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Economy

EMERGING MARKETS-Oil-linked Latam currencies outperform for week

    * Colombian, Mexican pesos lead weekly gains
    * Chilean stocks outperform for the week
    * Argentine assets sole losers for the week

 (Updates prices, adds comments)
    By Ambar Warrick and Shreyashi Sanyal
    July 3 (Reuters) - Latin American stocks and currencies
remained muted on Friday as a U.S. holiday provided few trading
cues, but were set to end the week with gains as bets grew for a
recovery from the economic effects of the COVID-19 pandemic. 
    Strong economic readings from China and the United States
through the week had helped bolster risk appetite, although a
drastic rise in coronavirus cases capped broader gains.
    Still, the positive news drove gains in commodity markets,
which in turn saw oil and metal-linked assets in Latin America
outperform for the week. It also helped regional risk assets
weather a raft of weak local economic data.    
    The currencies of oil exporters Colombia and Mexico
 were set to outperform regional peers for the week,
riding on strength in the crude market as bets for demand
recovery grew.
    
    "Following a precipitous decline in global and emerging
markets activity in Q2, we expect growth across EM economies to
bounce back relatively sharply towards the end of this year and
into 2021," analysts at Goldman Sachs wrote in a client note.  
    Brazil's real edged up for the day, while stocks
 fell after data showed economic activity in the country
shrank in June for a fourth straight month due to coronavirus.
    The reading was slightly stronger than the prior month, as
Latin America's largest economy slowly ground back into gear
from coronavirus-related lockdowns.
    The real and Brazilian stocks added 3% for the week.
    Copper exporter Chile's stocks outperformed
regional peers for the week with a 5.3% gain. The peso
had also benefited from stronger copper prices through the week.
    Still, economic activity in the world's largest copper
producer remained constrained due to the coronavirus.
    Investors continued to watch for increasing infections as
major economies scaled back virus-related curbs. While reopening
has helped economic activity recover, it also leaves the door
open for future lockdowns if infections continue to spike.
    "This is not a 'bubble, burst bubble, sort out bubble,
recover' cycle. This is an abrupt switching off of economies,
followed by a relatively abrupt switching back on. Companies and
consumers are not likely to react as they have in the past,"
wrote Paul Donovan, Chief Economist of UBS Global Wealth
Management.
    Argentine stocks and the peso were the sole
weekly losers in Latin America. Investors continued to fret over
the country's negotiations over the repayment of its distressed
bonds, with a deadline for a deal looming later in the month.
    Key Latin American stock indexes and currencies at 1957 GMT:
    
     Stock indexes             Latest    Daily %
                                          change
 MSCI Emerging Markets          1033.29      0.96
                                         
 MSCI LatAm                     1954.72      0.74
                                         
 Brazil Bovespa                96657.46      0.44
                                         
 Mexico IPC                    37812.52     -0.22
                                         
 Chile IPSA                     4203.80      0.64
                                         
 Argentina MerVal              39819.67     0.807
                                         
 Colombia COLCAP                1127.36      0.75
                                         
                                                 
        Currencies             Latest    Daily %
                                          change
 Brazil real                     5.3199      0.53
                                         
 Mexico peso                    22.3840      0.36
                                         
 Chile peso                       802.4     -0.11
                                         
 Colombia peso                  3644.53     -0.01
 Peru sol                        3.5387     -0.51
                                         
 Argentina peso (interbank)     70.6300     -0.07
                                         
 Argentina peso (parallel)          123      4.88
                                         
 

    
 (Reporting by Shreyashi Sanyal and Ambar Warrick in Bengaluru;
Editing by Alistair Bell and Daniel Wallis)
  

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Economy

Britain and India's Bharti win auction for OneWeb satellite company

LONDON, July 3 (Reuters) – Britain has joined forces with India’s Bharti Global to buy the collapsed satellite operator OneWeb, with the two sides pledging $1 billion between them to develop a fleet of low earth orbit satellites to boost broadband and other services.

Under the deal announced on Friday, Britain will invest $500 million and take a significant equity share in OneWeb while Bharti will invest the same amount and provide commercial and operational leadership.

The deal is subject to a U.S. court approval and regulatory clearances, and is expected to close before the end of the year, the government said in a statement.

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Economy

Chaos in gold markets ripples to other precious metals

NEW YORK (BLOOMBERG) – The chaos that engulfed the gold market in March as the global pandemic choked off physical trading routes is rippling through other precious metals, resulting in price dislocations and a surge in exchange inventories for silver and platinum.

The gold market was thrown into turmoil in March as lockdowns grounded planes and closed refineries, leading traders to worry they wouldn’t be able to get gold to New York in time to deliver against futures contracts. That caused futures, which typically trade close to the London spot price, to soar to a premium, inflicting losses on banks that struggled to close arbitrage bets and spurring them to shift some positions out of New York futures.

There are signs that the dynamic isn’t limited to gold. Silver and platinum futures have traded at elevated levels relative to spot metals since early April. And as in the case of gold, the premiums are spurring big increases in on-exchange inventories in New York.

On Monday (June 29), first-notice data for the July silver contract on the Comex in New York showed the largest single day of deliveries in almost 25 years. Deliveries for platinum on the New York Mercantile Exchange were more than five times the next largest month this year.

Those deliveries serve as a way for banks to reduce their exposure to price dislocations and limit risk, said David Holmes, a senior vice-president at Heraeus Metals New York, a precious metals refiner.

The blowout in gold spreads earlier this year led to big losses for some banks, which typically sell futures in New York as a hedge for their positions in the London over-the-counter market. HSBC Holdings lost US$200 million in a single day of trading, illustrating the challenges to banks due to the turmoil in the exchange-for-physical price, or EFP.

WIDER SPREADS

Silver and platinum have been seeing similar price differentials. The spread between silver futures and spot prices ended the second quarter at the highest in nearly four decades. Platinum’s EFP spiked to the highest since early 2008. And palladium had the largest spread on record, dating back to late 1993.

The turmoil caused stockpiles to jump amid efforts to meet the apparent shortages. On-exchange inventories for silver and platinum surged to a record and remain close to those levels.

Meanwhile, futures positions have been shrinking in the wake of the pandemic-induced dislocations, creating a glut of metal akin to gold’s stockpiles. Platinum open interest, a tally of outstanding futures contracts, is near the lowest in eight years and is down more than 56 per cent from a peak in January. Open interest in silver futures is down nearly a third from a February high. Gold positions reached the lowest in a year before recovering, while palladium is at a more than 16-year low.

“If a bank is short, it’s hard to close the arbitrage,” Mr Holmes said. “Therefore, instead of increasing their position as the arbitrage grew wider, they’ve had to either hold constant their position or even reduce it.”

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Economy

Australia retail sales see record surge in May as economy reopens

SYDNEY (REUTERS)- Australian retail sales saw a record surge in May, official data showed on Friday (July 3), as a wide scale easing in coronavirus lockdowns allowed entire sectors to reopen, enabling a recovery from an historic plunge in April.

The strong bounce suggests consumer spending will not be nearly as weak as first feared in the June quarter, offering hope the economy can recover quickly from its first recession in three decades.

Retail sales jumped a seasonally adjusted 16.9 per cent in May, from April when it tumbled 17.7 per cent. Sales were also up over 5 per cent on May last year at A$28.97 billion (S$28 billion), according to the Australian Bureau of Statistics (ABS).

Australia eased lockdown restrictions in May as it successfully contained the spread of the virus and reopened its economy before many other advanced nations. The country has just over 8,000 coronavirus cases with 104 deaths.

Also in May, there was a massive month-on-month increase of 129.2 per cent in clothing, footwear and personal accessory retailing. Cafes, restaurants and takeaway food services saw a surge of 30.3 per cent, with both sectors coming off very low levels of trade in April.

Levels in clothing and footwear industries however remain well below the same time last year, the ABS reported.

The optimism since late April has also been reflected in credit card spending by major banks.

According to the Commonwealth Bank (CBA), card spending in the week to June 26 was up 4.5 per cent on a year ago after a 7.1 per cent lift for the week ended June 19.

Separate data from the Federal Chamber of Automotive Industries showed the slowest decline in new vehicle sales since the beginning of the Covid-19 crisis. New vehicle sales fell 6.4 per cent compared with June 2019, following double digit year-on-year declines in March, April and May.

Economists are keeping a close eye on the Reserve Bank of Australia’s (RBA) monthly policy meeting on Tuesday for any upgrades in forecasts ahead of its quarterly outlook due in August.

Read the latest on the Covid-19 situation in Singapore and beyond on our dedicated site here.

Get The Straits Times app and receive breaking news alerts and more. Download from the Apple App Store or Google Play Store now.

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Economy

AVI-SPL's US$370m loan finalized with steepest discount in four years

NEW YORK, July 2 (LPC) – AVI-SPL needed two tries and the steepest discount in four years to syndicate a US$370m leveraged loan to an investor base concerned about the health of an audiovisual company reliant on businesses shut out of buildings amid the coronavirus.

A group of arrangers led by Bank of America was able to sell the loan backing the company’s buyout by private equity firm Marlin Equity Partners at a discount of 85.5 cents on the dollar in late June, four months after its initial attempt, according to two sources familiar with the financing.

The sale price was the widest discount offered on a leveraged loan since June 2016, when the debt to back the buyout of software company Veritas was sold at 85 cents, according to Refinitiv LPC data.

The coronavirus has slashed growth prospects and immediate cash flow generation for AVI-SPL, which derives a portion of its revenue through on-site audiovisual services, according to Moody’s Investors Service. Certain audio and video collaboration projects have also been halted indefinitely, dealing a potential blow to the company’s second quarter operating results as offices remain largely empty and workers shelter at home.

US companies contemplating a smaller office space in the aftermath of the pandemic may also negatively impact AVI-SPL’s teleconferencing installation services, the ratings firm said.

The second half of 2020 may see a turn in AVI-SPL’s fortunes, though, as offices seek to reopen, leading Moody’s to hold the company’s corporate and first-lien loan ratings at B2, though with a negative outlook.

TOUGH SELL

AVI-SPL’s loan was launched into the syndicated loan market for a second time on June 10, after the initial attempt was withdrawn in early March as Covid-19 hampered deal sell downs.

Lenders had until June 24 to commit to terms of 525bp over Libor and a discount of 94 cents, the two sources said. Investor pushback, however, led the arranging banks to reoffer the seven-year loan last week at the 525bp margin with the wider 85.5 cent discount.

In February, AVI-SPL shopped the loan at 475bp over Libor and a discount of 99 cents. At the time, a more borrower-friendly market allowed companies to raise cheap new debt and slash interest rates on existing loans.

But as coronavirus began to spread and the scale of the health crisis began to take hold, investors flocked to less risky assets and some syndicated loans were withdrawn. Leveraged loans backing acquisitions, in particular, struggled to gain traction with a buyside attempting to assess risk as government-mandated shelter-in-place restrictions were implemented, according to the two sources.

“It was bad timing. Covid happened and the deal got pulled the first time around,” said one investor that looked at the loan. “Then the company’s bookings for April and May were soft and this made folks a bit uncomfortable during the second syndication.”

Bank of America, Barclays, Guggenheim, KKR Capital Markets and Macquarie arranged the loan.

Marlin said in April that it completed the acquisition and planned to merge AVI-SPL with Whitlock, another audiovisual services provider and existing portfolio holding.

Spokespersons for Marlin, AVI-SPL, Guggenheim, KKR and Macquarie were not immediately available for comment. Spokespersons for Bank of America and Barclays declined to comment.

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Economy

UPDATE 1-Brazil's Embraer negotiates worker buyouts, as Boeing, Airbus downsize

(Adds details, context)

SAO PAULO, July 2 (Reuters) – The world’s No. 3 planemaker Embraer SA said on Thursday it was negotiating buyouts, signaling likely cuts in its workforce due to the coronavirus pandemic that has hammered the travel industry.

Larger rivals Boeing Co and Airbus have each announced plans to cut over 10,000 jobs, although the French planemaker is still negotiating due to government pressure.

Embraer said it is discussing with some of its unions the possibility of offering buyouts for workers who are currently furloughed.

Embraer reached an agreement for a government loan from Brazil state bank BNDES last month, which among the conditions requires the planemaker to maintain an undisclosed minimum level of employees.

The planemaker did not immediately respond to a request for comment. (Reporting by Marcelo Rochabrun Editing by Chizu Nomiyama and Tom Brown)

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Economy

China joins Singapore-New Zealand initiative to keep supply chains open

SINGAPORE – China has pledged to uphold trade and supply chain connections during the coronavirus pandemic, Singapore’s Ministry for Trade and Industry said on Thursday (July 2).

The commitment to maintain cross-border flows of necessities was launched by Singapore and New Zealand in March. Since then several nations from across the world have joined the pact.

China is the 12th nation to ink the statement.

Other signatories include Australia, Brunei, Canada, Chile, Laos, Myanmar, Nauru, the United Arab Emirates and Uruguay.

The statement recognises that maintaining supply chains and trade flows amid disruptions caused by the pandemic is critical in enabling countries to emerge from the crisis stronger.

Signatories commit to refrain from imposing export controls or tariffs and non-tariff barriers and to remove existing trade restrictive measures on essential goods, especially medical supplies, during the virus outbreak.

Singapore Trade and Industry Minister Chan Chun Sing said; “We are encouraged that 12 countries are now on board. It sends a strong signal of our collective commitment to ensure the continuity and interconnectivity of supply chains during the Covid-19 pandemic.”

He added that Singapore along with other signatories to the pact would welcome other like-minded nations to join.

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Economy

Ukraine dollar bonds fall after cbank chief resigns, bond sale cancelled

LONDON, July 2 (Reuters) – Ukraine’s dollar-denominated bonds fell as much as 2.5 cents on Thursday after the government cancelled its Eurobond sale and the central bank governor resigned.

The September 2026 issue was down 1.5 cents, paring earlier larger losses, to 104.3 cents in the dollar, its biggest daily loss since mid-May. The September 2032 issue shed 1.6 cents to 100.1 cents in the dollar, its lowest point in a month.

Ukraine’s Central Bank Governor Yakiv Smoliy unexpectedly resigned on Wednesday, citing “systematic political pressure” that was preventing him from fulfilling his duties as governor.

The Finance Ministry said on Thursday it would not proceed with a planned offering of dollar-denominated Eurobonds. (Reporting by Tom Arnold and Marc Jones; Editing by Dhara Ranasinghe)

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Economy

Quiet Canada Day in Banff as businesses struggle to stay open

Canada‘s birthday celebrated in the birthplace of the country’s national parks — it seems natural to visitors who traveled to Banff on Wednesday, especially those who haven’t been to the mountain town since the COVID-19 pandemic started.

Many are happy to be in the mountains despite no parade and no fireworks this Canada Day.

To help with social distancing, a few blocks of Banff Avenue have been shut down to vehicle traffic, a move supported by businesses like The Radiant, a new restaurant that just opened as COVID-19 hit this spring.

“It’s bouncing back. Shutting down Banff Avenue and making it pedestrian-friendly and patio-friendly has done wonders for all of the businesses on Banff Avenue,” chef and part-owner Ryan DeAlwis said.

“Without tourism, without travel, it’s very difficult for us to survive, especially being an independent restaurant.”

Banff Mayor Karen Sorensen said the town is seeing about 40 per cent of the vehicle traffic it normally gets this time of year, adding it’s left some businesses hanging by a thread. However, she said the quiet start to the summer does allow the town to re-launch cautiously.

“So there is some benefit to the fact we are relaunching slowly and safely. And more than anything, that is what we want,” Sorensen said.

“It would be even more devastating if we had to shut down again.”

While traffic has picked up since camping opened in the park on June 22, the wet weather hasn’t helped bring people to the normally-bustling streets. And until the U.S. border reopens, it will likely remain subdued.

“There have been some silver linings as the wildlife has come back into the community, but overall, particularly economically, it’s tragic,” Sorensen said.

“And we know this is not going to be over for us at the end of the summer or even in the winter, it’s a long haul.”

International tourism accounts for 50 per cent of Banff’s visitors

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Economy

TREASURIES-Yields climb on strong manufacturing data, Fed minutes

 (Recasts, updates yields, adds analysts' comments, Fed minutes)
    By Karen Pierog
    CHICAGO, July 1 (Reuters) - U.S. Treasury yields on the long
end of the curve shot higher on Wednesday after data showed
manufacturing activity rebounded in June and minutes from the
Federal Reserve's last meeting indicated yield curve control was
not coming anytime soon.
    The benchmark 10-year yield was last up 2.9
basis points at 0.6824%. 
    Guy LeBas, chief fixed income strategist at Janney
Montgomery Scott in Philadelphia, said the Fed minutes made it
clear yield curve control was not going to happen in the
immediate future. 
    "That gave the long end permission to sell off a little bit
in the afternoon," he said.
    According to the June meeting minutes, all participants
agreed to continue studying yield curve target policies.

    Earlier on Wednesday, the 10-year yield hit a session high
of 0.702 after the Institute for Supply Management's release of
its index of national factory activity, which jumped to a
reading of 52.6 last month from 43.1 in May, marking the
strongest level since April 2019.
    Brian Brennan, a fixed income portfolio manager at T. Rowe
Price in Baltimore, said data continues to be "back and forth"
in its depiction of the economy and that he believes Treasuries
will be range bound over the summer.
    "Bond managers are kind of hunkered down right now and, if
anything, we know rates are low for a long time," he said.
    Coming up on Thursday, the U.S. Labor Department will
release jobs data. The report will likely show private employers
hired 2.9 million workers in June, according to a Reuters survey
of economists. That would lead to nonfarm payrolls increasing by
3 million on top of the 2.5 million created in May, but still
nearly 17 million below their pre-coronavirus pandemic level.

    A closely watched part of the U.S. Treasury yield curve
measuring the gap between yields on two- and 10-year Treasury
notes, which is viewed as an indicator of
economic expectations, was at 51.40 basis points, about 1 basis
point higher than at Tuesday's close.
     July 1 Wednesday 2:31PM New York / 1931 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.14         0.142     -0.005
 Six-month bills               0.16         0.1628    -0.002
 Two-year note                 99-235/256   0.1662    0.012
 Three-year note               100-44/256   0.1916    0.016
 Five-year note                99-172/256   0.3163    0.028
 Seven-year note               99-224/256   0.5182    0.028
 10-year note                  99-116/256   0.6824    0.029
 20-year bond                  98-188/256   1.1967    0.021
 30-year bond                  95-144/256   1.4331    0.022
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         6.75        -0.25    
 spread                                               
 U.S. 3-year dollar swap         5.00        -0.25    
 spread                                               
 U.S. 5-year dollar swap         3.25        -0.25    
 spread                                               
 U.S. 10-year dollar swap       -2.25        -0.25    
 spread                                               
 U.S. 30-year dollar swap      -49.25         0.25    
 spread                                               
                                                      
 

 (Reporting by Karen Pierog in Chicago; editing by Jonathan
Oatis and Lisa Shumaker)
  

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