By Herbert Lash

NEW YORK (Reuters) -Global stocks slipped on Wednesday, a day before the release of key U.S. inflation data, while the dollar eased after data showed the Chinese economy slipped into deflation last month.

Wall Street traded lower on investor caution a day before the Consumer Price Index report for June. Some analysts believe data could show inflation bumped higher, despite mostly dovish comments from Federal Reserve officials this week.

CPI is forecast to show headline inflation picking up slightly in July to an annual 3.3%, while the core rate is seen unchanged at 4.8%, according to a Reuters poll of economists.

A broad sell-off on Tuesday was sparked by Moody’s ratings cut to 10 small and mid-sized U.S. banks which cast a pall over the market facing high equity valuations and rising interest rates after Fitch’s surprise downgrade of U.S. government debt.

“We’ve had such a run over the last few months. We had a lack of any market consolidation, so we’re getting that now,” said James Ragan, director of wealth management research at D.A. Davidson in Seattle.

“We’re still rotation away from the big technology-centric sector,” he said.

The top contributor to Wall Street’s decline was Nvidia, followed closely by the other “Magnificent Seven” megacap stocks that drove this year’s stock rally.

MSCI’s gauge of stocks across the globe closed down 0.30%, while on Wall Street, the Dow Jones Industrial Average fell 0.54%, the S&P 500 lost 0.70% and the Nasdaq Composite dropped 1.17%.

In Europe, the pan-regional STOXX 600 index closed up 0.43% after Italy said a new tax on banking profit would not exceed 0.1% of a bank’s assets, reassuring investors who had expected a charge of as much as 0.5%. However, questions remain about a global trend of taxing bank windfalls.

“The burden-sharing of the costs and benefits from higher rates has a habit of becoming a political issue,” Deutsche Bank strategist Jim Reid said.

European bank stocks rose 1.01% and Italy’s FTSE MIB share index gained 1.31%.

Data from China on Wednesday showed producer prices in the world’s major manufacturing hub fell for a 10th consecutive month in July. China’s consumer price index also tipped into deflation for the first time since February 2021. The data followed disappointing trade figures out of China a day earlier.

China’s post-pandemic recovery has slowed as demand at home and abroad weakened, leading to fears the country is entering an era of slow growth akin to the period of Japan’s “lost decades,” when consumer prices and wages stagnated for a generation.

Alleged dollar selling by state-owned Chinese banks helped the yuan rally from a one-month low, dealers said. The Chinese central bank’s stronger-than-expected exchange-rate fixing before the open signaled its discomfort with the yuan’s recent declines.

The dollar fell 0.15% against the yuan to 7.2260, and the dollar index, a measure of its performance against six others, slid 0.04% to 102.46, reversing Tuesday’s rise.

Treasury yields dipped in choppy trade before the U.S. Treasury Department sold $38 billion in 10-year notes to yield 3.999%, a test of demand for government debt after yields rose sharply last week.

The yield on the benchmark note later fell 0.6 basis points to 4.018%, and on two-year notes, which typically reflect interest rate expectations, rose 5 basis points to 4.808%.

Oil hit new peaks with the global Brent benchmark hitting its highest since January after a steep drawdown in U.S. fuel stockpiles and tighter supply owing to Saudi and Russian output cuts offset concerns about slow demand from China.

U.S. crude futures rose $1.48 to $84.40 a barrel, while Brent settled up $1.38 at $87.55, its highest since Jan. 27.

Gold prices slipped as investors stayed on the sidelines ahead of U.S. inflation data.

U.S. gold futures settled 0.5% lower at $1,950.60 per ounce.

(Reporting by Herbert Lash in New YorkAdditional reporting by Naomi Rovnick in London, Stella Qiu in Sydney and Ellen Zhang in BeijingEditing by Jonathan Oatis and Matthew Lewis)

By Tim Hepher

PARIS (Reuters) – Shortages of Pratt & Whitney engines for Airbus A220 passenger jets have eased but it will take around 18 months before disruption is lifted altogether, the head of the airplane’s second-largest operator, airBaltic, told Reuters.

A recall of Geared Turbofan engines for larger Airbus A320s for inspections and possible repairs, which roiled the aircraft industry last month, does not affect the Canadian-designed A220 which was the first aircraft to use the fuel-saving powerplants.

A220 operators have still had to grapple with some durability issues, compounded by a shortage of spare engines and maintenance bottlenecks that have collectively reduced the supply of working engines and left dozens of planes grounded.

“Things have changed if we look at the engine. For us, it is getting better,” Chief Executive Martin Gauss said in an interview.

With more than 40 airplanes in its fleet, airBaltic is the second-largest operator of A220s after Delta Air Lines.

On average 11 of its A220s were out of action during the first-half, slowing an improvement in first-half earnings caused by buoyant air travel demand.

The extra downtime reflects some durability problems as engines come in for maintenance sooner than expected, though these are not as severe as those seen on the larger A320 in hot and dusty climates.

But the trend of so-called Unexpected Engine Removals is “going down significantly” after a recent modification involving a change of oil pipe, Gauss said ahead of the mid-year results.

“We now see this trend line changing. Assuming that it stays like this, I would say that at the end of 2024 we should have net zero missing engines.”

The Latvian airline has been forced to wet-lease replacement aircraft, meaning it hires jets complete with their crew and insurance, to help maintain its schedules.

Gauss said the number of grounded planes would fall in coming months as more engines become available, then rise again in the winter. He said the engines were delivering on promised fuel savings when they were fitted and cleared to fly.

“From the current forecast. I don’t see us going back to zero (missing engines) before the end of next year,” he said.

airBaltic said it had bounced back to a net profit of 14.6 million euros in the first half from a loss of 91.0 million a year earlier, as revenues grew 52% to a record 291.3 million.

The shortage of spare engines “significantly impacted our performance” in the second quarter, it said in a statement.

Reflecting a rebound in air traffic following the pandemic, the airline said July marked the first time since 2019 that it had carried more than 500,000 passengers in a single month.

Gauss said in June airBaltic is in talks with Airbus to buy 30 more A220s as it prepares for a possible IPO next year.

(Reporting by Tim Hepher; Editing by David Gregorio)

(Reuters) – Democrat Congresswoman Maxine Waters said on Wednesday she was “deeply concerned” about payment giant PayPal launching its own stablecoin in the absence of a federal framework to regulate digital assets.

Earlier this week, PayPal became the first major financial technology firm to embrace digital currencies for payments and transfers with the launch of a U.S. dollar stablecoin, dubbed PayPal USD.

“Given PayPal’s size and reach, Federal oversight and enforcement of its stablecoin operations is essential in order to guarantee consumer protections and alleviate financial stability concerns,” Waters said in a statement.

PayPal did not immediately respond to a Reuters request for comment on the matter.

While stablecoins – crypto tokens whose monetary value is pegged to a stable asset – have been around for years now, they are yet to successfully make headway into the mainstream consumer payments ecosystem.

Similar attempts by other well-known non-crypto companies, including Meta Platforms, to launch a stablecoin have met fierce opposition from financial regulators and policymakers around the world.

Last month, the U.S. House Financial Services Committee also advanced a bill to establish a federal regulatory framework for stablecoins, which will focus on rules for the registration and approval process for stablecoin issuers.

(Reporting by Manya Saini in Bengaluru; Editing by Shinjini Ganguli)

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) – The U.S. dollar drifted lower on Wednesday in thin rangebound trading, with investors looking ahead to Thursday’s U.S. consumer prices report for indications on where the Federal Reserve’s monetary policy is headed.

The greenback posted steeper losses earlier in the session, particularly after data showing the Chinese economy slipped into deflation last month. That raised the chances of China launching additional stimulus measures and nudged investors into risk assets.

Reported dollar selling by state-owned Chinese banks also helped the yuan rally from a one-month low, dealers said. The Chinese central bank’s stronger-than-expected exchange-rate fixing at 7.1588 per dollar before the open signaled its discomfort with the yuan’s recent declines.

The greenback was last down 0.1% against the offshore yuan at 7.227.

Investors are now focused on Thursday’s U.S. inflation data, which looms large in a market hungry for clues on the path for Fed policy. Wall Streets economists expect the year-on-year core consumer price index (CPI) to have risen 4.8% in July, unchanged from the previous month.

“We’re still pretty convinced about inflation in the U.S. continuing to ease, led by a disinflation in shelter prices – which is 35% of the headline CPI index,” wrote Macquarie analysts led by FX & rates strategist Thierry Wizman.

“We expect that CPI may come in on the low side of expectations (4.7% year-over-year) and do so because of disinflation in primary and owner-equivalent rents.”

The dollar index, which measures the performance of the U.S. currency against six others, slipped 0.1% to 102.46, partly reversing Tuesday’s rise.

The euro rose 0.2% to $1.0976, while sterling slid 0.2% to $1.2721.

European markets gained after equities tumbled the day before as the Italian government announced a surprise 40% windfall tax on banks.

Italy’s finance ministry subsequently clarified that the one-off measure, which targets gains from banks’ higher interest rates, would not amount to more than 0.1% of their total assets.

In China, the country’s consumer prices fell for the first time in more than two years in July. Rather than lifting safe-haven appetite for the dollar, the figures reinforced the view that the Chinese government might take steps to underpin the economy with monetary stimulus.

There were also more dovish signals from Fed officials overnight, with Philadelphia Fed President Patrick Harker suggesting interest rates are high enough already, echoing the view of Atlanta Fed President Raphael Bostic.

The message has been far from uniform though, with Fed Governor Michelle Bowman saying on Monday further hikes are likely.

Against the yen, the dollar rose 0.2% to 143.70 yen.

“With the 10-year yield spread between the U.S. and Japan still holding at roughly 3.4% … and the prospect of any official BOJ (Bank of Japan ) rate hike seemingly pushed back, dollar/yen has resumed its year-to-date rally and may soon hit fresh 2023 highs, especially if (Thursday’s) U.S. CPI report comes in hotter than expected,” said Matthew Weller, global head of research at FOREX.com and City Index.

========================================================

Currency bid prices at 3:05PM (1905 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 102.4500 102.5200 -0.06% -1.005% +102.5800 +102.2900

Euro/Dollar $1.0978 $1.0956 +0.17% +2.42% +$1.0995 +$1.0955

Dollar/Yen 143.6500 143.3750 +0.21% +9.58% +143.7350 +143.0000

Euro/Yen 157.71 157.07 +0.41% +12.41% +157.8900 +156.9200

Dollar/Swiss 0.8772 0.8758 +0.17% -5.13% +0.8783 +0.8733

Sterling/Dollar $1.2726 $1.2749 -0.17% +5.24% +$1.2782 +$1.2713

Dollar/Canadian 1.3415 1.3416 +0.01% -0.97% +1.3454 +1.3405

Aussie/Dollar $0.6539 $0.6545 -0.10% -4.09% +$0.6571 +$0.6521

Euro/Swiss 0.9630 0.9593 +0.39% -2.68% +0.9632 +0.9586

Euro/Sterling 0.8625 0.8593 +0.37% -2.48% +0.8634 +0.8590

NZ $0.6063 $0.6064 -0.03% -4.53% +$0.6094 +$0.6046

Dollar/Dollar

Dollar/Norway 10.2020 10.2640 -0.53% +4.04% +10.2790 +10.1900

Euro/Norway 11.2017 11.2411 -0.35% +6.75% +11.2690 +11.1850

Dollar/Sweden 10.6804 10.7055 -0.05% +2.62% +10.7441 +10.6430

Euro/Sweden 11.7244 11.7298 -0.05% +5.16% +11.7590 +11.6841

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Amanda Cooper in London, Kevin Buckland in Tokyo, and Brigid Riley; Editing by Marguerita Choy and Kirsten Donovan)

By Arathy Somasekhar

HOUSTON (Reuters) -Oil prices hit new peaks on Wednesday with the global Brent benchmark touching its highest since January after a steep drawdown in U.S. fuel stockpiles and Saudi and Russian output cuts offset concerns about slow demand from China.

Brent crude settled $1.38, or 1.6%, higher at $87.55 a barrel, its highest since Jan. 27.

West Texas Intermediate crude (WTI) closed $1.48, or 1.8%, higher at $84.40, at its highest since November 2022.

U.S. gasoline stocks fell by 2.7 million barrels last week, while distillate inventories, which include diesel and heating oil, dropped by 1.7 million barrels, government data showed, compared with analysts’ expectations in a Reuters poll for both to hold mostly steady. [EIA/S]

“The draws in refined products continue to be bullish for the oil market,” said Andrew Lipow, president at Lipow Oil Associates in Houston.

    Markets largely shrugged off a higher-than-expected 5.85 million-barrel build in U.S. crude stocks after a record drawdown the week before.

The U.S. fuel stock drawdown helped offset some demand concerns after Chinese data on Tuesday showed crude oil imports in July fell 18.8% from the previous month to their lowest daily rate since January.

China’s consumer sector also fell into deflation and factory-gate prices extended declines in July, as the world’s second-largest economy struggled to revive demand.

Supporting prices, however, were top exporter Saudi Arabia’s plans to extend its voluntary production cut of 1 million barrels per day for another month to include September. Russia also said it would cut oil exports by 300,000 bpd in September.

“The latest recovery is mainly driven by the pledge of major producers, like Saudi Arabia and Russia, to keep supply subdued for another month,” said Charalampos Pissouros, senior investment analyst at broker XM.

Crude posted its sixth consecutive weekly gain last week, helped by a reduction in OPEC+ supplies and hopes of stimulus boosting oil demand recovery in China.

On Tuesday, Saudi Arabia’s cabinet said it reaffirmed its support for precautionary measures by the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, to stabilise the market, state media reported.

Markets will also closely watch July’s U.S. Consumer Price Index (CPI), due on Thursday, which is expected to show a slight year-over-year acceleration.

(Additional reporting by Alex Lawler in London, Yuka Obayashi in Tokyo and Andrew Hayley in Beijing; Editing by Paul Simao, Kirsten Donovan and Cynthia Osterman)

By Nell Mackenzie

LONDON (Reuters) – Catastrophe bond funds rank among the 10 best performing credit funds this year, as the hurricanes, earthquakes and other disasters that could trigger payouts have either not happened or not been sufficiently severe.

The catastrophe, or cat bonds, represent money borrowed by insurance companies from capital markets.

If the insurance company needs that money because a specific event has taken place, investors might lose their initial outlay, but if the catastrophe covered by the bond does not take place, the bond retains its value.

Funds from Securis Investment Partners, Schroders, GAM, Franklin Templeton K2 Advisors and LGT Capital Partners have all returned over 8% so far this year, among the bond funds that research firm Kepler tracks. It did not provide a year-on-year comparison.

Kepler tracks Undertakings for Collective Investment in Transferable Securities (UCITS), which are regulated like mutual funds and serve investors that want quicker, more transparent access to their money.

“The fund’s performance year-to-date is mainly driven by the current attractive reinsurance rate environment following the last few loss-heavy years,” said LGT Capital Partners which oversaw one of the top performing funds.

It pointed to a lack of any “major insured events”, but added the fund held a diversified set of bonds with different categories of catastrophe and from different regions.

HURRICANE LOSSES AND HIGHER YIELDS

Last year, losses occurred from storms such as Florida’s category five hurricane. So this year, cat bonds were issued with higher yields, thereby rewarding investors for holding them.

Peak hurricane season starts around September and U.S. hurricanes are one of the most common events covered by cat bonds, according to Morningstar.

In a report last week, it also said the cat bond market is worth over $40 billion, compared with the more than $133 trillion global bond market.

As the planet has heated up and the number of climate events has risen, so have the insured losses from natural disasters.

In the first half of 2023, insured losses hit their second-highest since 2011, at over $50 billion and severe thunderstorms accounted for 70% of that total, Swiss Re said in a separate report on Wednesday.

But events covered by cat bonds may still not have taken place, or been severe enough to generate payouts.

Another reason for the bonds’ strong performance is that many cat bonds are secured by collateral held in cash and inflation has helped to boost their value.

GAM investment specialist Ralph Gasser said cat bonds were no riskier than similarly yielding bonds.

“They provide a much better compensation of risk per unit of risk, which is largely a reflection of the supply/demand characteristics of the cat bond market,” Gasser said in an email to Reuters.

He said cat bonds averaged a 0.9% yearly loss for the last 20 years, while global corporate high-yield bonds lost about an average of 2% yearly, in that time.

Raphael Rayees, portfolio manager at Securis Investments linked the performance of their fund to trying to capture the upside of risk while reducing fund volatility.

Catastrophe bonds this year and in general, have benefited from their lack of correlation to the broader financial markets, he said.

Schroders declined to comment and Franklin Templeton did not immediately respond to a request for comment.

(Reporting by Nell Mackenzie; Additional reporting Alessandro Parodi; Editing by Amanda Cooper and Barbara Lewis)

By Nevzat Devranoglu and Orhan Coskun

ANKARA (Reuters) – Turkey’s net foreign exchange reserves surged nearly $5 billion last week, with total reserves up almost $2 billion, bankers’ calculations showed on Wednesday, resuming an uptrend since it adopted a more orthodox monetary policy following May elections.

The rebuilding of the central bank’s currency buffer is seen as a gauge of authorities’ willingness to ease controls on the lira, which has tumbled 26% since President Tayyip Erdogan was re-elected but held firm in recent weeks.

The bank’s reserves slumped to minus $5.7 billion in early June, their lowest since data publication began in 2002, as authorities sought to counter forex demand and stabilise the lira over the election period.

They have since recovered strongly.

According to calculations by five bankers, obtained by Reuters, net reserves rose $4.9 billion to $15.8 billion last week, while total reserves climbed to $115.6 billion. The bank will announce official data at 2:30 p.m. (1130 GMT) on Thursday.

Under an unorthodox policy advocated by Erdogan, the central bank slashed its benchmark interest rate to 8.5% in February from 19% in 2021 despite high inflation, triggering a lira crisis.

But under new Governor Hafize Gaye Erkan, it has hiked the rate by 900 basis points in the last two months.

The recent uptrend in reserves reversed in the week to July 28, with net forex falling $2.8 billion to $10.89 billion.

Under measures introduced last year, the central bank boosted reserves by buying at least 40% of exporters’ forex income, amounting to around $100 billion annually. This was then sold by the bank to support the lira in a practice halted since the elections.

The central bank continues to get foreign exchange from tourism and a scheme to protect lira bank deposits from depreciation known as KKM.

“We are monitoring reserves to see that the exit from the state-controlled framework continues,” a senior banker said, adding the central bank is moving gradually and maintains a “decisive” regulatory role in forex markets.

The lira has held near 27.0 to the dollar in recent weeks, after a plunge.

A source close to the matter said there were no state interventions to maintain this level.

The central bank only intervenes “in cases of extreme volatility”, so reserves will continue to rise, the source said. It was leaning on KKM to help provide forex needed by exporters and banks.

Bankers said it would be important for the rise in reserves to continue in August, when some $45-50 billion in KKM redemptions are due.

The bank has paid an estimated 300 billion lira ($11 billion) to cover depreciation costs under the scheme in June and July, with the cost in August estimated at 350 billion lira.

The amount of money deposited in KKM accounts amounts to some $116.6 billion, or 3.1 trillion lira – around a quarter of total bank deposits.

($1 = 27.0260 liras)

(Reporting by Nevzat Devranoglu and Orhan Coskun; Writing by Daren Butler; Editing by Jonathan Spicer and John Stonestreet)