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Japan's top business lobby cancels private meeting with activist Fund Elliott
Keidanren has postponed a meeting with activist investor, Elliott Investment Management, scheduled for next month, a spokesman from the lobby group announced?on Tuesday. Last month, it was reported that the meeting planned for March 5 would be an opportunity to have an Elliott portfolio manager responsible for Japanese equity investments outline their investment strategy and how they engage with companies. This would then be followed by a "frank exchange" of views. Keidanren's official declined to elaborate on the reasons for postponing the meeting. Elliott didn't respond to our request for comment. Elliott is a major player in Japan. It has stakes and pushes for change at a number of'major' companies. They are also opposed to Toyota Industries buying out the forklift manufacturer Toyota Industries. The Toyota deal has been hailed as a case study in corporate governance, where the Japanese regulators encourage companies to reduce cross-shareholding arrangements and improve capital efficiency. Elliott criticized the deal for being underpriced, and lacking in transparency. Toyota, a member of the lobby group has extended its tender offer until March 2 due to a lack of shareholder support. Elliott has offered buy shares to investors who have agreed to accept the offer. If successful, this would translate to reduced support for the purchase. The activist investor?has taken stakes?into other companies, such as?Tokyo Gas and Kansai Electrical Power, which are all members of the lobbying group.
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Gulf markets mixed as Saudi Arabia is down on fiscal concerns
On Tuesday, Gulf stock markets showed mixed results, with Saudi Arabia losing ground due to fiscal concerns while Dubai extending gains from the previous session. Saudi Arabia's benchmark index fell 0.6% following a'slight' recovery in the previous session, as the kingdom’s budget deficit increased quarter-on-quarter because of higher expenditures. Saudi Telecom Company fell 1.7%, while Saudi Aramco lost 0.6%. According to trade sources, it was reported that Aramco had sold several shipments ultra-light crude oil from its $100 billion Jafurah plant to U.S. refiners and majors in India before its first export this month. Dubai's main stock index rose by 0.2% after a nearly 2-percent jump the previous session. This was a rally that was boosted by a 1.7% increase in Dubai Islamic Bank, and a 0.6% rise in blue-chip developer Emaar Properties. The Abu Dhabi stock index increased by 0.3% on Monday, adding to the gains of Monday. First Abu Dhabi Bank rose 0.5%. Qatar's stock market index fell 0.4% due to a decline in banking stocks. Qatar National Bank, which is the largest lender in the region, has fallen by more than 0.5 percent, after having its best daily performance since mid-October the previous session. 5C Investment Partners, a U.S. private credit investment company, announced a partnership with Qatar Investment Authority in order to expand its direct lending platform. U.S. president?Donald Trump warned on Monday against countries reneging upon recently negotiated deals with the U.S., after the Supreme Court ruled?down his?emergency tariffs. He said he would impose a significantly higher duty?under alternative trading laws. He announced on Saturday that he will increase the temporary tariff for U.S. Imports from all countries, to?15%, up from the 10% maximum allowed by law. Investors will also be watching the third round of nuclear negotiations between Iran and United States that is scheduled for Geneva on Thursday.
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Ukrainian steelmaker Metinvest explores bond sale as deadline for debt nears
Metinvest, the Ukrainian steel giant, is looking at a new debt issue to cover an upcoming bond payment of?nearly $430 million due in April. It has also been in talks about restructuring. Metinvest is Ukraine's biggest?private company. However, the four years of?punishing war with Russia have?seen?it lose around half of its operations. This includes some of its largest steel and coal plants. It paused discussions with a group bondholders earlier this month about restructuring its debt of $1,25 billion, saying that it would look at "alternative liabilities management transactions". Metinvest CEO Yuriyryzhenkov spoke about the four-year anniversary on Tuesday of the war and its impact. He also discussed the options for the financial situation. He said that the company was considering "many options", particularly after the poultry giant MHP became the first Ukrainian company to issue an international bond since the outbreak of the war in Ukraine 2022. Ryzhenkov said that he was listening to the market and what investors can accept. "We'd be happy to use a 3-year or 5-year bond. It depends on other details such as covenants and?costs of debt. We'll "have to strike a sort of balance." What is an acceptable cost? Metinvest will have to pay about 1-2 percentage points higher than the 10,5% MHP borrowed last month for $450 million spread over three years, according to bankers. Alan Siow, co-head of EM Corporate Debt for Ninety One, said that this would be a very high price, and it wouldn't be sustainable over the long run. It would allow the company to retain market access, and then refinance the debt at a lower rate if the situation improved. Ryzhenkov stated that Metinvest could also consider a private debt agreement, using existing resources or returning to the restructuring options discussed in recent months. Ryzhenkov said there was "leeway" on the amount it would have to borrow if it chose a bond. It must make a $428-million payment by April 23 but it has some cash that could be used. "Depending on market conditions, we could go for $300,000,000 (bonds) or $500, if we have good conversations and the cost is reasonable." A spokesperson from Deutsche Bank, who helped organize a roadshow for Metinvest investors recently, did not immediately respond to a question about the 'potential of a bond sale. Ryzhenkov stated that Metinvest had some time left before a decision was needed and that he took an optimistic outlook. He said: "Either we can find a market solution that will solve everything or we'll reach an agreement with creditors to reprofile our bond."
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Dalian iron ore prices fall as China resumes trading
The Dalian iron 'ore futures fell on Tuesday as a reaction to the fall in Singapore iron ores prices during the Lunar New Year holidays. The May contract for iron ore on China's Dalian Commodity Exchange traded 1.79 % lower at 740 yuan (US$107.40) per metric ton. As of 0704 GMT, the benchmark March iron ore traded on Singapore Exchange was up 0.78% at $96.6 per?ton. Trading on the DCE, SHFE and Singapore Exchange remained suspended between February 16 and 23 due to the Lunar New Year holiday. The benchmark Singapore Iron Ore contract lost 1.42% in the past week. Atilla Widnell is the managing director of Navigate Commodities. She said that as a result, Dalian's iron ores prices have fallen in line with the changes in "Singapore's iron ore" prices last week. The rise in iron ore prices on Monday is a result of Chinese liquidity returning to market. The market has responded positively to the ramping up of blast furnaces in China, he said. According to Mysteel data, the arrivals of iron ore at 47 Chinese ports have decreased by?1.7 millions tons from week to week, which has supported?prices. A note from the Shanghai Metals Market stated that market?transactions will gradually increase and spot prices should remain stable as downstream steel demand is expected recover. Coking coal and coke, the other steelmaking ingredients, fell by?1.65% each and 2.3% respectively. The steel benchmarks at the Shanghai Futures Exchange were mixed. Rebar and hot-rolled coil both lost 0.88%. While stainless steel rose 0.09%, wire rod grew 1.84%. $1 = 6.8945 Yuan (Reporting and editing by Sumana Nandy, Janane Venkatraman).
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Japan's Nikkei Stock Index rises on AI-related stocks; Companies on China Export Control List Mixed
Japan's Nikkei average rose on Tuesday, as trading resumed following a long holiday weekend.?Artificial intelligence?related stocks rallied amid speculations of more investment in this hot sector. The Nikkei closed at 57 321.09, up 0.9%, while the Topix gained 0.2%. Last week, it was reported that Nvidia is close to finalising its $30 billion investment into OpenAI as the chipmaker looks to acquire a stake in?one of its largest customers. Nvidia is a bellwether for the AI industry and will report its results on Wednesday. Naoki Fujiwara, senior fund manager of Shinkin Asset Management, said that investors have reacted, even though it's still speculation. "Expectations?for growth in AI Infrastructure grew." Furukawa Electric, a manufacturer of fibre-optic cables, jumped 15%. China added Japanese companies to its list of export controls to curb what it called Japan's "remilitarisation," causing a mixed reaction in the shares of those firms. Mitsubishi Materials rose by 3.8% while Subaru fell by?3.5%. News of the attack sent Japanese defence stocks soaring. Mitsubishi Heavy Industries fell 3.1%, and IHI dropped 5.7%. (Reporting and editing by Subhranshu sahu, Mrigank Dhaniwala).
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MORNING BID EUROPE - Trump fumes at the world after his tariffs fall short
Is this the Art of the Deal, Gregor Stuart Hunter? U.S. president Donald Trump warned that trade partners should not "play games" and back out of recently agreed trade agreements after the Supreme Court ruled against his 'emergency tariffs. Some foreign governments want to check if they still have the same terms that were originally negotiated. Trump will "come out smokin'" in his State of the Union Address on Tuesday, after the tariff setback. He may even take aim at the Supreme Court Justices who are seated there. However, governments in Asia still have concerns. Japan wants to know if the treatment of 'the nation under a new U.S. Tariff regime will be as favorable as an agreement that was reached between both sides last year. Taiwan wants assurances that the U.S. will not alter the favorable terms they have already agreed. China, not wanting to be outdone in the trade wars in Washington, banned the export of dual-use goods to 20 Japanese entities it claims have military ties, to curb Japan's "remilitarisation". The markets in Japan and China have largely ignored the dispute. They gained a boost as they reopened following local holidays, and caught up with the Friday trade news. Both the Nikkei 225 index and CSI 300 index gained more than 1%. Other markets in Asia have stabilised following the Wall Street selloff that was attributed by some analysts to Citrini Research's "doomsday analysis" released earlier in the week. Citrini Research presented a?"vision of the _damage AI could cause on the global economic system in the coming years. U.S. S&P 500 e-mini futures recovered, ?rising 0.3%. The AI supply chain has also pushed benchmarks for?Taiwan, South Korea and MSCI's Asia-Pacific broadest index outside Japan to new highs. Early European futures showed a 0.3% increase in the last trade. German DAX futures rose by 0.2% and FTSE Futures fell 0.1%. Key developments on Tuesday that could impact the markets Earnings of the company Home Depot, Workday, Telefonica, Endesa Economic Events France: business confidence for February Debt auctions: UK 7-year government debt
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Asia stocks attempt to stabilize after Wall St sale dims mood
After a wobbly start on Tuesday, Asian stocks stabilized after a new sell-off linked to AI on Wall Street. Investors were also affected by increased anxiety about President Donald Trump's tariff policy and geopolitical conflicts. MSCI's broadest Asia-Pacific share index outside Japan is on course for new highs following a seven-day rally. The index gained?0.3% as benchmarks in Taiwan, South Korea and Japan both reached their highest levels on record. Nikkei 225 in Tokyo rose 0.9%, while China's CSI300 gained 1.2%. Both markets were playing catch-up following a holiday. S&P 500 futures e-mini were up by 0.3%. The Nasdaq Composite fell 1.1% overnight, due to fears about the effects of AI in software and other industries. Citrini Research's bearish analysis of the possible risks for the global economy has further weakened investor sentiment. Tony Sycamore said that the report "got a lot more airplay" than it deserved. He is a market analyst for IG in Sydney. He added that the report "aligns with quite a number of fears" which are already out there. "Asian equity markets are doing well, because they still have exposure to AI without valuation concerns." Rupal Agarwal is Asia quant strategist at Bernstein Singapore. She said that shares of companies which were at the heart of the recent rally could be caught by stretched valuations. She said that investors have been chasing the stocks which have performed best in Asia and America over the past 12 months to an extent never seen before. The risk of a reversal is high, with valuations at a record-high and earnings revisions showing signs that they are peaking. Trump warned on Monday that countries should not back away from the trade agreements they have recently made with the U.S., after the Supreme Court ruled against his emergency tariffs. He said he would impose much higher duties if he had to under new trade laws. The new tariffs were based on Section 122 of Trade Act of 1974. This has caused further confusion among markets that are trying to understand the protectionist policies of the United States. Ryosei Acazawa, the Japanese trade minister, has asked that Japan's treatment in a new U.S. Tariff regime is as favorable as the agreement between the two parties last year. The government of Taiwan said that it would ask the U.S. for assurances that the favorable terms already agreed upon will not be changed. The CBOE Volatility Index (also known as Wall Street’s “fear gauge”) rose by 1.9 percentage points, to 21.01. Returning from holidays, Japan and China added liquidity to regional markets. This was even as two of Asia's biggest economies fought over trade. China's Commerce Ministry announced on Tuesday that it had banned the export of dual use items to 20 Japanese companies it claims have military ties. The measure was intended to curb Tokyo's nuclear and "remilitarisation". The U.S. Dollar was 0.4% higher against the yen at 155.21, according to the Nikkei, which reported that U.S. authorities had taken the initiative by conducting "rate checks" in January?to support the Japanese currency and were prepared to carry out joint interventions at Tokyo's request. The Chinese Yuan was stable at 6.8912 against the dollar, in offshore trade. Beijing had set its daily fix for its currency to the highest in almost three year and held its benchmark lending rate for the ninth consecutive month. FedWatch, a tool of the CME Group, shows that Fed funds futures indicate a 95.5% implied probability that rates will remain?on hold' at the next 2-day meeting, which is scheduled for March 18. This is little different from the day before, according to CME Group. Investors pondered the implications of the Supreme Court decision regarding U.S. Tax receipts. The yield on the 10-year Treasury Bond in the United States was up 1.9 basis point at 4.0443%. Brent crude rose 0.5% to $71.83 a barrel on the?commodities market as tensions between Iran and the U.S. continued to simmer. A senior State Department official announced on Monday that the Department is removing non-essential personnel from the U.S. Embassy in Lebanon and their family members who are eligible, due to growing concerns over the possibility of a war. Silver fell 1.2% to $87.19, and gold dropped 1.1% to $5,173.29 despite the uncertainty. Bitcoin fell 1.6%, to $63,509.61. Ether was down 1.3%, at $1,838.96. (Reporting and editing by Gregor Stuart Hunter, Shri Navaratnam, and Kim Coghill).
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Australia watches China iron ore discussions for possible budget impact
Madeleine King, Australia's Resources Minister, said that the country is watching closely the talks between China's state-backed iron ore buyer and the?majors' because of the impact a lowered?ore price could have on the federal government budget. The federal government relies heavily on the taxes paid by mining companies. Iron ore, Australia's top-earning commodity export, is worth A$500 million ($350 million) in 2025-26. Treasury estimates indicate that a $10 change in iron ore prices would affect tax receipts in 2025-26 by A$500,000,000 ($350,000,000). The state-owned iron ore buyer China Minerals 'Resources Group' (CMRG) is trying to get better terms from Chinese steel mills on the $132 billion seaborne market by using increasingly aggressive tactics against the iron ore mining giants. Since September, BHP has banned its mills from buying certain brands of iron ore while negotiations are ongoing for this year's supplies. King said that iron ore was the foundation of Australia's economy. The exports from the Pilbara were also very important for the Australian community and, of course, the federal budget. Australia is home to three of the four largest iron ore mining companies in the world, Rio Tinto BHP and Fortescue. Brazil's Vale is the fourth. King said that iron ore was a commodity on which the government had been relying for a very long time. He added that negotiations were being closely monitored by the government. King stated that iron ore price reductions are usually reported as reducing the profit of a miner like Rio Tinto, but it is actually the bottom line budget that's affected. The government always monitors these things. BHP CEO Mike Henry stated overnight that in the past, even during difficult negotiations, BHP was able to come to an agreement with CMRG regarding annual supply terms. He said, "It's fair to say that (it's a) little bit more wide than in the past," at a BMO conference in Miami. "I'm confident we'll navigate all the way to the solution in this case." It's taking a bit longer, and playing more publicly than in previous years.
McGeever: Watch out for the oil's disinflationary drag disappearing
Since mid-2024, oil prices have consistently been a deflationary force in the U.S. economy and around the world. This may soon change.
Brent and West Texas Intermediate crude oils futures have reached their highest levels in almost seven months. This is due to signs of an economic recovery at the beginning of the year, and simmering tensions between the U.S. and Iran that could lead to a military conflict.
WTI surpassed $67 per barrel on Friday, while Brent reached $72,?bringing their gains for the year to date up to 15% and almost 20% respectively.
More importantly, ?from ?an inflation-calculation perspective, oil's rise means the year-on-year increase is dwindling rapidly, to the point that Brent is now only 2% cheaper than it was a year ago. Early January, the price was almost 30% lower than it had been a year earlier.
The so-called base effects of oil are on the verge of switching from deflationary to inflationary. Since August 2024, oil's base effects are mostly negative and have a downward influence on inflation rates.
It may become harder for the Federal Reserve, if this changes, to justify interest rates cuts. The Fed targets an annual "core" inflation rate. However, higher oil prices raise the cost of goods and services.
Is inflation going the wrong way?
Crude prices are still important, even though oil's influence on U.S. inflation and economic activity has been diminished over the years as manufacturing and industry have declined.
Transport, including motor fuel costs, accounts for around 16% in the total monthly basket of goods. This is higher than any category, except shelter.
A sustained increase in oil prices will still exert upward pressure on the inflation rate. In 2023, a Fed paper found that the second round effects of a 10% permanent increase in oil prices lifted the headline CPI in non-U.S. developed economies by nearly 0.4%.
Gregory Daco is the chief economist of EY Parthenon. He estimates that an increase in oil prices by $10 can boost annual inflation rates by up to 0.2%.
This doesn't seem like much. The Fed's preferred inflation measure is around 3%, but oil has already risen $10 in the past year. Could a little oil-driven inflation change the Fed's interest rates?
Raphael Bostic, the Atlanta Fed president who is leaving his post on Friday, told an event organized by the Birmingham Business Journal that rate increases might be necessary if the Fed's target of 2% inflation "runs away". This would ensure that the Fed does not lose credibility.
If it starts to move in the opposite direction again, that would be super concerning and you would have to raise your prices. If it moves in the opposite way again, that would be very concerning and you would need to consider raising the rates," said Bostic who is retiring at the end this month.
Short-term Oil Outlook Bullish
We are not yet in a state of full-blown oil crisis like the ones that occurred in the 1970s and very few people are expecting to see one.
Oil is facing a fundamental issue of oversupply, which should limit any price increases. Analysts at JPMorgan estimate production cuts of up to 2 million barrels a day would be required just to avoid "excessive oversupply" next year. It is possible that a U.S. - Iran conflict could cause some disruption in supply, but this can be tolerated or offset by other producers.
But traders remain twitchy.
The price of a barrel of crude has risen by around $10 since early January, when Washington began to escalate its anti-Tehran rhetoric. A full-scale war in Iran would increase the premium, even though it is a low probability scenario. This is because roughly 20% of global oil production passes through the Strait of Hormuz between Iran and Oman.
Even if the premium rose, it would not automatically mean that inflation would rise. There are other price pressures. Not to mention, there is the possibility of relief following Friday's U.S. Supreme Court decision against President Donald Trump’s tariffs.
Inflation signals are not as clear from the global commodities complex. While some commodities like wheat and corn are cheaper today than they were last year, others like copper and other metals are significantly more expensive.
Even if oil is able to switch from being a deinflationary drag into an inflationary boost, policymakers will be more inclined to pay attention to the Gulf news.
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(source: Reuters)