Business

By Devik Jain and Noel Randewich

(Reuters) – Wall Street ended lower after a volatile session on Thursday, with Cisco Systems slumping after giving a dismal outlook, while investors fretted about inflation and rising interest rates.

Shares of Cisco slumped 13.7% after the networking gear maker lowered its 2022 revenue growth outlook, taking a hit from its Russia exit and component shortages related to COVID-19 lockdowns in China.

Apple and chipmaker Broadcom declined 2.5% and 4.3%, respectively, and weighed on the S&P 500.

“The reality is that inflation is running hot and interest rates are rising,” said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management in Minneapolis, Minnesota. “Until you get that inflation rate to start slowing, we’re going to have increased volatility, and in our view that continues through throughout most of the summer months.”

Twitter climbed 1.2% after Bloomberg reported that company executives told staff that Elon Musk’s $44-billion deal was proceeding as expected and they would not renegotiate the price.

The S&P consumer staples index fell 2% to its lowest level since December as retail firms face the brunt of rising prices hurting the purchasing power of U.S. consumers.

Kohl’s Corp became the latest retailer to flag a hit from four-decades high inflation as the department store chain cut its full-year profit forecast.

Its shares, however, rebounded over 4% after slumping 11% in the previous session due to dismal results from Target Corp.

The S&P 500 is down about 18% from its record close on Jan. 3 as investors adjust to strong inflation, geopolitical uncertainty stemming from the war in Ukraine and tightening financial conditions with the U.S. Federal Reserve raising rates.

A close of 20% or more below its January record high would confirm the S&P 500 has been in a bear market since hitting that peak, according to a widely used definition.

GRAPHIC: S&P 500 bear markets (https://fingfx.thomsonreuters.com/gfx/mkt/egpbkwmlgvq/Pasted%20image%201652990180837.png)

Goldman Sachs strategists predicted a 35% chance of the U.S. economy entering a recession in the next two years, while the Wells Fargo Investment Institute expects a mild U.S. recession at the end of 2022 and early 2023.

The S&P 500 declined 0.58% to end the session at 3,900.79 points.

The Nasdaq declined 0.26% to 11,388.50 points, while the Dow Jones Industrial Average declined 0.75% to 31,253.13 points.

GRAPHIC: S&P 500’s busiest trades (https://fingfx.thomsonreuters.com/gfx/mkt/akvezranxpr/SPX_by_busiest_trades.png)

Thursday’s mixed performance followed a drop of over 4% in the S&P 500 on Wednesday, the benchmark’s worst one-day loss since June 2020.

The CBOE volatility index, also known as Wall Street’s fear gauge, fell to 29.5 points on Thursday, after hitting its highest level since May 12 earlier in the session.

Canada Goose Holdings Inc jumped almost 10% after it forecast upbeat annual earnings, encouraged by strong demand for its luxury parkas and jackets.

Volume on U.S. exchanges was 12.7 billion shares, compared with a 13.4 billion average over the last 20 trading days.

Advancing issues outnumbered declining ones on the NYSE by a 1.15-to-1 ratio; on Nasdaq, a 1.31-to-1 ratio favored advancers.

The S&P 500 posted 1 new 52-week highs and 43 new lows; the Nasdaq Composite recorded 12 new highs and 326 new lows.

(Reporting by Devik Jain and Amruta Khandekar in Bengaluru, and by Noel Randewich in Oakland, Calif.; Editing by Arun Koyyur and Grant McCool)

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By Sabrina Valle

(Reuters) -Exxon Mobil Corp on Thursday said it signed a deal to sell North Texas natural gas properties to producer BKV Corp for $750 million, as part of a wider move to shed unwanted assets.

Exxon, the top U.S. oil producer, set a goal three years ago to sell by last December $15 billion in assets to pay down debt and focus on lower cost oil production. But it has achieved about half its goal as sales stalled during the pandemic.

This year’s rebound in oil and gas prices has brought renewed interest in its properties, Senior Vice President Neil Chapman told analysts in March.

North Texas assets sales include additional payments based on future gas prices, allowing the company to profit from rising fuel costs. The deal is expected to close by June 30.

“We are focused on delivering the most competitive returns to our shareholders by developing opportunities with the lowest cost of supply,” said Liam Mallon, president of Exxon Mobil Upstream Company.

Denver-based BKV is majority owned by Thai energy firm Banpu PCL and is the largest natural gas producer in the Barnett Shale, an area of north Texas where the first shale wells were successfully drilled.

Exxon is offering assets in Asia, Africa and Europe as it as focuses on Guyana, offshore Brazil and the Permian Basin of West Texas and New Mexico. It is marketing assets in Iraq, Chad, Nigeria, Canada, and in Arkansas and Ohio.

The company, which suffered a historic $22.4 billion loss in 2020, has used this year’s skyhigh oil prices to pay down debt and increase payouts to shareholders.

Exxon said it had removed the Barnett Shale assets operated by its subsidiaries XTO Energy Inc and Barnett Gathering LLC from its development plan in 2020.

Last year, it took in $2.6 billion from asset sales, up from $1 billion in 2020.

(Reporting by Ruhi Soni in Bengaluru; Editing by Maju Samuel, Bernard Orr)

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By Luc Cohen

NEW YORK (Reuters) – Archegos Capital Management founder Bill Hwang will get a new judge for his U.S. fraud trial, after the judge assigned to the case recused himself on Thursday due to his wife’s ties to banks that could have been caught in the investment firm’s meltdown.

U.S. District Judge Andrew Carter said in a Manhattan federal court hearing that his wife is a lawyer for Bank of New York Mellon and used to work for JPMorgan Chase, and that he would have a conflict of interest if either bank were a victim of the alleged fraud.

Archegos, which had $36 billion in assets, collapsed last year when it was caught short on highly leveraged trades, leaving global banks with $10 billion in losses. Prosecutors say Hwang lied to banks to increase Archegos’ credit lines.

Hwang, who was arrested last month, pleaded not guilty to 11 counts including racketeering, market manipulation and fraud. His lawyer has said the case has “no factual or legal basis.”

Prosecutor Andrew Thomas said at Thursday’s hearing JPMorgan “does figure into the story” but did not say if the bank is considered a victim. Thomas said BNY is “not a lossholder” and does not figure in a “significant way.”

JPMorgan declined to comment. BNY did not immediately respond to a request for comment.

Carter’s decision came amid heightened attention by lawmakers and court reform advocates to judicial recusals due to conflicts. President Joe Biden last week signed into law a bill subjecting federal judges to tougher disclosure requirements for their financial holdings and stock trades.

Lawmakers introduced the legislation last October after the Wall Street Journal reported that more than 130 federal judges failed to recuse themselves from cases involving companies in which they or their family members owned stock.

Neither prosecutors nor Hwang’s defense objected to Carter’s recusal.

(Reporting by Luc Cohen in New York’ editing by Chizu Nomiyama)

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By Francesco Canepa

KOENIGSWINTER, Germany (Reuters) – The world’s top central bankers and finance ministers gathering near Germany’s Dragon’s Rock on Thursday have their own beast to slay: stagflation.

The Group of Seven financial leaders are meeting as the war in Ukraine adds fuel to a surge in the cost of raw materials while new pandemic-related restrictions in China have slowed down global trade, raising the spectre of a sustained period of high inflation and economic stagnation.

“We will have to discuss what we can do together in our respective areas of responsibility to avoid stagflation scenarios,” German finance minister Christian Lindner told reporters as leaders arrived for the two-day meeting.

The palatial hotel in Koenignswinter where the event is hosted overlooks the Drachenfels, or Dragon’s Rock, where the hero of the medieval Nibelung legend, Siegfried, is supposed to have slain a dragon that lived in a mountain cave.

Every bit as lethal and intractable as a mythological monster, stagflation had no easy fix: stimulate the economy and prices will run away even faster, close the money taps and you will choke off economic growth.

After underestimating inflation for most of last year, most central bankers from the United States to Europe and Australia were now single-mindedly focused on curbing prices that have been rising at the fastest pace in decades.

The Federal Reserve, the world’s most influential central bank due to the dollar’s dominance on global financial markets, has pledged to raise interest rates as high as needed even if that could end up costing some people their jobs.

Even the European Central Bank, which had until recently all but ruled out rate hikes, was now moving towards the first increase in more than a decade – probably the first of several.

But finance ministers are worried that the economy would deteriorate further as sanctions against Russia make importing raw materials from oil to wheat more expensive – straining household budgets just as borrowing costs also rise.

“The economic outlook globally is challenging, and uncertain, and higher food and energy prices are having stagflationary effects, namely, depressing output and spending and raising inflation all around the world,” U.S. Treasury secretary Janet Yellen said in Bonn on Wednesday.

She has argued that the United States should remove tariffs of up to 25% on some Chinese imports that are not strategic, such as bicycles, lawn mowers and T-shirts – a move that would make them cheaper for U.S. consumers and offering much-needed relief.

Other governments such as Italy’s and Germany’s have cut the tax on fuel while France has capped the price of natural gas and electricity to soften the economic impact of soaring energy costs.

Yellen had previously avoided mentioning “stagflation” – a term associated with 1970s inflation spikes and sluggish growth – when describing the U.S. economy, which has strong momentum from the COVID-19 recovery and strong labour market.

A generation ago, it took Fed’s chair Paul Volcker a brutal series of rate hikes and a recession to break the back of inflation, ushering an era of stable prices and steadier economic growth.

Legendary hero Siegfried was also said to have gained near immortality after bathing in the dragon’s blood.

But an economic bloodbath is what today’s policymakers are still hoping to avoid.

(Additional reporting by Paul Carrel and David Lawder; Editing by Tomasz Janowski)

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By Hannah Lang

WASHINGTON (Reuters) – The cryptocurrency industry is scrambling to respond to U.S. lawmakers’ concerns about stablecoins following the collapse of TerraUSD, which wiped billions off the cryptocurrency market.

The Blockchain Association and the Chamber of Digital Commerce, which represent some of the most influential crypto companies, say they have been fielding a flurry of questions from Capitol Hill since TerraUSD, known as “UST,” broke its peg last week and crashed 90%.

Stablecoins are cryptocurrencies that try to maintain a constant exchange rate with fiat currencies. The $163 billion space is dominated by tokens that are pegged to the U.S. dollar, like Tether and USD Coin, by holding reserves in traditional dollar assets. Some stablecoins, like UST, however, use a complex algorithmic process to create the peg.

Capitol Hill lawmakers have been quizzing lobbyists on the structure of UST, seeking to determine whether its collapse was preventable and if other stablecoins could suffer the same fate.

Lobbyists are urging lawmakers not to crack down too hard on the gamut of stablecoins.

“The one thing we’ve been cautioning to the Hill is that we don’t want to accidentally throw the baby out with the bathwater, because stablecoins we think are a really critical piece of the crypto ecosystem going forward,” said Kristin Smith, executive director of the Blockchain Association.

As the cryptocurrency market has exploded, reaching $3 trillion in November, the scrutiny of policymakers has increased.

In response, the crypto industry has beefed up its presence in Washington, spending $9 million on lobbying in 2021, according to Public Citizen. The Blockchain Association and Chamber of Digital Commerce spent $900,000 and $426,663, respectively, while crypto giants Coinbase Global Inc and Ripple Labs forked out $1.5 million and $1.1 million respectively.

REGULATORY GRAY AREA

The industry’s growing influence will be tested as it tries to contain the fallout from the UST and broader crypto market crash, which shrank from $1.98 trillion to $1.3 trillion in just six weeks due to investor fears over rising interest rates.

There are currently a handful of draft stablecoin bills floating around Congress. While analysts say the chances of Congress passing any of those this year is slim with lawmakers focused on the midterm elections, recent crypto market gyrations have caused many lawmakers to take notice.

“There are a lot of people in Congress that are interested in coming up with a regulatory framework to prevent something like this from happening again,” said Smith.

Cryptocurrencies fall into a regulatory gray area.

President Joe Biden’s administration has largely focused on rules for dollar-backed stablecoins. A November Treasury Department-led report recommended Congress regulate stablecoin issuers like insured depository institutions, but it did not cover algorithmic stablecoins.

Lobbyists have had to quickly change tack and educate lawmakers on the differences, they say.

“All of the recent legislative proposals have been fiat-backed,” said Cody Carbone, policy director at the Chamber of Digital Commerce. “We thought we did pretty well in educating because we stayed within that scope, and now we’re going to have to broaden that.”

While the group’s members do not currently operate algorithmic stablecoins, the chamber is crafting talking points to explain how they work, said Carbone.

Regulators have warned that U.S.-dollar stablecoins could be susceptible to runs if users lose confidence, a fear that appeared to partially play out last week: after UST broke its peg, Tether, the largest stablecoin, briefly broke its peg too.

“This is essentially a call to action, because not all monies are created equal, and what one believes to be stable may actually not be stable,” said Jonathan Dharmapalan, CEO of eCurrency, a digital currency technology provider.

While the Blockchain Association’s Smith agreed legislation was not imminent, the UST problem “certainly heightens that need,” she said.

(Reporting by Hannah Lang in Washington; Editing by Michelle Price and Matthew Lewis)

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LONDON (Reuters) – Average daily foreign exchange trading volumes in April hit $1.86 trillion, 5% higher than a year earlier as volatility shot higher and investors bought and sold more in spot and forward markets, CLS said on Thursday.

CLS, a major settler of trades in FX markets, said in a statement that turnover was driven by a 14% rise in spot trading and a 27% increase in forwards activity, although swap volumes were flat on 2021 levels.

A series of recent central bank interest rate rises and concern about the economic fallout from the war in Ukraine have pushed FX volatility higher, which typically encourages more trading activity. April volumes were down 12.5% from March levels, however, CLS said.

(Reporting by Tommy Reggiori Wilkes; editing by Dhara Ranasinghe)

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By Daina Beth Solomon

MEXICO CITY (Reuters) – U.S. labor officials on Wednesday asked Mexico to probe whether workers at a Panasonic auto parts factory were denied labor rights, marking the third U.S. labor complaint under a new trade deal that aims to improve workplace conditions in Mexico.

The request from the U.S. Trade Representative (USTR) comes after a Mexican union last month petitioned the U.S. government to probe Panasonic’s plant in the northern border city of Reynosa, alleging violations of the 2020 United States-Mexico-Canada Agreement (USMCA).

U.S. Trade Representative Katherine Tai said in a letter to Mexico’s Economy Minister Tatiana Clouthier that the agency was concerned workers were being denied rights to free association and collective bargaining at Panasonic Automotive Systems de Mexico.

Panasonic Corp of North America said in a statement it “respects and supports the rights of freedom of association and collective bargaining for our employees” and that it did not believe it denied these rights.

The unit of the Japanese industrial conglomerate said it would “continue to comply with all legal requirements … and cooperate with authorities as requested by the Mexican Government in its review.”

Tai noted that two previous labor complaints, also filed under the USMCA’s “Rapid Response Mechanism” that aims to swiftly resolve disputes, led to benefits for workers.

“When concerns arise, we will work swiftly to stand up for workers on both sides of the border,” Tai said in a statement.

Mexico’s economy and labor ministries did not immediately respond to requests for comment. The Mexican government has 10 days to agree whether to conduct a review.

The Mexican union that requested the inquiry, SNITIS, accused Panasonic of signing a union contract behind workers’ backs and of firing several dozen employees who protested.

(Reporting by Daina Beth Solomon; additional reporting by David Shepardson in Washington; Editing by Chris Reese and David Gregorio)

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(Reuters) – JPMorgan on Wednesday cut its expectation for U.S. real gross domestic product for the second half of 2022 and for 2023.

The firm’s economic and policy research department cut its second half view to 2.4% from 3% and cut its first half 2023 target to 1.5% from 2.1% and for the second half of 2023 it cut its view to 1% from 1.4%.

It said there may be enough of a growth slowdown to lead to a gradual increase in the unemployment rate later next year, helping to relieve some wage pressures that have been building.

“In short, we forecast a soft landing, but are well aware that this outcome has rarely (if ever) occurred,” according to the research led by economist Michael Feroli.

(Reporting By Sinéad Carew; Editing by Chris Reese)

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By Ann Saphir

(Reuters) -Two U.S. central bankers say they expect the Federal Reserve to downshift to a more measured pace of policy tightening after July as it seeks to quell inflation without lifting borrowing costs so high that they send the economy into recession.

It’s not clear if that view – mapped out on Tuesday by Chicago Federal Reserve Bank President Charles Evans and on Wednesday by Philadelphia Fed chief Patrick Harker – marks a consensus at the Fed for how to bring down the highest inflation in 40 years.

But it does suggest that while policymakers broadly back using half-point rate hikes to get short-term borrowing costs to a range of 1.75%-2% over the next two months, support for sticking to that pace beyond July may be limited.

Evans on Tuesday told an audience in New York City that he expects to transition to “measured” rate hikes after an initial burst of policy tightening. In the Fed lexicon, “measured” means quarter-point rate hikes.

On Wednesday Harker gave a similar assessment, telling the Mid-Size Bank Coalition of America that after July, “I anticipate a sequence of increases in the funds rate at a measured pace until we are confident that inflation is moving toward the Committee’s inflation target.”

As he spoke, the S&P 500 and the Dow Jones Industrial Average were tumbling and ended with the sharpest one-day loss in nearly two years.

“I still am in the camp that we can have, if not a soft landing, a safe landing,” Harker said, noting the strength of the labor market, with nearly two jobs open for every American jobseeker, and an unemployment rate of 3.6%.

The U.S. economy will likely grow between 2% and 3% this year, he said, adding, “this economy can withstand a measured, methodical approach to tightening financial conditions.”

Fed policymakers say the current bout of high inflation — running at more than three times the Fed’s 2% target — is the product of outsized demand bumping up against constrained supply.

Fed Chair Jerome Powell has not been specific about his expectations for the policy path beyond July. On Tuesday he said the Fed will keep pushing on rate hikes until it sees clear and convincing evidence that inflation is cooling.

(Writing by Ann Saphir; Editing by Cynthia Osterman)

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LONDON (AP) — Britain’s inflation rate rose to the highest level in 40 years last month as Russia’s war in Ukraine fueled further increases in food and fuel prices.

Consumer price inflation accelerated to 9% in the 12 months through April, from 7% the previous month, the Office for National Statistics said Wednesday. That is the highest rate since sometime in 1982, when inflation reached 11%, according to statistical modeling by the ONS.

Millions of households across Britain were hit with a 54% jump in gas and electricity bills last month after regulators boosted the energy price cap to reflect previous increases in wholesale prices. Russia’s invasion of Ukraine has put further pressure on food and energy prices.

The figures will increase pressure on the government to mitigate a cost-of-living crisis that economists forecast will produce the biggest drop in living standards since the 1950s.

The government may cut income taxes and is drawing up plans to boost subsidies for low-income people struggling to pay fuel bills, British media reported Wednesday. It is also considering a windfall profits tax on energy companies benefiting from high oil and gas prices.

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