Brazil’s central government posted a $14.5 billion budget deficit in June, Treasury figures showed on Thursday, much smaller than a year ago thanks to rising tax revenues and lower crisis-related spending, but still more than economists had expected.

The government reported a primary budget deficit, excluding interest payments, of 73.6 billion reais ($14.5 billion) last month, compared with a 194.9 billion reais deficit last June.

That marked a 65% decline in real terms, Treasury said. But it was wider than the 63.4 billion shortfall forecast in a Reuters poll of economists.

Net revenue jumped 57% in real terms to 110.5 billion reais and spending fell 34.6% in real terms to 184 billion reais, Treasury said. Emergency pandemic-fighting spending in June plunged 85% from a year ago to 12.7 billion reais.

In the first half of this year the government ran a deficit of 53.7 billion reais, significantly smaller than the 417.3 billion reais deficit in the same period last year, Treasury said.

The accumulated primary deficit in the 12 months through June was 401 billion reais, worth 4.7% of gross domestic product, Treasury said.

In its bimonthly spending and revenue report last week, the Economy Ministry lowered its forecast for this year’s primary budget deficit to 155.4 billion reais, or 1.8% of GDP, from a previous forecast of a 187.7 billion reais deficit.

BRASILIA, July 29 (Reuters)
Reporting by Jamie McGeever
Editing by Chris Reese and Leslie Adler

The U.S. economic recovery is still on track despite a rise in coronavirus infections, the Federal Reserve said on Wednesday in a new policy statement that remained upbeat and flagged ongoing talks around the eventual withdrawal of monetary policy support.

In a news conference following the release of the statement, Fed Chair Jerome Powell said the U.S. job market still had “some ground to cover” before it would be time to pull back from the economic support the U.S. central bank put in place in the spring of 2020 to battle the coronavirus pandemic’s economic shocks.

“I would want to see some strong job numbers” in the coming months before reducing the $120 billion in monthly bond purchases the Fed continues to make, he told reporters.

But Powell also downplayed, at least for now, the risk that the renewed spread of the coronavirus through its more infectious Delta variant will put the recovery at risk or throw the Fed off track as it plans an exit from crisis-era policies.

“It will have significant health consequences” in the areas of the country where outbreaks are intensifying, Powell said. Yet in the prior waves of coronavirus infections “there has tended to be less in the way of economic implications … It is not an unreasonable expectation” that would remain the case this time, he added.

“It seems like we have learned to handle this,” with progressively less economic disruption, Powell said, even as he acknowledged a fresh outbreak might to some degree slow the return of workers to the labor market or disrupt planned school reopenings in the fall.

The Fed’s policy statement, issued after the end of a two-day policy meeting, reflected that confidence as the central bank continues debating how to wind down its bond purchases.

There appeared to be progress in that discussion, though no clear timetable for reducing the bond purchases. Powell said there was “very little support” for cutting the $40 billion in monthly purchases of mortgage-backed securities “earlier” than the $80 billion in Treasuries, and that once the process begins “we will taper them at the same time.”

Overall, however, the Fed seemed unfazed by spread of the Delta variant, even though new daily coronavirus infections have roughly quadrupled since the Fed’s June 15-16 policy meeting.
Though vaccinations have slowed – and Powell plugged inoculation as the best chance to get the economy durably back to normal – the Fed said it still expected vaccinations to “reduce the effect of the public health crisis on the economy.”

That should translate into strong job growth, Powell said, and eventually allow the Fed to move away from its crisis-era programs.

In December, the Fed said it would not change its asset-buying program until there had been “substantial further progress” in repairing a labor market that was then 10 million jobs short of where it was before the pandemic.

That number is now below 7 million, and the Fed for the first time acknowledged the economy had taken a step towards its benchmark for trimming the purchases.

“The economy has made progress, and the (Federal Open Market) Committee will continue to assess progress in coming meetings,” the Fed said in language pointing towards a possible reduction in bond purchases later this year or early in 2022.

The Fed also said that higher inflation remained the result of “transitory factors,” and was not an imminent risk to the economy or the Fed’s policy plans.
Along with leaving its bond-buying program unchanged, the central bank on Wednesday kept its overnight benchmark interest rate near zero.

Karim Basta, chief economist at III Capital Management, said the “incrementally more upbeat” policy statement opened the door to a September bond taper announcement if job growth comes in strong and the coronavirus caseload does not dent spending.

Acknowledging some progress towards their goals “seems designed to give them the option to announce” as soon as September their plans for winding down the bond purchases, he wrote.

The S&P 500 (.SPX) index, which was modestly lower before the release of the policy statement, ended the session flat. Yields on U.S. Treasuries fell in choppy trading, while the dollar (.DXY) was slightly weaker against a basket of currencies.

Reporting by Howard Schneider and Jonnell Marte Editing by Paul Simao

A deepening selloff in Chinese stocks spread to the bond and currency markets on Tuesday as unverified rumors swirled that U.S. funds are offloading China and Hong Kong assets.

The speculation, which included talk that the U.S. may restrict investments in China and Hong Kong, triggered a late afternoon bout of selling by traders in Asia who had already been dumping stocks in the crosshairs of Beijing’s sweeping regulatory crackdowns. The Hang Seng Tech Index plunged as much as 10% in Hong Kong, the yuan slid to its weakest since April against the dollar and Chinese bonds sank.

The dramatic moves underscored how fragile investor confidence has become after a months-long regulatory onslaught by Beijing that only seems to be getting worse. Traders fear the latest crackdown on the nation’s education, food delivery and property sectors could expand to other industries such as health care, as China looks to tighten its grip on Big Tech and reduce the wealth gap.

“The spread of declines from the Chinese equities space into the yuan signals that the concerns over regulatory risk in China might have taken a turn for the worst,” said Terence Wu, foreign-exchange strategist at Oversea-Chinese Banking Corp. in Singapore.

Treasuries climbed with the greenback and the yen as investors sought havens. The yield on China’s most actively traded 10-year government notes rose seven basis points to 2.94%, the most in a year. The offshore yuan fell as much as 0.6% to 6.52 per dollar and one-month volatility in the currency pair posted the biggest jump since May.

“Although we can’t verify if it’s true or not, the market fears that foreign capital will flow out from the Chinese stock market and bond market on a large scale, so sentiment is badly hurt,” Li Kunkun, a trader from Guoyuan Securities Co. said of the rumors that circulated among traders late in the Asia day.

The selloff also spread into the offshore Chinese credit market. High-yield notes dropped as much as 5 cents on the dollar, while investment-grade bond spreads widened by 10 to 15 basis points.

Investors in some of China’s most vibrant sectors — from technology to education — have found themselves in the firing line this month as Beijing attempts to rein in private enterprises it blames for exacerbating inequality, increasing financial risk and challenging the government’s authority. Policy makers’ seeming acceptance of short-term pain for stockholders in pursuit of China’s longer-term socialist goals has been a rude awakening for investors.

“The key concern now is whether regulators will do more and expand the crackdown to other sectors,” said Daniel So, strategist at CMB International Securities Ltd. “The regulatory concerns will be the key overhang to the market for the second half.”

So added that it was too soon in his opinion for investors to “bottom fish.”

Technology and education shares retreated once again Tuesday while property stocks also fell. Tencent Holdings Ltd. slumped 9%, most in about a decade, after the company’s music arm gave up exclusive streaming rights and was hit with fines. Its WeChat social media platform has stopped taking new users as it undergoes “security technical upgrade” in accordance with relevant laws and regulations. Meituan fell as much as 18%, its biggest decline ever, as investors digested new rules on online food platforms.

Turnover on Hong Kong’s main equity board reached a record high of HK$361 billion ($46 billion). The Hang Seng Index slid 4.2%, taking its two-day loss to 8.2%, the most since the global financial crisis.

Stocks had tumbled in “panic selling” on Monday after regulators on Saturday published reforms that will fundamentally alter the business model of private firms teaching the school curriculum. Hong Kong’s major retail brokers lowered margin financing for battered Chinese education stocks as investors suffered steep losses.

“There is no anchor for us to justify the stock valuations now given the regulation uncertainties,” said Dai Ming, a Shanghai-based fund manager at Huichen Asset Management. “In the past, the market was expecting normal regulations on certain sectors, but now it looks like the government can even tolerate killing a whole industry or some leading companies when it’s needed.”

By Jeanny Yu and Livia Yap — With assistance by Chester Yung, Jing Zhao, Tania Chen, Rebecca Choong Wilkins, and Ishika Mookerjee

Stocks gained on Monday, with investors at least temporarily looking past concerns over the growth outlook and ahead to more second-quarter earnings. 

The S&P 500, Dow and Nasdaq each eked out record intraday and closing levels, shaking off earlier declines. 

Over the past several weeks, investors have been appraising the likelihood that the spread of the Delta variant would derail the economic recovery and curb the rally so far for the year-to-date in U.S. equities. These concerns set off a rout last week, with stocks dropping by the most since October before ending the week at record levels.

However, some strategists suggested the latest stretch of virus-related volatility in markets would prove temporary.

“We think the Delta variant should pose a minimal risk to the U.S. equity market,” Goldman Sachs U.S. equity strategist David Kostin wrote in a note Monday. “From an economic perspective, widespread vaccinations and strategies focused on containment suggest limited medical and economic downside even if infections continue to rise.”

“From a flows perspective, robust household cash balances and corporate buyback authorizations should continue to support inflows for equities, increasing the likelihood that market participants perceive a pullback as a buying opportunity,” he added.

Later this week, investors will hear from Federal Reserve officials over the path forward for monetary policy, which will likely be informed by the increased concerns over the Delta variant and peaking economic growth rates. Many are betting that these downside risks will overshadow worries over inflation, leaving central bankers in a wait-and-see mode before announcing any changes to their crisis-era asset purchase program and near-zero interest rate policies. 

“[Federal Reserve Chair Jerome] Powell’s mid-July Congressional testimony raised the prospect that the statement would introduce an asymmetric policy bias: standing prepared to adjust policy if the Fed ‘saw signs that the path of inflation or longer-term inflation expectations were moving materially and persistently beyond levels consistent with our goal,'” JPMorgan economist Michael Feroli wrote in a note. 

“Since that testimony the rise of the delta variant has injected some downside growth risks into the outlook, and this should help the doves argue for retaining the current symmetric policy bias,” which would focus on creating conditions to maximize employment while also keeping inflation in check, he added. 

Traders are also set to focus on a packed schedule of corporate earnings results this week, which will include mega-cap technology companies like Apple (AAPL), Microsoft (MSFT) and Amazon (AMZN) in addition to a host of other companies including UPS (UPS), 3M (MMM), Starbucks (SBUX) and Boeing (BA). 

Earnings season so far has been especially strong, helping support the indexes’ march to new all-time highs even in light of recent economic concerns. So far, 24% of companies in the S&P 500 have reported second-quarter results, and of these, 88% have topped Wall Street’s earnings per shares estimates, according to an analysis from FactSet as of Friday. The blended earnings growth rate for the blue-chip index, which includes both companies’ reported growth rates and the estimated rates for the companies have yet to report, stands at 74.2%, which would be the highest since the fourth quarter of 2009.

Emily McCormick·Reporter

Hedge funds with bullish bets on the Australian dollar are counting on strong inflation data this week to help arrest a slide in the currency that’s taken it to an eight-month low.

Figures on Wednesday are expected to provide cues on the health of the economy after half of Australia’s population went back into lockdown to contain the delta coronavirus outbreak, fueling concern that growth may contract in the current quarter.

Pessimism over the economy and the Reserve Bank of Australia’s willingness to leave rates unchanged have already taken a toll on the Aussie, dragging it to 0.729 last week, lowest since November. Hedge funds are on the hook, with net long positions of 23,578 contracts on the currency as of the week ended July 20, according to Commodity Futures Trading Commission data.

Technical indicators show that more losses may be in store for the Aussie. The currency bearishly breached support around 0.74 per dollar, opening up the door for a decline toward the 0.72 level or even lower.

“We forecast AUD/USD will be trading near 0.74 by the end of September, but given the emerging risks and AUD/USD’s normal trading ranges, the Australian dollar could temporarily dip below 0.70,” said Kim Mundy, currency strategist and international economist at Commonwealth Bank of Australia in Sydney.

The currency could receive a boost if inflation picks up pace, prompting investors to bring forward RBA rate hike bets as the economy had been expanding strongly before the outbreak. Data on Wednesday is expected to show consumer price inflation rising 3.7% year-on-year in the second quarter from 1.1% before, according to a Bloomberg survey of economists.

Still, it’s unlikely to be a straight road ahead for the Aussie if New the Zealand dollar’s recent moves are anything to go by. The kiwi fell to an eight-month low last week despite the nation’s higher-than-expected second-quarter inflation reading as jitters over global growth prospects continues to dominate global risk sentiment.

Inflation took a toll on the U.K. public finances last month, driving interest payments on government debt to unprecedented levels.

The Treasury paid 8.7 billion pounds ($11.8 billion) in interest in June, the most for any month since records began in 1997, the Office for National Statistics said on Wednesday. The 6 billion-pound increase from a year ago was due to higher retail-price inflation pushing up the cost of servicing index-linked gilts.

The figures indicate the constraints on Chancellor of the Exchequer Rishi Sunak, who pushed government borrowing to a peacetime record to protect workers out of a job during the pandemic. While the overall deficit is coming in lower than the Office for Budget Responsibility estimated in March, rising debt costs threaten to absorb any windfall.

“The spike in debt interest payments won’t derail the deficit reduction, but risks remain,” says Michal Stelmach, senior economist at KPMG U.K. “We are not out of the woods yet with the recent surge in Covid-19 cases putting some parts of the economy at risk of further restrictions later in the year and the uncertainty around the impact of phasing out the furlough scheme on unemployment.”

Pandemic Debts

Borrowing is still financing almost 1 in every 4 pounds of public spending.

The retail price index surged to 3.9% in June from a year ago in June, up from as little as 0.5% in the summer of last year when the economy was starting to open up from the first coronavirus lockdown. While the Bank of England targets the consumer price index, which has showed a slightly less acute increase, government debt along with student loans and rail fares track the RPI.

A quarter of the government’s debt, about 448 billion pounds, is linked to inflation indexes, the Debt Management Office says. The OBR estimates that if inflation hits 5%, interest costs would increase by up to 9 billion pounds because of index-linked gilts.

OBR Chair Richard Hughes said the Treasury should reconsider the portion gilts it sells that are index-linked, noting that inflation remains a risk to the public finances.

“You need to go in there with your eyes open and understand what risks are developing,” Hughes said at a hearing of lawmakers on the Treasury Committee in Parliament on Wednesday “In particular if you see rising inflation in the context of stagnant growth that’s potentially a big risk.”

Inflation is “no longer a very effective way to reduce the debt-to-GDP ratio,” the OBR said in a report earlier this month outlining risks to the public finances. It noted the U.K. has a “relatively high” proportion of index-linked debt as well as shorter maturities that are a “by-product” of the BOE’s bond-buying program to stimulate the economy.

The overall deficit came in lower than officials forecast in the first three months of the fiscal year as an unexpectedly strong economic rebound absorbed workers who were receiving benefits.

“I’m proud of the unprecedented package of support we put in place to protect jobs and help thousands of businesses survive the pandemic, and that we are continuing to support those who need it,” Sunak said in a statement. “It’s also right that we ensure debt remains under control in the medium term, and that’s why I made some tough choices at the last budget to put the public finances on a sustainable path.”

The strength of the economic rebound from the deepest slump in 300 years has taken most forecasters by surprise. BOE Deputy Governor Dave Ramsden predicting the economy could even return to its pre-Covid size as early as the current quarter. For the public finances, the pickup is translating into more tax revenue from newly employed workers and less spending on pandemic support such as furlough payments.

The deficit totaled 69.5 billion pounds between April and June. That’s well below the 92.7 billion pounds forecast by the OBR at the time of the budget in March. Tax revenue surged by 18% in June from year ago, while spending climbed 3.1%.

Wall Street ended sharply higher on Tuesday, rebounding from a multiday losing streak as a string of upbeat earnings reports and revived economic optimism fuelled a risk-on rally.

The Dow Jones Industrial Average rose 549.95 points, or 1.62 percent, to close at 34,511.99; the S&P 500 gained 64.57 points, or 1.52 percent, to 4,323.06; and the Nasdaq Composite Index added 223.89 points, or 1.57 percent, to 14,498.88.

The S&P notched its first advance in four days as well as registering its strongest day since March. The Nasdaq posted its first gain in six sessions.

“It’s a buy-the-dip mentality coming into the market,” said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana.

Economically sensitive small caps and transports outperformed the broader market.

Benchmark US Treasury yields bounced back from five-month lows, in the wake of their biggest single-session decline since February in the prior session. This helped boost rate-vulnerable banks by 2.6 percent.

“The economically sensitive stocks are up today,” Carlson added. “When the 10-year [Treasury yield] goes down in a short period of time, that typically doesn’t happen with an economy that’s supposed to be growing. Firming in the 10-year [yield] indicates that perhaps the economy isn’t going to be falling off a cliff.”

Mounting concerns over the highly contagious Delta variant of COVID-19, now responsible for the majority of new coronavirus infections, have sparked selloffs in recent sessions as worldwide coronavirus vaccination efforts gather momentum.

“Things like the Delta variant can certainly impact in the margins,” Carlson said. “It doesn’t take a whole lot of fear in some investors to create what we saw yesterday.”

Of the 11 major sectors in the S&P 500, all but consumer staples closed green. Industrials fared best, rising 2.7 percent.

Second-quarter reporting season has hit full stride, with 56 of the companies in the S&P 500 having posted results. Of those, 91 percent have beaten the consensus, according to Refinitiv.

Analysts now see annual S&P earnings growth of 72.9 percent for the April-June period, a significant improvement over the 54 percent growth seen at the beginning of the quarter.

Halliburton Co rose 3.7 percent after a bounce-back in crude prices boosted oilfield services demand, leading the company to post its second consecutive quarterly profit.

Peloton Interactive Inc advanced 6.7 percent after announcing it would provide UnitedHealth Group’s fully insured members free access to its live and on-demand fitness classes.

Moderna’s stock dropped 2 percent in a volatile session on Tuesday, with the COVID-19 vaccine maker the most heavily traded company on Wall Street ahead of its debut in the S&P 500 on Wednesday.

Netflix Inc shares dipped more than 3 percent in after-hours trading after its forecast missed estimates.

Shares of Chipotle Mexican Grill gained over 2 percent post-market after its earnings and revenue beat the consensus.

Advancing issues outnumbered declining ones on the New York Stock Exchange by a 4.44-to-1 ratio; on Nasdaq, a 3.59-to-1 ratio favoured advancers.

The S&P 500 posted 41 new 52-week highs and no new lows; the Nasdaq Composite Index recorded 45 new highs and 76 new lows.