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Wall St weighed down by inflation jitters


WORLDWIDE: HEADLINES

Japan’s economy slumps more than expected as COVID-19 hits consumption

Japan’s economy shrank more than expected in the first quarter as the slow vaccine rollout and a resurgence in COVID-19 infections hit consumption, reinforcing expectations the country will lag major trading partners in emerging from the pandemic.

Extended state of emergency curbs are likely to keep any recovery in the current quarter modest, analysts say, adding to challenges for policymakers seeking to pull Japan out of the doldrums.

“With the medical situation still worsening and the vaccine rollout too slow, it will take until the end of the year for output to return to pre-virus levels,” said Marcel Thieliant, senior Japan economist at Capital Economics.

The world’s third-largest economy shrank an annualised 5.1% in the first quarter, more than a median market forecast for a 4.6% contraction and following an 11.6% jump in the previous quarter, government data showed on Tuesday.

The decline was mainly due to a 1.4% drop in private consumption as state of emergency curbs to combat the pandemic hit spending for clothing and dine-outs, the data showed.

But the bigger-than-expected contraction also reflected a surprise 1.4% drop in capital expenditure, which confounded market expectations for a 1.1% increase as companies scaled back spending on equipment for machinery and cars.

While exports grew 2.3% thanks to a rebound in global demand for cars and electronics, the pace of increase slowed sharply from the previous quarter’s 11.7% gain in a worrying sign for an economy still reeling from weak domestic demand.

Domestic demand knocked 1.1% point off gross domestic product (GDP), while net exports shaved off 0.2 point, the data showed.

Full coverage: REUTERS

Investors increase Exxon holdings as activists’ pressure push shares higher

A number of prominent investment managers were so convinced newcomer activist investor Engine No. 1 could successfully push for changes at Exxon Mobil Corp that they added to their holdings in the oil company in the first months of 2021, according to interviews and regulatory filings.

Fidelity Management & Research Company, which oversees nearly $5 trillion in retirement and college savings accounts, as well as hedge funds Millennium Management and Laurion Capital Management made sizable purchases during the first quarter, regulatory filings show.

Hedge fund D.E. Shaw, which was also engaging with Exxon management, also increased its holdings, the filings show.

Banking giants Bank of America Global Research and Mellon Investments also added to their holdings, the filings show.

These investors welcomed the roughly 34% gain in Exxon’s share price during the first 12 weeks of 2021, after months of watching the stock slide to a low of $31.11 in late October. The company was removed from the Dow Jones Industrial Average in August as many speculated that a dividend cut was coming.

By early December Engine No. 1, a $250 million hedge fund, had invested some $40 million in Exxon and was publicly criticizing the oil major for lagging behind in its approach to lower-carbon energy and for poor returns on past fossil fuel investments. For the first time ever, climate change was playing a major role in the election of directors at a big U.S. company.

Since Engine No. 1 unveiled its campaign at Exxon, the stock price has climbed 47%. During the first quarter as the economy showed signs of recovering after the pandemic, U.S. oil prices climbed 23%. Proxy advisory firm Institutional Shareholder Services noted that both Exxon and the hedge fund have claimed credit for the stock price improvement.

Behind the scenes, D.E. Shaw, which owned roughly 5.6 million shares in Exxon at the end of the first quarter, also pushed the company to make changes. Amid its prodding, Exxon added two new board members, moves that underpinned confidence and helped push the share price higher.

D.E. Shaw raised its stake by 39% during the first quarter and Fidelity raised its stake by 20%, buying 14.6 million shares to own 85.2 million shares on March 31, the filings show.

Full coverage: REUTERS

WORLDWIDE: FINANCE / MARKETS

Oil prices capped by hedge fund profit-taking

Hedge funds cut their petroleum positions last week as oil prices neared the top of recent trading ranges and the cyberattack on the Colonial fuel pipeline looked set to cut crude processing and diesel output.

The previous week’s bullishness faded as the market was hit by one of the largest waves of selling since the start of the year, probably a sign of profit-taking rather than a reassessment of the medium-term price outlook.

Hedge funds and other money managers sold the equivalent of 31 million barrels in the six most important futures and options contracts in the week to May 11, after buying 102 million barrels over the previous four weeks.

In the most recent week, portfolio managers sold Brent (-21 million barrels), NYMEX and ICE WTI (-19 million) and U.S. gasoline (-2 million) but bought U.S. diesel (+3 million) and European gasoil (+8 million).

Front-month Brent prices traded around $68 per barrel, similar to the previous peak in March, without making further gains, and above the long-term inflation adjusted average.

Net sales of crude and purchases of products are consistent with a pipeline shutdown likely to force a reduction in refinery crude processing as well as the production and distribution of finished fuels.

The hedge fund community is still very bullish on oil prices, with the combined position across all six contracts amounting to 871 million barrels, putting it in the 80th percentile for all weeks since 2013.

Bullish long positions outnumber bearish shorts by a ratio of 5.38:1, which is in the 73 percentile for all weeks over the same period (https://tmsnrt.rs/3hy1bGu).

But fund managers have not added a significant number of positions over the last three months since the middle of February, after buying almost 550 million barrels in the previous three and a half months.

Benchmark crude prices have inched up by less than $4 per barrel over the last three months, after rising by almost $30 over the previous period.

For now, the market seems to have settled into a temporary equilibrium around $65, with support from OPEC+ and U.S. shale production restraint offset by the epidemic’s prolonged impact on international jet fuel consumption.

Full coverage: REUTERS

Dollar under pressure as yield support fades

The dollar teetered near multi-month lows against European currencies on Tuesday as Treasury yields stall due to renewed expectations that U.S. interest rates will remain low for an extended period.

Dallas Federal Reserve President Robert Kaplan on Monday reiterated his view that he does not expect interest rates to rise until next year, causing a further decline in bets that inflationary pressure could force the Fed to act sooner.

This week a host of Fed policymakers are scheduled to speak, and the U.S. central bank will also release minutes from its most recent meeting, which will give traders a lot of hints about where monetary policy is headed this year.

However, the growing consensus is that the Fed will tolerate what it sees as a temporary acceleration in inflation, which will keep the dollar lower against most major currencies.

Against the euro, the dollar traded at $1.2157, close to the weakest since Feb. 26.

The British pound bought $1.4151, near its strongest since late February.

Sterling has been buoyed recently as investors cheer the gradual lifting of strict coronavirus restrictions on economic activity.

The Canadian dollar traded near a six-year high against the greenback, supported by a rise in oil prices.

The dollar held steady at 109.22 yen. The currency pair has been locked in a narrow range as worries about Japan’s slow pace of coronavirus vaccinations offset weakness in the greenback.

The yen fell against the British pound and the Antipodean currencies after data showed Japan’s economy contracted more than expected due to coronavirus infections…

The Australian and New Zealand dollars have also stopped rising against the greenback recently due an inability to break through technical resistance levels, some traders say.

In the cryptocurrency market, bitcoin rose 2.19% to $44,505 but was still close to a three-month low amid doubts about Tesla’s boss Elon Musk’s enthusiasm for the digital asset.

Rival digital currency ether edged up to $3,361, steading from a two-week low reached on Monday.

Full coverage: REUTERS

Wall St weighed down by inflation jitters

Technology stocks pulled Wall Street’s main indexes lower on Monday, as signs of inflationary pressures building up in the economy kept investors worried about monetary policy tightening.

Nine of the 11 major S&P sectors declined, with technology (.SPLRCT) shedding about 1%. Apple Inc (AAPL.O) and Microsoft Corp (MSFT.O) weighing the most on the benchmark S&P 500 and the Nasdaq.

The S&P 500 saw its biggest one-day jump in more than a month on Friday as investors picked up beaten-down stocks following a pullback earlier in the week on concerns around inflation and a sooner-than-expected tightening by the U.S. Federal Reserve.

In a relatively quiet week for economic data, minutes on Wednesday from the Fed’s policy meeting last month could shed more light on the policymakers’ outlook of an economic rebound.

“The volatility has picked up because a lot of the good news has been priced in, and last week we finally saw fears of inflation,” said Greg Marcus, managing director, UBS Private Wealth Management.

The Russell 1000 value index (.RLV), which includes energy and bank stocks, continued to outperform on Monday, taking its year-to-date gains to 17%, versus its tech-laden growth counterpart’s (.RLG) rise of about 4%.

At 11:47 a.m. ET, the Dow Jones Industrial Average (.DJI) was down 158.20 points, or 0.46%, at 34,223.93, the S&P 500 (.SPX) was down 19.61 points, or 0.47%, at 4,154.24, and the Nasdaq Composite (.IXIC) was down 93.00 points, or 0.69%, at 13,336.98.

Earnings this week will be scrutinized for clues on whether rising prices had any impact on consumer demand and if retailers could sustain their strong earnings momentum.

AT&T (T.N), owner of HBO and Warner Bros studios, and Discovery (DISCA.O), home to lifestyle TV networks such as HGTV and TLC, said on Monday they will combine their content assets to create a standalone global entertainment and media business. AT&T shares gained 1.5%, while Discovery fell about 3%.

Cryptocurrency-related stocks like Marathon Digital (MARA.O), Riot Blockchain (RIOT.O) and Coinbase (COIN.O) fell between 6% and 9% as bitcoin swung in volatile trading after Tesla (TSLA.O) boss Elon Musk’s tweets about the carmaker’s bitcoin holdings.

Declining issues outnumbered advancers for a 1.18-to-1 ratio on the NYSE and for a 1.19-to-1 ratio on the Nasdaq.

The S&P index recorded 28 new 52-week highs and no new low, while the Nasdaq recorded 75 new highs and 30 new lows.

Full coverage: REUTERS

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