By Noele Illien, Oliver Hirt and John O’Donnell

ZURICH (Reuters) – Credit Suisse plans to raise 4 billion Swiss francs ($4 billion) from investors, cut thousands of jobs and shift its focus from investment banking towards rich clients as the bank attempts to put years of scandals behind it, sending its shares sliding.

Chairman Axel Lehmann dubbed the plan a “blueprint for success”, but it fell flat with investors after the bank’s unexpected 4 billion Swiss franc third-quarter loss.

Its stock price, which has hit record lows in the past few weeks, fell as much as 18.6% by the close of trading, valuing the bank at around 10 billion francs.

The cost of insuring the bank’s debt against default, as measured by credit default swaps, rose during the day to 254 basis points versus 232 in the early morning, although lower than Wednesday’s close, according to S&P Global Market Intelligence.

Analysts said many questions were unanswered.

“You come away with the feeling that they were rushed into issuing (the news) this morning with a deeply incomplete plan,” Goldman Sachs analysts wrote, but one whose “improbably low” targets will be beaten.

“Resolute execution and no further missteps will be key and it will take time until results will begin to show,” Vontobel analyst Andreas Venditti said.

Credit Suisse said clients pulled funds in recent weeks at a pace that saw the lender breach some regulatory requirements for liquidity, highlighting the impact of wild market swings and a social media storm.

The group said it was stable throughout.

The turnaround plan has many elements, from cutting jobs to refocusing on banking for the wealthy.

It will cut 2,700 jobs, or 5% of its workforce by the end of this year, and ultimately reduce its workforce by roughly 9,000 to about 43,000 by the end of 2025.

The Swiss bank also aims to separate out its investment bank to create CS First Boston, focused on advisory work such as mergers and acquisitions and arranging deals on capital markets.

The bank envisions selling a stake but keeping roughly 50% in the new business, said one person familiar with the issue. It is also exploring the possibility of an initial public offering.

SAUDI INFLUENCE

Saudi National Bank (SNB), majority-owned by the government of Saudi Arabia, said it will invest up to 1.5 billion francs in Credit Suisse to take a stake of up to 9.9% and may invest in the investment bank.

The move bolsters Saudi influence in one of Switzerland’s best-known banks. Olayan Group, one of the biggest Saudi family-owned conglomerates, with a multibillion dollar investment portfolio, also owns a 5% stake in the bank.

The Qatar Investment Authority – which owns about 5% of the Swiss bank – declined to comment on whether it plans to buy any shares.

Proxy adviser Ethos Foundation said it was disappointed it took Credit Suisse so long to follow a path that rival UBS had taken to increase focus on wealth management, while pruning back investment banking.

It criticised the bank for letting SNB get a big stake at a bargain-basement price, adding: “This plan is dramatic for the current shareholders who will suffer a very significant dilution effect.”

However, investment management firm Harris Associates, which has a 10% stake, said it welcomed the “aggressive” approach the Swiss bank was taking to improve its performance.

Credit Suisse said it will create a capital release unit to wind down non-strategic, higher-risk businesses, while announcing plans to sell a large part of its securitised products business to an investor group led by Apollo.

The bank will also wind down some trading businesses in emerging markets and equities.

Its heavy third-quarter loss was due in large part to write-offs linked to its investment banking overhaul, including adjustments for lost tax credits.

JPMorgan analysts said that “question marks remain” over the restructuring of investment banking, adding that the share sale would also weigh on the stock.

The revamp, aiming to overcome the bank’s worst crisis in its history, is the third attempt in recent years by successive CEOs to turn the group around. (Graphic: Credit Suisse goes off piste Credit Suisse goes off piste, https://graphics.reuters.com/CREDITSUISSEGP-REVAMP/lbpggrokepq/chart.png)

Once a symbol for Swiss reliability, the bank’s reputation has been tarnished by scandals, including an unprecedented prosecution at home involving laundering money for a criminal gang.

The bank had been pushing to sell assets to raise money and free up capital to try to limit how much cash it would have to raise from investors to fund its overhaul, handle its legacy litigation costs and retain a cushion for rough markets ahead.

Credit Suisse’s string of costly and morale-sapping blunders triggered a wholesale change of management.

Last year, the bank took a $5.5 billion loss from the unravelling of U.S. investment firm Archegos and had to freeze $10 billion worth of supply chain finance funds linked to insolvent British financier Greensill, highlighting risk-management failings.

Its deepening problems even put it on the radar of day traders earlier this month, when a frenzy of wild speculation about its health sent its stock price into a tailspin to a record low.

($1 = 0.9858 Swiss francs)

(Additional reporting by Michael Shields in Zurich and Yousef Saba in Dubai; Writing by John O’Donnell; Editing by Edmund Klamann, Jane Merriman and Deepa Babington)

By Foo Yun Chee

BRUSSELS (Reuters) – EU antitrust regulators are looking to establish a 40-man team and hire a technology expert to enforce tough new rules aimed at reining in the powers of Big Tech, an EU official said on Thursday.

The rules known as the Digital Markets Act (DMA) sets out a list of do’s and don’ts for Alphabet unit Google, Meta, Amazon, Apple, Microsoft and other gatekeepers which control access to their sites and the data there.

Reuters exclusively reported in July that the European Commission was considering creating a new directorate to allay concerns that it may struggle to get deep-pocketed and well-advised tech companies to comply with the new rules.

A 12-man unit headed by antitrust veteran Thomas Kramler who is currently handling the Apple and Amazon antitrust investigations and a 9-person strong taskforce will move to the new directorate, the official said.

The EU competition enforcer aims to hire 19 more people for the directorate and a chief technology officer to focus on data, the official said.

The new unit will need the green light from the college of commissioners from the 27 EU countries in the coming weeks before it can be set up.

Enforcement of the DMA will be done jointly with the Directorate-General for Communications Networks, Content and Technology which has also set up a new unit for the task.

The Commission has previously said some 80 enforcers would be needed.

(Reporting by Foo Yun Chee; editing by Grant McCool)

(Reuters) -Swedish Match AB on Thursday recommended its shareholders accept Marlboro maker Philip Morris International Inc’s raised $16 billion buyout bid for the tobacco company.

Some Swedish Match shareholders have opposed Philip Morris’ latest bid that was raised by more than 9% to 116 Swedish crowns ($10.59) per share, saying the total value of the new offer was little changed from the original bid due to the appreciation in the U.S. currency against the Swedish krona.

Under Swedish law, 90% of Swedish Match shareholders need to approve the offer before Nov. 4. Philip Morris said it was sticking to this acceptance rate.

The company in May made its first all-cash offer of 106 crowns per share for Stockholm-based Swedish Match, which controls about half the world’s market for snus, a Scandinavian moist oral tobacco product, and is also the global industry leader for nicotine pouches.

Philip Morris has been under pressure since to increase the offer as hedge funds, including Elliott Management Corp, have bolstered their stakes in Swedish Match in anticipation of a sweetened bid.

Philip Morris is aiming to expand its presence in the fast-growing market for cigarette alternatives and boost the sale of smoke-free products to more than half of its revenue by 2025.

($1 = 10.9580 Swedish crowns)

(Reporting by Eva Mathews in Bengaluru; Editing by Shinjini Ganguli)

AMSTERDAM (Reuters) -Universal Music Group NV (UMG), the largest record label, on Thursday reported better than expected third-quarter core earnings due to a legal settlement, though streaming revenue growth slowed.

The company said top sellers in the quarter included Korean pop band BTS, BLACKPINK, Ado, INI and Morgan Wallen.

Adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) were 539 million euros ($538 million), compared with 426 million euros in the third quarter of 2021.

Analysts had forecast EBITDA at 524 million euros, according to Refinitiv data.

Revenue rose 13.3% to 2.66 billion euros, with streaming and subscription revenue up 7.7%. The revenue figure included a 71 million euro benefit due to the settlement of a copyright infringement lawsuit, which also influenced EBITDA.

“Although still healthy, the slower revenue growth relative to the first half of this year was largely timing-related,” Chief Financial Officer Boyd Muir said on a post-earnings call.

He noted the third quarter of 2021 had “included new releases from Billy Eilish and from Drake, as well as a significant Olivia Rodrigo carryover.”

Ad-supported streaming revenues had slowed “consistent with worldwide advertising trends, which continue to impact this part of our business, “he said.

UMG, which competes against Warner Music Group and Sony, was spun out of France’s Vivendi in 2021.

Shares closed down about 1% at 20.78 euros in Amsterdam, after surging more than 10% earlier this week on news Apple had raised prices for its Apple Music streaming service.

Universal, whose artists include Taylor Swift and Justin Bieber, receives a cut of royalties when their music is streamed on Apple Music or other streaming platforms like Spotify.

($1 = 1.0020 euros)

(Reporting by Toby Sterling; editing by David Evans, Bernadette Baum and Jonathan Oatis)

By Jamie Freed and Brenda Goh

(Reuters) -China Southern Airlines Co Ltd has scheduled domestic flights with the 737 MAX on Oct. 30, a booking search on its website shows, marking a possible return to service for the Boeing Co model in China after more than three years. The flights from its hub in Guangzhou to Zhengzhou and Wuhan, if completed, would be the first 737 MAX passenger flights since the country’s aviation regulator grounded the model in March 2019 after fatal crashes in Indonesia and Ethiopia. Chinese airlines had 97 of the planes before the grounding, according to Cirium data in 2019.

China Southern did not immediately respond to a request for comment.

A Boeing spokesperson declined to comment on China Southern’s plans but said the manufacturer continued to work with regulators and customers to safely return the 737 MAX to service worldwide.

On Wednesday, Boeing said it had another 138 planes manufactured for Chinese carriers that were in the United States waiting to be delivered, though it had begun remarketing the jets to other carriers given there were no concrete signs that Chinese airlines would accept the planes in the near term. China is the only major market in the world where airlines have not returned the 737 MAX to passenger flying. “It is really hard for me to find signals that things are going to change in China and move in our direction,” Boeing Chief Executive David Calhoun told analysts on an earnings call. His comments came despite China Southern flying at least two of its 737 MAX jets on test flights over the past week, according to data from flight tracking website FlightRadar24, in a move that would be expected ahead of a return to commercial service. Earlier this month, a 737 MAX flight by MIAT Mongolian Airlines landed in Guangzhou, marking the first commercial flight by the model in China since 2019.

(Reporting by Jamie Freed in Sydney and Brenda Goh in Shanghai; Editing by Jason Neely and Jacqueline Wong)

By Rajesh Kumar Singh and Kannaki Deka

(Reuters) – Southwest Airlines Co on Thursday forecast “strong” earnings in the current quarter after third-quarter profit topped Wall Street estimates, as demand for travel shows no signs of easing despite mounting economic worries.

The Dallas-based carrier said travel demand has strengthened in the current quarter on the back of stronger leisure and business travel bookings. It anticipates a further strengthening next year.

As a result, it estimates a 13% to 17% jump in operating revenue in the fourth quarter versus the same period of 2019 even as capacity is projected to be down about 2%.

“While there’s noise regarding whether we are headed into a recession or not or whether we may even be in one now, we have not seen any noticeable impact on our booking and revenue trends,” Chief Executive Officer Bob Jordan said on an earnings call.

The company’s shares were up 2.8% at $35.34 in afternoon trade.

Southwest is the latest U.S. airline to play down demand concerns.

The airline industry, which is facing higher fuel and wage bills, has been relying on strong consumer demand to mitigate inflationary pressure with higher fares. Investors are worried that a recession could hit travel spending, hurting the industry’s profits.

Carriers, however, say an unquenched thirst for travel, hybrid work arrangements and limited airline capacity due to aircraft and pilot shortages would keep their business humming.

AIRCRAFT DELIVERIES

Southwest expects aircraft delivery delays to persist into 2024. It is contractually scheduled to receive deliveries of 114 737 MAX jets from Boeing this year, but a portion of them is expected to be delayed as the U.S. planemaker continues to face supply chain challenges and regulatory hurdles in the certification of the 737 Max 7.

Southwest, Boeing’s biggest 737 customer, said it expects no 737 Max 7 deliveries this year and has converted 17 orders for next year to the 737 Max 8.

Boeing faces a late December deadline for the Federal Aviation Administration (FAA) to certify the MAX 7 under existing rules.

Southwest said while Boeing is “very confident” of securing certification or an extension for MAX 7, its network and business plan for next year assumes no deliveries of the aircraft.

The airline expects to fully restore its network to pre-pandemic levels by December 2023. But fleet utilization is expected to be limited by pilot staffing constraints for the majority of next year, fueling cost pressures.

Southwest said it is “on track” to hire 1,200 pilots this year and 2,100 pilots next year.

It said reinstating its dividend is a “high” priority for the company. It also plans to resume share repurchases “at the right time.”

Third-quarter adjusted net income was 50 cents per share versus analysts’ expectations of 42 cents per share.

(Reporting by Rajesh Kumar Singh in Chicago and Kannaki Deka in Bengaluru; Additional reporting by Raechel Thankam Job; Editing by Shailesh Kuber, Kirsten Donovan and Jonathan Oatis)

DUBAI (Reuters) -Iran’s Supreme Leader vowed on Thursday to retaliate against those threatening the country’s security after the massacre of Shi’ite pilgrims, an assault claimed by Islamic State which threatens to inflame tensions amid widespread anti-government protests.

Ayatollah Ali Khamenei said the assailants “will surely be punished” and called on Iranians to unite. “We all have a duty to deal with the enemy and its traitorous or ignorant agents,” he said in a statement read on state television a day after the attack killed 15 people.

Khamenei’s call for unity appeared to be directed mostly at government loyalists and not protesters whose nearly six-week-old movement is seen by authorities as a threat to national security.

Iran’s clerical rulers have faced nationwide demonstrations since the death in police custody of Mahsa Amini, a 22-year-old Kurdish woman, on Sept. 16.

Iranians have called for the death of Khamenei and an end to the Islamic Republic during the protests, which have become one of the boldest challenges to the clerical leadership since the 1979 revolution, drawing many Iranians on to the streets.

Officials said they had arrested a gunman who carried out the attack at the Shah Cheragh shrine in the city of Shiraz. State media blamed “takfiri terrorists” – a label that predominantly Shi’ite Iran uses for hardline Sunni Muslim militants such as Islamic State.

A senior official said the suspected attacker was in critical condition after being shot by police.

“We have not been able to interrogate him yet,” said deputy provincial governor Easmail Mohebipour, quoted by the semi-official Tasnim news agency.

CCTV footage broadcast on state TV on Thursday showed the attacker entering the shrine after hiding an assault rifle in a bag and shooting as worshippers tried to flee and hide in corridors.

Islamic State, which once posed a security threat across the Middle East, has claimed previous violence in Iran, including deadly twin attacks in 2017 that targeted parliament and the tomb of the Islamic Republic’s founder, Ayatollah Ruhollah Khomeini.

Since the peak of its power, when it ruled millions of people in the Middle East and struck fear across the world with deadly bombings and shootings, Islamic State has slipped back into the shadows.

Iran often accuses the West and its regional rivals Israel and Saudi Arabia of fomenting attacks. Saudi Arabia denies this and Israel usually declines to comment on its moves against the Islamic Republic.

Wednesday’s killing of Shi’ite pilgrims came on the same day that Iranian security forces clashed with increasingly strident protesters marking 40 days since Amini’s death.

Iranian leaders may have hoped that the shrine attack would draw attention away from the unrest but there is no sign that is happening.

The official news agency IRNA said protesters angry over the “suspect” death of a demonstrator broke windows of banks, a tax office and other public buildings in the northwestern city of Mahabad.

The Kurdish human rights group Hengaw said security forces killed at least five people during protests on Thursday in the northwest of the country, where many Kurds live. Three were killed in the city of Mahabad and another two in Baneh, it said.

State television confirmed the death of three people in Mahabad, saying they died after protesters attempted to occupy government and security centres. It showed footage of a burning building that was surrounded by demonstrators.

Separately, state media said two Basij militiamen were killed in an attack in the northern city of Amol, which has been a hotbed of protests. Tasnim news agency said a member of the elite Revolutionary Guards had been killed in Tehran province by “rioters” using a hand grenade.

Iranian human rights groups said there were unconfirmed reports that some members of Amini’s family were under house arrest. Reuters could not verify these reports. Reuters tried to reach Amini’s father and brother.

The authorities, who have accused the United States and other Western countries of fomenting what they call “riots”, have yet to declare a death toll, but state media have said about 30 members of the security forces have been killed.

The activist news agency HRANA said in a posting that at least 252 protesters had been killed in the unrest, including 36 minors. It said more than 13,800 people had been arrested in protests in 122 cities and towns and some 109 universities.

(Reporting by Dubai newsroom; Writing by Michael Georgy and Dominic Evans; Editing by Clarence Fernandez, Nick Macfie, Jonathan Oatis and Daniel Wallis)

By John McCrank

NEW YORK (Reuters) – The euro dropped more than 1% on Thursday, falling back below parity with the dollar, after the European Central Bank (ECB) raised interest rates and U.S. data showed that the world’s biggest economy rebounded more than expected in the third quarter.

The ECB raised its deposit rate by 75 basis points to 1.5%, the highest since 2009, in an effort to prevent rapid price growth from becoming entrenched. Further rate hikes are almost certain, but with a weakening economy, the pace is up for debate.

While risks to the euro zone’s growth outlook had shifted to the downside, the central bank has made substantial progress in removing monetary accommodation through three consecutive rate increases, ECB President Christine Lagarde said at a news conference.

“Overall, Lagarde seems to have indicated a pivot without explicitly saying as much,” foreign exchange strategists at TD Securities said.

The euro fell from a one-month high of $1.0094 versus the dollar earlier in the day to back below parity with the greenback after the ECB rate decision. The single currency was down 1.1% at 0.9969 at 3:20 p.m. EDT (1920 GMT).

The greenback strengthened after data showed that U.S. gross domestic product rose at a 2.6% annualized rate last quarter, ending two straight quarterly decreases in output that had raised concerns the economy was in recession.

Economists polled by Reuters had forecast GDP growth would rebound at a 2.4% rate.

The stronger-than-expected GDP figures followed a raft of weaker-than-forecast economic data in recent weeks that had raised concerns about the impact of the Federal Reserve’s aggressive interest rate increases on the economy.

“Despite the shiny headline number, a look under the hood shows a much grimmer picture of the U.S. economy, one that is clearly losing steam,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto.

“With the full effect of past and future Fed rate hikes still to be felt, the economy appears poised for a modest downturn in the first half of next year,” he said.

The Fed is expected to raise its benchmark overnight interest rate by 75 basis points to 1.5%, a 13-year high, at its Nov. 1-2 policy meeting It is also likely to reel in a key subsidy to commercial banks.

Speculation that the Fed will pivot from its hawkish stance starting at its December policy meeting had caused the greenback to decline in recent days and Thursday’s bounceback was natural, analysts said.

“A bit of profit-taking at this level is not unheard of,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets. “Since Monday, the euro-dollar has gone up around 2.2%, so we’ve had quite a big move in the dollar over the last two days.”

The British pound was down 0.58% against the greenback to $1.1559 following a two-day rally on the back of Rishi Sunak’s appointment as the United Kingdom’s prime minister.

Japan’s yen rose 0.14% to 146.19 to the dollar.

Trading in the Japanese currency has been volatile after suspected interventions by the government to boost the ailing currency on Friday and Monday.

On Wednesday, the Bank of Canada announced a smaller-than-expected interest rate hike of 50 basis points. The move has made investors even more alert to signs that the Fed and ECB might be slowing their tightening down.

The Canadian dollar last traded 0.03% lower at 1.3557 per U.S. dollar.

(Reporting by John McCrank; Editing by Paul Simao)

By David Lawder

CLEVELAND (Reuters) – U.S. Treasury Secretary Janet Yellen on Thursday said new GDP data shows strength in the U.S. economy but also some evidence of a healthy slowdown that could have a positive impact on fighting high inflation.

Speaking to reporters on a trip to Cleveland to tout the Biden administration’s economic policies, Yellen said she still does not anticipate a recession, but the U.S. government has fiscal capacity to respond to economic weakness if appropriate.

The U.S. economy grew 2.6% in the third quarter, rebounding after contractions earlier this year, but the Commerce Department data overstated the nation’s economic health as domestic demand was the weakest in two years because of the Federal Reserve’s aggressive interest rate hikes.

“This is certainly a full employment economy with a hot labor market, which is good, but we want to see growth slow,” Yellen said. “It’s part of getting inflation under control.”

“I’ve said many times I see a path to bringing inflation down while maintaining a strong labor market. And I think this data is consistent with what we would want to see,” Yellen added.

Yellen said that she expects the economy to slow further, and the government has fiscal space to respond if necessary, but cautioned that this should not work against monetary policy.

“We need to be careful not to use fiscal policy to exacerbate an inflationary problem,” Yellen said. “But if there were — which I don’t expect — but if there were a deep recession, that was something that called for a response, I think we continue to have enough fiscal space to do so.”

Yellen said the Treasury was continuing to study diminished liquidity in the U.S. Treasury debt market, saying this was a function of broader market volatility, but added: “We don’t see problems.”

She said Treasury was studying a set of longer-term reforms to boost liquidity and that easing the Federal Reserve’s supplementary liquidity ratio requirement for banks was one potential strategy, “but it’s for the banking regulators to decide.”

She noted that Treasuries are now attracting a lot of foreign buyers because of their attractive yields.

(Reporting by David Lawder; Editing by Chris Reese, Andrea Ricci and Daniel Wallis)

By James Oliphant

WASHINGTON (Reuters) – Less than two weeks before the U.S. midterm elections, with Democrats on verge of losing their razor-thin majority in Congress, the party is asking former President Barack Obama to perform some late-game heroics – or at least help limit their losses.

Obama, who left office in 2017 after serving two terms, travels to Georgia on Friday, and then moves on to Wisconsin, Nevada and Pennsylvania, all key battlegrounds in the Nov. 8 election.

All four states are home to competitive Senate races where Republican candidates appear to be gaining momentum. Republicans need to pick up just one additional Senate seat to secure control of that chamber, with Georgia and Nevada looming as prime targets.

Republicans are also expected to win enough seats to take over the U.S. House of Representatives. Holding both chambers will enable them to stonewall President Joe Biden’s agenda, block his nominees, including federal judges and launch investigations of his administration.

With Biden’s approval among voters hovering at 39% according to the latest Reuters/Ipsos poll, it is the former president, who is assuming the role as the party’s closer in the final days. Biden served as Obama’s vice-president for his two terms.

“He’s probably a better ambassador for swing-state Democrats than Biden is, since he’s more popular – especially in the competitive states – and less tied to the current issues on voters’ minds,” said Jacob Rubashkin, an election analyst with Inside Elections in Washington. “He’s also a more natural campaigner.”

Obama will hit a fifth state, Michigan, which has a competitive governor’s race, along the way.

Dogged by the public’s concerns over inflation and the economy, Biden has been nearly invisible on the campaign trail. His predecessors, Republican Donald Trump and Obama, both had held more than a dozen large rallies at this point in their second year in office.

But those presidents saw significant losses in Congress regardless, underscoring the political headwinds that Biden faces now. Obama suffered what he later called a “shellacking” when Republicans captured 63 House seats in the 2010 midterms, altering the trajectory of his presidency.

Biden isn’t staying off the trail entirely. He plans to campaign in Florida next week on behalf of Democratic gubernatorial candidate Charlie Crist — who faces Republican governor Ron DeSantis, a possible 2024 White House contender — and then will join Obama for events in Pennsylvania on Nov. 5.

MOTIVATIONAL SPEAKER

Obama’s top objective on his swing is likely to be to mobilize the existing Democratic coalition – Black voters, college-educated suburbanites, Latinos and young voters – to turn out to vote, which historically has been a challenge in midterm elections when a presidential race is not on the ballot.

“President Obama remains able to unite base Democrats, persuadable voters, and to motivate demographics less likely to turn out in midterm elections like young people,” said Ben LaBolt, who served as spokesman for the first Black president’s successful 2012 re-election campaign.

Voter turnout has hit records in the past two federal elections and has remained high this year, with more than 12 million early votes already cast, according to the U.S. Elections Project.

Obama earlier this week posted a video on social media encouraging young Americans to vote, highlighting issues such as abortion rights and gun control.

In Georgia, a robust African-American vote helped power Democratic Senator Raphael Warnock to an upset win two years ago, and will be needed again if Warnock is to defeat Republican challenger Herschel Walker, said Andra Gillespie, a political science professor at Emory University in Atlanta.

“African-American voters are going to be crucial to Democrats’ chances,” Gillespie said. “Bringing in President Obama helps to underscore the importance of African-American vote, while also exciting other voters.”

But Democrats will have to wonder if that will be enough, as recent polling has shown Republican candidates gaining strength across the board.

The Senate race is Georgia is essentially tied, even as Walker has been hamstrung by a series of controversies. The race in Nevada between Senator Catherine Cortez Masto and challenger Adam Laxalt also appears to be deadlocked.

In Pennsylvania, Democrat John Fetterman has watched his lead over challenger Mehmet Oz slowly evaporate. And in Wisconsin, Republican Senator Ron Johnson appears to have the upper hand over challenger Mandela Barnes.

Still, there remains time for Obama to make an impact, Rubashkin said. “The cake,” he said, “is never completely baked.”

(Reporting by James Oliphant; Editing by Scott Malone and Aurora Ellis)

By Matt Tracy and Shankar Ramakrishnan

WASHINGTON (Reuters) – A sell-off in the U.S junk bond market is presenting investors with a buying opportunity but some are holding back, worried that a looming recession could spark widespread credit defaults.

Spreads on junk-rated bonds have widened some 184 basis points this year while yields – which move inversely to prices – have spiked to over 9%, according to the ICE BofA US High-Yield index. That level is the highest for yields since April 2020, while the index is down some 13% this year.

Yet some market participants believe one of the most painful periods in memory for credit could get worse, especially if the Federal Reserve’s monetary tightening leads to a prolonged recession and widespread credit defaults.

“Valuations are more attractive relative to earlier this year but spreads in the high-yield market are still not pricing in a deep recession,” said Michael Chang, a senior high-yield portfolio manager at Vanguard.

“If that were to occur, there could be significant weakness. We are less cautious, but we are not overly bullish,” he said.

Indeed, there are few signs that the weakness in high-yield is nearing an end, as expectations that the Federal Reserve will continue ratcheting up rates in its battle against inflation pressure riskier investments.

The Credit Stress Indicator (CSI), developed by BofA Global, on Oct. 14 breached the 75th percentile (to 76.5) for the first time since mid-April 2020. That level is a critical zone of credit stress where credit markets become vulnerable to dysfunction, said Oleg Melentyev, credit strategist at the bank.

The CSI is “flashing bright orange to borderline red,” Melentyev said.

DEARTH OF OFFERINGS

At the same time, risk aversion has slowed new bond issuance in the primary high-yield market to a trickle.

Only 23 new bond offerings priced in the third quarter for a total of $18.91 billion, compared with $107.7 billion raised by 154 deals in the same period a year earlier, according to data from Informa Global Markets. Just five new high-yield deals have priced in October so far, for a total of $3.715 billion.

So far, the dearth of offerings has not caused widespread concern, as companies that borrowed heavily from 2020 to 2021 have not yet faced pressure to raise liquidity in the current environment.

That could change in 2023, however, if a recession further dampens activity in primary markets and borrowing costs remain high, spurring potential defaults in the lowest rungs of junk-rated bonds.

Ratings firm Moody’s Investors Service expects trailing 12-month default rates among speculative-grade issuers to climb nearly threefold to 4.4% in August 2023 from 1.5% in August 2022. This number could hit 13% in a worst-case scenario accompanied by high unemployment and wide spreads.

“Our primary message is we are in a transition where a company’s underlying fundamentals would start driving the next leg of credit-spread widening,” said Meghan Robson, head of U.S. credit strategy at BNP Paribas.

To be sure, some investors still see opportunities in high yield to put their money to work, focusing on the higher-rated areas of the junk bond market like double B-rated issuers, which make up almost 30% of the market and are deemed to be less risky than their single B and triple C counterparts.

“With rates where they are, you can get very good relative value credit at yields approaching 8% at a discount,” said Michael Schlembach, portfolio manager at Marathon Asset Management.

In the current environment, “underlying fundamentals and ratings of a borrower matter much more,” he said.

(Reporting by Matt Tracy in Washington and Shankar Ramakrishnan in New York; Additional reporting by Ira Iosebashvili in New York; Editing by Matthew Lewis)

OTTAWA/WASHINGTON (Reuters) – Canada will seek membership to the Indo-Pacific Economic Framework to further economic cooperation in the region, Foreign Minister Melanie Joly said on Thursday following a meeting with U.S. Secretary of State Antony Blinken in Ottawa.

Joly said at a news conference that Canada and the United States also agreed to hold the first Canada-U.S. Strategic Dialogue on the Indo-Pacific to further align approaches to the region.

“The United States and Canada are indeed Pacific nations,” Joly said.

“We both believe in deepening our diplomatic and economic ties as well as strengthening the resiliency of our global supply chain.”

U.S. President Joe Biden, who launched the IPEF in May on a trip to Tokyo, wants to use it as a way to raise environmental, labor and other standards across Asia.

In addition to the United States, the IPEF members are Australia, Brunei, Fiji, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, Philippines, Singapore, Thailand and Vietnam.

The countries in September agreed on parameters for negotiating closer trade, environmental and economic ties that U.S. Commerce Secretary Gina Raimondo said would boost investment and jobs in the partner countries.

(Reporting by Daphne Psaledakis, Ismail Shakil, Simon Lewis and David Brunnstrom; Editing by Chris Reese and Jonathan Oatis)