Gold edges higher after softer US PPI data

April 11 – Gold prices firmed on Thursday after softer-than-expected US producer prices data boosted hopes for US rate cuts this year, while persistent geopolitical concerns added to the metal’s shine.

Spot gold rose 1.1% to USD 2,360.52 per ounce, as of 2:15 p.m. EDT (1815 GMT). Bullion prices hit an all-time high for an eighth straight session on Tuesday.

US gold futures settled 1% higher at USD 2,372.7.

A Labor Department report showed the Producer Price Index (PPI) rose 0.2% month-on-month in March, compared with a 0.3% increase expected by economists polled by Reuters.

“The PPI data came a bit cooler than expected and this keeps alive the hopes of possible rate cuts by year-end — as a result gold is up,” said David Meger, director of metals trading at High Ridge Futures.

“Central bank buying and geopolitical uncertainty continue to be the pillars of support for the gold market,” Meger added.

The Fed could start interest-rate cuts as early as its late-July meeting, traders bet, after the inflation data.

Gold is traditionally known as an inflation hedge but higher interest rates reduce the allure of holding non-yielding gold.

Meanwhile, data on Wednesday showed that US consumer prices increased more than expected in March.

Recent data suggest it may take more time than previously thought to gain greater confidence in inflation’s downward trajectory, before beginning to ease policy, Boston Fed President Susan Collins said on Thursday.

“For the next leg higher (in prices), we still need to see a return of gold exchange-traded-fund (ETF) demand and that requires the Fed indicating a rate cut,” said UBS analyst Giovanni Staunovo.

Spot silver gained 1% to USD 28.24 per ounce. Platinum rose 2.1% to USD 980.15 and palladium lost 0.9% to USD 1,041.62.

Elsewhere, diversified miner Sibanye Stillwater said it could cut over 4,000 jobs as it restructures its South African gold operation. It has already cut about 2,000 jobs at its platinum group metal operations.

(Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Ros Russell, Shilpi Majumdar, and Maju Samuel)

Uncertainty about US rate path will support USD

April 11 – Uncertainty about the path of U.S. interest rates will support the dollar which is the highest yielding major currency and therefore a good place to park cash while investors await clearer signals on where rates are heading.

Expectations for interest rates have swung wildly in the past nine months. Last summer traders were convinced rates would remain high for a long time. By the end of 2023 they were expecting a dramatic and rapid drop beginning in March.

Following the March CPI report less than 50 basis points of easing is expected this year, and the first cut is not seen happening until September.

The view that emerged last summer about rates staying high for long has proved correct, and a U.S. interest rate that looks set to remain above 5 percent throughout 2024 is attractive.

Those who purchase dollars know they it’s very liquid and, as the world’s reserve currency, it’s also considered a safe haven in uncertain times.

One of the main risks for those investing in dollars is those who have already done so. Speculation on dollar rising has quadrupled recently and assets many hold are less safe. BOJ intervention could spark a sudden drop.

(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)

European shares flat with market focus on ECB policy decision

April 11 – European shares started on a tepid note on Thursday as caution dominated the mood ahead of a monetary policy decision by the European Central Bank and remarks by president Christine Lagarde on the outlook for interest rate cuts.

The pan-European STOXX 600 was flat, as of 0720 GMT, with a 1.3% drop in the telecommunications sector.

All eyes will be on ECB’s decision due at 1215 GMT, where the central bank is likely to stand pat on interest rates, but focus will be on any hints that a rate cut could be delivered in June, given easing price pressures and economic weakness.

Rate-sensitive sectors such as real estate inched 0.2% higher, while financials dipped 0.1%.

Among top movers, shares of Societe Generale rose 3.4% after the French lender said it has agreed to sell a professional equipment financing business to rival BPCE for 1.1 billion euros (USD 1.18 billion), as part of a wider divestment strategy.

(Reporting by Johann M Cherian and Ozan Ergenay; Editing by Sherry Jacob-Phillips)

Oil settles lower as rate cut hopes moderate, Brent holds near $90/bbl

April 11 – Oil prices settled lower on Thursday as sticky inflation dampened hopes for near-term US interest rate cuts, but worries that Iran might attack Israeli interests kept crude near six-month highs.

Brent crude futures settled down 74 cents, or 0.8%, to USD 89.74 a barrel while US West Texas Intermediate crude futures settled down USD 1.19, or 1.4%, to USD 85.02.

It will be difficult to maintain Brent above USD 90 a barrel in the second half of the year without actual supply disruption associated with geopolitical events, said global energy strategist Vikas Dwivedi of Macquarie.

“As a result, we expect oil to turn bearish as the year progresses due to non-OPEC supply growth, a material amount of OPEC+ spare capacity re-entering the market, and the potential that continuing inflation softens demand.”

Minutes from the US Federal Reserve showed officials worried that progress on inflation might have stalled and a longer period of tight monetary policy would be needed.

Investors who had expected a rate cut in June now see September as a likelier timing, following a third straight consumer inflation reading that exceeded forecasts.

In Europe, central bank officials kept borrowing costs at a record high as expected, but signalled the ECB may soon cut rates.

Slower rate cuts could crimp oil demand, yet OPEC stuck to its forecast for relatively strong global demand growth in 2024.

The International Energy Agency will announce its expectations in its monthly report on Friday.

Oil prices were also pressured by a power outage on Wednesday that shut multiple fuel-producing units at Motiva Enterprise’s massive 626,600 barrel per day Port Arthur, Texas facility.

Motiva began restarting the gasoline-producing fluidic catalytic cracker (FCC) on Thursday morning, said people familiar with plant operations.

Meanwhile, traders worried that Iran might retaliate for a suspected Israeli air strike on its embassy in Syria on April 1. US Secretary of State Antony Blinken has vowed that the US will stand with Israel against any threats by Iran.

This week, Israel and Hamas began a fresh round of negotiations in their more than six-month-old Gaza war but those talks have yielded no agreement.

(Additional reporting by Noah Browning and Natalie Grover in London, Shariq Khan in New York, and Emily Chow in Singapore; editing by Christopher Cushing, Jason Neely, David Evans, and David Gregorio)

US inflation shock zaps yen, China CPI up next

April 11 – Asia’s equity and bond markets on Thursday get their first chance to react to Wednesday’s sizzling US inflation report, and all the signs are investors should hold on to their hats.

US inflation last month was only incrementally higher than economists had expected but the immediate impact on markets was seismic – Fed rate cut expectations were slashed, stocks tumbled, and bond yields and the dollar soared.

The moves in the dollar and Treasury yields, in particular, are an aggressive tightening of financial conditions for corporate and sovereign borrowers in emerging markets, and Asian markets will feel the squeeze on Thursday.

Perhaps most eye-catching of all, from an Asian market perspective, was the Japanese yen’s plunge to a new 34-year low against the dollar. Not only that, the yen also hit its weakest level in over 30 years against the Chinese yuan.

Currency traders will be on ultra-high alert for yen-buying intervention from Japanese authorities, although it is fair to say the latest rise in dollar/yen is being driven by exploding US yields and blow-out in US-Japan yield spreads.

Fundamentals, in other words.

On the other side of the yuan/yen equation, meanwhile, authorities in Beijing are unlikely to be happy with the competitive advantage Japan is gaining over China from the bilateral exchange rate.

Beijing will also be bristling over ratings agency Fitch’s decision to lower the outlook on China’s sovereign credit rating to negative. Fitch also cut its growth forecasts for China, while raising its debt and deficit projections.

In other gloomy China ratings news, S&P Global on Wednesday dealt the battered property sector a further blow as it slashed developer China Vanke’s credit rating to junk. S&P cut the rating of the country’s second biggest developer by sales by a hefty three notches to BB+ from BBB+.

On the geopolitical front, US President Joe Biden and Japanese Prime Minister Fumio Kishida on Wednesday touted increased joint military cooperation and a new missile defense system, in what looks like a united front against China and Russia.

Investors’ attention on Thursday turns to China, with Beijing scheduled to release producer and consumer price inflation figures for March.

Factory gate prices have been in outright deflation, on a year-on-year basis, since October 2022, and annual consumer price inflation has been mostly negative for almost a year.

The annual PPI rate is expected to have declined to -2.8% from -2.7%, according to a Reuters poll. Annual CPI inflation is expected to have cooled to 0.54% from 0.7%, while consumer prices are expected to have fallen by 0.5% on the month.

If accurate, these figures show deflationary pressures still loom large over the Chinese economy, pointing to over capacity or lackluster demand. Or a bit of both.

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

– China producer price inflation (March)

– China consumer price inflation (March)

– Philippines trade (February)

(By Jamie McGeever)

Wall St ends sharply lower as sticky inflation dims rate cut hopes

NEW YORK, April 10 – US stocks tumbled to a lower close on Wednesday after hotter-than-expected inflation data threw cold water on hopes that the Federal Reserve would begin cutting interest rates as early as June.

All three major US stock indexes veered sharply lower at the opening bell after the Labor Department’s Consumer Price Index (CPI) report landed north of consensus, a reminder that inflation’s road back down to the Fed’s 2% target will remain a long and meandering one.

“The stickiness of inflation data caused a ‘sell first ask questions later’ mentality,” said Ryan Detrick, chief market strategist at Carson Group in Omaha. “And that disappointment caused a push-back on not only the potential timing of the first rate cut but how many we’re going to get.”

Minutes from the Fed’s March policy meeting reflected concerns that inflation’s progress toward that target might have stalled, and restrictive monetary policy may need to be maintained for longer than anticipated.

“Just a week ago (Fed Chairman Jerome) Powell hinted at three cuts,” Detrick added. “One has to wonder if his opinion has changed after the stubborn data we continue to see.”

Equity prices were further pressured by benchmark Treasury yields, which breached 4.5% to touch the highest level since November.

Interest rate-sensitive stocks were hardest hit, with real estate primed for its biggest one-day percentage drop since June 2022.

Housing stocks registered their biggest daily decline since Jan. 23 and the Russell 2000 .RUT notched its steepest one-day slide since Feb. 13.

“Anything related to rates has clearly been hit hard today, from real estate to housing to small caps,” Detrick said.

Financial markets have now priced in a dwindling 16.5% likelihood of a 25 basis point Fed rate cut in June, down from 56.0% just prior to the report’s release, according to CME’s FedWatch tool.

The Dow Jones Industrial Average fell 422.16 points, or 1.09%, to 38,461.51, the S&P 500 lost 49.27 points, or 0.95%, to 5,160.64 and the Nasdaq Composite dropped 136.28 points, or 0.84%, to 16,170.36.

Of the 11 major sectors of the S&P 500, all but energy ended red, with real estate shares suffering the steepest decline.

Investors will now focus on Thursday’s producer prices report for a clearer picture of March inflation, and the unofficial kick-off of first quarter earnings season. On Friday, a trio of big banks – JPMorgan Chase & Co, Citigroup Inc C.N and Wells Fargo & Co – are slated to post results.

Analysts expect aggregate S&P 500 earnings in the first quarter to grow 5.0% from last year, according to LSEG data. That is lower than the 7.2% annual earnings growth for the quarter forecast on Jan. 1.

Most megacap growth stocks slipped with the exception of Nvidia Inc, which bucked the trend by rising 2.0%.

US-listed shares of Alibaba advanced 2.2% after the company’s co-founder Jack Ma released a memo to employees on expressing support for the internet giant’s restructuring efforts – a rare move from the billionaire who has spent the last few years away from the spotlight.

Declining issues outnumbered advancing ones on the NYSE by a 5.93-to-1 ratio; on Nasdaq, a 3.58-to-1 ratio favored decliners.

The S&P 500 posted 4 new 52-week highs and 8 new lows; the Nasdaq Composite recorded 35 new highs and 170 new lows.

Volume on US exchanges was 11.91 billion shares, compared with the 11.52 billion average for the full session over the last 20 trading days.

(Reporting by Stephen Culp; Additional reporting by Shashwat Chauhan and Shristi Achar A in Bengaluru; Editing by David Gregorio)

US yields spike after inflation report, 10-year breaches 4.5%

NEW YORK, April 10 – US Treasury yields spiked on Wednesday after inflation data came in higher than expected, lifting the benchmark 10-year yield to above 4.5%, its highest level since November last year.

US consumer prices increased more than expected in March amid rises in the costs of gasoline and shelter, casting further doubt on whether the Federal Reserve will start cutting interest rates in June.

“We have already seen indications that the market was backing off of any expectation the Fed was going to cut in the first half of the year … now our expectations should be that maybe we get a cut, maybe we get nothing,” said Chris Maxey, managing director and chief market strategist at Wealthspire Advisors.

“I wouldn’t be surprised if we start to see some conversation … around the possibility that they’re going to raise rates later this year,” he said.

The consumer price index rose 0.4% last month after advancing by the same margin in February, the Labor Department’s Bureau of Labor Statistics (BLS) said on Wednesday. In the 12 months through March, the CPI increased 3.5%.

Economists polled by Reuters had forecast the CPI gaining 0.3% on the month and advancing 3.4% on a year-on-year basis.

“Inflation is now fully embedded … This is going to be a long uphill fight, we’re not talking months or quarters, we’re talking years,” said Dean Smith, chief strategist and portfolio manager at FolioBeyond, referring to the Fed’s battle against rising price pressures.

Late on Wednesday, traders were betting on a first cut in September and on less than two cuts this year, below the three 2024 cuts Fed policymakers had projected in March.

Benchmark 10-year yields surged 18 basis points day on day to 4.55%. Two-year yields US2YT=RR, which more closely reflect monetary policy expectations, spiked by about 20 basis points and were last seen at 4.96%, also their highest level since November.

Two and 10-year yields posted their biggest daily gains since March 2023 and September 2022, respectively.

Further out in the curve, 30-year yields gained about 13 basis points to nearly 4.63%.

US President Joe Biden said on Wednesday that despite hotter-than-anticipated inflation he predicted a cut would still happen in 2024. Meanwhile, minutes of the US central bank’s March 19-20 meeting showed Fed officials worried last month that progress on inflation might have stalled.

For Mona Mahajan, senior investment strategist at Edward Jones, while hotter-than-expected inflation complicates the path to lower rates, the long-term story remains one of a cooling economy.

“The direction of travel for the Fed wasn’t just this year, it was two to three years of great moderation. Whether or not we start this year or next year, it remains to be seen,” she said.

She expected higher Treasury yields to make duration – or the idea of buying bonds because of expectations of interest rate cuts – attractive again.

“We think over time the Fed will bring rates to a less restrictive and more neutral stance … so the duration play comes back into play here for investors who maybe had missed the first opportunity,” she said, referring to late last year when benchmark yields touched 5%.

However, in a first test of investor interest for Treasuries, a USD 39 billion auction of 10-year notes tailed on Wednesday, as the Treasury issued the paper at a high yield of 4.56%, some three basis points above the expected rate at the time of the bid deadline, a sign that investors demanded a premium to absorb the debt sale.

The bid-to-cover ratio, a measure of demand, was 2.34 times, the lowest since December 2022.

(Reporting by Davide Barbuscia; Editing by Andrew Heavens, Chizu Nomiyama, Christina Fincher, and Aurora Ellis)

Gold slips from record levels after hot US inflation data

April 10 – Gold prices slipped from record-high levels on Wednesday as the US dollar and Treasury yields firmed after a stronger-than-expected inflation print softened expectations of an early US rate cut.

Spot gold fell 0.7% to USD 2,335.99 per ounce, as of 2:25 p.m. ET (1825 GMT).

US gold futures settled 0.6% lower at USD 2,348.4.

The US dollar index rose 1% and US Treasury yields spiked after the data, making non-yielding bullion less attractive.

A Labor Department report showed the Consumer Price Index (CPI) rose 0.4% on a monthly basis in March, compared with the 0.3% increase expected by economists polled by Reuters.

“Strong employment and elevated CPI are interfering with the Fed’s rate-cut plans but gold, like inflation, remains cheeky,” said Tai Wong, a New York-based independent metals trader.

Federal Reserve officials worried that progress on inflation might have stalled, making a longer period of tight monetary policy necessary, according to the minutes of the US central bank’s March 19-20 meeting.

“The minutes seem to suggest that the entire committee would be ready to reduce rates if the economy evolved as expected. Except inflation is moving as expected,” Wong added.

Despite being known as an inflation hedge, bullion’s appeal tends to fade in an elevated interest rate environment.

Bullion prices hit a record high of USD 2,365.09 on Tuesday.

“Escalating geopolitical risks significantly bolster gold as hot and cold conflicts, and a record number of elections this year, keep the risk thermometer high,” HSBC said in a note, adding that it expects to see a wide trading range of USD 1,975-USD 2,500 for gold prices in 2024.

“Gold demand has been very strong this year buoyed by central bank buying, particularly non-western banks have been buying gold to diversify their foreign exchange reserves away from the US dollar and a volatile Chinese currency,” said Will Rhind, CEO of GraniteShares.

Spot silver fell 0.4% to USD 28.04 per ounce, after hitting a near three-year high on Tuesday.

Platinum edged 1.5% lower to USD 964.35 and palladium fell 4.1% to USD 1,047.92.

(Reporting by Ashitha Shivaprasad and Anjana Anil in Bengaluru; Editing by Shailesh Kuber and Alan Barona)

Funds selling options help temper US stock swings

NEW YORK, April 10 – Popular funds that sell options for income may be moderating the recent bout of volatility in US stocks, extending the calming effect they have had on the market for the last several months.

Assets under derivative income ETFs, funds that use a mix of stock and stock derivatives to generate income, have grown to about USD 71 billion from USD 33 billion at the end of 2022, according to Morningstar data.

Some options mavens believe these funds and other options-selling strategies have tempered stock gyrations, another reason equity markets have enjoyed a long period of calm. The Cboe Volatility Index, Wall Street’s “fear gauge”, in late March fell to its lowest in two months, as strong earnings and expectations of rate cuts this year sent stocks marching higher.

The trades may also have moderated recent volatility as the VIX has climbed to hover near a seven-week high of 16.92 hit on Friday, on mounting worries the Federal Reserve may not deliver as many rate cuts as expected without an inflationary rebound.

The S&P 500 stands near record highs, yet it logged two straight days of 1% swings last week, the first such move in about two months.

While several factors may have kept volatility from flaring even higher, the presence of volatility-selling funds was one moderating force, said Alex Kosoglyadov, managing director for equity derivatives at Nomura.

“There’s been tremendous growth in these ETFs, QIS (Quantitative Investment Strategies) and in mutual fund strategies that have been selling options for income,” Kosoglyadov said. “We see it every day. It definitely has a pronounced impact on the market.”

Options selling strategies come in various forms, including ones that may sell calls, puts or a combination of these, with or without equity holdings. Their diversity makes it difficult to assess the exact market impact they might have on a given day. Taken together, however, they moderate market swings.

For example, some options selling ETFs generate income by selling out of the money call options – contracts with strike prices well above where the market may be trading – against their stock holdings.

Market makers – institutional players such as big banks – taking the other side of these trades often hedge their exposure to the bullish contracts by selling stock index futures. When markets grind higher, as they have in recent months, the ETFs are forced to buy back the call options they sold, prompting market makers to close their own hedges by buying index futures, thereby supporting stocks.

“That’s one of the reasons why you have seen volatility so low over the last few years,” Kris Sidial, co-chief investment officer of volatility arbitrage fund the Ambrus Group.

Every jump in volatility has been met with a “massive wave of supply of index volatility,” Sidial said.

While these options-selling strategies work in the background to temper market moves, they alone would probably not prevent a selloff if the outlook for stocks radically changes, said UBS equity derivatives strategist Maxwell Grinacoff.

“To me it’s the cherry on top in terms of why has volatility been so low,” Grinacoff said.

One potential flashpoint comes on Wednesday, when the US will report consumer price data for March.

A higher-than-expected reading could exacerbate inflation fears and further undermine the case for interest rate cuts – a key driver of the bull market that has boosted the S&P 500 about 26% above its October 2023 lows.

The short volatility trade has a checkered track record on Wall Street. In February 2018, a volatility-tracking note called the VelocityShare Daily Inverse VIX Short Term ETN went bust as market volatility surged in an event dubbed “Volmageddon,” which erased nearly USD 2 billion in investor assets.

Grinacoff and other options market participants are skeptical that the current crop of options-selling funds pose the same sort of systemic risk since they are structured differently and less concentrated in their positioning than past funds.

Still, some market participants worry about what might happen if these strategies were to be hastily unwound.

“When volatility increases, and you’re dealing with derivatives, it’s always difficult to know what will be impacted when,” said Ed Clissold, chief US strategist at Ned Davis Research.

(Reporting by Saqib Iqbal Ahmed and Suzanne McGee; Additional reporting by Laura Matthews; Editing by Ira Iosebashvili and David Gregorio)

Oil settles higher after Israeli strike overshadows ceasefire talks

April 10 – Oil prices settled up USD 1 on Wednesday after three sons of a Hamas leader were killed in an Israeli airstrike in the Gaza Strip, feeding worries that ceasefire talks might stall.

Brent crude futures settled up USD 1.06, or 1.2%, to USD 90.48 per barrel while US West Texas Intermediate (WTI) crude futures settled up 98 cents, or 1.2%, to USD 86.21.

“The oil market has been and continues to be very reactive to news out of Gaza,” said John Kilduff, partner at Again Capital LLC in New York.

The Israeli military confirmed carrying out the attack, describing the three sons as operatives in the Hamas armed wing. On Tuesday, Hamas said it was studying an Israeli ceasefire proposal in the more than six-month-old Gaza war but called it was “intransigent” and said it met none of the Palestinian demands.

A continuing conflict could drag in other countries, particularly Hamas-backer Iran, the third-largest producer in the Organization of the Petroleum Exporting Countries (OPEC).

Mexico’s decision to curb crude exports in order to supply domestic refineries also supported prices and led to record-low US imports of Mexican crude in early April.

In early trade oil prices fell after US government data showed crude oil and fuel inventories swelled by much more than expected on weak demand and lower oil exports.

US crude stocks climbed by 5.8 million barrels in the week ended April 5, more than double the rise of about 2.4 million barrels analysts had expected. Refined products inventories rose unexpectedly with gasoline up by 700,000 barrels and distillate stocks by 1.7 million barrels.

The US Energy Information Administration (EIA) data also showed a roughly 2.1 million barrel per day (bpd) drop in oil product supplied, a proxy for fuel demand, and a 2.7 million bpd drop in crude oil exports.

“Some of the heat has come out of the rally in crude oil in the early part of this week on hopes of a ceasefire in Gaza and higher US inventories,” said Tony Sycamore, a market analyst at IG in Singapore.

Separately, the US EIA sharply raised its forecast for crude oil output. It anticipates an increase of 280,000 bpd to 13.21 million bpd in 2024, up from its earlier forecast of a 20,000 bpd increase.

The EIA said it expects Brent crude prices to average USD 88.55 a barrel in 2024, up from a previous forecast of USD 87, and it upgraded its demand growth forecast for the past two years.

“Broadly it reconfirmed an oil market outlook with OPEC+ in good control of the oil market,” SEB analyst Bjarne Schieldrop said.

OPEC’s monthly oil market report will be published Thursday, April 11 and the International Energy Agency’s oil market report will be published Friday, April 12.

(Additional reporting by Ahmad Ghaddar and Noah Browning in London and Andrew Hayley in Beijing; editing by Jason Neely, Christina Fincher, David Gregorio, and Barbara Lewis)

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