Japan on March 1 waived all quarantine and isolation requirements for triple-vaccinated residents returning from the United States and a range of other countries. It also lowered its U.S. infection travel warning from April 1.

“The fact that you don’t have to quarantine upon return is a big reason why we chose Hawaii,” said Masahiro Sugiyama, who was travelling with his wife and two children.

An upswing in demand for flights to Hawaii, a long-favoured destination for many Japanese, is seen as a bellwether for the overall travel sector. It also shows that the airlines are keen to capitalise on pent up demand – even though higher fuel costs, a weak yen and expensive testing requirements are driving up costs for travellers.

“If I don’t go when I can, I don’t know when I’ll have another chance,” said Kaori Sato, a college student about to depart on a week-long trip to Hawaii with her mother and sister. “I’m still worried about corona, but I’ve had three vaccine shots, so I think I’ll be fine.”

BOOKINGS JUMP

Last year, just 510,000 Japanese went abroad, according to government statistics, down from more than 20 million in 2019.

But international bookings before the start of the recent holiday break, known in Japan as ‘Golden Week’, surged: At ANA they jumped more than five-fold and JAL more than four-fold, the airlines said before the start of the holidays.

ANA said it aims to bring back more flights to Los Angeles, New York and other destinations popular with Japanese tourists.

There are also hopes a ban on inbound tourists could be lifted soon after Japanese Prime Minister Fumio Kishida said on Thursday that border measures would be reviewed next month.

JAL plans to resume daily flights to Hawaii from June, while ANA said it will return to using its largest planes, the 520-seater Airbus A380, for some Hawaii routes from July.

Meanwhile, customers will have to pay as much as 62,000 yen ($475) per ticket as a fuel surcharge.

Hawaii-bound Angie Matsuo said she and her parents also had to pay more than 100,000 yen combined for PCR tests required before leaving, equating to more than $250 each. Another test is needed before returning home.

“The testing is a hassle because it takes a lot of money, time, and effort,” Matsuo said. “The depreciation of the yen and various price hikes are also a pain. But I don’t know when I’ll be able to go again, so it’s now or never.”

($1 = 130.6200 yen)

Economy

As bear market looms, battered Wall St seeks elusive ‘Fed put’

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© Reuters. FILE PHOTO: Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., March 21, 2022. REUTERS/Brendan McDermid

By David Randall

NEW YORK (Reuters) -The Federal Reserve’s determination to raise interest rates until it squashes the highest inflation in decades is darkening the outlook across Wall Street, as U.S. stocks stand on the cusp of a bear market and warnings of a recession grow louder.

At issue is the so-called Fed put, or investors’ belief that the Fed will take action if stocks fall too deeply, even though it has no mandate to maintain asset prices. One oft-cited example of the phenomenon, which is named after a hedging derivative used to protect against market falls, occurred when the Fed halted a rate hiking cycle in early 2019 after a stock market tantrum.

This time around, the Fed’s insistence that it will raise rates as high as needed to tame surging inflation has bolstered the argument that policymakers will be less sensitive to market volatility – threatening more pain for investors.

A recent survey by BofA Global Research showed fund managers now expect the Fed to step in at 3,529 on the S&P 500, compared with expectations of 3,700 in February. Such a drop would constitute a 26% decline from the S&P’s Jan. 3 closing high.

The index, which closed Friday at 3,901.36, is already down almost 19% from that high this year on an intraday basis – close to the 20% decline that would confirm a bear market, according to some definitions. [.N]

“The Fed has bigger fish to fry and that’s the inflation problem,” said Phil Orlando, chief equity market strategist at Federated Hermes (NYSE:FHI), who is increasing his cash levels. “The ‘Fed put’ is kaput until the central bank is confident that they’re no longer behind the curve.”

As a result, some investors are digging in for a long slog. BofA’s survey showed cash allocations at a two-decade high, while bets against technology stocks stand at their highest since 2006.

Strategists at Goldman Sachs (NYSE:GS), meanwhile, earlier this week published a “Recession manual for US equities” in response to client inquiries on how stocks will perform in a downturn. Barclays (LON:BARC) analysts said that numerous negative near-term catalysts mean the risks for stocks “remain firmly stacked to the downside.”

The S&P 500 closed broadly unchanged on Friday, reversing a sharp intraday decline that had briefly put it into bear market territory. The index marked its seventh straight week of losses, the longest streak since 2001.

Jason England, global bonds portfolio manager at Janus Henderson Investors, believes the index needs to fall at least another 15% for the Fed to slow its tightening, given that unprecedented monetary policy support helped stocks more than double from their March 2020 lows.

“The Fed is being very clear that there will be some pain ahead,” he said.

The Fed has already raised rates by 75 basis points and is expected to tighten monetary policy by 193 basis points this year. [/FEDWATCH] Investors will get more insight into the central bank’s thinking when minutes from its last meeting are released on May 25.

2018 REDUX?

Some worry the Fed risks exacerbating volatility if it does not heed possible danger signs from asset prices. Analysts at the Institute of International Finance said stocks may be subject to the same type of selling that rocked markets in late 2018, when many investors believed the Fed tightened monetary policy too far.

“In the past, rising uncertainty and mounting recession risk have had important effects on investor psychology, making markets less tolerant of monetary policy tightening that is seen as no longer warranted,” IIF analysts wrote on Thursday. “The risk of a similar market tantrum (to 2018) is rising again now as markets fret about global recession.”

There have been signs of resilient sentiment among investors. For example, the Cboe Volatility Index, known as Wall Street’s fear gauge, is elevated but below levels it reached during previous major selloffs.

And the ARK Innovation Fund (ARKK.K), which became emblematic of the pandemic rally, has brought in net positive inflows of $977 million over the last six weeks, Lipper data showed. The fund is down 57% in 2022.

While some investors say those are signals that markets are yet to bottom, others are more hopeful.

Terri Spath, chief investment officer at Zuma Wealth, believes some investors are re-entering parts of the stock market that have suffered outsized losses.

“The Fed is already seeing signs that they won’t be needed as a buyer of last resort,” she said.

Analysts at Deutsche Bank (ETR:DBKGn) are less optimistic.

“The Fed having badly erred on the side of excess inflation in 2020/21, cannot afford to make the same mistake twice – which favors more financial conditions tightening, and ongoing high (volatility) panicky markets,” they wrote.

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Economy

Australian prime minister concedes defeat in election

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2/2

© Reuters. FILE PHOTO: Australian Prime Minister Scott Morrison attends the third leaders’ debate at the Seven Network Studios during the 2022 federal election campaign, in Sydney, Australia May 11, 2022. Mick Tsikas/Pool via REUTERS

2/2

SYDNEY (Reuters) – Australian Prime Minister Scott Morrison said he had conceded defeat in a national election on Saturday, saying that while vote counting was incomplete the opposition Labor party looked likely to form a government.

“Tonight I have spoken to the Leader of the Opposition and the incoming Prime Minister, Anthony Albanese, and I’ve congratulated him on his election victory this evening,” Morrison said at a televised speech in Sydney.

Morrison added that he would stand down as leader of the Liberal party.

The capitulation ends eight years and nine months in power for Morrison’s conservative coalition. Morrison became prime minister in 2018 after several leadership changes.

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Economy

Bear market beckons as stock volatility continues in 2022

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© Reuters. FILE PHOTO: A trader works on the trading floor at the New York Stock Exchange (NYSE) in Manhattan, New York City, U.S., May 20, 2022. REUTERS/Andrew Kelly

By Lewis Krauskopf

NEW YORK (Reuters) – The stock market’s brutal year neared a grim milestone as the S&P 500’s slide on Friday threatened to leave it in a bear market for the first time since March 2020, fueled by worries over sky high inflation, a hawkish Federal Reserve and future economic growth.

The benchmark S&P 500 index fell below 3837.248 during Friday’s session, a decline that on an intraday basis put it more than 20% below its Jan. 3 record closing high. However, the index closed above that level, and did not confirm it was in a bear market – frequently defined as a drop of at least 20% from a closing high.

If history is any guide, a bear market would mean more pain could be in store for investors. The S&P 500 has fallen by an average of 32.7% in 13 bear markets since 1946, including a nearly 57% drop during the 2007-2009 bear market during the financial crisis, according to Sam Stovall, chief investment strategist at CFRA.

It has taken a little over a year on average for the index to reach its bottom during bear markets, and then roughly another two years to return to its prior high, according to CFRA. Of the 13 bear markets since 1946, the return to breakeven levels has varied, taking as little as three months to as long as 69 months.

Graphic: S&P 500 bear markets since 1946 – https://graphics.reuters.com/USA-STOCKS/BEAR/zjvqkmznwvx/chart.png

The S&P 500 surged some 114% from its March 2020 low as stocks benefited from emergency policies put in place to help stabilize the economy in the wake of the COVID-19 pandemic.

That decline went into reverse at the start of 2022 as the Fed grew far more hawkish and signaled it would tighten monetary policy at a faster-than-expected clip to fight surging inflation. It has already raised rates by 75 basis points this year and expectations of more hikes ahead have weighed on stocks and bonds.

Fed Chairman Jerome Powell has vowed to raise rates as high as needed to kill inflation but also believes policymakers can guide the economy to a so-called soft landing.

Adding to the volatility has been the war in Ukraine, which has caused a further spike in oil and other commodity prices.

Graphic: S&P 500 timeline in 2022 – https://fingfx.thomsonreuters.com/gfx/mkt/jnvwezxjgvw/Pasted%20image%201653063479826.png

A few areas of the stock market have been spared. Energy shares have soared this year, along with oil prices, while defensive groups such as utilities have held up better than broader markets.

Graphic: S&P 500 sectors since all-time high – https://graphics.reuters.com/USA-STOCKS/BEAR/znpnemwbdvl/chart.png

On the flip side, shares of technology and other high-growth companies have been hit hard. Those stocks — high fliers during much of the bull market over the past decade — are particularly sensitive to higher yields, which dull the allure of companies whose cash flows are weighted more in the future and diminished when discounted at higher rates.

Some of the biggest of these companies, such as Tesla (NASDAQ:TSLA) and Facebook (NASDAQ:FB) owner Meta Platforms, are also heavily weighted in the S&P 500 index.

Graphic: Casualties in 2022 stock market – https://graphics.reuters.com/USA-STOCKS/BEAR/egpbkwajjvq/chart.png

Investors have looked at various metrics to determine when markets will turn higher, including the Cboe Volatility Index, also known as Wall Street’s fear gauge. While the index is elevated compared to its long-term median, it is still below levels reached in previous major selloffs.

Graphic: VIX and bear markets – https://fingfx.thomsonreuters.com/gfx/mkt/xmpjoxrbyvr/Pasted%20image%201653068998738.png

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