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Business

Shares and bonds nervy as rate-hike week looms

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  • Fed seen hiking 25 bps, ECB and BOE by 50 bps
  • Technology giants lead host of earnings results
  • Shares edge down after robust January rally

LONDON, Jan 30 (Reuters) – Stock markets worldwide halted their January rally on Monday, pausing for breath at the start of an agenda-setting week of central bank rate hikes and data releases that will clarify if progress has been made in the battle against inflation.

Investors expect the Federal Reserve will raise rates by 25 basis points on Wednesday, followed the day after by half-point hikes from the Bank of England and European Central Bank, and any deviation from that script would be a real shock.

Europe’s benchmark STOXX index fell 0.8% on Monday morning, echoing a slight dip in MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS), which has surged 11% in January so far as China’s reopening bolsters sentiment.

The U.S. Nasdaq index is likewise on course for its best January since 2001, a rally that will be tested by earnings updates from tech giants this week.

U.S. stocks were set to follow the nervous Monday mood with S&P 500 futures down 1% and Nasdaq futures falling 1.3%, as investors await guidance later in the week on the Federal Reserve’s policy.

Analysts expect a hawkish tone suggesting that more needs to be done to tame inflation. read more

“With U.S. labour markets still tight, core inflation elevated and financial conditions easing, Fed Chair Powell’s tone will be hawkish, stressing that a downshifting to a 25bp hike doesn’t mean a pause is coming,” said Bruce Kasman, chief economist at JPMorgan, who expects another rise in March.

“We also look for him to continue to push back against market pricing of rate cuts later this year.”

There is a lot of pushing to do given futures currently expect rates to peak at 5% in March and to fall back to 4.5% by year end.

Europe offered a brisk reminder that the fight against rising prices is far from over, as bond yields in the region rose sharply on Monday in the wake of stronger-than-expected Spanish inflation data.

The data showing inflation rose 5.8% year-on-year in January, against expectations of 4.7%, pushed up the zone’s benchmark German 10-year government bond yield 7 basis points (bps) to 2.3190%, its highest since Jan. 10.

Italian and Spanish yields also inched up.

The dollar index was flat ahead of the week’s key data, on course for a fourth straight monthly loss of more than 1.5% on growing expectations that the Fed is nearing the end of its rate-hike cycle.

APPLE’S CORE

Yields on 10-year notes have fallen 33 basis points so far this month to 3.50%, essentially due to easing financial conditions even as the Fed talks tough on tightening.

That dovish outlook will also be tested by data on U.S. payrolls, the employment cost index and various ISM surveys.

Reading on EU inflation could be important for whether the ECB signals a half-point rate rise for March, or opens the door to a slowdown in the pace of tightening. read more

As for Wall Street’s recent rally, much will depend on earnings from Apple Inc (AAPL.O), Amazon.com (AMZN.O), Alphabet Inc (GOOGL.O) and Meta Platforms (META.O), among many others.

“Apple will give a glimpse into the overall demand story for consumers globally and a snapshot of the China supply chain issues starting to slowly abate,” wrote analysts at Wedbush.

“Based on our recent Asia supply chain checks we believe iPhone 14 Pro demand is holding up firmer than expected,” they added. “Apple will likely cut some costs around the edges, but we do not expect mass layoffs.”

Market pricing of early Fed easing has been a burden for the dollar, which has lost 1.6% so far this month to stand at 101.85 against a basket of major currencies.

The euro is up 1.5% for January at $1.0878 and just off a nine-month top. The dollar has even lost 1.3% on the yen to 129.27 despite the Bank of Japan’s dogged defence of its ultra-easy policies.

The drop in the dollar and yields has been a boon for gold, which is up 5.8% for the month so far at $1,930 an ounce .

The precious metal was flat on Monday ahead of the slew of key central bank moves and data releases.

China’s rapid reopening is seen as a windfall for commodities in general, supporting everything from copper to iron ore to oil prices.

Oil steadied on Monday after earlier losses, with prices bolstered by rising Middle East tension over a drone attack in Iran and hopes of higher Chinese demand.

Brent crude rose 10 cents, or 0.12%, to $86.76 a barrel by 1200 GMT while U.S. West Texas Intermediate crude added 4 cents, or 0.05%, to $79.72.

Reporting Lawrence White and Wayne Cole; Editing by Christopher Cushing, Arun Koyyur and Christina Fincher

Our Standards: The Thomson Reuters Trust Principles.

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Business

Shares slip as China data stokes economic slowdown fears

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  • Euro STOXX 600 down 0.2%
  • China reports weak Q4 data
  • Asia shares slip 0.4%
  • Yen close to 7-month highs

LONDON/HONG KONG, Jan 17 (Reuters) – European shares paused their new year rally and Asian equities slipped after China reported weak fourth-quarter economic data on Tuesday, keeping investors on edge over the prospects of a global recession.

The Euro STOXX 600 (.STOXX) lost 0.2%, slipping from its nine-month high hit on Monday. Global equities have enjoyed a rally so far in 2022, spurred by hopes of a rebound in China’s economy and an easing of prices pressures in the United States and Europe.

But the Chinese data showed that the world’s second-biggest economy grew 2.9% in the fourth quarter of last year, beating expectations but underscoring the toll exacted by Beijing’s stringent “zero-COVID” policy.

China’s growth for 2022 of 3% was far below the official target of about 5.5%. Excluding a 2.2% expansion after COVID-19 first hit in 2020, it was the worst showing in nearly half a century.

Asia Pacific shares outside Japan (.MIAPJ0000PUS) widened losses in response, and were last down 0.4%. Shares in Hong Kong’s (.HSI) dropped 0.8% and China’s benchmark CSI300 Index (.CSI300) clawed back losses to close flat.

In Europe, China-exposed financials HSBC (HSBA.L) and Prudential (PRU.L) fell 1% and 0.4% respectively. Economy-sensitive consumer staples such as Unilever and Danone (DANO.PA) also fell more than 1% each.

Market players said investors were taking stock of how economies would expand as inflation peaks and central bank tightening of monetary policy slows, with the China data underscoring doubts over whether it could act as a spur.

“What will be the thing that reinvigorates growth?” said Gaël Combes, head of fundamental research at Unigestion. “China is probably unlikely to provide the lift is has provided in the past, like during the global financial crisis.”

Wall Street was set to open slightly lower after a public holiday on Monday, with E-mini futures for the S&P 500 down 0.3%.

BOJ UNDER PRESSURE

The dollar index bounced from a seven-month low of 101.77 made a day ago, holding at 102.30, while the Japanese yen stayed close to seven-month highs as investors held their breath for a potential policy shift at the Bank of Japan (BOJ).

The yen steadied around 128.51 on Tuesday after hitting a top of 127.22 per dollar on Monday, with traders braced for sharp moves when the Bank of Japan (BOJ) concludes a two-day meeting on Wednesday.

The BOJ is under pressure to change its interest rate policy as soon as Wednesday, after its attempt to buy itself breathing room backfired, emboldening bond investors to test its resolve.

Euro zone bond yields inched up from month lows hit late last week, but trading in bonds globally was cautious ahead of the result of the BOJ meeting.

Across the world, the R-word continues to loom large.

Two-thirds of private and public sector chief economists surveyed by the World Economic Forum in Davos expected a global recession this year, with some 18% considering it “extremely likely” – more than twice as many as in the previous survey conducted in September 2022.

As equities rallied this year, other riskier assets also gained. The No.1 cryptocurrency bitcoin has clocked a gain of about a quarter in January, leaping over 20% in the past week alone, putting in on course for its best month since October 2021. It was last trading flat at $21,208.

Spot gold was down 0.5% at $1909.23 per ounce.

Reporting by Tom Wilson in London and Kane Wu in Hong Kong; Editing by Gerry Doyle, Neil Fullick and Alex Richardson

Our Standards: The Thomson Reuters Trust Principles.

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Business

Shares rise, yen climbs as BOJ battles bond bears

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  • BOJ under intense pressure as it defends yield policy
  • Yen hits 7-mth high, yuan climbs as dollar eases
  • More earnings ahead, many central bank speakers
  • Britain’s FTSE flirts with record high

SYDNEY/LONDON, Jan 16 (Reuters) – Shares firmed on Monday as optimism over corporate earnings and China’s reopening offset concerns the Bank of Japan (BOJ) might temper its super-sized stimulus policy at a pivotal meeting this week, while a holiday in U.S. markets made for thin trading.

The yen climbed to its highest since May after rumours swirled the BOJ might hold an emergency meeting on Monday as it struggles to defend its new yield ceiling in the face of massive selling. read more

That had local markets in an anxious mood, and Japan’s Nikkei (.N225) slipped 1.3% to a two-week low.

Yet MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) added 0.27%, with hopes for a speedy Chinese reopening giving it a gain of 4.2% last week.

And European shares opened positively with the STOXX 600 (.STOXX) up 0.1% by 0850 GMT driven by healthcare stocks (.SXDP) which gained 0.6%.

Britain’s benchmark FTSE index (.FTSE) edged close to the record high of 7903.50 it hit in 2018, with banks and life insurance companies among the top gainers.

Earnings season gathers steam this week with Goldman Sachs (GS.N), Morgan Stanley (MS.N) and Netflix (NFLX.O) among those reporting.

World leaders, policy makers and top corporate chiefs will be attending the World Economic Forum in Davos, and there are a host of central bankers speaking, including no fewer than nine members of the U.S. Federal Reserve.

The BOJ’s official two-day meeting ends on Wednesday and speculation is rife it will make changes to its yield curve control (YCC) policy given the market has pushed 10-year yields above its new ceiling of 0.5%. read more

The BOJ bought almost 5 trillion yen ($39.12 billion) of bonds on Friday in its largest daily operation on record, yet 10-year yields still ended the session up at 0.51%.

Early on Monday, the bank offered to buy another 1.3 trillion yen of JGBs, but the yield stuck at 0.51%.

“There is still some possibility that market pressure will force the BOJ to further adjust or exit the YCC,” JPMorgan analysts said in a note. “We can’t ignore this possibility, but at this stage we do not consider it a main scenario.”

“Although domestic demand has started to recover and inflation continues to rise, the economy is not heating up to the extent that a sharp rise in interest rates and potential risk of large yen appreciation can be tolerated,” they added.

THE YEN UN-ANCHORED

The BOJ’s uber-easy policy has acted as a sort of anchor for yields globally, while dragging down the yen. Were it to abandon the policy, it would put upward pressure on yields across developed markets and most likely see the yen surge.

The dollar has been undermined by falling U.S. bond yields as investors wager the Federal Reserve can be less aggressive in raising rates given inflation has clearly turned the corner.

The Japanese yen rose to a more than seven-month peak against the dollar on Monday, as market sentiment was dominated by expectations that the BOJ would make further tweaks to, or fully abandon, its yield control policy.

The yen jumped roughly 0.5% to a high of 127.215 per dollar, before easing to 128.6 by 0915 GMT.

The dollar index, which measures the U.S. unit against a basket of major currencies, recovered from a 7-month low touched earlier in the session to be at 102.6 .

Futures now imply almost no chance the Fed will raise rates by half a point in February, with a quarter-point move seen as a 94% probability.

Yields on 10-year Treasuries are down at 3.498%, having fallen 6 basis points last week, close to its December trough, and major chart target of 3.402%.

Alan Ruskin, global head of G10 FX Strategy at Deutsche Securities, said the loosening of global supply bottlenecks in recent months was proving to be a disinflationary shock, which increases the chance of a soft landing for the U.S. economy.

“The lower inflation itself encourages a soft landing through real wage gains, by allowing the Fed to more readily pause and encouraging a better behaved bond market, with favourable spillovers to financial conditions,” Ruskin said.

“A soft landing also reduces the tail risk of much higher U.S. rates, and this reduced risk premia helps global risk appetite,” Ruskin added.

Commodities prices which had rallied last week, dipped on Monday.

The drop in yields and the dollar had benefited the gold price, which jumped 2.9% last week, but the precious metal slipped 0.4% to $1,911 an ounce in early trading on Monday .

Oil prices slid as a rise in COVID cases clouded the prospects for a surge in demand as China reopens its economy.

Brent crude fell 73 cents, or 0.83%, to $84.57 a barrel by 0857 GMT, while U.S. West Texas Intermediate crude CLc1 was down 61 cents, or 0.6%, at $79.24 a barrel.

($1 = 127.8000 yen)

Reporting by Wayne Cole and Lawrence White;
Editing by Shri Navaratnam and Emelia Sithole-Matarise

Our Standards: The Thomson Reuters Trust Principles.

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Business

Stocks hold on to gains ahead of U.S. inflation test

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  • World stocks inch higher; dollar near 7-month lows
  • Yen gains on report BOJ to scrutinise policy effects
  • Eyes on U.S. CPI due at 1330 GMT
  • Treasuries and euro zone bonds add to gains

MILAN, Jan 12 (Reuters) – World stocks held on to modest gains on Thursday on cautious optimism that U.S. data will confirm inflation is softening, while the yen rose with a report Japan will this month review the side-effects of its ultra-easy policy.

A MSCI gauge of world stocks (.MIWD00000PUS) rose 0.2% to a four-week high by 0831 GMT ahead of core U.S. consumer price inflation, (USCPFY=ECI) which are expected to have slowed to an annual 5.7% in December, from 6% a month earlier. Month-on-month headline inflation is seen at zero (USCPI=ECI).

Bonds held gains, also mirroring hopes of a softer inflation print, and the U.S. dollar was near a seven-month low against a basket of currencies. Europe’s STOXX 600 (.STOXX) equity benchmark index rose 0.4% to its highest since April 2022.

The data due at 1330 GMT is set to have a big impact on markets by shaping expectations of the speed of interest rate hikes in the world’s biggest economy. Markets have priced better-than-even odds that the Federal Reserve raises rates by 25 basis points, rather than 50, at February’s meeting.

“Both the worst and best days for the S&P 500 in 2022 came on days of a CPI release. As such, it’s inevitable that today’s U.S. CPI has the ability to shape the next month,” wrote Deutsche Bank strategist Jim Reid.

“The latest releases have seen two downside surprises on CPI in a row for the first time since the pandemic, which has led to growing hopes that the Fed might achieve a soft landing after all,” he added.

The MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) rose 0.1% after climbing to a seven-month high, while Japan’s Nikkei (.N225) was steady.

S&P 500 futures were broadly steady following gains for Wall Street indexes on Wednesday. Boston Federal Reserve bank leader Susan Collins told the New York Times that she was leaning towards a 25 basis point hike.

Optimism for a more benign rates outlook and a pickup in demand as China emerges from strict COVID restrictions kept oil prices near one-week peaks.

Brent crude futures topped $83 on Thursday before retreating slightly to trade flat on the day at 82.67 a barrel.

U.S. Treasuries added a little to Wednesday’s gains, sending benchmark 10-year yields down 4.4 basis points (bps) to 3.514%. German 10-year yields , the benchmark for the euro zone, fell 7 bps to 3.509%.

CHINA HOPES

Along with hopes that Western central banks will be gentler, investors are also banking on a recovery in China to help global growth, and are eyeing a potential policy shift in Japan.

The Bank of Japan stunned markets last month by widening the band around its 10-year bond yield target, a move that triggered a sudden rise in yields and a jump in the yen.

On Thursday. Japan’s Yomiuri newspaper reported the BOJ will review the side-effects of Japan’s ultra-easy settings sooner than expected – at next week’s policy meetings – and that it may take additional steps to correct distortions in the yield curve.

The yen rose as much as 0.9% and was last at 131.75 per dollar. Ten-year Japanese government bond futures fell to almost eight-year lows.

Foreign exchange markets elsewhere were holding their breath ahead of the U.S. CPI data while China’s reopening kept a bid under Asia’s currencies. The dollar index added 0.1% to 103.23, not far off a seven-month low of 102.93 hit this week. The yuan traded near five-month highs at 6.7555 per dollar.

China on Thursday reported consumer price falls in December and a larger-than-expected drop in factory gate prices – underscoring weakness in demand – which investors are betting will recover over the coming months.

“It’s not enough for China to come out of COVID to really turn the whole world economy around,” said Steven Wieting, chief investment strategist and chief economist at Citi Global Wealth Investments. “But it really weighs in the opposite direction.”

Reporting by Danilo Masoni in Milan and Tom Westbrook in Singapore

Our Standards: The Thomson Reuters Trust Principles.

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Business

Global shares retreat after Fed inflation nudge

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LONDON, Jan 10 (Reuters) – Global shares fell for the first time in three days on Tuesday, after comments from two Federal Reserve officials injected a note of caution over the U.S. rate outlook, knocking equities, commodities and other risk assets.

The MSCI All-World index (.MIWD00000PUS) fell 0.2%, but remained in sight of Monday’s three-week high, while the dollar – a gauge of investor risk appetite – edged up against a basket of major currencies.

In the past six weeks, China has dismantled its zero-COVID policy even as cases have surged around the country, which has given markets a bumpy ride as investors weighed up the economic benefits of reopening against the impact to activity from the wave of infections.

Adding to that has been a sense of optimism that inflation has peaked, especially in the United States, and, as such, the Fed will not have to raise rates as much as many had feared.

However, with consumer price pressures still well above the central bank’s target of 2%, two Fed officials on Monday issued a stark reminder that interest rates will have to keep rising, no matter what investors have priced in.

“The market is trying to get one step ahead of the Fed, but it’s not actually listening to what it’s saying. And the Fed is being quite clear with its message – that rates are going to push higher and they’re going to stay higher for longer,” CityIndex strategist Fiona Cincotta said.

“If we look at expectations of inflation later this week – the big focus – core inflation is still expected to remain high. It doesn’t matter which way you look at it. It’s still higher than the target the Fed is aiming for,” she said.

U.S. consumer price data, due on Thursday, is expected to show headline inflation slowed to 6.5% in December from 7.1% in November.

The data could be key to setting expectations for what happens with rates at the Fed’s next policy meeting and beyond.

San Francisco Fed President Mary Daly told the Wall Street Journal she would pay close attention to Thursday’s data and both 25- and 50-basis point hikes were options for her. Atlanta Fed President Raphael Bostic said his “base case” was for no rate cuts this year or next.

“The main theme overnight was cautiousness in the equity space as stocks pared gains after hawkish comments from two Fed officials. Raphael Bostic and Mary Daly said the Fed would likely hike (interest) rates to above 5% and hold them there for some time,” Commerzbank said in a note.

Fed Chair Jerome Powell addresses a conference on central bank independence later on Tuesday and investors will likely scour his remarks for any signal on monetary policy.

“Given that the recent rebound in equity markets and fall in bond yields and the US dollar is loosening financial conditions, today might offer an opportunity for Fed chairman Jay Powell to reset the narrative slightly,” CMC Markets chief strategist Michael Hewson said.

FRAGILE CHINA

In Europe, the STOXX 600 (.STOXX), which on Monday hit its highest in eight months, fell 0.7%, led by a decline in industrials. London’s FTSE 100 (.FTSE) lost 0.2%, while Frankfurt’s DAX (.GDAXI) fell 0.5%.

U.S. stock index futures , fell 0.3%, indicating Wall Street could open a touch lower after a volatile session the previous day.

The dollar carved out gains against the Australian dollar , which is highly sensitive to the Chinese economy and has gained 3.5% in the last three weeks alone, based on the optimism around reopening.

The Aussie was last down 0.5% at $0.6877, while the offshore yuan lost 0.1% against the dollar to trade around 6.7913. It reached its strongest level since mid-August the previous day.

The dollar index rose 0.2%. The euro was flat, while the pound fell 0.3%. The yen fell 0.1% against the dollar to 132.06, even after data showed a faster pick-up in Tokyo inflation that could prompt the Bank of Japan to tighten monetary policy more quickly.

Strategists at BlackRock, the world’s largest asset manager, on Tuesday said they expected the Chinese economy to grow by 6% this year, which should cushion the global slowdown as recession hits developed-market economies. But any bounce may be fleeting.

“We don’t expect the level of economic activity in China to return to its pre-COVID trend, even as domestic activity restarts. We see growth falling back once the restart runs its course,” Wei Li, who is global chief investment strategist for the BlackRock Investment Institute, wrote in a note.

Copper eased back from six-month highs , as bullishness from China’s emergence from COVID-19 was offset by concern about the risks of a broader global downturn.

London Metal Exchange copper futures fell 0.5% to $8,813 a tonne, having hit their highest in over six months on Monday, while zinc fell 0.7% and lead dropped 2%.

Oil pared earlier losses, but concern persisted that China returning to more normal activity may not translate into a boom in energy demand.

“The social vitality of major Chinese cities is rapidly recovering, and the restart of China’s demand is worth looking forward to. However, considering that the recovery of consumption is still at the expected stage, the oil price will most likely remain low and range-bound,” analysts from Haitong Futures said.

Brent crude futures were last up 0.4% to $80.00 a barrel. The oil price is about 2.3% below where it was a year ago and 45% below the highs around $139 after Russia invaded Ukraine last February.

Additional reporting by Selena Li in Hong Kong; Editing by Muralikumar Anantharaman, Angus MacSwan and Chizu Nomiyama

Our Standards: The Thomson Reuters Trust Principles.

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Business

Asia shares up on Fed rate wagers, China reopening lifts yuan

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  • https://tmsnrt.rs/2zpUAr4
  • U.S. share futures edge up, Nikkei futures gain
  • Hopes U.S. CPI report will make case for smaller Fed hikes
  • Earnings season kicks off with major banks on Friday
  • Dollar nurses losses, yuan at highest since mid-August

SYDNEY, Jan 9 (Reuters) – Asian shares rallied on Monday as hopes for less aggressive U.S. rate hikes and the opening of China’s borders bolstered the outlook for the global economy.

MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) rose 2.0% to a five-month top, with South Korean shares (.KS11) gaining 2.2%.

Chinese blue chips (.CSI300) added 0.7%, while Hong Kong shares (.HSI) climbed 1.4%. China’s yuan also firmed to its highest since mid-August under 6.8000.

Japan’s Nikkei (.N225) was closed for a holiday but futures were trading at 26,215, compared with a cash close on Friday of 25,973.

S&P 500 futures added 0.2% and Nasdaq futures 0.3%. EUROSTOXX 50 futures gained 0.6%, while FTSE futures firmed 0.3%.

Earnings season kicks off this week with the major U.S. banks, with the Street fearing no year-on-year growth at all in overall earnings.

“Excluding Energy, S&P 500 EPS (earnings per share) is expected to fall 5%, driven by 134 bp of margin compression,” wrote analysts at Goldman Sachs. “Entering reporting season, earnings revision sentiment is negative relative to history.

“We expect further downward revisions to consensus 2023 EPS forecasts,” they added. “China reopening is one upside risk to 2023 EPS, but margin pressures, taxes, and recession present greater downside risks.”

A sign of the strain came from reports Goldman would start cutting thousands of jobs across the firm from Wednesday, as it prepares for a tough economic environment. read more

In Asia, Beijing has now opened borders that had been all but shut since the start of the COVID-19 pandemic, allowing a surge in traffic across the nation. read more

Bank of America analyst Winnie Wu expects China’s economy, the second-largest economy in the world, to benefit from a cyclical upturn in 2023 and anticipates market upside from both multiple expansion and 10% EPS growth.

FADING THE FED

Sentiment on Wall Street got a boost last week from a benign blend of solid U.S. payroll gains and slower wage growth, combined with a sharp fall in service-sector activity. The market scaled back bets on rate hikes for the Federal Reserve.

Fed fund futures now imply around a 25% chance of a half-point hike in February, down from around 50% a month ago.

That will make investors ultra sensitive to anything Fed Chair Jerome Powell might say at a central bank conference in Stockholm on Tuesday.

It also heightens the importance of U.S. consumer price index (CPI) data on Thursday, which is forecast to show annual inflation slowing to a 15-month low of 6.5% and the core rate dipping to 5.7%.

“We at NatWest have lower than consensus CPI forecasts, and if right that will likely solidify the market pricing of 25bps vs 50bps,” said NatWest Markets analyst John Briggs.

“In context, it should still be seen as a Fed that is still likely to hike a few more times and then hold rates high until inflation’s decline is guaranteed – to us that means a 5-5.25% funds rate.”

Friday’s mixed data had already seen U.S. 10-year yields drop a steep 15 basis points to 3.57%, while dragging the U.S. dollar down across the board.

Early Monday, the euro was holding firm at $1.0673 , having bounced from a low of $1.0482 on Friday. The dollar eased to 131.48 yen , away from last week’s top of 134.78, while its index was flat at 103.600 .

The Brazilian real had yet to trade after hundreds of supporters of far-right former President Jair Bolsonaro were arrested after invading the country’s Congress, presidential palace and Supreme Court. read more

The drop in the dollar and yields was a boon for gold, lifting it to an eight-month peak around $1,877 an ounce .

Oil prices were steadier, after sliding around 8% last week amid demand concerns.

Brent bounced 80 cents to $79.37 a barrel, while U.S. crude rose 78 cents to $74.55 per barrel.

Reporting by Wayne Cole; Editing by Bradley Perrett and Christopher Cushing

Our Standards: The Thomson Reuters Trust Principles.

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Business

Dollar set for biggest one-day gain in three months, equities rally

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  • Global shares edge up
  • Correlation with dollar softens
  • Yen takes a breather from recent rally

LONDON, Jan 3 (Reuters) – The dollar headed for its largest one-day rise in over three months on Tuesday, while equities rallied in a macro-packed week that could offer a steer on when, and at what level, U.S. interest rates might peak.

The MSCI All-World index (.MIWD00000PUS) was roughly unchanged, although European stocks, led by hefty gains in anything from financials, to oil and gas stocks, to healthcare, bounced to two-week highs.

Typically, stocks tend to fall when the dollar gains, but that negative correlation between the two softened on Tuesday to its weakest since early September. The dollar index was last up 1% at 104.69.

The euro was the worst-performing currency against the dollar , falling by the most since late September, after German regional inflation data showed consumer price pressures eased sharply in December, thanks in large part to government measures to contain natural gas bills for households and businesses.

Data on U.S. payrolls this week are expected to show the labour market remains tight, while EU consumer prices could show some slowdown in inflation as energy prices ease.

“Energy base effects will bring about a sizeable reduction in inflation in the major economies in 2023, but stickiness in core components, much of this stemming from tight labour markets, will prevent an early dovish policy ‘pivot’ by central banks,” analysts at NatWest Markets wrote in a note.

They expect interest rates to top out at 5% in the United States, 2.25% in the EU and 4.5% in Britain and to stay there for the entire year. Markets, on the other hand, are pricing in rate cuts for late 2023, with fed fund futures implying a range of 4.25 to 4.5% by December.

“The thing that makes me nervous about this year is that we still do not know the full impact of the very significant monetary tightening that’s taken place across the advanced world,” Berenberg senior economist Kallum Pickering said.

“It takes a good year, or 18 months, for the full effect to kick in,” he said.

Central banks have expressed concern about rising wages, even as consumers have struggled to keep up with the soaring cost of living and companies are running out of room to protect their profitability by raising their own prices.

But, Pickering said, the labour market tends to lag the broader economy by some time, meaning that there is a risk that central banks could be raising interest rates by more than the economy can withstand.

“What central banks are inducing is essentially excess cyclicality, which is – they overstimulated in 2021 and triggered an inflationary boom and then overtightened in 2022 and triggered a disinflationary recession. It’s exactly the opposite of what you want central banks to do,” he said.

Investors will get their first insight into central bank thinking later this week when the Federal Reserve releases the minutes from its December policy meeting.

The minutes will likely show many members saw risks that interest rates would need to go higher for longer, but investors are conscious of how much they’ve risen already.

On the markets, European shares rose thanks to gains in classic defensive sectors, such as healthcare and food and beverages. Drugmakers Novo Nordisk (NOVOb.CO), Astrazeneca (AZN.L) and Roche (ROG.S) were among the biggest positive weights on the STOXX 600 (.STOXX), along with Nestle (NESN.S)

The STOXX, which lost 13% in 2022, rose 1.1%. The FTSE 100 (.FTSE), the only major European index not to trade on Monday, rose 1.3%.

U.S. stock index futures gained between 0.4-0.5% , , pointing to an upbeat start at the opening bell.

Markets have for a while priced in an eventual U.S. easing, but they were badly wrong-footed by the Bank of Japan’s shock upward shift in its ceiling for bond yields.

The BOJ is now considering raising its inflation forecasts in January to show price growth close to its 2% target in fiscal 2023 and 2024, according to the Nikkei.

Such a move at its next policy meeting on Jan. 17-18 would only add to speculation of an end to ultra-loose policy, which has essentially acted as a floor for bond yields globally.

The policy shift has boosted the yen across the board, with the dollar losing 5% in December and the euro 2.3%.

The yen took a breather on Tuesday, easing 0.3% against the dollar to 130.96. The dollar earlier touched a six-month low of 129.52 yen . Against the dollar, the euro fell 1.1% to $1.05395, having dropped by as much as 1.4% earlier in the day.

“A theme we’ve often noticed is the euro’s negative seasonality in January, down around 1.3% since 1980 on average in January, with a 64% hit ratio. If history is any guide, it’s a rough month for euro longs,” Nomura strategist Jordan Rochester said.

Oil succumbed to the strength of the dollar, and reversed course, falling as concern about demand in China, the world’s second largest economy, added to the downward momentum.

A batch of surveys have shownChina’s factory activity shrank at the sharpest pace in nearly three years as COVID infections swept through production lines.

“China is entering the most dangerous weeks of the pandemic,” warned analysts at Capital Economics.

Brent crude lost 0.9% to trade around $85.15 a barrel, having hit a session high of $87.00 earlier on.

Reporting by Wayne Cole; Editing by Bradley Perrett, Sam Holmes and Chizu Nomiyama

Our Standards: The Thomson Reuters Trust Principles.

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World

Wall St stocks fall, oil rises as China drops quarantine rule

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NEW YORK/LONDON, Dec 27 (Reuters) – Wall Street’s benchmark S&P 500 and the Nasdaq fell on Tuesday after the release of U.S. economic data, while oil prices rose after China said it would scrap its COVID-19 quarantine rule for inbound travellers, which was seen as a major step in reopening its borders.

U.S. Treasury yields rose after economic data that showed the advance goods trade deficit for November narrowed to $83.35 billion from the prior month’s $98.8 billion, while a separate report pointed to continued struggles for the housing market as home prices fell under rising mortgage rates.

Oil pared gains as some U.S. energy facilities shut by winter storms began to restart after the commodity earlier hit a three-week high as China’s latest easing of COVID-19 restrictions spurred hopes of a recovery in demand.

On the first day of the holiday-shortened trading week, the rise in U.S. rates put pressure on shares in the heavy-weight rate sensitive technology sector, according to Michael O’Rourke, chief market strategist at JonesTrading in Stamford, Connecticut.

“It’s a lack of anybody with the conviction to step in and buy right now,” said O’Rourke, who said further pressure came from a sharp decline in shares of electric car maker Tesla Inc (TSLA.O).

The Dow Jones Industrial Average (.DJI) rose 113.48 points, or 0.34%, to 33,317.41, the S&P 500 (.SPX) lost 5.67 points, or 0.15%, to 3,839.15 and the Nasdaq Composite (.IXIC) dropped 90.23 points, or 0.86%, to 10,407.64.

Markets in some regions including London, Dublin, Hong Kong and Australia remained shut after the Christmas holiday.

The pan-European STOXX 600 index (.STOXX) rose 0.19% and MSCI’s gauge of stocks across the globe (.MIWD00000PUS) gained 0.03%.

Emerging market stocks (.MSCIEF) rose 0.27%. MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) closed 0.53% higher, while Japan’s Nikkei (.N225) rose 0.16%.

Benchmark 10-year notes were up 7.5 basis points at 3.822%, from 3.747% on Friday. The 30-year bond was last up 9 basis points to yield 3.9116%, from 3.822%. The 2-year note was last up 6.4 basis points to yield 4.387%, from 4.323%.

The dollar pared losses on Tuesday after China said it would scrap its COVID-19 quarantine rule for inbound travellers, which also boosted risk-related currencies such as the Australian dollar.

The dollar index , which measures the greenback against a basket of major currencies, was down 0.01%, with the euro up 0.14% at $1.065.

The Japanese yen weakened 0.37% versus the greenback at 133.36 per dollar, while Sterling was last trading at $1.2019, down 0.34% on the day.

Commodity currencies such as the New Zealand and Australian dollars also moved higher. read more

In energy futures, U.S. crude recently rose 0.98% to $80.34 per barrel and Brent was at $84.81, up 1.06% on the day.

Gold prices rose as optimism surrounding decisions by top consumer China to ease COVID-19 restrictions weighed on the dollar, while resilient U.S. yields cast a shadow over non-yielding bullion’s advance.

Spot gold added 1.5% to $1,824.29 an ounce. U.S. gold futures gained 1.09% to $1,815.50 an ounce.

Reporting by Sinéad Carew in New York, Nell Mackenzie in London
Additional reporting by Xie Yu and Ankur Banerjee
Editing by Simon Cameron-Moore and Matthew Lewis

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World

Asia shares bank on eventual China opening; oil gains

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  • https://tmsnrt.rs/2zpUAr4
  • China shares push higher, dollar slips
  • More Chinese cities ease coronavirus controls
  • Cap on Russia oil comes into effect, impact uncertain

SYDNEY, Dec 5 (Reuters) – Asian shares extended their rally on Monday as investors hoped steps to unwind pandemic restrictions in China would eventually brighten the outlook for global growth and commodity demand, nudging the dollar down against the yuan.

The news helped oil prices firm as OPEC+ nations reaffirmed their output targets ahead of a European Union ban and price caps on Russian crude, which begin on Monday.

More Chinese cities announced an easing of coronavirus curbs on Sunday as Beijing tries to make its zero-COVID policy less onerous after recent unprecedented protests against restrictions. read more

There were also reports Beijing might lower the threat classification for COVID-19, though clarity was lacking on timetables for future steps. read more

“While the easing of some restrictions does not equate to a wholesale shift away from the dynamic COVID zero strategy just yet, it is further evidence of a shifting approach and financial markets look to be firmly focussed on the longer term outlook over the near-term hit to activity as virus cases look set to continue,” said Taylor Nugent, an economist at NAB.

Chinese blue chips (.CSI300) gained 1.7%, on top of last week’s 2.5% bounce, while the Hang Seng (.HS11) jumped 3.5%.

MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) added 1.7% to a three-month top, after rallying 3.7% last week. Japan’s Nikkei (.N225) edged up 0.1%, while South Korea (.KS11) eased 0.4%.

EUROSTOXX 50 futures added 0.1%, while FTSE futures were flat. S&P 500 futures and Nasdaq futures both fell 0.1%.

Wall Street had lost some momentum on Friday after November’s robust U.S. payrolls report challenged hopes for a less aggressive Federal Reserve, though Treasuries still ended last week with solid gains. read more

Indeed, 10-year note yields have fallen 74 basis points since early November, effectively undoing much of the tightening of the Fed’s last outsized increase in cash rates.

Markets are wagering Fed rates will top out at 5% and the European Central Bank around 2.5%.

“But U.S. and Euro area labour demand remain surprisingly strong, and alongside a recent easing in financial conditions, the risks are shifting toward higher-than-anticipated terminal rates for both the Fed and the ECB,” warns Bruce Kasman, head of economic research at JPMorgan.

“The combination of labour market resilience with sticky wage inflation adds to the risk that the Fed will deliver a higher than 5% rate forecast at its upcoming meeting and that Chair Jerome Powell’s press conference will shift to more open-ended guidance regarding any near-term ceiling on rates.”

DOLLAR VULNERABLE

The Fed meets on Dec. 14 and the ECB the day after. Speaking on Sunday, French central bank chief Francois Villeroy de Galhau said he favoured a hike of half a point next week. read more

Central banks in Australia, Canada and India are all expected to raise their rates at meetings this week.

The steep decline in U.S. yields has taken a toll on the dollar, which fell 1.4% last week on a basket of currencies to its lowest since June.

It lost 3.5% on the yen alone and last traded at 134.34 , leaving October’s peak of 151.94 a distant memory. The euro resumed it rise to $1.0578 , having added 1.3% last week to its highest since early July.

The dollar also slipped under 7.0 yuan in offshore trade to hit the lowest in three months at 6.9677.

The drop in the dollar and yields has been a boon for gold, which was up 0.5% at a four-month peak of $1,807 an ounce after rising 2.3% last week.

Oil prices bounced after OPEC+ agreed to stick to its oil output targets at a meeting on Sunday.

The Group of Seven and European Union states are due on Monday to impose a $60 per barrel price cap on Russian seaborne oil, though it was not yet clear what impact this would have on global supply and prices. read more

Brent gained $1.67 to $87.24 a barrel, while U.S. crude rose $1.46 to $81.44 per barrel.

Reporting by Wayne Cole; Editing by Sam Holmes

Our Standards: The Thomson Reuters Trust Principles.

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Business

Shares rise, U.S. Treasury yields drop ahead of Fed minutes’ release

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  • Fed minutes for November due at 1900 GMT
  • Wall Street stocks trade higher
  • U.S. Treasury yields retreat
  • Crude prices drop more than 4%
  • U.S. dollar falls

NEW YORK, Nov 23 (Reuters) – World equities rose while U.S. Treasury yields were lower ahead of the release of the Federal Reserve’s meeting minutes that would offer a glimpse on whether officials are likely to soften their stiff monetary policy stance.

Traders are expecting the minutes, which will be published on Wednesday, to provide clues that the Fed is set to end its pace of sharp interest rate hikes in response to a moderation in economic conditions.

Labor Department data showed on Wednesday that U.S. jobless claims increased more than expected last week while U.S. business activity contracted for a fifth month in November, according to the S&P Global flash U.S. Composite PMI Output Index.

“What investors are hoping for is that the Fed acknowledges that since the consumer price index looks like it might be peaking that there’s going to be some language that they see a pause on the near-term horizon,” said Jordan Kahn, chief investment officer at ACM Funds in Los Angeles, California.

The MSCI All Country stock index (.MIWD00000PUS) was up 0.8%, while European shares (.STOXX) rose 0.62%.

U.S. Treasury yields were trading lower. Benchmark 10-year notes were down to 3.7242% while the yields on two-year notes dropped to 4.4835%.

The yield curve that compares these two bonds widened further into negative territory, to -76.30 basis points. When inverted, that part of the curve is seen as an indicator of an upcoming recession.

“I tend to think that investors that are looking for any sought of hint of a pause are going to be disappointed. I think the Fed is going to keep the message they’ve been saying for a while, which is that their job isn’t done yet and need to bring down demand,” Kahn said.

“The yield curve is still screaming that the economy is on the precipice of a slowdown,” he added.

On Wall Street, all three major indexes were trading higher, led by gains in technology, consumer discretionary, communication, and industrial stocks.

The Dow Jones Industrial Average (.DJI) rose 0.29% to 34,196.78, the S&P 500 (.SPX) gained 0.56% to 4,025.81 and the Nasdaq Composite (.IXIC) added 0.96% to 11,282.14.

Oil prices fell more than 4% as the Group of Seven (G7) nations looked at a price cap on Russian oil that is above where it is currently trading and as gasoline inventories in the United States built more than analysts expected.

Brent futures for January delivery fell 4.2% to $84.65 a barrel, while U.S. crude fell 4.46%, to $77.34 per barrel.

The U.S. dollar fell across the board ahead of the release of the Fed’s minutes and new data showing weaker economic conditions. The dollar index fell 0.7%, with the euro up 0.62% to $1.0366.

Gold prices were choppy as the U.S. dollar fell. Spot gold added 0.1% to $1,742.66 an ounce, while U.S. gold futures fell 0.10% to $1,736.50 an ounce.

Reporting by Chibuike Oguh in New York
Editing by Bernadette Baum

Our Standards: The Thomson Reuters Trust Principles.

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