Wall Street Week Ahead: Bond investors look for Fed to justify steepening yield curve

NEW YORK (Reuters) – Expectations that the global economy has dodged the worst-case scenarios for the coronavirus pandemic have led to a dramatic selloff in U.S. government bonds from their record highs, pushing the yield curve to its steepest level since March.

Investors will get a chance next week to see whether the U.S. Federal Reserve agrees with their optimism. The U.S. central bank is expected to hold a two-day meeting that will conclude Wednesday, the first since a meeting in April in which Fed Chair Jerome Powell said that the U.S. economy could feel the weight of the economic shutdown for more than a year.

While the Fed could introduce additional bond-buying programs known as quantitative easing or yield-curve control measures to target short-term rates, some fund managers say they expect that yields would need to rise significantly from here to justify any intervention in the bulk of the curve. Instead, they are watching for hints that the central bank believes the worst part of the coronavirus crisis has passed.

“They are really in this transition phase,” said Eric Stein, co-director of global income and portfolio manager at Eaton Vance. “Markets are functioning, if not all the way back to pre-shock levels, with very strong debt issuance and market improvement, even though the real economy is incredibly weak.”

As a result, Stein is looking for signs the Fed believes the economic rebound can support the rise in yields.

“The Fed will be okay with a slow creep higher, particularly with a backdrop of a recovery, but if it moves too much and destabilizes the recovery, there’s a reason for concern,” he said.

Ed Al-Hussainy, senior interest rate analyst at Columbia Threadneedle, expects the Fed to focus on its newly announced Main Street Lending Program, meant to support small- and medium-sized businesses facing financial strain because of the pandemic, as opposed to introducing significant new stimulus measures.

“The Fed is likely to communicate that there is more scope for fiscal measures but that is a very uncomfortable spot to be in,” he said. “We won’t have a clear sense of direction of the economy until well into the fourth quarter because all the sequential data now is massively positive.”

The manufacturing ISM index rose to 43.1 in May from 41.5 in April, while weekly jobless claims fell to 1.877 million from 2.126 million the week before.

“Recent economic reports in the U.S. have been uniformly weak, though not any worse than expected,” said Kevin Cummins,senior U.S. economist at NatWest Markets.

Eddy Vataru, lead portfolio manager at Osterweis Capital Management, said the larger risk for the Fed is that rates remain too low, making it unlikely that there will be a significant push for yield curve-control measures.

“We can now discredit the worst outcomes of the virus. The sentiment around the risks around the virus have really changed,” he said, pointing to declining infection and fatality rates in coronavirus hot spots such as the New York City region.

As a result, he is moving into corporate debt and mortgage-backed securities and shying away from Treasuries, which he said have “no investment value” at their current yields.

“At the end of the day, we have a ton of stimulus, both fiscal and monetary, and the markets have reacted to it,” he said.

(This story has been refiled to correct time element in paragraph 2.)

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EMERGING MARKETS-Latam stocks, FX fall from near 3-month highs as risk rally pauses

    * Brazil's real falls after gaining 5% over two days
    * Mexican peso tracks oil prices lower
    * Argentine industrial output plummets in April

 (Adds details, updates prices)
    By Susan Mathew and Ambar Warrick
    June 4 (Reuters) - Latin American stocks and currencies came
off near three-month highs on Thursday as a recent rally in risk
assets, driven by hopes of a post-coronavirus economic recovery,
lost steam.
    MSCI's index of Latam stocks and currencies
 broke a three-day winning streak, falling more
than 1% each.
    Still, analysts said risk assets held more upside strength,
with economic indicators across the globe indicating the worst
of the COVID-19 pandemic had passed. 
    Expectations of more stimulus measures, along with optimism
over a resurgence in economic activity, had driven emerging
market assets higher over the past weeks.
    Brazil's real broke a two-day rally that drove the
currency up about 5%, to trade 0.4% lower. The central
bank on Wednesday signaled that policymakers may be prepared to
cut interest rates more than they have previously indicated.

    A Reuters poll showed that along with broader emerging
market peers, Latam currencies are on a recovery path but depend
heavily on calmer domestic politics and signs of economic
recovery.   
    Brazil is moving aggressively to open its economy even as it
posts a record number of coronavirus -deaths. Latin America has
become a hot spot in the outbreak, with Brazil in the No. 2 spot
globally in the number of infections; Mexico overtook the United
States in daily reported deaths this week.

    Mexico's peso fell 0.5% against a steady dollar as
oil prices declined.
    The country's mining chamber on Wednesday said output will
likely fall by about 17% in 2020. Mexico had restarted the
mining industry last month after deeming it an essential sector.

    Chile's peso fell slightly, a day after the country's
central bank said it would gradually scale back its foreign
exchange intervention program in the non-deliverable forward
markets and speak with its U.S. and Chinese counterparts to
broaden the country's foreign exchange lines.   
    "We expect the CLP to underperform its peers in the near
term as the (central bank) buys dollars, although we think it is
likely to continue trading with the broad macro environment and
find support from (U.S.) Treasury sales," said Citigroup
analysts.
    Argentina's peso traded flat, while stocks
fell more than 1% as markets continued watch for the country to
restructure its sovereign debt.
    The country's April industrial output fell 33.5% from the
same month last year, as measures to contain the virus stymied
economic activity.
    Key Latin American stock indexes and currencies:
    
    Stock indexes             Latest     Daily % change
 MSCI Emerging Markets          988.26              0.02
                                        
 MSCI LatAm                    1974.75             -1.14
                                        
 Brazil Bovespa               93985.89              1.06
                                        
 Mexico IPC                   37843.63             -1.17
                                        
 Chile IPSA                    3844.14               0.3
                                        
 Argentina MerVal             43129.89            -1.649
                                        
 Colombia COLCAP               1159.02              0.08
                                        
                                                        
       Currencies             Latest     Daily % change
 Brazil real                    5.1030             -0.39
                                        
 Mexico peso                   21.8730             -0.53
                                        
 Chile peso                      771.5             -0.16
                                        
 Colombia peso                  3588.3              0.49
 Peru sol                       3.4317             -0.87
                                        
 Argentina peso                68.8900             -0.12
 (interbank)                            
                                        
 
    

 (Reporting by Susan Mathew in Bengaluru; editing by Jonathan
Oatis and Leslie Adler)
  

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Virginia governor orders removal of Lee statue

Virginia’s Governor Ralph Northam has announced that a statue of Confederate General Robert E Lee will be removed from the state capital.

The controversial statue will be put into storage ” as soon as possible”, the governor said.

The monument has been vandalised during recent protests over the killing of African American George Floyd.

Memorials to the Confederacy, which fought to keep black people as slaves, have long stirred controversy.

At a news conference, a round of applause erupted when Governor Northam said the 12-ton statue would be removed.

“In Virginia, we no longer preach a false version of history,” the governor said.

“In 2020, we can no longer honour a system that was based on enslaving people. That statue has been there a long time. But it was wrong then, and it’s wrong now. So we’re taking it down.”

Referencing Gen Lee’s own words, Governor Northam said it was not “wise not to keep open the sores of war”.

The Robert E Lee statue is the largest of five Confederate statues along Richmond’s Monument Avenue. They have been rallying points during protests in Virginia in recent days, and have been tagged with graffiti, including messages that say “end police brutality” and “stop white supremacy”.

“They are extremely heavy and would crush anyone standing too close. Please be aware of the danger. Stand down!” the Richmond Police Department tweeted on Monday.

Hundreds of statues of Lee, General Thomas “Stonewall” Jackson and other famous figures of the Confederacy – the southern states that revolted against the federal government – exist in the US.

Some see the memorials, as well as Confederate flags, as markers of US history and southern culture.

But to others they serve as an offensive reminder of the country’s history of slavery and racial oppression.

Rev Robert W Lee IV, great-great-grandson of the Confederate general, gave his blessing for the monument to be removed at Thursday’s news conference.

He said the world was watching Virginia and the US as protests over the death of Mr Floyd convulsed the country, asking: “If today is not the right time, when will it be the right time [to remove the statue]?”

The debate around Confederate symbols received renewed attention after the protests in Charlottesville in 2017, triggered by the city council’s decision to remove a statue of Lee.

The resulting rally caused the deaths of a counter-protester and two state troopers died in a helicopter crash as they monitored the event.

An independent inquiry into a racist photo on Democrat Ralph Northam’s 1984 college yearbook page ended in 2019 with no conclusive findings.

The report could not determine the identities of two individuals, one in blackface, the other in Ku Klux Klan robes, in the image.

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American Airlines soars on news it will boost U.S. flights in July

WASHINGTON (Reuters) – American Airlines Group Inc (AAL.O) shares jumped by 25% after it said Thursday it will significantly boost its U.S. flight schedule next month after dramatic reductions caused by the coronavirus pandemic, flying more than 55% of its July 2019 domestic capacity.

American shares, up 24.6% to $14.77 on the bullish announcement, are still down more than 50% since mid-February.

The airline, the largest U.S. carrier, will also boost its international flights schedule next month, flying nearly 20% of its July 2019 schedule.

By comparison, American flew just 20% of its domestic schedule in May and is flying 25% in June, said Vasu Raja, American Airlines’ senior vice president of network strategy.

“As an airline, we’ve consciously bet on demand coming back. We have bet the economy,” Raja said, noting American has been operating a larger schedule than U.S. rivals.

Raja told Reuters that the airline would fly just over 4,000 flights on peak days in July compared with nearly 2,000 on peak days in May. That is still down from the peak 6,800 daily flights before the crisis.

Other U.S. carriers are also adding flights to summer schedules.

In total, American plans to fly 40% of July 2019 capacity.

The airline is boosting flights from New York City airports, Los Angeles and Washington and adding flights from its Dallas Fort Worth and Charlotte hubs. It is also increasing flights to major cities in Florida, Gulf Coast cities and mountain destinations as national parks and outdoor recreational spaces reopen.

In late May, the airline carried a daily average of about 110,000 customers – an increase of 71% over the 32,000 daily average the airline served in April, but still far below last year. Load factors rose to 55% by late May.

American plans to resume service to additional European and Latin American destinations in August. It will resume service to Rio de Janeiro, Brazil from Miami on July 7.

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LVMH propels Arnault scion to head up Tag Heuer watches

PARIS (Reuters) – LVMH (LVMH.PA) on Thursday said that Frederic Arnault, one of the younger sons of the luxury goods group’s billionaire boss, would take over running watch brand Tag Heuer, joining his siblings in taking on bigger roles within the conglomerate.

The Arnault family controls just under half of LVMH, which was vastly expanded through acquisitions under CEO Bernard Arnault, France’s richest man, and owns fashion labels such as Louis Vuitton and also champagne and jewellery brands.

Frederic Arnault, 25, will step up at Tag Heuer as of July 1, the company said. He had previously worked at the label, but with a focus on developing its digital activities, at a time when watch brands are struggling to re-invent themselves for a younger clientele and face falling demand.

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Campaign site flooded with petitions over death of elephant who ate pineapple filled with firecrackers

Nearly two million people have signed petitions calling for action over the death of a pregnant elephant who reportedly ate a pineapple filled with firecrackers in India.

Campaign site Change.org says more than 1,200 petitions sprang up in less than a day expressing outrage over the elephant’s death in the southern state of Kerala.

The incident has captured attention around the world, with people from the US, UK, France and Australia starting petitions on the issue.

The elephant had ventured into a village near Kerala’s Silent Valley Forest in search of food.

It is not known when or where she became injured, but she was found standing in the Velliyar River by forest officers on 27 May.

Despite efforts to help her, she died while still standing in the water.

A spokesperson from Kerala Forest Department previously told Sky News that farmers place food filled with the explosive devices on the edges of their fields to keep wild boars away.

He said the elephant had been “unfortunate” and “unlucky”.

An investigation has been launched and “several suspects” are being questioned over the incident.

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Coronavirus: Pandemic ‘gripping the Amazon’ as people ‘die in their beds’

In Manaus, the largest city in the Amazon rainforest, people are dying in their beds. 

They are trying to lift the coronavirus lockdown across Brazil – people teem the streets, the traffic noise is deafening, the markets are full, but the body count keeps growing.

The COVID-19 pandemic is gripping the Amazon and it is spreading.

Brazil has the second highest number of cases in the world, behind the US, with more than 584,000 – and 32,548 deaths, according to the Johns Hopkins University, which is tracking the virus.

We joined a body collection in Sao Jorge, one of the worst hit neighbourhoods.

Family and friends crammed the streets as the SOS Funerals undertakers van negotiated its way through the narrow alleys of what is basically a slum.

SOS is paid by the city to pick up the poorest dead. Nobody in Sao Jorge can afford a proper funeral.

We could see the body of Afonso de Souza through the door to his breeze block single room.

Teary eyed friends told me he was really popular in the community but had a drink problem. They do not know what he died of – the point is, they never will. Afonso’s body, like hundreds of others, will never be tested.

The undertakers are used to this now. They have been collecting the dead in huge numbers for weeks.

Sixty bodies a day has now become 40 a day, but that is over double the normal numbers in a country where poverty and disease are part of everyday life, and death.

Dressed in full hazmat suits, they brought a simple coffin into his home and loaded him up. Friends and family helped carry the body to their vehicle – another victim, another family, another community hit by the pandemic.

Manaus is a remote city in the heart of the Amazon. Nobody drives to get here. You come by plane or more likely boat.

Despite its remoteness, despite the vastness of the Amazon, the rainforest and its river did nothing to protect its people from the virus as it swept through and actually still is.

There are no funeral corteges for these poor people, no hearses. Mini vans take the bodies to the COVID cemetery on the outskirts of the city.

We followed through in torrential rain. The funeral van struggling through waterlogged roads, huge plumes of spray soaking our windscreen as we left the city and entered the rainforest.

The Taruma Cemetery is huge and well established, but this is where coronavirus victims come.

Outside the gates – only three members of families of victims are allowed inside – relatives look through the fences of the cemetery trying to spot the funeral taking place. They stand in small groups, often crying, often hugging each other.

If there is a backlog of burials, and there often is, the coffins are offloaded into refrigerated lorries. The work of the SOS team is done, they have more work elsewhere.

We did not know what to expect in the cemetery. What we saw was a vast area of newly dug graves, grave diggers in hazmat suits digging more graves and tending to those holding the bodies of the dead. It is exceptionally grim.

At the bottom of a hill, families wait beneath a canopy to protect themselves from the incessant rain.

When it is their turn, they take their paperwork to a man who paints the name of the family member on a simple blue wooden cross.

They wait for a tractor and trailer to pull up beside the families and the cemetery staff hoist the coffins on to a flat bed.

It is silent but for the sound of mechanical diggers gouging out more graves from the mud.

Once loaded the tractor moves off followed by a morbid, sobbing, heartbreaking procession to the burial site.

The coffins are lowered into a newly dug pit. It is a mass grave. The coffins laid side by side.

Sticks pushed into the earth indicate where each coffin can be identified from six feet higher.

Wooden rectangles are later placed above the bodies so the family will forever more have somewhere to come to pay their respects and mourn.

Above the muddy pit, the families film on their phones – cry, throw flowers and hug each other. Then the work to cover the coffins begins. A huge digger picks up mounds of mud and moves to the grave side.

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Germany forces all petrol stations to provide electric car charging

FRANKFURT (Reuters) – Germany said it will oblige all petrol stations to offer electric car charging as part of a sweeping 130 billion euro ($146.26 billion) economic recovery plan, boosting electric vehicle demand which has been hampered by consumer concerns over refuelling.

Germany unveiled the incentives as part of a broader stimulus plan which included staggered taxes to penalise ownership of large polluting combustion-engined sports utility vehicles.

Customers have been concerned about the limited operating range of electric cars, a factor which has hampered demand. Converting Germany’s 14,118 petrol stations would provide a significant boost to electric vehicle demand.

In Germany, electric cars made up only 1.8% of new passenger car registrations last year, with diesel and petrol cars accounting for 32% and 59.2% respectively.

Related Coverage

  • Factbox: German stimulus to drive forward green vehicles

Of the 168,148 new registrations in May, only 5,578 or 3.3% were electric cars according to German vehicle agency KBA. A further 51.1% were petrol powered, 31.6% were diesel cars and 17.6% were hybrid or plug-in hybrid cars.

As of March 2020, Germany had only 27,730 electric car charging stations according to BDEW, Germany’s association for the energy and water industry.

To make electric cars a mass market phenomenon, at least 70,000 charging stations and 7,000 fast charging stations are required, according to the BDEW.

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‘Permission to kill’ condemned in Duterte drug war

Thousands of people have been killed amid “near impunity” for offenders in the war the Philippines has waged on illegal drugs since 2016, the UN says.

Its report levelled heavy criticism at President Rodrigo Duterte’s government.

His drugs crackdown has been marked by high-level rhetoric that can be seen as “permission to kill”, the report said, urging an independent investigation.

The administration has in the past rejected all criticism of its policies and denies the killings are illegal.

Official figures show more than 8,000 people were killed in the war on drugs since Mr Duterte took office in 2016. Other estimates put the figure three times as high.

The report found that most victims are young poor urban males and that police, who do not need search or arrest warrants to conduct house raids, systematically force suspects to make self-incriminating statements or risk facing lethal force.

What does the report say?

The 26-page report, prepared by Michelle Bachelet, the United Nation’s High Commissioner for Human Rights, examined nearly 900 written submissions from human rights defenders, journalists, trade unionists and the Duterte administration.

In one section, the report said the police’s key policy note contained “ominous” and “ill-defined language” such as “neutralising” suspects, and that coupled with “rhetoric at high levels calling for the killings of drug offenders”, it was taken as a permission by the police to kill.

“In the context of the campaign against illegal drugs, there has been near impunity for such violations.”

According to the UN, statements from the highest levels of government had “risen to the level of incitement to violence” and “vilification of dissent is being increasingly institutionalised.”

The report suggests that “the human rights situation in the Philippines is marked by an overarching focus on public order and national security, including countering terrorism and illegal drugs” and that this was “often at the expense of human rights, due process rights, the rule of law and accountability”.

What does the Duterte administration say?

It is not the first time his government has been criticised for its brutality in cracking down on drugs and crime.

But so far the Duterte administration has always rejected allegations of wrongdoing and when the UN voted to launch its investigation, Manila branded the probe as a “travesty”. According to the UN report, there has been only one conviction for murder despite thousands having been killed.

Rodrigo Duterte won the presidency on a platform of crushing crime and fixing the country’s drugs crisis. Despite the many killings he remains very popular in the country.

But for the UN report’s co-author Ravina Shamdasani, positive opinion polls should not be used to justify bloody campaigns like the drug war.

“The government has a duty under its constitution and under human rights law to protect people from human rights violations,” Ms Shamdasani said. “Just because it is popular does not make it right.”

‘Many love Duterte’s strongman style’

Howard Johnson, BBC Philippines correspondent

This hard-hitting report is likely to irk Rodrigo Duterte, but not necessarily change his approach to human rights. After all this is the man who in 2018 told a UN special rapporteur to “go to hell” for allegedly “interfering” in his country’s affairs.

Just this week, with a big majority in Congress, the president secured the passage of a controversial “Anti-Terrorism Act”, cited in the report as potentially risking the erosion of citizens’ constitutional and legal protections.

The government has always insisted Mr Duterte’s actions reflect the will of the people who elected him.

Manila’s liberal elite continue to revile the president’s violent rhetoric, but I’ve also met many people here who love his strongman style.

In January an opinion poll by Social Weather Stations delivered Mr Duterte a net satisfaction rating of 72%.

What has happened in the drug war?

President Rodrigo Duterte launched his anti-narcotics campaign after taking office in 2016 to deal with a rampant drug problem.

“On the basis of information reviewed, the drug campaign-related killings appear to have a widespread and systematic character. The most conservative figure, based on government data, suggests that since July 2016, 8,663 people have been killed – with other estimates of up to triple that number,” the UN report said.

The OHCHR said it ultimately could not verify the number of extrajudicial killings without further investigation.

In December 2018, the country’s Commission on Human Rights (CHR) estimated the number of drug-war killings could be as high as 27,000.

Officially, the police say they kill only in self-defence – for example, during drug-bust operations.

What next?

Following the report, the UN’s High Commissioner for Human Rights is calling for an independent and effective domestic investigation into the allegations.

She also said that, should there be no credible response within the Philippines, her office would support other methods including “international accountability measures”.

The UN human rights office is not the only body investigating the alleged human rights violations in the country. A separate probe is currently under way by the International Criminal Court, also looking into accusations of crimes committed during the war on illegal drugs.

In the absence of thorough investigations into the killings, impunity continues for the perpetrators, the report said.

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CEE MARKETS-Currencies, stocks ease, with eyes on ECB stimulus moves

    BUCHAREST, June 4 (Reuters) - Central European currencies
fell on Thursday, with the crown and zloty leading regional
losses, as investors focused on the European Central Bank's
policy meeting, which is expected to  approve more aid to the
coronavirus-hit euro zone.
    The economic crisis caused by the new virus pandemic had
hammered currencies in the region, which is the main trading
partner of the euro zone, but a new risk-on mood has partly
helped them to recoup a significant part of their losses.
    By 0910 GMT, the Czech crown and the Polish zloty
 fell by 0.6% on the day to as low as 26.73 and 4.44
against the euro respectively.
    Czech National Bank Governor Jiri Rusnok said in a radio
interview on Thursday the crown was likely to stabilise around 
current levels it reached after recent strengthening.
   
    Hungary's forint eased 0.2% and the Romanian leu
edged down 0.1%. 
    Market watchers expect the ECB to increase bond purchases by
500 billion euros, but a key question is whether it will act on
Thursday or hold out until July as a deal on European Union-wide
fiscal support strengthens the case for patience.
    "Trade is pretty sluggish right now. The general focus is
now on the ECB's next policy moves and their timing," said one
dealer in Bucharest. 
    Stocks also fell, with Budapest's leading losses with
a 0.9% decline. MOL and OTP Bank fell 1.74%
and 3.16% respectively.
    Elsewhere, Romania's finance ministry plans to sell 700
million lei worth of 2027 treasury bonds and an additional 500
million lei of 2023 debt.
             CEE        SNAPSHOT     AT                         
             MARKETS                1129 CET            
                        CURRENCIES                              
                        Latest      Previous  Daily     Change
                        bid         close     change    in 2020
 Czech                     26.7300   26.5510    -0.67%    -4.86%
 crown                                                  
 Hungary                  345.5500  344.8000    -0.22%    -4.17%
 forint                                                 
 Polish                     4.4430    4.4100    -0.74%    -4.20%
 zloty                                                  
 Romanian                   4.8370    4.8315    -0.11%    -1.01%
 leu                                                    
 Croatian                   7.5720    7.5715    -0.01%    -1.67%
 kuna                                                   
 Serbian                  117.6100  117.6200    +0.01%    -0.03%
 dinar                                                  
 Note:       calculated from                  1800 CET          
 daily                                                  
 change                                                 
                                                                
                        Latest      Previous  Daily     Change
                                    close     change    in 2020
 Prague                     932.89  927.5300    +0.58%   -16.38%
 Budapest                 36937.69  37317.04    -1.02%   -19.84%
 Warsaw                    1758.90   1766.85    -0.45%   -18.19%
 Bucharest                 8927.32   8981.80    -0.61%   -10.52%
 Ljubljana                  861.34    860.56    +0.09%    -6.97%
 Zagreb                    1669.26   1673.45    -0.25%   -17.26%
 Belgrade    <.BELEX15      676.28    678.37    -0.31%   -15.64%
             >                                          
 Sofia                      456.92    458.87    -0.42%   -19.58%
                                                                
                        Yield       Yield     Spread    Daily
                        (bid)       change    vs Bund   change
                                                        in
 Czech                                                  spread
 Republic                                               
   2-year    <CZ2YT=RR      0.1000    0.0570   +072bps     +4bps
             >                                          
   5-year    <CZ5YT=RR      0.3870    0.0240   +097bps     +3bps
             >                                          
   10-year   <CZ10YT=R      0.7840    0.0700   +114bps     +8bps
             R>                                         
 Poland                                                         
   2-year    <PL2YT=RR      0.2260   -0.0140   +085bps     -3bps
             >                                          
   5-year    <PL5YT=RR      0.7810    0.0170   +136bps     +3bps
             >                                          
   10-year   <PL10YT=R      1.3810    0.0250   +174bps     +3bps
             R>                                         
             FORWARD                                            
                        3x6         6x9       9x12      3M
                                                        interban
                                                        k
 Czech Rep           <        0.27      0.28      0.30      0.34
             PRIBOR=>                                   
 Hungary             <        0.78      0.73      0.68      0.90
             BUBOR=>                                    
 Poland              <        0.26      0.28      0.30      0.27
             WIBOR=>                                    
 Note: FRA   are for ask prices                                 
 quotes                                                 
 *****************************************************          
 *********                                              
 
 (Editing by Larry King)
  

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