Global equity market-neutral hedge funds shine

April 23 – Global equity market-neutral hedge funds have lured investors as they can deliver better returns in times of global rates uncertainty and geopolitical tension than traditional stock markets.

WHY IS IT IMPORTANT

Equity market-neutral hedge funds (EMN) execute strategies that capitalize on discrepancies in stock valuations by purchasing undervalued securities and selling overvalued ones, making them less exposed to fluctuations in broader market indices.

Analysts say volatile market conditions are likely to result in the mispricing of stocks that these funds are well-equipped to exploit.

They also say these funds could offer a hedge against market instability in the face of significant events, including the US Presidential elections, global interest rate policy shifts, and concerns about an economic downturn.

WHAT THE NUMBERS SAY

According to HFR data, global equity market-neutral hedge funds achieved a 4.1% gain in the first quarter of this year, marking the highest quarterly increase in nearly 24 years.

The data also showed the funds attracted an inflow of USD 942.8 million in the first quarter of this year, compared with an outflow of USD 95.9 million in the previous quarter.

QUOTES

“With a strong start to the year, I expect equity market-neutral (EMN) hedge funds to continue their success through Q2 and Q3 of this year, especially compared to the market as a whole,” said Jeff McClean, chief executive officer at Solidarity Wealth.

“EMN funds provide diversification to investors with a low correlation to the overall market. For institutional investors, this can be incredibly important as they need to provide return and/or income to their retirees or pension holders in good and bad markets, ” he said.

(Reporting By Patturaja Murugaboopathy; Editing by Vidya Ranganathan and Barbara Lewis)

Gold holds steady as focus turns to US economic data

April 23 – Gold prices steadied on Tuesday after hitting a more than two-week low on diminishing fears about an escalation of tensions in the Middle East, with investors awaiting key economic data for further clarity on the timeline on US interest rate cuts.

Spot gold was little changed at USD 2,325.80 per ounce by 1:40 p.m. ET (1740 GMT) after earlier hitting its lowest since April 5. Bullion’s March to April rally drove it up by nearly USD 400 to an all-time high of USD 2,431.29 on April 12.

US gold futures settled 0.2% lower at USD 2,342.10.

Israeli strikes intensified across Gaza in some of the heaviest shelling in weeks, but with fears of a wider conflict receding after Iran said last week it had no plan to retaliate following an apparent Israeli drone attack, financial markets showed signs of sharper appetite for risk.

That has meant gold, traditionally seen as a haven from risk, has lost ground, said Julia Khandoshko, CEO at European broker Mind Money.

The market is also closely monitoring signals from the US, where inflation data and statements from the Federal Reserve indicate that interest rates may not be cut in June, Khandoshko said.

Recent remarks from Fed officials hinted at no urgency to cut rates, reducing the appeal of non-interest paying bullion. Traders now expect the first Fed rate cut to come most likely in September.

The market will keep a tab on US GDP data due on Thursday and the Personal Consumption Expenditures (PCE) print on Friday for more clues on the health of the economy and the timing of cuts.

Khandoshko added that overbought gold was also witnessing a technical correction.

“There are many investors who have missed out on the big rally in gold and will be looking to pick up dips like these,” said Fawad Razaqzada, market analyst at City Index.

Elsewhere, spot silver rose 0.4% to USD 27.29. Autocatalyst metal platinum dipped 0.5% to USD 912.75, while palladium gained 1.1% to USD 1,020.12.

(Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Jan Harvey and Marguerita Choy)

Firm dollar turns up heat on yen, heightening intervention talk

TOKYO, April 23 – A firm dollar had the yen locked near a fresh 34-year low on Tuesday, keeping investors on heightened intervention watch as they looked ahead to key US inflation report and the Bank of Japan’s rate decision this week.

The Japanese currency remained pinned after hitting 154.85 yen on Monday, its lowest level since 1990, as the stark US-Japan rate differentials came into focus again amid an easing in Iran-Israel tensions.

Traders have been keeping a wary eye as the yen slips towards 155.00, a level considered by many participants as the new trigger for intervention by Japanese authorities.

Japan’s finance minister on Tuesday said last week’s meeting with his US and South Korean counterparts has laid the groundwork for Tokyo to act against excessive yen moves, issuing the strongest warning yet on the chance of intervention.

The yen was last up marginally at 154.74 per dollar, buoyed by authorities’ latest comments.

However, there are doubts about whether Tokyo will act so close to the Bank of Japan’s (BOJ) two-day policy meeting that starts on Thursday.

The BOJ is expected to project inflation will stay around its 2% target for the next three years in new forecasts, signaling its readiness to raise interest rates again this year from current near-zero levels.

Yen weakness may force the central bank to “strike a more hawkish tone,” which would bring forward expectations of another rate hike and support the yen, said Carol Kong, a currency strategist at Commonwealth Bank of Australia.

“But I expect USD/JPY to remain elevated in the near term because of broad USD strength, which will keep alive the possibility of FX intervention.”

The dollar’s strength has been broad-based, with gains edging toward 5% this year.

It was last trading around 106.10, below the five-month highs hit last week after comments from Federal Reserve officials and a run of hotter-than-expected inflation data forced a paring back of rate cut expectations.

Markets are pricing in a 46% chance of the Fed’s first rate cut starting in September, with November not far behind at 42%, according to the CME FedWatch Tool. That was in sharp contrast to just a few weeks ago when markets were betting on June for the US monetary easing cycle to begin.

Investors will have another chance to assess the strength of the US economy this week, with first-quarter gross domestic product data on Thursday and personal consumption price expenditures (PCE) index, the Fed’s preferred measure of inflation, on Friday.

“It is conceivable that markets further push back the timing of the expected first rate cut from September, if this week’s GDP and/or PCE adds to concerns about disinflation stalling out. The risk therefore lies towards higher US yields and a stronger USD,” said the Commonwealth Bank of Australia’s Kong.

While September has emerged as the new bet for the Fed’s first rate cut, expectations remain for the European Central Bank (ECB) and Bank of England (BoE) to start cutting by mid-year.

That divergence has put both currencies on the back foot against the dollar.

The euro, mostly unchanged on Tuesday at USD 1.065575, was on track for its biggest monthly drop against the dollar since January.

Sterling was last trading at USD 1.23535 after dropping to a fresh five-month low against the greenback at USD 1.2299 on Monday.

Ahead of US PCE this week, PMIs published across Europe later on Tuesday could offer some relief.

“If the PMI data continues to show that…the rest of the world outside the US is improving, that could continue to keep the dollar in check,” said Moh Siong Sim, a currency strategist at the Bank of Singapore.

Elsewhere, the Australian dollar rose to a one-week high of USD 0.6465.

China’s yuan slipped to 7.2455 per dollar, its weakest level since mid-November last year.

In cryptocurrencies, bitcoin fell 0.23% to USD 66,386.00, after touching over a one-week high of USD 67,267.34 earlier in the session.

(Reporting by Brigid Riley; Editing by Shri Navaratnam and Sam Holmes)

Gold prices hit 2-1/2-week low as Middle East tensions ease

April 23 – Gold prices touched a more than two-week low on Tuesday, dragged by easing concerns of an escalation in the Middle East crisis and profit-taking, while investors awaited key data for fresh clues on the US interest rate trajectory.

Spot gold fell nearly 1% to USD 2,306.31 per ounce, as of 0616 GMT, after hitting its lowest since April 5 earlier. US gold futures slipped 1.1% to USD 2,319.80.

“Gold has been the recipient of different types of buying flows in recent months, and now one of those flows has slightly dried up with safe-haven demand receding. Investors are seeing this as an opportunity to lock in some profits after gold’s recent (strong) run,” said Tim Waterer, chief market analyst, KCM Trade.

Gold dipped more than 2% on Monday, its biggest intraday fall in over a year, as fears of a wider regional conflict eased after Iran said it had no plan to retaliate following an apparent Israeli drone attack.

Gold hit a record high of USD 2,431.29 on April 12.

This week’s main economic focus will be on US GDP data on Thursday and Personal Consumption Expenditures (PCE) print on Friday.

“If these happen to produce a beat to the upside we could see a further extension of the wait for interest rate relief. Such a scenario could cause the gold price to take a larger step back … in the short term from an opportunity cost perspective,” Waterer said.

March headline PCE is likely to increase 0.3%, unchanged from the previous month, and a year-on-year gain of 2.6%, compared with a 2.5% increase in February, according to a Reuters poll.

“The decline… may have also tripped weak longs… fuelling a larger drop,” Singaporean bank OCBC said.

Spot silver fell 1.1% to USD 26.91 per ounce, spot platinum dropped 1.1% to USD 908.30, and palladium slumped 1.8% to USD 990.54.

(Reporting by Sherin Elizabeth Varghese in Bengaluru; Editing by Rashmi Aich and Sherry Jacob-Phillips)

China trading-data restrictions are self-defeating

HONG KONG, April 23 – Buying and selling shares in the People’s Republic is about to get harder. This month the Shanghai and Shenzhen stock exchanges said they would, as of mid-May, stop publishing real-time data of foreign investors’ trades into and out of domestic stocks. The duo is presenting the move as a technical change to bring them into line with bourses outside China. It smacks, though, of yet another attempt to prop up sentiment.

The current setup comes courtesy of Stock Connect, an almost decade-old system linking the two mainland exchanges with their peer in Hong Kong. It allows foreigners to trade domestically listed Chinese shares. The rolling stream of live trading data has served as a high-profile measure of overseas demand ever since.

For most of the past year or so, overseas investors have been pulling capital out of the market. That’s at odds with Beijing’s efforts to pump up stocks, from curbing divestment by local funds to having state firms buy shares; one of them, Central Huijin Investment, poured at least USD 41bn into domestic exchange-traded funds in the first quarter, Reuters reported.

A state-run newspaper, The Economic Information Daily, first flagged in October the possibility of curtailing real-time foreign trading data, pegging it to mounting outflows of overseas capital. It argued that reducing information could prevent ordinary investors from making decisions based on “partial or wrong understanding”. Those concerns appear to be back, with Stock Connect figures showing offshore investors on track to post net sales this month for the first time since January.

Shanghai and Shenzhen now intend only to provide net daily flows after markets close. The diminished transparency is bad news for hedge funds and quantitative investors, which Beijing has long disdained, assigning them partial blame for a stock-market implosion in 2015.

Nine years later, these fast-money players have actually been among the only sources of foreign inflows in recent months, traders have told Breakingviews. Global long-only fund managers are likely to interpret the change as more evidence for their lack of confidence in China’s stock market. And, perhaps worse for Beijing, China’s vast army of retail traders will lose crucial market intelligence on when foreign investors buy and sell stocks. Irking so many different types of shareholders is likely to lead to more market ructions, not fewer.

CONTEXT NEWS

Stock exchanges in Shanghai and Shenzhen announced on April 12 they will suspend live data on foreign buying and selling of domestic equities “in a month”.

Recent figures from the bourses show offshore investors in Chinese stocks are on track to post net outflows in April, the first time since January.

(Editing by Antony Currie and Nivedita Bhattacharjee)

Oil prices stabilize, Middle East tensions remain in focus

NEW DELHI, April 23 – Oil prices edged higher on Tuesday, after falling in the previous session, as investors continued to assess the risk from geopolitical concerns in the Middle East.

Global benchmark Brent crude oil futures traded 18 cents higher at USD 87.18 a barrel by 0634 GMT, and US West Texas Intermediate crude futures also gained 16 cents to USD 82.06 a barrel.

Both benchmarks fell 29 cents in the previous session on signs that a recent escalation of tensions between Israel and Iran had little near-term impact on oil supplies from the region.

“The unwinding of geo-political risk premium has dented crude oil prices recently as supply was not disrupted meaningfully,” said Sugandha Sachdeva, founder of Delhi-based research firm SS WealthStreet.

But the evolving geopolitical landscape remains critical in steering crude oil prices, she said.

“While there are no indications of an imminent full-scale war between the countries involved, any escalation in tensions could quickly reverse the current trend,” Sachdeva added.

ANZ analysts echoed the sentiment and highlighted US approval of new sanctions on Iran’s oil sector that broaden current sanctions to include foreign ports, vessels and refineries that knowingly process or ship Iranian crude.

Also, EU foreign ministers agreed in principle on Monday to expand sanctions on Iran after Tehran’s missile and drone attack on Israel, the bloc’s foreign policy chief Josep Borrell said.

“The geopolitical backdrop is still very fraught with so many risks at the moment, so clearly we’re going to see a lot of volatility until there’s a lot more clarity around it,” the ANZ analysts said in a podcast.

Israeli troops fought their way back into an eastern section of Khan Younis in a surprise raid, residents said on Monday, sending people who had returned to abandoned homes in the ruins of the southern Gaza Strip’s main city fleeing once more.

Investors are waiting for the release of the US gross domestic product figures and the March personal consumption expenditure data – the Fed’s preferred inflation gauge – later this week to assess the trajectory of monetary policy.

US crude oil inventories are expected to have increased last week while refined product stockpiles likely fell, according to a preliminary Reuters poll of analysts.

“Sticky US inflation figures, hawkish statements from key Fed officials, and rising US inventories are all acting as constraints on crude oil price growth,” Sachdeva said.

(Reporting by Mohi Narayan in New Delhi and Shariq Khan in New York; Editing by Jamie Freed and Gerry Doyle)

Japan issues strongest warning yet on readiness to intervene in currency market

TOKYO, April 23 – Japanese Finance Minister Shunichi Suzuki said last week’s meeting with his US and South Korean counterparts has laid the groundwork for Tokyo to act against excessive yen moves, issuing the strongest warning to date on the chance of intervention.

“I voiced strong concern on how a weak yen pushes up import costs. Our view was shared not just in a meeting with my South Korean counterpart, but at the trilateral meeting that included the United States,” Suzuki told parliament on Tuesday.

“I won’t deny that these developments have laid the groundwork for Japan to take appropriate action (in the currency market), though I won’t say what that action could be,” he said.

The fresh warnings came after the dollar rose to 154.85 yen, its strongest level against the Japanese currency since 1990, keeping markets on heightened alert for any signs of intervention from Tokyo to prop up the yen.

The United States, Japan, and South Korea agreed to “consult closely” on foreign exchange markets in their first trilateral finance dialogue last week, acknowledging concerns from Tokyo and Seoul over their currencies’ recent sharp declines.

The rare warning from the three countries’ finance chiefs, which was inserted in a joint statement after their meeting, was seen by some analysts as Washington’s informal consent for Tokyo and Seoul to intervene in the market when necessary.

Japan could intervene in the currency market at any time as recent yen falls are excessive and out of line with fundamentals, ruling party executive Satsuki Katayama said.

“I don’t think Japan will face any criticism if it were to act now,” Katayama told Reuters in an interview on Monday, when asked about the timing of a possible currency intervention.

BOJ MEETING IN FOCUS

While a weak yen boosts exports, it has become a headache for Japanese policymakers as it inflates the cost of living for households by pushing up import prices.

At a regular news conference earlier on Tuesday, Suzuki stressed that Japanese authorities will work closely with overseas counterparts to deal with excessive volatility in the foreign exchange market.

“We are watching market moves with a high sense of urgency,” Suzuki told reporters, adding that Tokyo authorities were ready to take action “without ruling out any options” against excessive currency moves.

Japanese policymakers may be escalating verbal warnings ahead of Japan’s Golden Week holidays next week to keep traders on guard over the chance of intervention, said Hideo Kumano, chief economist at Dai-ichi Life Research Institute.

“Regardless of whether there will be one, markets are certainly more alert on the chance of intervention, he said.

The latest decline in the yen comes after a string of strong US economic data, particularly on inflation, which pushed the dollar to five-month highs and reinforced expectations that the Federal Reserve is unlikely to be in a rush to cut interest rates this year.

That dynamic has focused market attention on how the yen’s weakness would affect the timing of the next rate hike by the Bank of Japan, after BOJ Governor Kazuo Ueda last week signaled the central bank’s readiness to tighten policy if the weak yen’s boost to inflation becomes hard to ignore.

Speaking at a parliament session on Tuesday, Ueda said the BOJ will raise interest rates if trend inflation accelerates towards its 2% target as it expects.

The BOJ will conclude a two-day policy meeting on Friday. While markets are betting it would keep short-term rates unchanged, the central bank is expected to project inflation will stay around its 2% target for the next three years, sources have told Reuters.

Japan last intervened in the currency market in 2022, first in September and again in October, to prop up the yen.

(Reporting by Leika Kihara, Makiko Yamazaki, and Satoshi Sugiyama; Editing by Christian Schmollinger and Shri Navaratnam)

Wall Street stocks end higher with major corporate earnings in view

NEW YORK, April 22 – Wall Street stocks ended higher on Monday following a market sell-off in previous sessions as investors eyed a busy week for quarterly results from key companies that would provide a glimpse of the US economy’s health.

The benchmark S&P 500 and the Nasdaq rebounded from a decline over the past six sessions which had been caused by investors re-evaluating their expectations on interest rate cuts in the wake of strong economic data, geopolitical tensions, persistent inflation, and commentary from Federal Reserve officials.

All 11 S&P 500 sectors closed higher, with technology and financial stocks leading gains.

Markets were gearing up for quarterly results from megacap companies this week, including some of the so-called Magnificent Seven stocks such as Tesla, Meta Platforms, Alphabet, and Microsoft.

“I think it’s just standard buy-on-the-dip after a 5% pullback that kind of wakes people up to put money to work,” said Lamar Villere, portfolio manager at Villere & Co in New Orleans.

“Investors are looking ahead to this week with hugely significant earnings coming out and with concerns about what the Fed is doing with pushing back any rate cuts,” Villere added.

Money markets are pricing in only about 41 basis points (bps) of rate cuts this year, down from about 150 bps seen at the beginning of the year, according to LSEG data.

In addition to top corporate earnings, markets are also awaiting the release later this week of the March personal consumption expenditure (PCE) data – the Fed’s preferred inflation gauge – to further ascertain the trajectory of monetary policy.

Fed policymakers are in a media blackout period ahead of their policy meeting on May 1.

The S&P 500 gained 43.37 points, or 0.87%, to 5,010.60 and the Nasdaq Composite gained 169.30 points, or 1.11%, to 15,451.31. The Dow Jones Industrial Average rose 253.58 points, or 0.67%, to 38,239.98.

Megacap growth stocks ended higher, with gains in Alphabet, Amazon.com and Apple between 0.5% and 1.5%. Nvidia gained 4.4% to rebound from a 10% drop in the previous session.

“This is predicated on positive technical expectations on tech earnings and traders not wanting to be short in front of it, and the PCE numbers later this week that people are somewhat sanguine about as well,” said Thomas Hayes, chairman of hedge fund Great Hill Capital in New York.

Tesla shares dropped 3.4% as the electric vehicle maker cut prices in a number of its major markets, including China and Germany, following price reductions in the United States.

Cardinal Health fell 5% after the drug distributor said its contracts with UnitedHealth Group’s OptumRx, one of its largest customers, will not be renewed when they expire at the end of June.

Advancing issues outnumbered decliners by a 2.87-to-1 ratio on the NYSE. There were 49 new highs and 76 new lows on the NYSE. On the Nasdaq, 2,682 stocks rose and 1,499 fell as advancing issues outnumbered decliners by a 1.79-to-1 ratio.

The S&P 500 posted 9 new 52-week highs and 4 new lows while the Nasdaq recorded 40 new highs and 184 new lows.

Volume on US exchanges was 10.33 billion shares, compared with the 11.03 billion average for the last 20 days.

(Reporting by Chibuike Oguh in New York; Additional reporting by Shristi Achar A and Shashwat Chauhan in Bengaluru; Editing by Matthew Lewis)

Yields slip as investors move toward safe haven assets

NEW YORK, April 19 – US Treasury yields dipped from near five-month highs on Friday as investors moved toward safe haven assets in the wake of a presumed Israeli attack on Iran.

Tehran played down the incident and indicated it had no plans for retaliation, a response that appeared gauged towards averting region-wide war.

Easing concerns over a broad Middle East conflict will likely continue to pressure Treasuries, which have sold off for much of the week on worries that persistent inflation will prevent the Federal Reserve from cutting interest rates this year.

A number of Fed officials have said this week that they do not feel urgency to cut rates given the strength of the US economy and labor market. Minneapolis Fed President Neel Kashkari told Fox News Channel late Thursday that he also wants to be “patient,” with the first rate cut “potentially” not appropriate until next year.

Chicago Federal Reserve President Austan Goolsbee joined the chorus on Friday.

“Given the strength of the labor market and progress on easing inflation seen over a longer arc, I believe the Fed’s current restrictive monetary policy is appropriate,” Goolsbee told a business journalism group in Chicago. “I think we have to recalibrate and we have to wait and see.”

Markets are now pricing in a total of 40 basis points in rate cuts by the end of the year, down from 48 at the start of the week and sharply lower than the more than 160 basis points in cuts expected at the start of January.

Continued conflict in the Middle East is likely to continue to push up inflation expectations, driving Treasury yields higher, said Thierry Wizman, global FX & rates strategist at Macquarie.

“A scenario of ongoing shadow wars, border wars, and limited wars may keep inflation expectations high and make the Fed’s job harder,” but not cause mass panic needed to drive a flight to safety that bond bulls would hope for,” he said.

The yield on 10-year Treasury notes was down 3 basis points at 4.617%. The yield on the 30-year Treasury bond fell down 3.2 basis points to 4.713%.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was down 1.5 basis points at 4.975%.

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 -35.5 basis points, down approximately 5 basis points from yesterday.

(Reporting by David Randall; Editing by Angus MacSwan, Richard Chang, Cynthia Osterman, and Deepa Babington)

US recap: Dollar mixed as Fed, Middle East, BoJ risks weighed

April 19 – The dollar index was flat on Friday and barely higher on the week as last week’s gains, which came on the Fed’s increasing caution over rate cuts due to stubborn inflation, consolidated amid brief bouts of geopolitical derisking.

Friday’s weakest major currency was sterling, which fell 0.49% on a combination of risk aversion, disappointing UK retail sales, and surprisingly dovish comments from Bank of England Deputy Governor Dave Ramsden on Friday.

Unlike EUR/USD, which rose 0.09%, sterling made new lows for the week and hit its lowest since Nov. 14’s explosive rally. Also unlike EUR/USD, Gilts-Treasury yield spreads resumed their downtrend, with swaps now fully pricing in at least two 25bp BoE rate cuts this year from closer to 40bp before Friday.

Fed rate-cut pricing remains stalled near 40bp for this year.

EUR/USD’s early risk-off drop amid Middle East tensions found support at 1.0611 and just above April’s 1.0601 lows, as Bund-Treasury yield spreads tightened slightly.

The ECB remains modestly favored to cut rates in June, with roughly 70b priced in by year-end.

ECB President Christine Lagarde injected a bit more uncertainty into recent signaling from the central bank regarding rate cuts being likely to commence in June, perhaps as an attempt to support EUR/USD after its 2.6%, 6-day dive from April’s high to its lows.

But ECB policymaker Pierre Wunsch was a shade more dovish, noting the eurozone and US economies had “decoupled” and the gap between the ECB and Fed’s interest rates may widen, which likely aided EUR/USD’s slip away from Friday’s 1.0678 high.

USD/JPY fully recovered from the plunge to 10-day moving average support at 153.59 in Asian trading triggered by Middle East linked safe-haven trading.

Prices remain below Tuesday’s new 34-year high at 154.79 and below the 155 level where BoJ intervention has been expected.

However, comments from the IMF’s Japan mission chief, Nada Choueiri, said the yen’s weakness is a net positive for Japan’s economic growth. She added that BoJ tightening must be gradual and she believed G7 nations — including Japan — were committed to flexible exchange rates.

Whether Japanese policymakers take that guidance remains to be seen. Japanese inflation continues to recede, though most measures have remained above the BoJ’s target for more than two years. The BoJ is not expected to hike at next Friday’s meeting, and probably will not move again until a 10bp hike in July.

That suggests next Friday’s US PCE data and Fed implications will be more important than that day’s BoJ meeting.

(Editing by Burton Frierson; Randolph Donney is a Reuters market analyst. The views expressed are his own.)

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