WORLDWIDE: HEADLINES
Frontier To Buy Spirit Airlines In $2.9 Bln Budget Carrier Deal
Budget carriers Frontier Group Holdings and Spirit Airlines Inc (SAVE.N) on Monday unveiled plans to create the fifth-largest U.S. airline in a $2.9 billion tie-up likely to tighten competition against traditional carriers.
The proposal to form a new no-frills carrier controlled by Frontier Airlines pushed up shares of Spirit as much as 18.7%, though several analysts pressed the airlines over possible difficulties in obtaining regulatory approval.
“In a competitive industry like ours, the lowest costs always win,” Frontier Chief Executive Barry Biffle told analysts. “These low costs will, in turn, enable us to keep our fares low for customers.”
The move comes at a time when the U.S. airline industry is grappling with volatility in travel demand due to new COVID-19 variants. At the same time, costs are soaring on a combination of rises in wages, fuel prices and airport charges.
Spirit’s wage expense as a percentage of revenue shot up by more than 10 points last year versus 2019. Higher fees prompted Frontier to exit airports such as Los Angeles and San Jose in California, and stop serving Washington-Dulles and Newark.
The merger, which is expected to close in the second half of 2022, is projected to result in synergies of $500 million a year, mainly through operational savings.
Full coverage: REUTERS
Pressure On Bank Indonesia To Raise Rates, But Will Not Until Q3’22
Indonesia’s central bank will raise rates faster than thought just a month ago as concerns mount about a weaker rupiah as the Federal Reserve gears up to increase its own interest rate next month amid soaring U.S. inflation, a Reuters poll showed.
But unlike many major economies, Indonesian inflation has largely remained benign, only inching up to 2.18% in January after spending most of the previous two years below Bank Indonesia’s (BI) target range of 2%-4%.
All 26 economists polled Feb. 2-7 expected BI to hold its benchmark seven-day reverse repurchase rate (IDCBRR=ECI) at a record low of 3.50% at the conclusion of its policy meeting on Thursday.
Over one third of respondents, 8 of 20, expected a hike as soon as next quarter but medians in the latest poll predicted 50 basis points of tightening in July-September, compared to 25 basis point increases in the third and fourth quarter in a January poll.
“If inflation is picking up and the external pressure is stronger from previous expectations, they (BI) need to adjust their rates as well by 50 basis points in the third quarter,” said Irman Faiz, an economist at Bank Danamon.
Although the median forecast was for no move in the final quarter, economists’ predictions were on a knife edge.
Full coverage: REUTERS
WORLDWIDE: FINANCE/BUSINESS
Asian Stocks, Euro Hold Steady Ahead Of U.S. Inflation Data
Asian equities consolidated recent gains as investors’ sentiment improved amid strong results by U.S. companies, helping stocks recover from the worst start to the year since 2016, while a resurgent euro paused ahead of U.S inflation data.
Markets are still alert for rate increases in both the euro zone and the United States after the European Central Bank last week was considered to have adopted a more hawkish tone.
Euro zone yields rose sharply on Monday with Italian bond prices underperforming their peers. The United States has reported stronger-than-expected jobs and earnings data.
MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) edged up 0.05% to 614.6 after rising to 617.7, the highest since January 25. The benchmark is now up about 3% from a more than one-year low of 595.99 struck on Jan 27.
“Much of investors’ concern is focused on the five Fed increases that markets are pricing in for 2022, and if they won’t be sufficient to contain inflation,” Seema Shah, chief strategist at Principal Global Investors, said in a note.
“Yet, the Fed’s urgency to tighten should soon ease as the most acute economic price pressures start fading. Furthermore, while U.S. growth has likely peaked, a recession isn’t in the cards,” she said.
Japan’s Nikkei (.N225) rose 0.4%, Korean stocks (.KSII) went up 0.7% and Taiwan (.TWII) gained 0.6%. Hong Kong stocks figured among the losers, with the Hang Seng index (.HSI) falling 0.7%.
S&P 500 futures were steady and Nasdaq futures edged up 0.06%.
The MSCI World index (.MIWD00000PUS) fell 6.2% in January – the worst start to the year since 2016.
Full coverage: REUTERS
Euro Bounce Pauses Ahead Of U.S. Inflation
A resurgent euro was hunkered just short of strong resistance levels on Tuesday as traders awaited U.S. inflation data due later in the week, wary it could trigger gains in the dollar.
The common currency leapt 2.7% last week after a hawkish shift in tone at the European Central Bank. It has held gains but has been unable to beat resistance around $1.1483 even as European bond yields have leapt and last bought $1.1441.
Stunningly strong U.S. labour data last week has put extra focus on inflation – forecast at a four-decade high 7.3% – in the lead up to March’s Federal Reserve meeting.
Futures markets are pricing an almost 1-in-3 chance of a 50 basis point rate rise and the prospect of aggressive hikes has been supporting the dollar.
“The surprise beat by the non-farm payroll numbers (which we were warned by Fed officials and the White House would be very weak due to Omicron) leaves the Fed in an unexpected territory,” said NatWest Markets rates strategist Jan Nevruzi.
“The CPI will be critical on how the narrative develops until the March (meeting),” he said, though adding that barring a big surprise, March will probably bring only a 25 basis points hike.
The dollar crept 0.1% higher on the yen in early Asia trade to 115.22 and the U.S. dollar index hovered at 95.425.
Full coverage: REUTERS
Oil Slips From 7-year Highs Ahead Of More U.S.-Iran Talks
Oil prices eased on Tuesday morning ahead of the resumption of indirect talks between the United States and Iran which may revive a nuclear deal that could lead to the removal of sanctions on Iranian oil sales, increasing global supplies.
Brent crude was last down 36 cents, or 0.4%, at $92.33 a barrel by 0147 GMT, after hitting a seven-year high of $94 on Monday. U.S. West Texas Intermediate crude eased 26 cents, or 0.3%, to $91.06 a barrel.
Both oil contracts have touched recent seven-year tops, supported by strong global demand, ongoing tensions in Eastern Europe and potential supply disruptions due to cold U.S. weather conditions.
The talks on reviving the 2015 Iran nuclear deal, which are taking place in Vienna, will resume on Tuesday after a 10-day pause. The United States has restored some sanctions waivers, while Iran is demanding a full removal of sanctions and a U.S. guarantee of no further punitive steps.
“Crude oil futures eased lower as the spectre of Iranian oil hitting the market weighed on sentiment,” ANZ Research analysts said in a note on Tuesday, noting that negotiators had cited “progress” in reaching a deal that would “ultimately restore the nation’s sanctioned oil” to global markets.
“Nevertheless, more bullish signals continue to emerge for oil,” they added, pointing to Saudi Arabia raising its oil prices and the unexpected shutdown of a U.S. refinery.
Saudi Aramco said on Saturday it had raised prices for all crude grades it sells to Asia in March from February, in line with market expectations, reflecting firm demand in Asia and stronger margins for gasoil and jet fuel.
Full coverage: REUTERS
