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Morning bid Europe - Political turmoil is thick and fast
Rae Wee gives us a look at what the European and global markets will be like tomorrow. Politics is never quiet. In the last few days, British Deputy PM Angela Rayner, and Japanese Prime Minster Shigeru Ishiba resigned. French lawmakers voted Francois Bayrou out of office. The party of Argentinean President Javier Milei suffered a crushing defeat. And Indonesia replaced its longtime finance minister. Investors will be watching to see who President Emmanuel Macron appoints France's 5th Prime Minister in less than 2 years. Macron has not yet called a snap election. He appears to be set on appointing a new premier, perhaps a centre-left candidate. Macron's office has said that he will appoint a new president in the next few weeks. There are no specific rules about who he must select or when. In Asia, the euro has remained stable while French bond futures have barely moved. It is clear that political volatility can have little or no impact on the markets. Sometimes, though, it's huge. Investors in Indonesia are worried that the hard-fought fiscal credibility under President Prabowo Subito could be undermined by the populist spending plans. The rupiah has fallen more than 1%, and the yield of the 10-year government bonds has risen. After Milei's electoral defeat, the Argentine peso fell as much as 5,6% against the dollar. Investor sentiment in the broader markets remained positive on the prospect that the U.S. Federal Reserve will cut interest rates next week. The markets have already priced in a 25 basis point cut. Now, the question is whether or not the Fed can deliver a 50 basis point move. The preliminary revision estimate of employment for the year up to March, which will be released by the U.S. Labor Department on Tuesday afternoon, may provide clues ahead of the readings on consumer price inflation and producer prices later this week. The CME FedWatch tool indicated that a surprise to the downside in any of these figures could lead traders to price in an increased chance of a cut of 50 bp, which is currently just above 11%. The following are key developments that may influence the markets on Tuesday. The U.S. Labor Department has released its preliminary estimate of the employment levels for the period from March to December.
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Oil prices rise on modest OPEC+ production hike decision and Russia's supply problems
The oil prices rose on Tuesday as OPEC+ increased production less than the market expected, and concerns about tighter supplies due to new sanctions against Russia also continued to support them. Brent crude rose 35 cents or 0.53% to $66.37 a bar by 0335 GMT. U.S. West Texas intermediate crude rose 32 cents or 0.51% to $62.58 a bar. OPEC+ is a group of eight countries and their allies that have agreed to increase production by 137,000 barrels a day starting in October. This is a much smaller increase than the monthly gains of approximately 555,000 barrels per day for September and August and 411,000 barrels per day in July and Juni. This is less than what some analysts expected. In a Tuesday client note, Daniel Hynes said that the October move was "a reversal" of cuts which were to be in place until 2026. This follows the rapid return of barrels idled in recent months. Haitong Securities stated that despite the fact that OPEC+ has increased output faster this year than expected and the demand is once again below expectations from the beginning of the year, the looming oversupply on the crude market remains the main driver for prices in this year. The speculation that more sanctions would be imposed on Russia following the largest air strike by Russia on Ukraine, which set a Kyiv government building on fire, also helped to support prices. Donald Trump, the U.S. president, said that he is ready to implement a second round of restrictions. The top European Union sanctions official, along with a team experts from Washington, discussed what would be the very first coordinated transatlantic measure against Russia after Trump's return to office. Additional sanctions against Russia could reduce its oil supplies to the global market, which would support higher oil prices. Next week, the U.S. Federal Reserve’s Federal Open Market Committee will meet. Traders predict an 89.4% probability of a quarter point interest rate reduction. Lower rates can reduce borrowing costs for consumers and boost the economy. (Reporting from Anjana Anil and Sam Li in Beijing, edited by Christopher Cushing.)
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Orsted Gets Go-Ahead for $9.4B Emergency Rights Issue
Offshore wind developer Orsted won shareholder approval on Friday for a $9.4 billion emergency rights issue to help fund U.S. projects thrown into uncertainty by President Donald Trump's opposition to the renewable energy source.The stakes are high for the Danish state-controlled firm, which was once celebrated as a trailblazer in offshore wind but is now struggling to stave off a potentially crippling credit rating downgrade.Orsted, previously an oil producer under the name DONG Energy, transformed itself into a global renewables leader, increasing its market value five-fold between its 2016 IPO and 2021.But supply chain disruptions, surging interest rates, project delays, and Trump's anti-wind policies have battered the offshore wind sector, sending Orsted's share price tumbling by 85% from that 2021 peak.At the heart of the current drama are Orsted’s U.S. projects Sunrise Wind and Revolution Wind.Two-thirds of the new capital is earmarked for Sunrise Wind, a project that saw potential co-investors flee after the White House ordered Norway's Equinor EQNR.OL to halt a neighbouring wind farm in April.Last month, U.S. officials also issued a stop-work order for the nearly completed Revolution Wind facility, prompting the joint venture running the project to sue the administrationOrsted CEO Rasmus Errboe told Reuters the company is incurring weekly costs of nearly 100 million Danish crowns ($15.7 million) for its 50% stake in Revolution Wind, co-owned with Skyborn Renewables."We have extensive dialogue with all stakeholders in Washington and at the state level," CEO Rasmus Errboe told Reuters.He warned that costs could rise significantly by October if specialised vessels contracted to install the remaining substation and cables are no longer available within their contracted period, forcing Orsted to re-enter the market at potentially much higher rates.The stop-work order has also driven up costs for Sunrise Wind by 60 million to 70 million crowns per week, as Orsted uses the same vessel to install turbines for both projects.Adding to Orsted's troubles, low wind speeds in July and August and a delay to a project under construction off Taiwan prompted it to cut its 2025 operating profit outlook on Friday.The rights issue is critical for Orsted's survival and its ability to avoid a further credit downgrade.Ratings agency S&P Global, however, warned that the equity raise might only buy the company three to six months of relief before construction delays trigger renewed pressure."It's going to be a long, tough journey to reerect Orsted," company chair Lene Skole told shareholders.S&P already downgraded Orsted to BBB-, the lowest investment-grade rating, in August. Any further downgrade would push it into junk territory, complicating future financing.Norwegian energy firm Equinor, a 10% shareholder in Orsted, said it would invest up to 6 billion crowns ($941.2 million) into the rights issue.($1 = 6.3751 Danish crowns)(Reuters - Reporting by Stine Jacobsen and Jacob Gronholt-Pedersen in Copenhagen and Nora Buli in Oslo; additional reporting by Kate Abnett, editing by Jan Harvey and Joe Bavier)
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Halliburton Shrinks Workforce as Oil Activity Plummets
U.S. oilfield services provider Halliburton has been cutting staff in recent weeks, according to two sources familiar with the matter, marking the latest workforce reduction in the U.S. oil industry as it faces rising costs and a period of lower prices and volatility.Global benchmark Brent crude oil prices have dropped more than 10% this year amid uncertainty over global trade policies and as the Organization of the Petroleum Exporting Countries and allies raise output. U.S. oil company ConocoPhillips this week announced it would cut up to 25% of its staff to reduce costs.The scope of Halliburton's layoffs was not immediately clear.Halliburton has rolled out the cuts over several weeks, according to the sources, who were directly involved in layoffs but not authorized to speak publicly. At least three business divisions had lost between 20% and 40% of employees, the sources said.Halliburton, the third-largest global oilfield services company by revenue, did not respond to a request for comment.Oilfield services companies provide technical expertise, equipment, and labor, including drilling, to support oil and gas exploration and production.Houston, Texas-based Halliburton had 48,395 employees at the end of 2024, according to its latest annual report.The company in June said it expected a sharp decline in full-year revenue, as it warned of lower activity in the oil and gas sector. It posted a 33% fall in second-quarter profit this year amid weaker demand.On a conference call with analysts after reporting second-quarter earnings, CEO Jeff Miller noted the oilfield services market appeared very different than it did 90 days ago, citing a slowdown in North America and among large national oil companies elsewhere."To put it plainly, what I see tells me the oilfield services market will be softer than I previously expected over the short to medium term," he said.Brent crude was trading below $66 on Friday, down nearly 20% from this year's peak north of $82 a barrel in mid-January, as investors braced for the OPEC+ group's meeting on Sunday. Reuters earlier reported the group will consider raising output further at that meeting.(Reuters - Reporting by Liz Hampton in Denver and Shariq Khan in New York; Additional reporting by Arathy Somasekhar and Georgina McCartney in Houston; Editing by Rod Nickel)
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Iron ore rallys due to concern over Simandou supply and restocking of demand
Iron ore futures rose for the sixth consecutive session on Tuesday. This was due to growing concerns about the supply prospects of the massive Simandou project, in Guinea, and the expectation that demand will improve in the top consumer China. As of 0330 GMT, the most traded January iron ore contract at China's Dalian Commodity Exchange rose 2.53% to $809.57 ($113.57), a metric tonne. It reached its highest level since the 25th of July at 814 Yuan during the session. As of 0320 GMT, the benchmark October iron ore price on Singapore Exchange was 1.59 % higher at $107.1 per ton. The contract reached its highest level at $107.65 on February 25, earlier. Financial Review, Australia's Sunday newspaper, reported that Rio Tito may be forced to build refineries for Simandou ore. Simandou's iron ore project will have a production capacity of 120 millions metric tons and the first shipment is expected in November. This will put pressure on ore price in coming years. Analysts and traders said that the government's intention to process ore in Guinea may result in a reduction of the amount of ore exported, which would support prices. Analysts at Shengda Futures stated that the market also pays attention to the speed of the production resume during the peak season, and the subsequent restocking requirements for raw materials. Steel mills have slowly resumed production after a three-day suspension of production to allow for a military display in Beijing to mark the end World War II on September 3. Analysts at Jinrui Futures predicted that hot metal production would increase to a high level in the coming week, which will support ore demand. Analysts at Shengda said that shrinking margins and accumulated stocks of steel may reduce mills' buying appetite. Coking coal, coke and other steelmaking components rose by 0.35% and 0.433% respectively. The benchmarks for steel on the Shanghai Futures Exchange have advanced. The Shanghai Futures Exchange saw a rise in steel benchmarks. ($1 = 7,1231 Chinese Yuan) (Reporting and editing by Amy Lv, Lewis Jackson)
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Stocks soar as the prospect of Fed easing outweighs political uncertainty
Asia stocks rose Tuesday on the back of expectations that the U.S. will cut rates as soon as next week. However, political turmoil around world kept currency and bonds investors on edge. MSCI's broadest Asia-Pacific index outside Japan rose by 0.2% early in the morning, following Wall Street's lead that was set overnight when Nasdaq closed at a record-high. Nasdaq Futures continued the rally that began in the cash session, and ended the day up 0.06%. S&P500 futures also ticked higher by 0.05%. The expectation that the Federal Reserve will ease rates at its meeting next week after Friday's disappointing U.S. employment report gave new life to the rally. Investors are betting on a 25 basis-point cut in this month's inflation data. They now want to know if the Fed will make a 50 bp move. Later in the day, the U.S. Labor Department is also expected to report an estimate of the preliminary revisions for the employment levels during the past 12 months up until March. Both publications will influence the central banks' pace on the monetary policy staircase, said Jose Torres senior economist at Interactive Brokers. He was referring to PPI and CPI data. A large subtraction of workers from the roster, coupled with a CPI that is below the target level, will likely increase the odds by a half percent to a coin toss. According to CME FedWatch, the markets now price in a little over 10% chance that the Fed will lower rates by 50bp next month. This is compared to 0% a week earlier. Other European futures were lower after the benchmark indexes had a positive cash session on Sunday. The EuroStoxx 50 futures declined by 0.17%. Meanwhile, the FTSE and DAX Futures both slid by 0.04% and 0.22% respectively. The Nikkei index in Japan jumped by nearly 1% after the resignation of fiscal hawk Shigeru Shiba as Prime Minister. Ryosei Acazawa, Japan's chief tariff negotiator, said Tuesday in a X message that U.S. duties on Japanese products including auto parts and cars will be reduced by September 16. POLITICAL TURMOIL In recent sessions, currency and bond markets have been shaken by renewed uncertainty about the political landscape in various countries. Investors had a lot to consider, from Ishiba’s resignation in Japan to Francois Bayrou’s ouster as French Prime Minister, to the heavy defeat of the ruling party of President Javier Milei of Argentina, to the sudden replacement of Indonesia’s finance minister. Even so, the dollar's decline has largely capped losses in all currencies, and bond markets are now largely stable. The yen last gained 0.1% at 147.37 to the dollar, recouping its previous session's losses, while the euro remained steady at $1.1768. After rising the previous session, yields on Japanese government bond fell on Tuesday. Bond yields are inversely related to bond prices. Shier Lee Lim is the lead FX and macrostrategist for APAC, at Convera. The yield on the two-year U.S. Treasury, which is usually a good indicator of near-term expectations, has been stuck at 3.4966%, a level that's been near its lowest in five months. The benchmark 10-year rate was also pinned at its lowest point in five months and stood last at 4.04944%. Oil prices rose on Tuesday as OPEC+ increased production less than expected by market participants. Brent crude futures rose by 0.36% to $66.26 a barrel. U.S. crude climbed 0.37%, reaching $62.49 per barrel. Gold spot reached a new record of $3,647.23 per ounce on the back of expectations of Fed cuts imminent.
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Minister says Nepal lifts the ban on social media after 19 protesters are killed
A government minister announced on Tuesday that Nepal had lifted its ban on social media following the protests which resulted in 19 deaths. Prithvi Gurung, Minister of Communications and Information Technology and Cabinet spokesperson, said that the government had lifted its ban on social media imposed just last week. After 19 people died and over 100 were injured during the "Gen Z's" Monday protests against widespread corruption, the decision was made. The ban was the catalyst for the protests. "We have lifted the ban on social media." Gurung said that they are now working. Prime Minister K.P. Sharma Oli expressed his sadness over the violence that has been caused by "infiltration" from various selfish centers. He added that the government would provide relief to the families of those who died and free medical treatment for those injured. In a statement released late on Monday, Oli announced that an investigation panel would be formed to determine the causes of the incident, to assess losses and to suggest measures to prevent it from happening again. The protests that spread to other cities of the Himalayan nation have been dubbed "demonstrations of Gen Z" by their organizers. The protests, they say, reflect the frustration of young people with the government for not taking action against corruption and boosting economic opportunities. Last week, the government decided to block several social media platforms, including Facebook. This decision sparked anger among young people. Officials claim that the shutdown is for social media platforms who have not registered with the government. This comes amid a crackdown against fake IDs and hate speech. Reporting by Gopal Singh in Kathmandu, and Surbhi Mitra in Bengaluru. Editing by Tom Hogue & Stephen Coates.
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Oil prices rise on modest OPEC+ production hike decision and Russia's supply problems
The oil prices rose on Tuesday as OPEC+ increased production less than the market expected, and concerns about tighter supplies due to new sanctions against Russia also continued to support them. Brent crude rose 22 cents or 0.33% to $66.24 a bar by 0005 GMT. U.S. West Texas intermediate crude rose 24 cents or 0.39% to $62.50 a bar. OPEC+ is a group of eight countries and their allies that have agreed to increase production by 137,000 barrels a day starting in October. This is a much smaller increase than the monthly gains of approximately 555,000 barrels per day for September and August and 411,000 barrels per day in July and Juni. This is less than what some analysts expected. In a Tuesday client note, Daniel Hynes said that the October move was "a reversal" of the cuts which were to be in place until 2026. This follows the rapid return of barrels idled in recent months. The speculation that more sanctions would be imposed on Russia following the largest air strike by Russia on Ukraine, which set a Kyiv government building on fire, also helped to support prices. Donald Trump, the U.S. president, said that he is ready to implement a second round of restrictions. The top European Union sanctions official, along with a team experts from Washington, discussed what would be the very first coordinated transatlantic measure against Russia after Trump's return to office. Additional sanctions against Russia could reduce its oil supplies to the global market, which would support higher oil prices. Next week, the U.S. Federal Reserve’s Federal Open Market Committee will meet. Traders predict an 89.4% probability of a quarter point interest rate reduction. Lower rates can reduce borrowing costs for consumers and boost the economy. (Reporting and editing by Christopher Cushing in Bengaluru, Anjana Anil)
Sources say Trump is interested in buying stakes from the US government in chipmakers that have received funds under the CHIPS Act.
Two sources claim that U.S. Secretary of Commerce Howard Lutnick is investigating the possibility that the federal government could take equity stakes into computer chip companies that receive CHIPS Act funds to build factories within the country.
A White House official, as well as a person who is familiar with the situation, said that Lutnick was exploring ways to get equity stakes from companies like Micron, Taiwan Semiconductor Manufacturing Co, and Samsung in exchange for CHIPS Act funds. The funding is still being distributed.
Micron, a memory chip manufacturer, is the largest recipient of CHIPS Act funds in the United States. TSMC declined to comment. Micron, Samsung, and the White House declined to comment. Karoline Lavitt, White House Press Secretary confirmed Tuesday that Lutnick is working on a deal to acquire a 10% stake in Intel. She told reporters that the president wanted to put America's interests first from both a national and economic perspective.
Lutnick had said on CNBC earlier that the U.S. did not want to tell Intel what to do, but any investment would be unprecedented. It would also usher in a new age of U.S. power over the large companies. The U.S. took stakes in many companies in the past to build confidence and provide cash during times of economic turmoil and uncertainty.
Trump made a similar decision earlier this year when he approved Nippon Steel’s purchase of U.S. Steel. He was promised a “golden share” that would prevent companies from delaying or canceling promised investments, moving production or jobs overseas, or closing plants or idled them before certain deadlines, without his consent.
Two sources confirmed that Scott Bessent, Treasury Secretary, is also involved in CHIPS Act discussions. However, Lutnick is the one driving the process. Commerce Department is responsible for the $52.7 billion CHIPS Act. This act was formerly known as the CHIPS and Science Act. The act provides grants and funding for the construction of chip plants in America.
Sources said that Lutnick had been pushing for equity, and Trump liked the idea.
The U.S. Commerce Department finalized the subsidies for Samsung and Micron in late 2012, with TSMC receiving $6.6 billion.
Lutnick stated in June that the Department was renegotiating some of former president Joe Biden's grant to semiconductor firms. He called them "overly liberal". Lutnick noted that Micron had offered to increase spending on its chip plants in the U.S. at the time.
(source: Reuters)