Yields dip as investors await inflation report

US Treasury yields fell on Monday but held in a tight trading range as investors waited on highly anticipated Consumer Price Index (CPI) data for April due on Wednesday, which analysts say will be key for Federal Reserve policy for the rest of this year.

Consumer prices were higher than anticipated in the first quarter, which suggested that the US central bank might make fewer rate cuts this year.

Weaker-than-expected jobs growth in April then led investors to reignite bets for two 25 basis point cuts this year, but that view is heavily dependent on inflation softening.

“It is difficult to overstate the importance of CPI for the Fed between now and the end of the year,” said Ian Lyngen, head of US rates strategy at BMO Capital Markets in New York.

“This is the one data print that will either confirm that the last mile on inflation is going to be very difficult, or it will mark the resumption of the trend that was in place towards easier inflation in the second half of last year,” Lyngen added.

Wednesday’s inflation report is likely to guide the Fed’s policy outlook at its June 11-12 meeting, when officials will update their economic and interest rate projections.

“If the data comes in stronger than expected, it will be very difficult for the Fed to signal perhaps that ‘we’re going to do 50 basis points’ worth of rate cuts’ without an increase in the unemployment rate,” Lyngen said.

Economists polled by Reuters expect the closely watched core CPI to rise by 0.3% in the month, down from 0.4% in March, for an annual gain of 3.6%, down from 3.8%.

Fed Vice Chair Philip Jefferson said on Monday that in an otherwise healthy economy, the central bank should hold steady on monetary policy until it becomes clear that inflation is again moderating back to the 2% target.

The US central bank will cut its key interest rate twice this year, starting in September, according to a stronger majority of economists polled by Reuters who broadly raised their inflation forecasts for a second consecutive month.

Benchmark 10-year note yields were last down 2 basis points at 4.623%.

Two-year yields fell 1 basis point to 4.857%.

The inversion in the yield curve between two-year and 10-year notes was little changed on the day at minus 37 basis points.

Other US data this week will include producer prices for April on Tuesday and retail sales for April on Wednesday.

Americans last month braced for generally higher inflation pressures over the next few years and accelerating home price increases, according to a report released on Monday by the Federal Reserve Bank of New York.

(Reporting by Karen Brettell; Editing by Kevin Liffey and Will Dunham)

Treading water ahead of China tariff news, US CPI

Asian markets on Tuesday will be looking to maintain the positivity with which the week has started, with subdued volatility, stable bond markets, and mostly upbeat stocks trumping worries over tariffs and gloomy Chinese data.

For now, at least.

US President Joe Biden is expected to announce new China tariffs this week, targeting strategic sectors including a major hike in levies on electric vehicles, measures which could elicit a significant response from Beijing.

Sentiment toward China is also being dampened by the mixed macro numbers out of Beijing. The latest were persistent deflationary pressures and the lowest credit growth on record, and on Monday the finance ministry said it will start raising 1 trillion yuan in special treasury bonds to stimulate key sectors of the flagging economy.

How that is received by investors remains to be seen, but with the government’s 5% GDP growth target this year under threat and the possibility of a trade war with the United States growing, it may prove to be largely ineffective.

If Chinese stocks are grinding higher laboriously, the same can’t be said for Hong Kong’s Hang Seng index, which climbed to a fresh nine-month high on Monday. It has now risen in 13 of the last trading 15 sessions, gaining almost 20% in the process, and is outperforming the S&P 500 year to date.

Asia’s economic calendar on Tuesday is extremely light, with wholesale price inflation figures from Japan and India being the main releases, while the corporate spotlight shines on the latest earnings reports from Japan’s Sony and China’s Tencent.

US Federal Reserve Chair Jerome Powell speaks in Europe on Tuesday and the main event of the week for world markets will probably be US consumer price inflation on Wednesday. Until then, markets may try and maintain a holding pattern.

Japanese wholesale inflation figures don’t often move markets, but they will be watched more closely than usual on Tuesday given the weakness of the yen and how intense speculation is growing around the Bank of Japan’s next step.

BOJ officials appear to have turned more hawkish lately, leading some analysts to pencil in an interest rate hike next month. Money markets are fully pricing in a 10-basis point hike in July and another in the fourth quarter.

Economists expect a slight pick up in monthly inflation to 0.3% from 0.2%, and the annual rate to stay at 0.8%. That’s probably not enough to move the BOJ’s dial, but a reasonably strong out-of-consensus number might.

The annual rate of wholesale inflation in India, meanwhile, is expected to almost double to 1.00% in April from 0.53% in March.

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

– Japan wholesale price inflation (April)

– India wholesale price inflation (April)

– Indonesia retail sales index (March)

(Reporting and Writing by Jamie McGeever; Editing by Josie Kao)

Funds slash short yen positions at fastest pace in 4 years: McGeever

ORLANDO – Debate is swirling as to whether Japan’s suspected currency market intervention to support the yen recently has been or will be a success, but if the aim was to target speculative activity, Tokyo may be feeling vindicated.

At least for now.

The latest Commodity Futures Trading Commission data show that hedge funds and speculators slashed their short yen positions by 20% in the week to May 7, the biggest weekly yen-bullish swing since March 2020.

Funds have probably rebuilt some of that short yen position, as the dollar has climbed back up through 155.00 yen. And at an estimated cost of USD 23.6 billion, Tokyo’s intervention in that week came with a price.

But a degree of two-way risk has been injected into the market and CFTC funds may be less willing to take on large bets against the yen at these levels knowing the Ministry of Finance could show its hand again at any point.

The latest CFTC figures show that funds cut their net short yen position by 33,466 contracts in the week through May 7 to 134,922 contracts.

A short position is essentially a bet that an asset will fall in value, and a long position is a wager its price will rise.

In dollar terms, that short yen position is now worth USD 10.9 billion, down from USD 13.3 billion in the week through April 30 and USD 14.5 billion the week before that.

By the end of April, CFTC speculators’ short yen position had grown to the largest since 2007 and the second biggest ever, and the currency had fallen to a 34-year low of 160 per dollar, finally forcing Tokyo to act.

Goldman Sachs FX analysts reckon intervention “should have some lasting impact” on the yen, although the broader macro environment remains quite negative for the currency.

Deutsche Bank’s George Saravelos believes that as long as the Bank of Japan shows no urgency in raising interest rates, that fundamentally negative backdrop for the yen will not change.

Indeed, Deutsche Bank research suggests discretionary hedge funds were strong buyers of dollar/yen on April 29 and May 1, the days Japanese authorities are widely thought to have been selling.

The BOJ appeared to take a hawkish turn at its April policy meeting, a summary of opinions at the meeting showed, putting July and even June in the frame as the potential date for a second rate hike following March’s historic step.

But recent economic indicators have been mixed, consumer spending in March fell for a 13th straight month, and some analysts think BOJ Governor Kazuo Ueda struck a less hawkish tone in a speech last week.

The shift in yen positions in the week to May 7 has led to a wider reduction in CFTC funds’ bullish dollar bets. The total value of their long dollar positions against G10 currencies fell to USD 27.7 billion from USD 32.7 billion the prior week and a five-year high of USD 36.3 billion the week before that.

(The opinions expressed here are those of the author, a columnist for Reuters)

(By Jamie McGeever; Editing by Chris Reese)

Yields rise as traders await next week’s inflation report

US Treasury yields rose on Friday as traders waited on key inflation data for April next week to guide expectations of Federal Reserve policy.

Yields hit one-month lows last week after a softer-than-expected employment report for April re-ignited bets that the US central bank will make two 25 basis point interest rate cuts this year.

Now, traders will need to see further progress on inflation easing closer to the Fed’s 2% annual target to solidify those rate cut expectations.

Further declines in inflation “could certainly get the ball rolling on rate cuts,” said Tom di Galoma, managing director and co-head of global rates trading at BTIG.

The Fed last week signaled it is still leaning towards eventual reductions in borrowing costs, but noted that recent disappointing inflation readings could make those rate cuts a while in coming.

Debate over whether US interest rates are high enough deepened among Fed officials this week.

The closely watched core Consumer Price Index (CPI) on Wednesday is expected to rise 0.3% in April, for an annual gain of 3.6%, according to economists polled by Reuters.

Will Compernolle, a macro strategist at FHN Financial, sees the outcome of the inflation report as asymmetric.

“If it is bad, it probably will determine the year because the Fed has to seriously consider whether they are sufficiently restrictive at this point,” while inflation coming in as expected would be positive for the Fed but “doesn’t mean that we’re in the clear.”

“If it’s bad I think there are much bigger implications than if it’s a much more encouraging report,” Compernolle said.

A survey on Friday showed that US consumer sentiment sagged to a six-month low in May amid growing anxiety about inflation.

Benchmark 10-year note yields rose 6 basis points to 4.504%.

Two-year yields gained 6 basis points to 4.868%.

The inversion in the yield curve between two-year and 10-year notes US2US10=TWEB was little changed on the day at minus 36 basis points.

Other US data next week will include producer prices for April on Tuesday and retail sales for April on Wednesday.

(Reporting By Karen Brettell; editing by Christina Fincher and Diane Craft)

Dollar up slightly after consumer sentiment data, CPI eyed

NEW YORK – The dollar inched higher on Friday following a reading on US consumer sentiment as investors sorted through a batch of comments from Federal Reserve officials, with the focus beginning to turn toward key inflation readings next week.

The greenback pared declines and turned modestly higher after the University of Michigan’s preliminary reading on consumer sentiment came in at 67.4 for May, a six-month low and below the 76.0 estimate of economists polled by Reuters. In addition, the one-year inflation expectation climbed to 3.5% from 3.2%.

The dollar had weakened on Thursday after a higher-than-expected reading on initial jobless claims fueled expectations the labor market was loosening, adding to other recent data that indicated the overall economy was slowing.

The dollar index, which measures the greenback against a basket of currencies, gained 0.09% to 105.31, with the euro down 0.08% at USD 1.0772. The dollar was on track for its first weekly gain after two straight weeks of declines.

Next week, investors will eye readings on inflation in the form of the consumer price index (CPI) and producer price index (PPI), as well as retail sales data.

“The CPI, I don’t think it’s going to change people’s views; the price pressure is still elevated, but it’ll be a decline, it will be just a softer year-over-year read,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

“So it’s not so much the magnitude, but the direction.”

Also supporting the dollar were comments from Dallas Federal Reserve President Lorie Logan, who said it was not clear whether monetary policy was tight enough to bring inflation down to the US central bank’s 2% goal, and it was too soon to be cutting interest rates.

That ran counter to earlier comments from Atlanta Federal Reserve President Raphael Bostic, who said the Fed likely remained on track to cut rates this year even if the timing and extent of the policy easing was uncertain. In addition, Chicago Federal Reserve President Austan Goolsbee said he believes US monetary policy is “relatively restrictive.”

The comments capped off a week of varying opinions among Fed officials as to whether rates are high enough.

Following last week’s softer-than-expected US payrolls report and a Fed policy announcement, markets have been pricing in about 50 basis points (bps) of cuts this year, with a 62.2% chance for a cut of at least 25 basis points in September, according to CME’s FedWatch Tool.

Against the Japanese yen, the dollar strengthened 0.26% to 155.86 and was up about 1.9% on the week against the Japanese currency after it tumbled 3.4% last week, its biggest weekly percentage drop since early December 2022 after two suspected interventions by the Bank of Japan.

Japan’s Finance Minister Shunichi Suzuki said on Friday the government would take appropriate action on foreign exchange if needed, echoing recent comments from other officials.

Sterling edged up 0.02% to USD 1.2525 after earlier reaching USD 1.2541 in the wake of data showing Britain’s economy grew by the most in nearly three years in the first quarter of 2024, ending the shallow recession it entered in the second half of last year.

(Reporting by Chuck Mikolajczak; Editing by Alex Richardson and Jonathan Oatis)

Oil falls on prospect of higher-for-longer US rates, stronger dollar

NEW YORK – Oil prices fell by nearly USD 1 a barrel on Friday as comments from US central bank officials indicated higher-for-longer interest rates, which could hinder demand from the world’s largest crude consumers.

Brent crude futures settled at USD 82.79 a barrel, down USD 1.09, or 1.3%. US West Texas Intermediate crude settled at USD 78.26 a barrel, down USD 1.00, or 1.3%.

For the week, Brent logged a 0.2% loss, while WTI recorded a rise of 0.2%.

Dallas Federal Reserve President Lorie Logan on Friday said it was unclear whether monetary policy was tight enough to bring down inflation to the US central bank’s 2% goal.

Higher interest rates typically slow economic activity and weaken oil demand.

Atlanta Fed President Raphael Bostic also told Reuters he thought inflation was likely to slow under the current monetary policy, enabling the central bank to begin reducing its policy rate in 2024 – though perhaps by only a quarter of a percentage point and not until the final months of the year.

“The two Fed speakers certainly seemed to put the kibosh on the prospect of rate cuts,” said John Kilduff, a partner at Again Capital.

The US dollar strengthened after the Fed officials’ comments, making greenback-denominated commodities more expensive for buyers using other currencies. Higher-for-longer US interest rates could also dampen demand.

Oil prices were also under pressure from rising US fuel inventories approaching the typically robust summer driving season, said Jim Ritterbusch of Ritterbusch and Associates.

“Given the price decline of the past month and the weaker-than-expected demand trends for US gasoline and diesel, some bearish demand adjustment would appear likely,” Ritterbusch said.

Next week, US inflation data could influence Fed decisions on rates.

Oil drew little support from the US oil rig count, which is an indicator of future supply, despite energy services firm Baker Hughes data showing the number of oil rigs fell by three to 496 this week, their lowest since November.

Money managers, meanwhile, cut their net long US crude futures and options positions in the week to May 7 by 56,517 contracts to 82,697, the US Commodity Futures Trading Commission said.

Data on Thursday showing China imported more oil in April than the same month last year also helped keep oil prices from moving lower. China’s exports and imports returned to growth in April after contracting the previous month.

The European Central Bank, meanwhile, looks increasingly likely to start cutting rates in June.

In Europe, a Ukrainian drone attack set an oil refinery in Russia’s Kaluga region on fire, RIA state news agency reported on Friday, the latest salvo from Kyiv in what has become a series of tit-for-tat attacks on energy infrastructure.

Conflict in the Middle East also continues after Israeli forces bombarded areas of the southern Gaza city of Rafah on Thursday, according to Palestinian residents, after a lack of progress in the latest round of negotiations to halt hostilities in Gaza.

(Reporting by Laila Kearney; Additional reporting by Natalie Grover in London, Katya Golubkova in Tokyo, and Sudarshan Varadhan in Singapore; Editing by Marguerita Choy, David Gregorio, Nick Macfie, and Jonathan Oatis)

Global equity funds attract big inflows as rate cut bets rise

Demand for global equity funds rose sharply in the seven days to May 8, driven by renewed bets on Federal Reserve interest rate cuts after a softer-than-anticipated US employment report.

Investors bought a net USD 12.72 billion worth of global equity funds during the week, the largest weekly net purchase since March 20, data from LSEG showed.

Last week, Labor Department data showed US job growth slowed more than expected in April, easing worries that the persistent inflation in the first quarter would push the Federal Reserve to hold interest rates for longer.

European equity funds led the way, attracting about USD 6.21 billion in a second successive week of net buying. Asian and US equity funds recorded net purchases of USD 4.71 billion and USD 1.14 billion, respectively.

However, sectoral equity funds recorded net outflows for a sixth successive week, worth about USD 519 million. Investors sold healthcare, tech, and gold & precious metals funds for a net of USD 390 million, USD 340 million, and USD 308 million, respectively.

Consumer staples bucked the trend with about USD 507 million worth of net purchases.

Debt funds were also in demand with investors pumping a net USD 12.6 billion into global bond funds, the most in a week since April 10.

Global high-yield bond funds attracted a net USD 3.41 billion, the largest amount since Jan. 31. Loan participation and government bond funds saw net purchases of about USD 2 billion and USD 1.46 billion, respectively.

Money market funds secured about USD 54.96 billion worth of net inflows, the most for a week since March 6.

Among commodities, investors ditched USD 493 million worth of precious metal funds, the largest net weekly withdrawal since April 17. Energy funds lost a net of USD 93 million.

Data covering 29,503 emerging market funds showed investors remained net sellers for a fourth straight week, with a net USD 1.51 billion flowing out.

Emerging equity funds attracted USD 1.17 billion, however, the first weekly net purchase since March 27.

(Reporting by Gaurav Dogra in Bengaluru; Editing by Kirsten Donovan)

Inflation, tariffs dominate market landscape

Inflation data from the world’s three largest economies – China, the United States, and the eurozone – sets the tone for world markets this week, and Asia gets the ball rolling on Monday following the April figures out of Beijing at the weekend.

The general market backdrop on Monday should be positive with a US interest rate cut in September back on the cards, Wall Street revisiting recent peaks, European indexes at new highs, and China and Hong Kong pushing Asian stocks higher.

Add in oil prices slipping to two-month lows and a steady dollar pushing down on currency market volatility, and financial conditions are broadly loosening.

But much of that may be offset by the news that the Biden administration will announce new China tariffs on strategic sectors, including a major hike in levies on electric vehicles.

The full announcement, expected on Tuesday, will maintain existing tariffs on many Chinese goods set by former President Donald Trump, and will also add new tariffs to semiconductors and solar equipment.

As analysts at Morgan Stanley note, the inflationary impact of an escalating US-China tariff war will fray nerves in global government bond markets. In truth, sentiment across all markets will likely be negatively affected.

Figures on Saturday showed that consumer price inflation in China last month was a bit stronger than expected, but producer deflation deepened, an indication that pipeline price pressures remain firmly to the downside.

Also on Saturday, figures showed that new bank lending in China fell more than expected in April while broad credit growth hit a record low, underscoring how sluggish the economic recovery is and the need for more action from Beijing to rev it up.

The US and eurozone inflation readings for April will be released on Wednesday and Friday, respectively, which investors hope will give a clearer picture of the interest rate path ahead in the coming months.

Before that, investors in Asia have Indian inflation on their plates too. Economists polled by Reuters expect a slight cooling to 4.8% from 4.9% in March, which would be the lowest since June last year.

While headline inflation has moderated recently, food prices, which account for nearly half the consumer price index basket, have remained elevated, squeezing household budgets.

Inflation is expected to return to the Reserve Bank of India’s 4% target next quarter, also when the central bank is expected to cut rates, according to a Reuters poll.

But growth is holding up well and the RBI may want to wait for the Fed to cut rates before moving, so as not to weaken the rupee which is languishing at record lows against the dollar. Money markets put a Q2 rate cut at around a 50-50 probability.

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

– India CPI inflation (April)

– Japan money supply (April)

– Australia business confidence (April)

(Reporting and Writing by Jamie McGeever; Editing by Josie Kao)

Earnings bolster US stocks but crucial inflation report looms

NEW YORK – A strong earnings season and blockbuster reports from tech industry titans fueled a US stock market rebound from the first real swoon of 2024. Next week’s inflation data could determine whether the good vibes continue.

The benchmark S&P 500 index is up over 9% for the year, up near its late-March record high, following a 5% pullback that occurred last month.

The bounce has overlapped with a stronger-than-expected first-quarter reporting season for US companies. With well over 80% of the S&P 500 having reported results, companies are on track to have increased earnings by 7.8%, well ahead of the April expectation of 5.1% growth, according to LSEG IBES.

Still, some investors worry the rally could stall without evidence that inflation is cooling again. While Fed Chairman Jerome Powell has reassured markets the central bank is unlikely to raise rates anytime soon, months of strong inflation have led to concerns that policymakers will not cut them this year.

Strong earnings have “got investors feeling more comfortable about being in this market,” said Art Hogan, chief market strategist at B Riley Wealth. However, “the trajectory of inflation is always going to be important to us while we’re in a cycle where we expect the next thing for the Fed to do is to cut rates.”

Inflation reports have preceded market pivots in recent years, as the Fed has ramped up interest rates to cool consumer inflation from four-decade highs hit in 2022. Most recently, an April 10 release showing a third-straight month of stronger-than-expected inflation was followed by a roughly two-week decline in stocks as it spurred fears the Fed could raise rates this year.

Economists polled by Reuters expect the May 15 consumer price index report will show an increase of 0.3% in April from the previous month. Investors are also awaiting data on retail sales next week, as well as earnings from Walmart, Home Depot, and Cisco.

“If the CPI report comes in hotter, it’s going to likely price out any rate cuts for 2024,” said Matthew Miskin, co-chief investment strategist with John Hancock Investment Management. “You may actually have to start talking about policy that’s more restrictive if (inflation) is too hot relative to expectations.”

BOOST FROM EARNINGS

For now, bullish investors have gained confidence from a solid earnings season. Standouts included generally strong reports from most of the so-called Magnificent Seven tech and growth giants whose shares helped propel the market higher last year and continue to have a huge weighting in the S&P 500.

Among these, Alphabet announced its first dividend as the Google parent topped estimates for sales and profit, while Apple’s revenue fell less than feared as the iPhone maker unveiled a USD 110 billion stock buyback plan, the largest ever such authorization from a US company.

“There’s been enough in terms of upside surprise that’s helped to support the markets,” said Yung-Yu Ma, chief investment officer at BMO Wealth Management. “There was concern that it could even be somewhere between a modest and weak earnings season, which didn’t happen.”

With Nvidia the last of the group to report, on May 22, Magnificent Seven quarterly earnings are on track to jump 49.4%, according to Tajinder Dhillon, senior research analyst at LSEG.

Analysts are also becoming more upbeat about megacap financial prospects. Estimates for 2024 earnings for the six megacap companies that have reported have risen by 2.1% on average over the past 30 days, versus only a 0.1% rise in 2024 earnings estimates for the S&P 500 overall, according to Jessica Rabe, co-founder of DataTrek Research.

Still, investors have punished companies whose results missed expectations. These shares have underperformed the market by 3.2% this quarter, compared to 1.2% the previous quarter, according to a report from Manish Kabra, chief US equity strategist at Societe Generale.

That reaction is “not a major surprise, as this season overlapped with bond market volatility and a strong performance in the run-up to reporting,” Kabra said.

(Reporting by Lewis Krauskopf; Editing by Ira Iosebashvili and David Gregorio)

Gold gains over 1% as soft US jobs data lifts Fed rate-cut bets

Gold prices climbed over 1% on Thursday after fresh Labor Department data indicated that the number of Americans filing new unemployment claims rose more than expected last week, buttressing bets of a rate cut by the Federal Reserve this year.

Spot gold rose 1.14% to USD 2,335.04 per ounce by 1835 GMT. US gold futures for June delivery settled 0.8% higher, at USD 2,340.3 per ounce.

Initial claims for state unemployment benefits increased 22,000 to a seasonally adjusted 231,000 for the week ended May 4, the Labor Department reported on Thursday, compared to 215,000 claims that economists polled by Reuters had forecast in the latest week.

The dollar slipped about 0.3% against its rivals to USD 105.27 after the jobs report, making gold less expensive for other currency holders.

“What we’re seeing is the continued impact from the expectations for Fed rate cuts, or when those rate cuts may occur,” said David Meger, director of alternative investments and trading at High Ridge Futures.

The latest data indicates a slight weakening in the jobs market, bolstering expectations that the Fed’s interest-rate cuts may happen sooner than previously expected, which supports markets like gold and silver, he said.

Lower interest rates reduce the opportunity cost of holding bullion. Traders are currently pricing in about a 67% chance of a Fed rate cut in September, according to the CME’s FedWatch Tool.

“The miss in the US jobs data… gave gold some strength here, and some safety buying this morning,” said Bob Haberkorn, senior market strategist at RJO Futures.

Looking ahead, investor attention will shift to consumer price index data scheduled to be released next week.

Spot silver climbed 3.09%, to USD 28.19 per ounce, and spot platinum gained 1.11%, to USD 982.56 per ounce. Spot Palladium rose 1.8%, to USD 968.48 per ounce.

(Reporting by Kavya Balaraman and Rahul Paswan in Bengaluru, Editing by Franklin Paul, Ravi Prakash Kumar, and Pooja Desai)

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