By Jihoon Lee

SEOUL (Reuters) - South Korea's factory activity contracted again in April, but manufacturers' optimism climbed to the highest level in nearly two years as output and orders managed to post marginal growth, a private-sector survey showed on Thursday.

The purchasing managers index (PMI) for manufacturers in Asia's fourth-largest economy, compiled by S&P Global, fell to 49.4 in April, from 49.8 in March, on a seasonally adjusted basis.

It was the second month that the index had dipped below the 50-mark, which separates expansion from contraction, and the lowest reading since August 2023.

"While output and new orders returned to fractional growth territory, the headline PMI was weighed down by falling employment and stocks of purchases," said Usamah Bhatti, economist at S&P Global Market Intelligence.

"Falling employment, backlogs and inventories suggest that the sector still has some way to go before growth can be sustained."

The South Korean economy grew at the fastest pace in more than two years in the first quarter, data showed last week, beating all estimates on the back of a pick-up in domestic consumption and robust exports.

In the manufacturing survey, sub-indexes for output and new orders rose in April to 50.1 and 50.3, respectively, after falling below 50 in March for the first time in three months.

New export orders grew for the fourth straight month in April on strong demand from mainland China and the wider Asia-Pacific region, but the pace was a bit slower than the prior month, the survey showed.

On a negative note, employment fell in April after 11 months of increases, while inflation in both input and output prices were the sharpest since November.

Even so, manufacturers' optimism for the year ahead logged the highest reading since May 2022, as firms hoped for a sustained recovery in domestic and export orders, aided by new product launches and lower interest rates.

By David Lawder and Michael S. Derby

NEW YORK (Reuters) -The looming U.S. presidential election will not influence the Federal Reserve's interest rate decisions, Fed Chair Jerome Powell said on Wednesday, adding that policymakers were "at peace" with keeping political considerations out of their decision-making process.

Powell, speaking in a news conference after the end of the U.S. central bank's latest policy meeting, said Fed policy decisions will be guided by "what we think the right thing for the economy is," repeating a long-held stance of ignoring politics in the central bank's economic analysis.

"If you go down the road, where do you stop? And so we're not on that road," Powell said. "We're on the road where we're serving all the American people, and making our decisions based on the data and how those data affect the outlook and the balance of risks.

The issue of the Fed's independence jumped back into the spotlight last week when the Wall Street Journal reported that allies of former President Donald Trump are drafting proposals that would attempt to erode the central bank's independence and give Trump more influence over the Fed if he wins the Nov. 5 election.

Trump, who nominated Powell to be Fed chief in late 2017, unleashed withering verbal attacks on the Fed for raising rates in 2018, calling its policymakers "boneheads" and "loco" and threatening to fire or demote Powell on multiple occasions. But the controversy was not mentioned in the Fed's 2018 meeting transcripts, which were released earlier this year.

Powell said that Fed meeting transcripts also show no evidence that officials have allowed the pending election to affect their policy choices.

When it comes to the election, "we're at peace over it, we know that we'll do what we think is the right thing, when we think it's the right thing" Powell told reporters.

U.S. Treasury Secretary Janet Yellen, who preceded Powell as Fed chief, also put in a plug for the central bank's independence on Wednesday, releasing excerpts of a speech she will deliver on Friday in the battleground state of Arizona in which she warns that the erosion of democratic institutions would hurt U.S. economic growth and prosperity.

"As Chair of the Federal Reserve, I insisted on the Fed’s independence and transparency because I believe it matters for financial stability and economic growth," Yellen will say, according to the excerpts. "Recent research has been consistent with my belief: It has shown that greater central bank independence is associated with greater price stability, which contributes significantly to long-term growth."

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) - Options on Secured Overnight Financing Rate (SOFR) futures are showing a higher probability that the Federal Reserve could hike interest rates a quarter percentage point this year and next as U.S. inflation and the labor market remain resilient.

Bond investors look to SOFR futures, among other indicators, to gauge expectations on Fed policy rates. Options, on the other hand, are widely used to hedge against expected moves, with "vol" or volatility a key input in the price.

SOFR, currently at 5.31%, measures the cost of borrowing cash overnight in money markets collateralized by U.S. Treasuries. It is the benchmark rate used to price dollar-denominated derivatives and loans.

Odds for a rise in SOFR are low, though not insignificant. Few market participants actually expect the Fed to hike again. It could well be that the Fed cuts rates just once this year or not at all, and hold them higher for longer.

Analysts said it would take a full-blown re-acceleration in inflation for the Fed to tighten again. That is not the baseline scenario for most economists.

Inflation remains stubborn despite slowing late last year after 15 months of aggressive rate hikes that the Fed halted in July. Data on Thursday showed that core U.S. personal consumption expenditures inflation rose 3.7% in the first quarter, after growing 2% in the fourth.

Friday's monthly report on PCE inflation for March showed 0.3% growth, the same as February, while over 12 months inflation rose 2.7%, worse than February's 2.5% and further from the Fed's 2% target.

"If you look purely at the data and you did not have the rhetoric coming from central banks, we would be pricing in hikes, not cuts," said Akshay Singal, head of short-term interest rate trading at Citi.

"And the fact that central bankers have been of the view that they've done enough is being challenged quite aggressively now."

The option-implied probability for SOFR to rise 25 basis points to 5.56% by December has risen to 29%, Barclays estimates showed, from about 26% in early April.

The prospect of a no-cut scenario for 2024 is 31%, up from 20% a month ago, BNP Paribas (OTC:BNPQY) data showed. Chances of the first 25-bp hike in 2025 are at 22%. Volume though is typically thin the further out the curve so that number can change.

Gennadiy Goldberg, head of U.S. rates strategy at TD Securities, said the increase in pricing reflects the uncertainty investors face in an environment of strong growth and persistent inflation.

"The longer we stay at higher rates and the economy stays strong and inflation sticky, the more investors will question whether the Fed is doing enough," he added.

MARKET BIASED TOWARD CUTS

Even so, SOFR futures have priced in about 30 basis points in easing for 2024.

"There's a very high threshold to price a shift in Fed policy," said Bruno Braizinha, rates strategist at BofA Securities. "U.S. data needs to improve by a lot for the market to abandon rate cuts and transition to pricing hikes."

The rise in implied volatility in interest rate swaps, a corner in the fixed income space investors use to hedge interest rate risk, has accompanied the increase in rate-hike odds with rising uncertainty over Fed outcomes.

Rate swaps measure the cost of exchanging fixed-rate cash flows for floating-rate ones, or vice versa.

Implied vol is a gauge of how much the option market believes rate swaps will move in either direction over a given time frame. The higher the vol, the greater the perceived instability over a given period.

Volatility on shorter-dated swaptions such as one-year at-the-money options on one-year swap rates, that part of the curve in which Fed policy is being priced, rose to a price of 28.62 bps on Thursday, the highest since April 17.

So-called receiver swaptions, a type of option that pays off when interest rates fall, are still in demand. In a receiver swaption, the holder of the option chooses to pay a fixed interest rate in exchange for receiving a floating rate.

But the price for those receivers have cheapened a bit on shorter maturities, suggesting that demand may be easing as rate cuts are factored out.

"The baseline case for now is no-landing," BofA's Braizinha said, referring to a scenario where the U.S. economy avoids recession. And that, he said, does not necessarily warrant a rate hike.

By Brigid Riley

TOKYO (Reuters) -The yen struggled to hold its line against the dollar on Tuesday after making sharp gains the previous day sparked by suspected intervention by Japanese authorities.

The currency inched down 0.30% to 156.79 per dollar but was well off its 34-year low of 160.245 hit on Monday when traders say yen-buying intervention by Tokyo drove a eye-catching rebound of nearly six yen. It briefly popped above 157 earlier in Tuesday's session.

Japanese authorities haven't confirmed that they had stepped into the currency market in support of the yen, but markets remain on heightened intervention alert ahead of the Federal Reserve's monetary policy review this week.

Official figures that would reveal whether intervention did in fact occur won't be available until late May.

While some market players had zeroed in on 160 yen per dollar as the possible trigger for intervention, analysts said Japanese authorities may not be targeting particular levels.

"Obviously, the still wide policy rate gulf between the Fed and BOJ could continue to keep USD/JPY buoyant. For that reason, we believe Japanese officials desire more flexibility in terms of what levels to intervene at," said Wei Liang Chang, a currency and credit strategist at DBS.

Despite the yen's biggest one-day gain this year on the dollar, the Japanese currency still sits lower than it was before the Bank of Japan's (BOJ) policy announcement last week. It has also suffered its largest monthly decline since January.

The BOJ's go-slow approach on interest rate increases, following its landmark decision to ditch negative rates in March, has traders betting that Japanese bond yields will remain low for an extended period. In contrast, U.S. rates are still relatively high and provide enough latitude for yen bears.

The Fed begins its two-day monetary policy meeting on Tuesday, where it's expected to hold rates at 5.25%-5.5%, with U.S. inflation proving to be sticky.

It's also expected to strike a hawkish message, meaning more yen selling is likely, said Carol Kong, a currency strategist at the Commonwealth Bank of Australia (OTC:CMWAY).

"The implication is the MOF will likely be forced to step in more than once to slow the rise in USD/JPY."

DIVERGENT ECONOMIC OUTLOOKS

While the timing of any possible rate hikes by the BOJ remains vague, traders continue to pare back bets of Fed rate cuts this year amid hotter-than-expected U.S. economic data and stubborn inflation numbers.

A rate cut in September was looking like a close call at just 44%, according to CME Group's (NASDAQ:CME) FedWatch tool.

The dollar rose to 0.14% to 105.83 against a basket of currencies ahead of the Fed's meeting, after slipping 0.25% in the previous session.

However, other major central banks such as the European Central Bank (ECB) and the Bank of England may begin to cut rates in the near future.

Markets could glean more clues on the timing of ECB's rate-easing cycle from European inflation data this week due later on Tuesday.

The euro fell 0.17% to $1.0701. Sterling was last trading at $1.2541, down 0.16% on the day.

Elsewhere, a soft retail sales number out of Australia sent the Aussie sliding, last down 0.53% at $0.653, as markets further trimmed the risk of another rate hike by September.

The kiwi fell 0.50% to $0.595.

In China, manufacturing and services activity both expanded at a slower pace in April, official surveys showed, suggesting some loss of momentum for the world's second-biggest economy at the start of the second quarter.

The offshore Chinese yuan slipped 0.14% to $7.2523 per dollar.

The yuan has lost 2% against the dollar so far this year and is on course for its fourth straight monthly onshore loss.

In cryptocurrencies, bitcoin last rose 1.07% to $63,618.00.

By Summer Zhen

HONG KONG (Reuters) -Six spot bitcoin and ether exchange traded funds (ETFs) gained in their Hong Kong debut on Tuesday, with the three bitcoin ETFs climbing more than 3% in early trade, reflecting Asian investor enthusiasm for cryptocurrencies.

The debuts mark the first launch of spot cryptocurrency ETFs in Asia and come just three months after the U.S. launched its first ETFs to track spot bitcoin.

Spot bitcoin ETFs launched by China AMC, Harvest and Bosera had gained roughly 2.5% as of 2:21 GMT. The three ether ETFs managed by the asset managers also rose.

Bitcoin climbed about 1%.

Cryptocurrency is banned in mainland China, but Hong Kong has been promoting itself as a global digital asset hub, part of a drive to maintain its allure as a financial center.

Christina Choi, an executive director of the Securities and Futures Commission (SFC), hailed the product debut as a milestone in Hong Kong's ETF market, but also flagged risks.

"Virtual assets are quite speculative and very volatile ... so I remind you that such assets are not suitable for all investors," Choi told Tuesday's launch event.

The ETF launch also put Hong Kong in direct competition with the United States for crypto investors.

The U.S. spot bitcoin ETFs have drawn roughly $12 billion in net inflows, contributing to a surge in bitcoin's price earlier this year. But U.S. regulators have not yet approved ETFs that track spot ether prices.

COMPETITION

Another difference is that Hong Kong's crypto ETFs adopt the so-called "in-kind" transaction mechanism that allows investors to buy and sell ETF shares using the relevant crypto tokens instead of cash.

TOKYO (Reuters) -Japan's top currency diplomat Masato Kanda said on Tuesday that authorities were ready to deal with foreign exchange matters "24 hours", while declining again to comment on whether the finance ministry had intervened to prop up the yen a day earlier.

"Whether it's London, New York or Wellington (hours), it doesn't make a difference," the vice finance minister for international affairs told reporters a day after the dollar tumbled to a low of 154.40 yen from as high as 160.245 in what traders cited as intervention.

Kanda reiterated that the government would continue taking appropriate action when needed and respond to foreign exchange moves in accordance with rules set under international frameworks such as the Group of Seven advanced countries and International Monetary Fund.

Japan's currency surged as much as five yen against the dollar on Monday after the currency hit fresh 34-year lows earlier in the day.

The Wall Street Journal reported that Japanese financial authorities had intervened in the market, citing people familiar with the matter.

Kanda on Monday declined to comment when asked by reporters whether authorities intervened in the currency market, but said the current developments in the currency market were "speculative, rapid and abnormal" and could not be overlooked.

By David Shepardson

WASHINGTON (Reuters) - Nearly all new passenger cars and trucks sold in the United States will be required to have automatic emergency braking systems by September 2029, the National Highway Traffic Safety Administration (NHTSA) said on Monday, saying that the rule will save at least 360 lives annually and prevent at least 24,000 injuries.

The new rule comes as traffic deaths have spiked following the COVID-19 lockdowns.

Congress directed the NHTSA in the 2021 infrastructure law to create a rule to establish minimum performance standards for automatic emergency braking (AEB) systems, which use sensors like cameras and radar to detect when a vehicle is close to crashing and then automatically applies brakes if the driver has not done so.

The rule requires that systems detect pedestrians in both daylight and at night. Some small-volume manufacturers will be allowed to comply by September 2030.

The NHTSA in 2023 had proposed requiring nearly all vehicles to comply three years after publication, but automakers are now being given five years.

The NHTSA is requiring all cars and trucks be able to stop and avoid striking vehicles in front of them up to 62 miles per hour. The rule requires the system to apply brakes automatically up to 90 mph when collision with a lead vehicle is imminent, and up to 45 mph when a pedestrian is detected.

U.S. traffic deaths fell by 3.6% in 2023, the second straight yearly decline, but they remain significantly above pre-pandemic levels.

The fatality rate in 2023 was higher than any pre-pandemic year since 2008. In 2022, the number of pedestrians killed rose 0.7% to 7,522, the most since 1981.

In 2016, 20 automakers voluntarily agreed to make automatic emergency braking standard on nearly all U.S. vehicles by 2022. In December 2023, the Insurance Institute for Highway Safety said all 20 automakers had equipped at least 95% of vehicles with AEB.

By Karl Badohal

WARSAW (Reuters) - Poland is taking steps to increase the transparency of its public finances Finance Minister Andrzej Domanski told reporters, amid rising debt servicing costs.

Measures will include a review of public finances, to be published by the ministry on Monday, reining in out-of-budget spending, and establishing an independent fiscal council to assess government policy, he said.

"I will be encouraging the government to move towards maximum transparency," he told reporters on Friday in comments cleared for publication on Monday morning.

Poland is among nearly a dozen European Union countries at risk of being put under the bloc's excessive deficit procedure, imposed on those whose deficit limits exceed 3% of gross domestic product (GDP).

Warsaw, whose deficit is seen increasing at year-end to 5.4% according to a Reuters poll, points among others to spending more than 4% of economic output on defence, as Russia continues its attack on neighbouring Ukraine.

Domanski said his aim was to repair public finances following several years of elevated off-budget spending by the previous Law and Justice (PiS) government since the COVID-19 pandemic.

"Starting April 30, state-owned development bank BGK will start publishing data on all of its funds in terms of execution and current plans on a quarterly basis," he said.

He said he was in favour of merging some of BGK's funds and the finance ministry would cooperate with the bank and other ministries on this.

LONG-TERM PLAN

Poland's annual long-term financial plan, to be adopted by the government on Tuesday, will also include the framework for establishing a fiscal council to monitor government policy, including macroeconomic projections and the budget bill, Domanski said.

"It of course must be an independent institution and everything it publishes must be made public ... It has to have its own firepower when it comes to criticizing the finance minister for submitted assumptions to the budget act."

He said he expected the project to be made public within a few weeks.

Domanski noted that Poland's debt servicing costs were among the highest in the EU and said he was looking at its smaller neighbour, the Czech Republic, as a guide.

"This is a problem that will get even worse in the coming years - the debt servicing costs in relation to GDP will increase, although fortunately only slightly," he said, adding that policy changes at the U.S Federal Reserve and other main central banks were pressuring emerging markets.

"I am looking at the spread to Czech bonds - my goal is for this spread to narrow."

Domanski also said he was eyeing more private investments, in addition to higher consumption, as a driver of economic growth. "Private investments are very important to me, which is why we are talking to investors in Poland and abroad."

BEIJING (Reuters) - The export controls proposed by Japan related to semiconductors will seriously affect normal trade between Chinese and Japanese enterprises, China's commerce ministry said on Monday.

China urged Japan to rectify what it called "erroneous practices", saying the move would undermine the stability of the global supply chain.

The ministry said China will take necessary measures to firmly safeguard the legitimate rights and interests of Chinese enterprises.

Japan proposed last week to require companies to notify the government before exporting advanced materials and equipment that could be used for military applications, Nikkei reported.

By Daniel Leussink and Sarah Wu

BEIJING (Reuters) -Global automakers including Volkswagen (ETR:VOWG_p) and Toyota came to this year's Beijing auto show looking to catch up to surging China EV makers that are dominating the world's largest auto market.

The show that started this week showcased a marked shift in attitude among some foreign automakers, industry executives said. After being impressed by the bold leaps made by BYD (SZ:002594) and other Chinese automakers at last year's event in Shanghai, foreign automakers are now avidly searching for Chinese partners and announcing new tie-ups, the executives said.

Among the most active were European and Japanese automakers, with announcements coming from Toyota Motor (NYSE:TM) that it would team up with Chinese gaming and social media giant Tencent on artificial intelligence and big data, and Volkswagen promoting its partnership with Chinese EV startup XPeng (NYSE:XPEV).

An executive from Renault (EPA:RENA) said on Friday it had "pivotal conversations" with Chinese EV maker Li Auto (NASDAQ:LI) and Xiaomi (OTC:XIACF), the smartphone maker that just introduced its first car, to explore EV and smart-vehicle technologies. Nissan (OTC:NSANY), meanwhile, announced a tie-up with Chinese tech firm Baidu (NASDAQ:BIDU) to carry out research on AI and "smart cars."

Nissan CEO Makoto Uchida visited several booths including that of Chinese tech giant Huawei, which is becoming a major auto supplier.

European automakers sent "much more senior management" to visit the booth of LIDAR remote sensing technology supplier Hesai Technology this year versus last year, said Bob in den Bosch, senior vice president of global sales at the Shanghai-headquartered firm.

"They're looking for a partner to close the gap," he said. "They came here with a plan and a mission."

Foreign brands have dominated China's auto business since the 1990s and have brought extensive know-how to the Asian country. But last year, foreign brands' collective share of China's passenger car market fell to 48%, down sharply from 57% just two years earlier, according to data from the China Association of Automobile Manufacturers. 

GOING LOCAL

German automakers including Volkswagen and Mercedes, in particular, emphasized their efforts to localize production and invest more in local partnerships, with Volkswagen saying repeatedly its goal was to remain the best-selling foreign automaker in China into 2030.

Hildegard Mueller, president of Germany's powerful car lobby VDA, told Reuters that the German automakers are, in addition, exploring new marketing strategies to attract Chinese consumers. This includes partnering with the country’s army of car influencers, who promote and discuss new vehicle models and trends with their large followings on social media.

"It’s huge (online) traffic and huge potential,” she said.

The market share in China of Toyota, the world's top-selling automaker, declined last year, according to data from the China Passenger Car Association (CPCA). Toyota's China joint ventures with GAC and FAW held a combined 7.9% of the Chinese auto market last year, compared with an 8.6% share in 2022, the CPCA said. Toyota has said it will include technology from Tencent in a China-made passenger vehicle the Japanese automaker will put on sale this year as part of a new tie-up.

On Thursday, Toyota took care to emphasize the new tie-up, with its chief technology officer, Hiroki Nakajima, inviting a senior Tencent executive onstage to its auto show presentation. 

"We want to, with Toyota, build products and services that are closer to consumers, to jointly build mobility solutions of the future and we look forward to the fruits of our cooperation," said Dowson Tong, CEO of Tencent Cloud and Smart Industries Group. 

PESSIMISM

Some foreign auto executives were more pessimistic about their ability to fight back. 

Katsuhide Moriyama, president of GAC Honda (NYSE:HMC) Automobile, Honda's joint venture with Guangzhou Automobile Group, cited how China's leading EV makers have found ways to slash vehicle development time.

"Manufacturers should shorten the lead time to compete with those competitors," Moriyama said outside the automaker's booth at the show. "But a two-year model cycle is too short for us."

The number of American car executives paled compared with visitors from other foreign markets, noted Hesai's In den Bosch. 

The market share in China of major American brands including Ford (NYSE:F) and General Motors (NYSE:GM) has plummeted amid declining gasoline-car sales and the shift from foreign to Chinese brands. 

Ford's chief financial officer, John Lawler, told reporters in the United States on Wednesday that the automaker wants to maintain its existing China presence but is not planning to invest more.

"We're not putting capital into China," he said.