Market mood bright, liquidity light

World and US stocks at record highs, a UK general election, and Japanese asset prices stretched to historical levels – there’s a lot for investors in Asia to chew over on Thursday even though liquidity will be thinned out by the July 4 US holiday.

Indeed, markets in Asia may be more vulnerable to higher volatility and outsized moves precisely because trading volumes will be much lighter than usual.

The global backdrop to the Asian open on Thursday, however, looks positive after stocks rose broadly on Wednesday, the dollar weakened and Treasury yields fell – a classic collective market-friendly loosening of financial conditions.

The minutes of the Fed’s June 11 to 12 policy meeting released on Wednesday echoed remarks from Fed Chair Jerome Powell this week that price pressures are cooling. Good news.

More ominously, however, the “vast majority of participants” think US economic activity is cooling too, and this was backed up by disappointing service sector data and another downward revision to the Atlanta Fed’s GDP growth tracker.

Treasury yields tumbled for a second day – wiping out the Donald Trump and French election-fueled spike on Monday – paving the way for another leap to another high for the S&P 500 and Nasdaq.

Currency traders will be extra vigilant for sharp moves in the yen and intervention from Japan to prevent its depreciation from snow-balling, especially with US markets closed.

The yen hit a fresh 38-year low at around 162.00 per dollar on Wednesday. As yet, Tokyo has not shown its hand, and perhaps it won’t – the yen’s decline seems reasonably orderly, and yen volatility across the curve is relatively subdued.

But it’s worth remembering that Tokyo’s last two yen-buying forays into the market on April 29 and May 1 were carried out in illiquid points in the global trading day or holiday-thinned trading. Traders will be on their guard.

Not only is the yen selling off consistently, so too are Japanese bonds. The 10-year JGB yield on Wednesday hit 1.10% and the spread over the two-year JGB yield widened to 75 basis points.

That’s the yen at a 38-year low, the 10-year bond yield around its highest in 13 years, and the yield curve rapidly steepening. Plus, the Nikkei is within a whisker of breaking March’s record high.

These are big levels and big moves for Japanese assets. The potential for some sort of pullback must surely be rising.

Thursday’s economic calendar is light, with only Hong Kong PMI and Australian trade on tap. Friday’s calendar is a lot busier, with inflation from Taiwan, Thailand, and the Philippines, current account data from South Korea, retail sales figures from Singapore, and household spending numbers from Japan all scheduled for release.

Here are key developments that could provide more direction to markets on Thursday:

– Hong Kong PMI (June)

– Australia trade (May)

– Thai central bank chief Sethaput Suthiwartnarueput speaks

(Reporting by Jamie McGeever; Editing by Josie Kao)

World shares rise, US dollar weakens on soft labor market data

NEW YORK – World equities rose while the US dollar fell on Wednesday following soft labor market data that buoyed investor expectations of Federal Reserve interest rate cuts later this year.

US Labor Department data on Wednesday showed that initial claims for unemployment rose to 238,000 the week that ended June 29, slightly above expectations and indicating a softening in labor market conditions.

MSCI’s gauge of stocks across the globe rose 0.71% to 812.52, while Europe’s broad STOXX 600 index added 0.74%.

“We have slowing growth but closer to trend, with the potential for the Fed to start cutting rates by maybe September, and earnings which have been still pretty good, that’s a pretty good backdrop still,” said Jack Janasiewicz, lead portfolio strategist at Natixis Investment Managers in Boston.

Fed officials at their last meeting acknowledged the US economy appeared to be slowing and that “price pressures were diminishing,” but still counseled a wait-and-see approach before committing to interest rate cuts, according to minutes of the two-day session held on June 11-12 that were released on Wednesday.

On Wall Street, the benchmark S&P 500 and Nasdaq reached fresh closing highs with technology, utilities and materials stocks among the top gainers. Healthcare equities pushed the Dow to finish lower.

The Dow Jones Industrial Average fell 0.06% to 39,308.00, the S&P 500 gained 0.51% to 5,537.02 and the Nasdaq Composite gained 0.88% to 18,188.30.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.26% at 105.39, with the euro up 0.34% at USD 1.078.

“From a seasonality perspective, the first two weeks of July tend to be good and we’re kind of following those seasonal patterns in that the economic numbers continue to point to a slowing economy, not a slow economy, and everything else is still pretty supportive in here,” Janasiewicz added.

Benchmark 10-year Treasury yields dipped following the jobless claims data as well as signs of weakness in manufacturing, as the ISM Non-Manufacturing index came in below expectations. The yield on benchmark US 10-year notes fell 8.1 basis points to 4.355%.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.26% at 105.40, with the euro up 0.34% at USD 1.078.

The yen sank to a fresh 38-year low against the US dollar and a record trough versus the euro ahead of the July 4 holiday in the United States. The yen fell to 161.96 per dollar for the first time since December 1986.

Oil prices gained about 1% after a larger-than-expected decline in US crude stocks, but gains were capped by concerns about rising global inventories in thin trading ahead of the US Independence Day holiday.

Brent crude futures rose 1.3% to settle at USD 87.34 a barrel. US West Texas Intermediate (WTI) crude futures gained 1.3% to settle at USD 83.88.

Gold prices rose more than 1% to a near two-week high as the US dollar weakened. Spot gold added 1.13% to USD 2,355.62 an ounce, while US gold futures gained 1.66% to USD 2,361.60 an ounce.

(Reporting by Chibuike Oguh in New York; Editing by Josie Kao and Deepa Babington)

US yields slide after weaker-than-expected jobs, ISM data

NEW YORK – Benchmark 10-year Treasury yields fell on Wednesday after growing signs of weakness in manufacturing and the jobs market suggested the US economy was slowing.

The ISM Non-Manufacturing index was 48.8 in June, well below the 52.5 consensus and the 53.8 level in May. Initial claims for unemployment rose 238,000 in the week ended June 29, slightly above expectations of 235,000, and up from 234,000 the prior week, the Labor Department said.

Data released earlier in the day by ADP showed private payrolls rose by 150,000 jobs in June, below consensus estimates of an increase of 160,000.

“The economy seems to have weakened at quarter-end,” said Bill Adams, chief economist for Comerica Bank.

The Federal Reserve has cited the labor market’s resilience in the face of interest rates at nearly two-decade highs as one reason why it has yet to cut rates. Futures markets are pricing in roughly 45 basis points in cumulative rate cuts by the end of the year.

The yield on the benchmark US 10-year Treasury note fell 7.7 basis points to 4.359%. The yield on the 30-year bond fell 8 basis points to 4.529%.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, fell 3.1 basis points to 4.708%.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a negative 35.3 basis points. It had touched its least shallow inversion since May earlier in the week.

The bond market closed at 2 p.m. EDT (1800 GMT) ahead of the July Fourth US Independence Day holiday and will reopen on Friday.

The Fed released the minutes from its June policy meeting at 2 p.m. EDT, in which the majority of participants said the US economy appeared to be gradually cooling.

(Reporting by David Randall; editing by Barbara Lewis, Richard Chang and Trevor Hunnicutt)

Oil prices rise on deep weekly draw in US crude inventories

NEW YORK – Oil prices gained about 1% on Wednesday after a larger-than-expected decline in US crude stocks, but gains were capped by concerns about rising global inventories in thin trading ahead of the US Independence Day holiday.

Brent crude futures rose USD 1.10, or 1.3%, to settle at USD 87.34 a barrel. US West Texas Intermediate (WTI) crude futures gained USD 1.07, or 1.3%, to USD 83.88.

The US Energy Information Administration (EIA) reported a 12.2 million draw in the country’s crude oil barrels in storage last week, which was larger than analysts’ expectations in a Reuters poll for a 680,000-barrel draw.

“Strong exports, a slight drop in imports, and a rebound in refinery runs colluded to draw crude inventories by a whopping 12 million barrels,” said Kpler oil analyst Matt Smith.

But the market’s reaction was muted partly due to lower trading volumes ahead of Independence Day, analysts noted.

Potential supply disruptions to Hurricane Beryl have also kept prices elevated, although concerns eased after the US National Hurricane Center said the storm was expected to weaken by the time it entered the Gulf of Mexico this week. The rain and wind impacts could still disrupt Mexico’s offshore oil production as well as its export infrastructure and tighten supply, said Andrew Lipow, president of Lipow Oil Associates. Mexico is a major crude oil exporter.

OPEC output rose for a second consecutive month in June, a Reuters survey found on Tuesday, which weighed on oil prices. Higher supply from Nigeria and Iran offset the impact of voluntary supply cuts by other members and the wider OPEC+ alliance.

“OPEC+ was reported to have increased production in June despite pledges to keep quotas in check through the third quarter, and lingering concerns over a tepid recovery in China sent a bearish signal,” Panmure Gordon’s Kelty said.

Also dampening prices were surveys that showed that China’s services activity expanded at the slowest pace in eight months and confidence hit a four-year low in June. Overall business growth across the eurozone also slowed sharply last month. China is the largest importer of crude barrels, and a slowdown in the country’s economic activity can damage oil demand.

(Reporting by Nicole Jao in New York, Arunima Kumar in Bengaluru, Yuka Obayashi in Tokyo, and Jeslyn Lerh in Singapore; Editing by Laila Kearney, Elaine Hardcastle, David Gregorio, and William Maclean)

Gold hits near 2-week high as soft US data lifts Fed rate-cut bets

Gold prices rose more than 1% to a near two-week high on Wednesday, driven by increased bets for a September interest rate cut by the Federal Reserve after recent US data suggested that the labor market was softening.

Spot gold was up 1.2% at USD 2,357.06 per ounce by 02:08 a.m. ET (1808 GMT). US gold futures settled 1.5% higher to USD 2369.40.

“The precious metals complex, as well as base metals, are rallying across the board on ADP and jobless claims data that reinforces the ‘softening economy’ narrative which will likely lead to the first rate cut in September,” said Tai Wong, a New York-based independent metals trader.

“Bulls are trying to get ahead of what many believe will finally be a weak payrolls report on Friday,” he added.

First-time applications for US unemployment benefits increased last week, while the number of people on jobless rolls rose further to a 2-1/2 year high towards the end of June, consistent with a gradual cooling in the labor market.

A measure of US services sector activity slumped to a four-year low in June amid a sharp drop in orders, potentially hinting at a loss of momentum in the economy at the end of the second quarter.

Following the US data, the dollar slipped to a two-week low, making gold more attractive for other currency holders, while the yield on the benchmark US 10-year Treasury note slid.

The market now sees a 68% chance of the Fed cutting interest rates in September. Lower rates reduce the opportunity cost of holding non-yielding bullion.

Fed officials at their last meeting acknowledged the US economy appeared to be slowing and that “price pressures were diminishing,” according to minutes of the two-day session held on June 11-12.

Investors now look forward to the nonfarm payrolls report due on Friday for more clarity on US rate cuts.

Spot silver rose 3.4% to USD 30.51, platinum gained 0.8% to USD 999.12 and palladium eased 0.1% to USD 1,020.98.

(Reporting by Brijesh Patel in Bengaluru; Editing by Anil D’Silva and Alan Barona)

Trump’s gains supercharge higher-for-longer trade

WASHINGTON – A disastrous debate performance by US President Joe Biden has investors increasingly pricing in the likelihood of his Republican rival Donald Trump winning the US election in November.

The yield on 10-year US Treasury bonds has risen from less than 4.3% to more than 4.4% following last week’s debate, in a nod towards the former president’s probably inflationary plans for tax cuts, tariffs, and monetary policy. Investors were already expecting a steeper yield curve as the Federal Reserve battles with persistent inflation concerns. A Trump surge in the polls would add to those bets.

Biden’s declining chances of re-election come as money managers are already reconsidering the probable path of interest rates, inflation, and economic growth. The Fed likely has reached the end of its rate-tightening cycle, with most investors penciling in one or two interest rate cuts before the end of 2024, according to CME Group.

Longer-term inflation expectations in the United States have also risen to around 3%, compared to usual readings of around 2.5% prior to the pandemic, owing to a variety of factors including supply chain changes and demographic pressures. Trump’s proclivity for trade wars and tax cuts, both of which can provide upward pressure on prices, would add fuel to those fires, leading to higher long-term interest rates and Treasury yields.

Yet the market reaction remains somewhat muted: The yield on 10-year Treasury bonds is still lower than on three-month government debt. That’s because investors face several areas of uncertainty. While opinion polls show the former reality TV show host with an advantage, his return to the White House is not a foregone conclusion — especially with the wild card of Biden’s possible withdrawal from the race.

Even if Trump’s position continues to improve, his ability to push through policies will depend in part on the balance of power in Congress after the election. If Democrats have any say in the drafting of a new tax policy when Trump’s signature 2017 law expires in 2025, it will look significantly different than if Republicans control both the House of Representatives and the Senate.

A second Trump administration’s policy direction will also depend on the personnel he appoints. His first term was a tug of war between traditional Republicans who focused on deregulation and tax policy and populists more interested in stoking trade wars, bringing manufacturing onshore, and restricting immigration. As the direction, and likelihood, of a second Trump term becomes clearer, investors will keep watching the yield curve.

CONTEXT NEWS

Long-term US government bond yields rose in the wake of the June 27 US presidential debate. The yield on the benchmark 10-year US Treasury note settled at 4.435% on July 3, up from 4.287% prior to the debate.

(Editing by Peter Thal Larsen, Pranav Kiran, and Sharon Lam)

Ground laid for stock bounce, services PMIs on deck

Third time lucky for Asian stocks?

Having followed Monday’s listless start to the quarter with a 0.5% decline on Tuesday, Asian stocks are poised to rebound on Wednesday thanks to a triple-boost from the tech-fueled rise in US and global stocks, falling Treasury yields, and a weaker dollar.

That’s as positive a global backdrop as investors in Asian equities can expect, although it may be altered by the slew of service sector purchasing managers index reports from around the continent including economic powerhouses China and Japan.

Cross-asset volatility should provide a helping hand too – the VIX index slipped to a five-week low on Tuesday and currency market vol eased across the board. Even overnight and one-week dollar/yen vol fell, suggesting investors are not overly concerned about the prospect of Japanese intervention.

Tuesday’s market-friendly conditions were in large part laid by Federal Reserve Chair Jerome Powell’s comments at the ECB’s annual policy conference in Sintra, Portugal. While the Fed needs more data before cutting interest rates, the US is back on a “disinflationary path,” Powell said.

Bond yields retraced some of Monday’s steep rise, the dollar dipped, and stocks rose – a collective easing of financial conditions that is usually good for risk appetite and emerging market assets.

The tech sector was a solid performer on Wall Street again, with Tesla shares up 9% to a fresh six-month high and bringing the gains so far this week up to 15%. Having significantly lagged most Big US Tech this year, they are on track for their best week in 18 months.

Investors cheered the fact that the automaker reported a smaller-than-expected 5% drop in vehicle deliveries in the quarter, and analysts said that sales in China were higher than expected too.

Strength across the broader tech complex and especially in mega caps pushed the NYSE FANG index to another record high on Tuesday. Can this feel-good factor spread to Asia? It hasn’t lately, and Asian tech has underperformed badly in recent weeks.

The Hang Seng tech index fell again on Tuesday – its seventh decline in eight sessions – to its lowest since April 24. It has lost 15% since mid-May, in which time the S&P info tech index has risen 15%.

Time for a bounce on Wednesday?

On the economic front, the calendar on Wednesday will be dominated by service sector PMIs from China, Japan, Australia, Singapore, and India.

China’s is the ‘unofficial’ Caixin PMI index, which shows that services activity expanded in May at its fastest pace since July last year and has been consistently growing since January 2023.

Here are key developments that could provide more direction to markets on Wednesday:

– China, Japan, India, Australia services PMIs (June)

– Eurozone services PMI (June)

– South Korea FX reserves (June)

(Reporting by Jamie McGeever; Editing by Josie Kao)

Shares edge higher, US Treasury yields weaken as markets weigh Fed chair comments

NEW YORK – Global stocks edged higher while US Treasury yields dipped on Tuesday as markets weighed data showing a persistently tight labor market, and prospects of interest rate cuts after comments from Federal Reserve Chair Jerome Powell.

The Fed needs more data before cutting rates to ensure recent weaker inflation readings properly reflect underlying price pressures, Powell told a conference in Portugal on Tuesday.

The Labor Department reported on Tuesday that job openings, a measure of labor demand, rose by 221,000 to 8.140 million on the last day of May, the lowest level since February 2021 and slightly ahead of Wall Street expectations.

The yield on benchmark US 10-year notes fell 4.9 basis points to 4.43%.

“Listening to some of his comments, it seems he’s laying the groundwork for cuts maybe in September, that’s where the market thinks they’re going to start,” said James St. Aubin, chief investment officer at Sierra Mutual Funds in Santa Monica, California.

“We saw a little bit of an increase in job openings, so that seems to suggest that the labor market is hanging in there. Bond yields were lower, I think partly because of what Powell was talking about, you know seeming more of a dovish tone.”

MSCI’s gauge of stocks across the globe rose 0.40% to 806.95. In Europe, the STOXX 600 index fell 0.42% as the relief rally in French shares following the first round of parliamentary elections faded.

On Wall Street, all major indexes finished higher after a choppy session with gains in consumer discretionary, financials, communication services, and consumer staples stocks, while healthcare and energy equities were the biggest drags.

The Dow Jones Industrial Average rose 0.41% to 39,331.85, the S&P 500 gained 0.62% at 5,509.01 and the Nasdaq Composite advanced 0.84% to 18,028.76.

Crude prices fell as fears of supply disruptions caused by Hurricane Beryl faded.

Brent crude futures settled down 0.42% at USD 86.24 a barrel, while US West Texas Intermediate (WTI) crude settled at USD 82.81 a barrel, down 0.68%.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, fell 0.15% to 105.68. The euro was down 0.06% at USD 1.0744.

Against the Japanese yen, the dollar weakened 0.01% at 161.44. It hit 161.745 on Tuesday, the strongest in nearly 38 years, driven mainly by a wide gap in US-Japanese interest rates.

Gold prices slipped. Spot gold lost 0.07% at USD 2,330.03 an ounce, while US gold futures fell 0.08% to USD 2,325.80 an ounce.

(USD 1 = 161.5900 yen)

(Reporting by Chibuike Oguh in New York; Editing by Chris Reese and Richard Chang)

Yields ease after job openings data, Powell speech

NEW YORK – Benchmark 10-year Treasury yields dipped on Tuesday following a closely watched reading of the jobs market and comments by Federal Reserve Chair Jerome Powell that monetary policy is closer to the point where interest-rate cuts are appropriate.

Powell, speaking at a monetary policy conference in Portugal sponsored by the European Central Bank, said the US is back on a “disinflationary path,” but policymakers need more data before cutting rates to confirm that the recent weaker inflation readings provide an accurate picture of the economy.

The resiliency of the US labor market has influenced the Fed’s decision to keep benchmark interest rates near two-decade highs in the hope of avoiding a resurgence of inflation.

Job openings, a measure of labor demand, rose 221,000 to 8.140 million on the last day of May, the lowest level since February 2021 and slightly ahead of Wall Street expectations, the Labor Department said on Tuesday. Data for April was revised down to show 7.919 million unfilled positions instead of the previously reported 8.059 million.

While market expectations of roughly 46 basis points in interest rate cuts by December seemed to hold despite the job openings data and Powell’s comments, the market appeared to show relief following a selloff on Monday, said Brian Jacobsen, chief economist at Annex Wealth Management.

“Powell and the macro data has helped move yields a little bit lower, but the political side of the equation and uncertainty over the deficit under a Republican-controlled government has pushed them higher,” he said.

Yields rose on Monday to their highest levels since May as investors increasingly priced in the possibility that Republican former President Donald Trump will prevail in the November presidential elections.

Trump, who was widely seen as winning last week’s debate against Democratic President Joe Biden, was further bolstered by a US Supreme Court ruling on Monday that he has broad immunity from prosecution, making it improbable he will be tried before the election on federal charges brought by Special Counsel Jack Smith.

“The price action has its grounding in forward inflation and issuance expectations in the event of a Trump victory in November, as well as the perceived increase in the probability of such an outcome,” said Ian Lyngen, head of US rates strategy at BMO Capital Markets.

The yield on the benchmark US 10-year Treasury note fell 3.7 basis points to 4.442%. The yield on the 30-year bond fell 2.7 basis points to 4.616%.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, fell 3.1 basis points to 4.741%.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a negative 30.1 basis points, after hitting a negative 27.8, near its least-inverted position since early May.

(Reporting by David Randall; Editing by Chizu Nomiyama, Barbara Lewis, Christina Fincher and Leslie Adler)

Gold down as elevated bond yields weigh, US jobs data in focus

Gold prices edged lower on Tuesday as Treasury yields held firm, while investors digested comments from Federal Reserve Chair Jerome Powell and looked forward to US jobs data due later this week for more signals on US interest rate cuts.

Spot gold was down 0.3% at USD 2,324.88 per ounce by 14:01 p.m. (1801 GMT). US gold futures settled 0.2% lower at USD 2,333.40.

The benchmark 10-year Treasury yield hit a one-month high on Monday and stayed elevated on Tuesday, making non-yielding bullion less attractive.

“The market is still highly sensitive to any discussion about interest rates or anything with regards to Fed policy. So, I think it’s more still in a wait-and-see type momentum,” said Phillip Streible, chief market strategist at Blue Line Futures.

The US central bank still needs more data before cutting interest rates to ensure recent weaker inflation readings give a true picture of what is happening to underlying price pressures, Powell said.

Data on Tuesday showed US job openings rose to 8.14 million in May.

Focus now shifts to Friday’s non-farm payrolls, which will be crucial in assessing whether the US labor market remains resilient against the backdrop of decades-high interest rates.

Gold is down 5% from a record high of USD 2,449.89 per ounce it touched on May 20, a rally caused by safe-haven demand driven by geopolitical and economic uncertainty as well as persistent central bank buying, a crucial category of demand.

“Physical demand is still subdued in major markets like India and Turkey but there are signs of recovery there as consumers are keen to protect against other factors like local inflation which still remains high,” one trader said.

Elsewhere, spot silver eased 0.2% to USD 29.39 per ounce.

Platinum gained 1.6% to USD 993.36 per ounce and palladium jumped over 4% to USD 1,010.50 with the focus on improved prospects for hybrid car sales versus slower growth of the palladium-free electric vehicles market.

(Reporting by Brijesh Patel and in Bengaluru; Additional reporting by Polina Devitt in London;
Editing by Helen Popper, Emelia Sithole-Matarise, and Alan Barona)

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