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Global stocks dip, bond yields rise as Fed zest fades

Photo courtesy of Reuters/Brendan McDermid

NEW YORK (Reuters) – Stock markets around the world fell and bond yields rose as investors weighed the implications that a U.S. interest rate rise before the end of the year would have for the global economy and markets.

The Federal Reserve, which kept its rates on hold as expected on Wednesday, took the unusual step of strengthening its language about timing in its statement, making it clear that a December rate hike was still possible. The Fed also removed a previous warning about slowing global growth.

Wall Street was lower, giving up some of Wednesday’s gains. The U.S. stock market initially reacted negatively to the Fed statement, but later reversed course to end near the day’s highs on Wednesday.

The MSCI All-Country World Index <.MIWD00000PUS> has recovered most of the losses that occurred beginning in mid-August on worries about slowed worldwide demand and the Fed’s plans. It was last down 0.6 percent on Thursday.

U.S. Treasury yields continued Wednesday’s rise after the Fed explicitly referred in its statement at the end of its two-day policy meeting to conditions necessary “to raise the target range at its next meeting”. Reference to a particular meeting is rare for the Fed.

The benchmark 10-year Treasury yield rose 7 basis points to 2.16 percent <US10YT=RR>. The two-year note’s yield was 0.73 percent, highest since late September.

The Dow Jones industrial average <.DJI> fell 32.98 points, or 0.19 percent, to 17,746.54, the S&P 500 <.SPX> lost 1.42 points, or 0.07 percent, to 2,088.93 and the Nasdaq Composite <.IXIC> dropped 12.32 points, or 0.24 percent, to 5,083.38.

The first estimate of third quarter U.S. growth, released on Thursday, showed the world’s biggest economy expanded at a 1.5 percent annualized pace, below the expected 1.6 percent. But economists expect growth to pick up in the fourth quarter, given strong consumer spending figures.

In Europe the pan-European FTSEurofirst 300 index <.FTEU3> was down 0.2 percent at 1,481 points. Earlier in Asia, Japan’s Nikkei share average <.N225> gained 0.2 percent to close at 18,935.71.

Many investors are still not convinced about a rate lift-off given a recent run of soft U.S. data, making economic releases in coming weeks more crucial in determining a December move.

Economists expect a key U.S. manufacturing index due Monday <USPMI=ECI> to show the first contraction in the sector in 2-1/2 years, which would not be conducive for a rate hike.

The Fed’s stance contrasts to the European Central Bank and other major central banks, a factor that is expected to underpin the dollar. The Fed and ECB hold policy decisions within two weeks of each other in December.

The ECB last week signaled its readiness to inject more stimulus to boost prices and the People’s Bank of China followed with its sixth interest rate cut in less than a year.

The dollar gave back its earlier gains, with the euro trading 0.4 percent higher on the day at $1.0966 <EUR=>, having skidded to a 2-1/2 month low of $1.0826 overnight.

Crude oil futures were slightly higher one day after soaring more than 6 percent as the U.S. government reported an inventory build.

U.S. crude <CLc1> rose 0.4 percent to $46.11 a barrel. Brent <LCOc1> was steady at $49.05. Spot gold <XAU=> fell 2 percent to $1,150 an ounce.

(By David Gaffen; Additional reporting by Anirban Nag; Editing by Gareth Jones and Nick Zieminski)

U.S. concerned by Russian operations near undersea cables: NY Times

WASHINGTON (Reuters) – The presence of Russian submarines and spy ships near undersea cables carrying most global Internet communications has U.S. officials concerned that Russia could be planning to sever the lines in periods of conflict, the New York Times reported on Sunday.

The Times said there was no evidence of cable cutting but that the concerns reflected increased wariness among U.S. and allied officials over growing Russian military activity around the world.

The newspaper quoted naval commanders and intelligence officials as saying they were monitoring significantly greater Russian activity along the cables’ known routes from the North Sea to Northeast Asia and waters closer to the United States.

“It would be a concern to hear any country was tampering with communication cables; however, due to the classified nature of submarine operations, we do not discuss specifics,”

U.S. Navy spokesman Commander William Marks told the Times.

Last month, the United States closely monitored the Russian spy ship Yantar, which equipped with two self-propelled deep-sea submersible craft, cruised off the U.S. East Coast toward Cuba, where one cable lands near the U.S. naval base at Guantanamo Bay, according to the Times.

Naval officials said the ship and the submersible craft were capable of cutting cables miles (km) deep beneath the sea, the Times said.

While cables are frequently cut by ship anchors or natural disasters and then quickly repaired, Pentagon officials are concerned that the Russians seem to be looking for vulnerabilities at much greater depths where cable breaks are harder to locate and repair, the paper said.

It said the cables carried more than $10 trillion daily in global business and more than 95 percent of daily communications.

(Reporting by Peter Cooney; Editing by Eric Walsh)

Iran’s Khamenei conditionally approves nuclear deal with powers

ANKARA (Reuters) – Supreme Leader Ayatollah Ali Khamenei on Wednesday approved the Iranian government’s nuclear deal with world powers but said Tehran should not give up core elements of its atomic program until allegations of past military dimensions had been settled.

In a letter to President Hassan Rouhani, whose pragmatist approach opened the door to nuclear diplomacy with the West, Khamenei ordered the July 14 agreement to be implemented, subject to certain security conditions the Iranian parliament stipulated in a law passed last week.

Under the Vienna agreement, Iran is to curb sensitive parts of its nuclear program to help ensure it cannot be diverted into developing bombs, in exchange for a removal of sanctions that have isolated the Islamic Republic and hobbled its economy.

Khamenei’s green light was the last procedural hurdle to carrying out a deal that ended a decade-long stand-off which raised fears of a wider Middle East war.

But the Supreme Leader has ruled out any detente with the West beyond the nuclear deal, and he said Iran would stop implementing it if the six powers – the United States, Britain, France, Germany China and Russia – imposed any new sanctions.

“Any comments suggesting the sanctions structure will remain in place or (new) sanctions will be imposed, at any level and under any pretext, would be (considered by Iran) a violation of the deal,” Khamenei said in the letter published on his website.

He said implementation of the deal should be “tightly controlled and monitored” because of some “ambiguities” in it.

“Lack of tight control could bring significant damage for the present and the future of the country,” he said, while praising the efforts of Rouhani’s negotiating team.

POSSIBLE MILITARY ASPECTS

The United States and the European Union took formal legal steps on Sunday that will rescind sanctions once Iran meets certain conditions such as reducing the number of centrifuges used to enrich uranium, and its enriched-uranium stockpile.

Another condition will be a resolution of a U.N. nuclear watchdog inquiry into whether Iran conducted atom bomb research at a military complex in the past – “possible military dimensions (PMD)” to the program, as the agency terms it.

On that point, Khamenei said that until U.N. inspectors settled the PMD issue, Iran should delay sending its stockpile of enriched uranium abroad and reconfiguring a heavy water reactor to ensure it cannot make bomb-grade plutonium.

The International Atomic Energy Agency finished collecting samples from Iran’s Parchin military complex earlier this month and is expected to announce its conclusions on PMD by Dec. 15.

Iran has long denied covertly researching bombs and says its nuclear program has always been for civilian energy purposes.

“Any action regarding Arak (reactor) and dispatching uranium abroad … will take place after the PMD (possible military dimensions) file is closed,” Khamenei said in the letter.

Iran agreed with the powers to fill the Arak reactor’s core with concrete so that it could not yield plutonium, which along with highly enriched uranium constitutes the standard fuel for nuclear bombs.

Iran is also required to export more than 90 percent of its refined uranium stocks, keeping just 300 kg of the material enriched to 3.67 percent fissile purity – suitable for running civilian nuclear power plants – for 15 years.

Since the deal was struck, Khamenei, who holds together Iran’s multi-tiered, faction-ridden power structure, has ruled out normalizing relations with the United States, overriding Rouhani’s expressed wish to pursue further areas of cooperation.

In comments meant to reassure hardline acolytes particularly in the security services, Khamenei said U.S. President Barack Obama had sent him two letters pledging America had no intention of toppling the Islamic Republic’s clerical establishment.

“But this was soon proved a lie … Neither on the nuclear issue nor in any other cases has America taken any position except hostility and trouble (towards Iran). Therefore any change in the future is unlikely,” Khamenei’s statement read.

(Writing by Parisa Hafezi and Sam Wilkin; Editing by William Maclean and Mark Heinrich)

Typhoon Koppu weakens rapidly after killing 58 in Philippines

Photo courtesy of REUTERS/Erik De Castro

CASIGURAN, Philippines (Reuters) – A typhoon that dumped heavy rains on the northern Philippines, killing 58 people as it flattened houses and destroyed crops, was petering out on Wednesday, weather officials said.

Typhoon Koppu weakened from a tropical depression into a low pressure area, but authorities maintained a warning to ferries and fishermen on three northern islands not to go to sea.

Raging floodwaters and landslides triggered by the typhoon in the main Philippine island of Luzon caused most of the deaths, Romina Marasigan, a spokeswoman for the national disaster agency, told reporters.

More than 100,000 people are still in temporary shelters as Koppu destroyed more than 6.57 billion pesos ($141.63 million) worth of crops, infrastructure and homes.

“We were terrified and prayed as we stayed under a table for hours after strong winds blew away the roof and walls of our house,” said one survivor, Andres Subang, 72, wiping away tears as he told of how his family made it through the disaster.

“I have experienced countless typhoons in my lifetime, but this was the worst. It left nothing, we have no food and no more livelihood.”

Farm officials said flooding destroyed 5 percent of expected fourth-quarter production in rice-producing provinces.

The coast guard said seven people died when a boat sank in the central Philippines.

Authorities in the coastal town of Casiguran, where Koppu made landfall at the weekend as a category 4 typhoon, deployed heavy equipment to clear roads of uprooted trees, toppled electric posts and debris.

“When we went around the town, we saw the typhoon’s destructive impact, there were so many houses destroyed,” municipal official Nida Coralde told Reuters, adding that distribution of relief supplies had begun.

Strong winds reduced people’s homes to matchwood, leaving them with nothing, said one survivor, as residents began work to repair homes.

The typhoon grounded military planes and helicopters on Tuesday, forcing the government to send in food, water and other relief materials by road. Some areas were still flooded, without power and communication links.

The Philippines is hit by 20 typhoons every year, on average.

(Writing by Roli Ng & Manuel Mogato; Editing by Clarence Fernandez)

Putin uses Assad visit to talk up Kremlin role as Syrian broker

Photo courtesy of REUTERS/Alexei Druzhinin/RIA Novosti/Kremlin

MOSCOW (Reuters) – Syrian President Bashar al-Assad flew to Moscow on Tuesday evening to thank Russia’s Vladimir Putin personally for his military support, in a surprise visit that underlined how Russia has become a major player in the Middle East.

It was Assad’s first foreign visit since the start of the Syrian crisis in 2011, and came three weeks after Russia launched a campaign of air strikes against Islamist militants in Syria that has also bolstered Assad’s forces.

The Kremlin, which said it had invited Assad to visit Moscow, kept the visit quiet until Wednesday morning, broadcasting a meeting between the two men in the Kremlin and releasing a transcript of an exchange they had.

Putin said he hoped progress on the military front would be followed by moves towards a political solution in Syria, bolstering Western hopes Moscow will use its increased influence on Damascus to cajole Assad into talking to his opponents.

Assad’s confidence is likely to be boosted by the visit, which comes as his forces wage counteroffensives in western Syria against insurgents backed by Assad’s foreign opponent, as well as Islamic State militants.

“First of all I wanted to express my huge gratitude to the whole leadership of the Russian Federation for the help they are giving Syria,” Assad told Putin.

“If it was not for your actions and your decisions the terrorism which is spreading in the region would have swallowed up a much greater area and spread over an even greater territory.”

Russian officials have repeatedly said they have no special loyalty for the Syrian leader, but his audience with Putin will be seen in the West as yet another sign the Kremlin wants Assad to be part of any political solution, at least initially.

The visit also suggests that Russia, and not longtime ally Iran, has now emerged as Assad’s most important foreign friend.

Russian state TV made the meeting its top news item, showing Assad, dressed in a dark blue suit, talking to Putin, together with the Russian foreign and defense ministers.

The Kommersant daily cited unnamed sources saying meetings between the two delegations had lasted over three hours. The Syrian presidency Twitter account said Assad and Putin held three rounds of talks – one of them a closed meeting and the other two including Russia’s foreign and defense ministers.

The Kremlin has cast its intervention in Syria, its biggest in the Middle East since the 1991 Soviet collapse, as a common sense move designed to roll back international terrorism in the face of what it says is ineffective action from Washington.

It is likely to use Assad’s visit to buttress its domestic narrative that its air campaign is just and effective and to underline its assertion that its actions show it has shaken off the Ukraine crisis to become a serious global player.

Russia has a combined force of around 50 jets and helicopters in Latakia protected by Russian marines. It also has military trainers and advisers working with the Syrian army.

Russia’s air force says it has flown over 700 sorties against more than 690 targets in Syria since Sept. 30.

Assad, who looked relaxed, emphasized how Russia was acting according to international law, praising Moscow’s political approach to the Syrian crisis which he said had ensured it had not played out according to “a more tragic scenario.”

Ultimately, he said, the resolution to the crisis was a political one.

“Terrorism is a real obstacle to a political solution,” said Assad. “And of course the whole (Syrian) people want to take part in deciding the fate of their state, and not just the leadership.”

POLITICAL SOLUTION?

Putin said Russia was ready to help find a political solution and hailed the Syrian people for standing up to the militants “almost on their own”, saying the Syrian army had notched up serious battlefield success in recent times.

Sergei Shoigu, his defense minister, said Russia’s air support had helped the Syrian army move from defense to attack, saying Moscow would continue to provide military support.

Putin said Russia had felt compelled to act in Syria because of the threat Islamist militants fighting Assad’s forces there posed to its own security.

“Unfortunately on Syrian territory there are about 4,000 people from the former Soviet Union – at a minimum – fighting government forces with weapons in their hands,” said Putin.

“We, it goes without saying, can not allow them to turn up on Russian territory after they have received battlefield experience and undergone ideological instruction.”

Positive developments on the military front in Syria would provide a basis for a long-term political solution, involving all political forces, ethnic and religious groups, said Putin.

“We are ready to make our contribution not only in the course of military actions in the fight against terrorism, but during the political process,” he said, according to the transcript released by the Kremlin.

“This will, of course, be in close contact with other world powers and with countries of the region which are interested in a peaceful resolution of the conflict,” Putin said.

Interfax news agency said Putin briefed Turkish President Tayyip Erdogan by phone about the talks. Turkey, which supports rebels trying to overthrow Assad, said the Syrian leader should have stayed in Moscow for the sake of his country.

When asked whether Assad’s own political future had been discussed, Putin’s spokesman declined to comment.

How Assad got to and back from Moscow remains a mystery.

Syria’s ambassador to Russia, Riad Haddad, told Reuters Assad had traveled in a Syrian plane and had safely returned home after the meeting. But publicly available flight tracking data suggested Assad’s hosts may have laid on transport for him.

It showed an IL-76MD Russian military cargo plane flew from Syria to Moscow’s Chkalovsky military airfield on Tuesday, and that an IL-62M plane from Russia’s presidential fleet flew to Latakia, a government controlled Syrian province, that same evening.

(By Andrew Osborn; Additional reporting by Maria Tsvetkova, Ekaterina Golubkova and Jack Stubbs; Editing by Christian Lowe and Dominic Evans)