Stock Markets
Analysis-Euro’s stellar run in doubt as ECB muddies rate outlook
© Reuters. FILE PHOTO: Euro banknotes are seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo
By Naomi Rovnick and Dhara Ranasinghe
LONDON (Reuters) – Euro bulls are set for an anxious summer ahead as doubts creep in over how far the ostensibly still-hawkish European Central Bank will go with interest rate rises.
The euro has been on a stellar run, up roughly 3.5% against the dollar so far this year to just under $1.11. Measured against the currencies of the euro zone’s main trading partners, it is not far off this month’s record highs.
Investors are strongly positioned for the euro – which languished at two-decade lows against the greenback this time last year – to keep rising.
That view is primarily based on the belief that the U.S. Federal Reserve will end its most energetic rate rise cycle in 40 years before the ECB turns dovish.
Under the surface, investors and economists say, even the most hawkish ECB members will be looking for the end of tightening as inflation softens and economic activity weakens.
“I don’t have a high conviction on the euro,” said Gabriele Foa, co-portfolio manager at Algebris Investments, who said he had been bullish on the single currency at the start of 2023 while now maintaining a mild “long bias”.
The ECB, he added, would “keep the inflation-fighting mask on” for a few more months, while at the same time weak data would be “feeding into (ECB) communication and eventually policy”.
On Thursday, the ECB delivered a widely anticipated 25 basis points rate increase to a 23-year high of 3.75% and said inflation remained too high.
ECB President Christine Lagarde responded to most of the questions at a press conference by saying all options remained on the table to “break the back” of inflation, but sent the euro tumbling with a dovish flourish near the end.
“Do we have more ground to cover? At this point in time I wouldn’t say so,” Lagarde said, almost unprompted, stressing that the ECB’s decisions would depend on incoming data.
The euro fell 0.9% against the dollar, with stubborn inflation and a growing risk of a recession pulling policymakers in opposing directions.
The Federal Reserve on Wednesday also hiked interest rates but markets suspect that was its last tightening move. In contrast, money markets now price in a 40% chance of another quarter point ECB move in September.
BOUNCE BACK
A hawkish ECB, just as cooling U.S. inflation points to peak Fed rates, helps explain the euro’s recent rally. The currency is up roughly 10% from lows hit last year below the psychologically key $1-mark.
A trade-weighted index, that measures the euro’s value against a basket of other currencies and is followed closely by the ECB, is trading near record highs.
That is partly because of weakness in the yuan, which accounts for over 10% of the basket, and has been hurt by a lacklustre Chinese economy.
Speculators had the biggest net long position in the euro in nine weeks in the week ended July 18, CFTC data showed.
The path ahead was expected to be foggy over the summer as the market awaits new ECB inflation projections in September, fresh data, and assesses the Fed outlook. July euro zone inflation numbers are out next week.
“I’m a little sceptical of markets thinking that they (ECB policymakers) will twist at this point into a more dovish position,” said Francesco Sandrini, head of multi-asset strategies at Amundi, Europe’s largest asset manager.
“This is going to happen but only when inflation peaks … we’ll probably embark on a reversal like we are seeing already underway in the U.S., but that’s not a moment yet.”
Sandrini said Amundi expected the euro to rise to $1.15- $1.20 in the coming quarters, implying a further gain of at least 4% from current levels.
Further euro gains were not expected to unsettle policymakers since this would help keep the costs of imports – and overall inflation – down.
“Currency strength is welcome to battle inflation, it’s why the SNB for example does not mind about the franc,” said Societe General currency strategist Kenneth Broux. He was referring to the Swiss National Bank and a Swiss franc up over 7% against the dollar so far in 2023.
But with the jury very much out on whether the ECB will move again in September, the currency could as easily head down as back up, analysts said.
Monex Europe head of FX analysis Simon Harvey reckons, “the data will push back against the idea they can hike again in September”.
Euro zone business showed shrank much more than expected in July as demand in the bloc’s dominant services industry declined, data this week showed.
A euro level of $1.10, Harvey said, seemed fair.
Some were bearish.
Robin Brooks, chief economist at the Institute for International Finance in Washington, said a war in Ukraine that had left energy prices highly elevated pointed to a big terms of shock trade that should pull the euro back down.
“I don’t think the rally back from parity should have happened,” Brooks said.
Stock Markets
Fiery plane crash kills 179 in worst airline disaster in South Korea
By Ju-min Park, Hongji Kim and Hyunsu Yim
MUAN COUNTY, South Korea (Reuters) -The deadliest air accident ever in South Korea killed 179 people on Sunday, when an airliner belly-landed and skidded off the end of the runway, erupting in a fireball as it slammed into a wall at Muan International Airport.
Jeju Air flight 7C2216, arriving from the Thai capital Bangkok with 175 passengers and six crew on board, was trying to land shortly after 9 a.m. (0000 GMT) at the airport in the south of the country, South Korea’s transport ministry said.
Two crew members survived and were being treated for injuries.
The deadliest air accident on South Korean soil was also the worst involving a South Korean airline in nearly three decades, the transport ministry said.
The twin-engine Boeing (NYSE:) 737-800 was seen in local media video skidding down the runway with no visible landing gear before crashing into navigation equipment and a wall in an explosion of flames and debris.
“Only the tail part retains a little bit of shape, and the rest of (the plane) looks almost impossible to recognise,” Muan fire chief Lee Jung-hyun told a press briefing.
The two crew members, a man and a woman, were rescued from the tail section of the burning plane, Lee said. They were being treated at hospitals with medium to severe injuries, said the head of the local public health centre.
Authorities combed nearby areas for bodies possibly thrown from the plane, Lee said.
Investigators are examining bird strikes and weather conditions as possible factors, Lee said. Yonhap news agency cited airport authorities as saying a bird strike may have caused the landing gear to malfunction.
The crash was the worst for any South Korean airline since a 1997 Korean Air crash in Guam that killed more than 200 people, transportation ministry data showed. The previous worst on South Korean soil was an Air China (OTC:) crash that killed 129 in 2002.
Experts said the bird strike report and the way the aircraft attempted to land raised more questions than answers.
“A bird strike is not unusual, problems with an undercarriage are not unusual,” said Airline News editor Geoffrey Thomas. “Bird strikes happen far more often, but typically they don’t cause the loss of an airplane by themselves.”
Under global aviation rules, South Korea will lead a civil investigation into the crash and automatically involve the National Transportation Safety Board (NTSB) in the United States where the plane was designed and built.
The NTSB said later it was leading a team of U.S. investigators to help South Korea’s aviation authority. Boeing and the Federal Aviation Administration were also taking part.
‘MY LAST WORDS’
Hours after the crash, family members gathered in the airport’s arrival area, some crying and hugging as Red Cross volunteers handed out blankets.
Many victims appeared to be residents of nearby areas returning from vacation, officials said.
Families screamed and wept as a medic announced the names of victims identified by their fingerprints. Papers were circulated for families to write down their contact details.
One relative stood at a microphone to ask for more information from authorities. “My older brother died and I don’t know what’s going on,” he said. “I don’t know.”
Another asked journalists not to film. “We are not monkeys in a zoo,” he said. “We are the bereaved families.”
Mortuary vehicles lined up outside to take bodies away, and authorities said a temporary morgue had been established.
The crash site smelled of aviation fuel and blood, according to Reuters witnesses. Workers in protective suits and masks combed the area while soldiers searched through bushes.
The control tower issued a bird strike warning and shortly afterward the pilots declared mayday and then attempted to land from the opposite direction, a transport ministry official said.
A passenger texted a relative to say a bird was stuck in the wing, the News1 agency reported. The person’s final message was, “Should I say my last words?”
The aircraft was manufactured in 2009, the transport ministry said.
The Boeing model involved in the crash, a 737-800, is one of the world’s most flown airliners with a generally strong safety record. It was developed well before the MAX variant involved in a recent Boeing safety crisis.
Boeing said in a emailed statement, “We are in contact with Jeju Air regarding flight 2216 and stand ready to support them. We extend our deepest condolences to the families who lost loved ones, and our thoughts remain with the passengers and crew.”
The two CFM56-7B26 engines were manufactured by CFM International, a joint venture between GE Aerospace and France’s Safran (EPA:), the transport ministry said.
A CFM spokesperson said, “We are deeply saddened by the loss of Jeju Air flight 2216. We extend our heartfelt sympathies to the families and loved ones of those on board.”
CHALLENGE TO COUNTRY’S NEW INTERIM PRESIDENT
Jeju Air CEO Kim E-bae apologised for the accident, bowing deeply during a televised briefing.
He said the aircraft had no record of accidents and there were no early signs of malfunction. The airline will cooperate with investigators and make supporting the bereaved its top priority, Kim said.
No abnormal conditions were reported when the aircraft left Bangkok’s Suvarnabhumi Airport, said Kerati Kijmanawat, president of Airports of Thailand.
The passengers included two Thai nationals and the rest are believed to be South Koreans, according to the transportation ministry.
It was the first fatal flight for Jeju Air, a low-cost airline founded in 2005 that ranks behind only Korean Air Lines and Asiana Airlines in terms of the number of passengers in South Korea.
The accident happened only three weeks after Jeju Air started regular flights from Muan to Bangkok and other Asian cities on Dec. 8.
Muan International is one of South Korea’s smallest airports but it has become much busier in recent years. All domestic and international flights at the airport were cancelled after the accident, Yonhap reported.
South Korean acting President Choi Sang-mok, named interim leader of the country on Friday in an ongoing political crisis, arrived at the scene of the accident and said the government was putting all its resources into dealing with the crash.
Two Thai women were on the plane, aged 22 and 45, Thai government spokesperson Jirayu Houngsub said.
The Thai foreign ministry later confirmed both were among those killed. The embassy in Seoul was coordinating with the South Koreans and arranging for family members to travel from Thailand, the ministry said in a statement.
Thai Prime Minister Paetongtarn Shinawatra sent condolences to the families of the dead and injured in a post on X, saying she had instructed the foreign ministry to provide assistance.
Stock Markets
Roche has no plans for job cuts and business is healthy, CEO says
ZURICH (Reuters) – Swiss pharmaceutical company Roche is not planning job cuts and its business is healthy, CEO Thomas Schinecker was quoted as saying by a Swiss newspaper on Sunday.
Roche’s share price has fallen far below peaks it scaled in April 2022 and the CEO was questioned about the company’s staffing plans in the context of recent setbacks in its development of drugs to treat cancer, among other illnesses.
“The number of workers is constant to slightly increasing,” Schinecker told the NZZ am Sonntag in an interview when asked if the company was planning layoffs.
“I can say with certainty that we have a very healthy business. And we don’t have a growth problem either,” he said, while noting that Roche’s budget for research and development was stable and not growing.
Asked when Roche’s planned anti-obesity drug would hit the market, Schinecker said it could be around 2029 or sooner.
Addressing the outlook more broadly for next year, particularly in light of the German economy’s recent struggles, the Roche CEO said Europe still faced challenges.
“There’s some economic growth in the United States, but things are more difficult in China at the moment,” he said. “And in Europe it will take some time before we get out of this.”
Stock Markets
New Georgian president sworn in; predecessor says he is not legitimate leader
By Gleb Stolyarov and Felix Light
TBILISI (Reuters) -Mikheil Kavelashvili, a hardline critic of the West, was sworn in as president of Georgia on Sunday amid a political crisis after the government froze European Union application talks in a move that sparked major protests.
Outgoing President Salome Zourabichvili, a pro-EU opponent of the ruling party, said in a defiant speech to supporters outside the presidential palace that she was leaving the residence, but that Kavelashvili had no legitimacy as president, which is a mostly ceremonial position.
She said: “I will come out of here and be with you.”
“I am taking legitimacy with me, I am taking the flag with me, I am taking your trust with me,” she added, before walking out of the palace to mingle with her supporters.
Zourabichvili says that Kavelashvili was not duly picked, as the lawmakers who chose him were elected in an October parliamentary election that she says was marked by fraud. Georgia’s opposition parties support her.
The Georgian Dream ruling party and the country’s election commission say that the October election was free and fair. The ruling party says Kavelashvili is the duly elected president.
The presidential standoff is seen as a watershed moment in Georgia, a mountainous country of 3.7 million that had until recently been regarded as among the most democratic and pro-Western of the former Soviet states.
Kavelashvili is a loyalist of Bidzina Ivanishvili, a reclusive billionaire ex-prime minister who is widely seen as Georgia’s de facto leader.
On Friday, the U.S. imposed sanctions on Ivanishvili, saying he was spearheading Georgia’s current anti-Western and pro-Russian turn.
PROTESTERS HOLD UP RED CARDS
Kavelashvili, a former professional soccer player who briefly played as a striker for Manchester City, has repeatedly accused Western intelligence agencies of plotting to drive Georgia into war with neighbouring Russia.
“The Georgian people have always understood that peace is the main prerequisite for survival and development,” he said after being sworn in on Sunday.
Protesters outside parliament held up red cards in a mocking reference to Kavelashvili’s athletic career. Local media reported that six people were briefly detained amid scuffles with the police.
“Right now, this so-called government is telling us that they inaugurated the new president, but there is no new president for us, for Georgian people who are standing here day and night,” protester Mariam Japaridze told Reuters.
“We have only one legitimate president, and this is Salome Zourabichvili,” she said.
Georgian Dream got almost 54% of the vote in October’s election, according to official results.
Local and international election monitors have said the vote was marked by violations that could have affected the results. Western countries have called for an investigation.
Zourabichvili is backed by the country’s four main pro-EU opposition parties, which have boycotted parliament since the election. They say she will remain the legitimate president until fresh elections are held.
The confrontation comes amid a month of protests sparked by Georgian Dream’s suspension of EU accession talks until 2028, abruptly halting a longstanding national goal of joining the bloc that is written into the country’s constitution.
The move touched off widespread anger among Georgians, who polls show are firmly pro-EU, and prompted a police crackdown, with over 400 people, including senior opposition leaders, detained.
Zourabichvili has accused Georgian Dream of deliberately sinking Georgia’s EU hopes and instead moving towards Russia, from which Georgia gained independence in 1991.
Opposition supporters say that under Zourabichvili, who was elected with Georgian Dream’s support in 2018 before breaking with the party in recent years, the presidency was the only institution in the country not ultimately under the control of ruling party founder Ivanishvili.
They say that with the installation of Kavelashvili, Ivanishvili will have total control over Georgia.
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