Funds lift short yen position to second largest ever: McGeever

ORLANDO, Florida – Hedge funds’ collective bet against the Japanese yen has mushroomed to the second largest ever, further evidence that while economic fundamentals are behind the currency’s extraordinary fall to 34-year lows against the dollar, so too is speculative trading.

Japanese authorities have repeatedly vowed to take “decisive action” against speculative activity, and on Monday morning they appeared to finally intervene after the yen slumped to 160.00 per dollar, a level last seen in 1990.

Commodity Futures Trading Commission data that shows speculators’ largest net short yen position since June 2007, and the second biggest since yen futures contracts were launched in 1986, is already probably out of date.

The figures are for the week through April 23 and the yen has fallen another 3% since then, most of that following the Bank of Japan’s April 26 policy decision. The short yen position for the week to April 30 will almost certainly be a new record.

As it is, in the week through April 23 CFTC funds increased their net short yen position to 179,919 contracts. The only bigger net short position since CFTC yen futures were launched in the mid-1980s was the 188,077 contracts in June 2007.

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

Funds’ net short yen position in the first week of January was just 55,949 contracts. They have increased it in 13 of the 16 weeks this year, and it has almost doubled in size in the last six weeks.

Some observers would argue that looks a lot like speculative activity, and there is little doubt that CFTC funds’ positions are deep in extreme territory.

USD 36-BILLION DOLLAR BET

Does the Ministry of Finance agree? It appears so, now that the dollar briefly breached 160.00 yen in early Monday trade in Asia – Japan is closed for a public holiday – sparking a rapid recovery to 155.00 per dollar.

The effectiveness of any intervention beyond an immediate yen bounce, however, remains to be seen.

“Given the fundamental backdrop, which is likely to be reinforced (this week) by FOMC and US labor data, intervention flushes are merely a means of unwinding excess positioning and providing some two-way risk for markets,” Westpac analysts wrote on Sunday.

In dollar terms, CFTC funds’ position is a USD 14.5 billion leveraged bet against the yen, the largest since November 2017. That accounts for 40% of their aggregate USD 36.3 billion net long dollar position against G10 currencies, the most bullish bet on the greenback since May 2019.

Earlier this month, funds’ yen position accounted for around 60% of their overall long dollar position against G10 currencies, so they are expressing their increasingly bullish dollar view against a wider range of currencies.

The CFTC data for the week to April 23 show that funds were net short of euros to the tune of almost 10,000 contracts, the first net short position since September 2022.

Perhaps even more remarkable was the move against sterling. Funds swung to a net short of 26,233 contracts – the first net short since November – from a long of 8,619 contracts the week before.

That swing of almost 35,000 contracts was the biggest bearish shift in a single week since December 2007 and the fourth largest ever.

Yen bets and the broader dollar position are getting stretched. Momentum is strong, but a reversal must surely be closer.

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

(By Jamie McGeever; Editing by Jacqueline Wong)

Gold eases as steady dollar dampens appeal

Gold prices edged down on Monday as a steady U.S. dollar made bullion less affordable for overseas buyers, while investors awaited further clues on when the U.S. Federal Reserve would deliver its first interest rate cut.

FUNDAMENTALS

* Spot gold fell 0.3% to USD 2,328.20 per ounce as of 0112 GMT. U.S. gold futures were down 0.3% at USD 2,339.70 per ounce.

* The dollar edged up 0.1% against its rivals. A stronger dollar makes greenback-priced gold more expensive for buyers holding other currencies.

* The U.S. personal consumption expenditures (PCE) price index increased 0.3% last month, in line with forecasts, a development that is unlikely to change expectations that the Fed will hold off cutting interest rates until September.

* Fed policymakers sifting through the latest inflation data will find little to fuel a sense of urgency to cut rates, but also nothing to rule out the likelihood of rate reductions starting later this year.

* Lower interest rates boost the appeal of holding non-yielding bullion.

* China’s gold consumption in the first quarter climbed nearly 6% from a year earlier, the country’s Gold Association said.

* Physical gold dealers in India charged premiums last week for the first time in nearly two months as a pullback in domestic prices lured buyers, while premiums in top consumer China slipped. GOL/AS

* Impala Platinum said the restructuring of its South African operations could lead to 3,900 job losses as it battles low metal prices.

* China’s industrial profits fell in March and slowed gains for the quarter compared to the first two months, raising doubts about the strength of a recovery for the world’s second-biggest economy.

* Spot silver fell 0.2% to USD 27.12 per ounce, platinum was down 0.1% at USD 915.10, while palladium lost 0.8% to USD 946.75.

(Reporting by Sherin Elizabeth Varghese in Bengaluru; Editing by Subhranshu Sahu)

Lofty US stocks leave investors punishing earnings disappointments

NEW YORK – Richly valued US stocks are leaving investors with little tolerance for disappointment, raising the stakes ahead of a week in which two more technology and growth giants are set to report.

Strong reports from Microsoft and Google parent Alphabet on Thursday helped propel the S&P 500 to its biggest weekly gain since early November following its first 5% pullback of the year. The S&P 500 is up about 7% in 2024 and some 24% since late October.

But investors punished a disappointing forecast from Meta Platforms. The Facebook parent’s stock tumbled over 10% on Thursday after its report. A sales warning saw shares of industrial bellwether Caterpillar fall 7%.

More broadly, S&P 500 companies that have topped analyst earnings estimates this quarter have seen their shares outperform by a median of just 0.2%, JPMorgan strategists said. By contrast, those that have missed earnings estimates have had their shares lag by a median of 4%, the biggest such underperformance for misses in at least eight years.

Earnings reports have been “pretty good,” said Rick Meckler, partner at Cherry Lane Investments. But “anyone that’s missed in any way is paying a pretty heavy price.”

More earnings are in store in the coming week from the so-called Magnificent Seven group of companies that drove markets higher last year. Amazon reports on Tuesday and Apple on Thursday. On Wednesday, the Federal Reserve will release its latest monetary policy statement after concluding its two-day meeting.

Some believe the market’s nearly unabated run higher over the past six months has made investors less forgiving of earnings setbacks. The S&P 500 trades at 20 times forward earnings estimates, well above its historic average of 15.7, according to LSEG Datastream.

“We cautioned that potential earnings beats might not lead to equity upside during the results season, given the already strong equities run leading up to the earnings season, and stretched positioning…,” the JPMorgan strategists said. “Indeed, stock price reactions in the US (have) been underwhelming so far.”

Shares of Tesla surged 12% earlier in the week after the company said it would introduce new models by early 2025. Some investors attributed that to bargain hunting after a painful selloff this year, which left the bar for good news much lower. Tesla shares remain down over 30% for the year.

Rising Treasury yields could be another factor. Companies’ projected future profits are more heavily discounted in analysts’ models when bond yields rise, as investors can now get a higher reward from risk-free government debt. The benchmark 10-year Treasury yield hit 4.74% this week, its highest level since early November, following more evidence of stronger-than-expected inflation.

Overall, however, 78% of S&P 500 companies have topped analysts’ earnings estimates for the first quarter, with earnings on pace for a 5.6% rise from a year earlier, LSEG IBES said on Friday.

Solid corporate results have grown more important as climbing Treasury yields and stubborn inflation have raised uncertainty about stocks, said Chuck Carlson, chief executive officer at Horizon Investment Services.

Corporate profits are “coming through at a level that can provide support for the market and kind of overcome some of the wobbliness in the inflation and the interest rate environment here,” Carlson said.

Earnings could take a backseat if bond yields keep marching higher or inflation data remains stronger than expected. While investors do not expect any interest rate action from the Fed at next week’s meeting, they will be listening for the central bank’s insights on recent evidence of stronger-than-expected inflation.

Expectations for interest rate cuts, which had been a key driver of the rally, have faded following signs of economic strength and sticky inflation. Futures markets on Friday showed investors pricing in just 35 basis points in rate cuts for 2024, compared to more than 150 priced in January.

Earnings have “been a positive, but what the market’s more concerned about, I would argue, is inflation and what the Fed’s going to do about it,” said Scott Wren, senior global market strategist at Wells Fargo Investment Institute.

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

Yen trips past 160-per-dollar to April 1990 lows

SINGAPORE – The Japanese yen hit its weakest levels since April 1990 on Monday, in trading thinned by a holiday in Japan and attempts by traders to test key levels and stop-loss orders in a nervous, illiquid market.

The dollar rose as far as 160.245 yen in a sudden move after the yen traded in a narrow 158.05-158.15 range in early deals.

A portfolio manager said “stops” on the pair at the key 160 level had been “taken out”, meaning the yen’s descent had forced those with long yen holdings and stop-loss orders around that big level to square positions, exacerbating its slide.

The yen’s move barely affected the euro and sterling, both of which stayed near the bottom of the ranges hit during Friday’s volatile session.

Markets are on guard for any intervention by Japanese authorities to contain the yen’s nearly 11% fall this year.

While the yen had its biggest drop in six months on Friday, it also briefly surged to 154.97 to the dollar, triggering speculation that Japanese authorities may have checked currency rates ahead of likely intervention. It was not immediately clear what caused the move.

Japan’s yen was at 159.105 by 0200 GMT, down 0.5%. Tokyo markets were closed for the first of the country’s Golden Week holidays.

The yen had moved nearly 3.5 yen between 158.445 and 154.97 on Friday as traders vented their disappointment after the Bank of Japan kept policy settings unchanged and offered few clues on reducing its Japanese government bond (JGB) purchases – a move that might have put a floor under the yen.

The Federal Reserve‘s May 1 policy review is the prime focus for markets this week, with investors already anticipating a delay in its rate cuts after a batch of sticky U.S. inflation and as officials including Chair Jerome Powell emphasise even those plans are dependent on data.

Vishnu Varathan, head of Asia economics and strategy at Mizuho Bank in Singapore, expects the dollar-yen pair will see more two-way action until the Federal Open Market Committee (FOMC) meeting, unlike in the past few weeks when hawkish Fed expectations had kept the dollar steadily rising against most other currencies.

“The bar is pretty high for a sustained hawkish surprise, which would in turn lift yields,” he said, referring to the Fed.

“So, from a yield-spread perspective between U.S. Treasuries and JGBs, for that to continue to fuel further yen depreciation, the bar is really high because the Fed may not be tilting as hawkish as markets expect either.”

“The BOJ disappointment might be transcribed onto the FOMC insofar that they may be more undecided than decidedly hawkish.”

The Fed is seen holding its benchmark interest rate steady at 5.25%-to-5.5% at the April 30-May 1 meeting. Investors now see perhaps only a single cut this year, currently anticipated by November, according to the CME’s FedWatch tool.

Sterling was at $1.2522, up 0.22%, but still some distance from Friday’s $1.2541 highs.

Oil prices fall 1% on Israel-Hamas ceasefire talks, U.S. inflation concerns

BEIJING – Oil prices fell in early Asian trading on Monday, erasing gains from Friday as Israel-Hamas peace talks in Cairo eased fears of a wider conflict in the Middle East and U.S. inflation data further dimmed the prospects of interest rate cuts anytime soon.

Brent crude futures LCoC1 fell by as much as $1, or 1.1% to $88.50 a barrel before ticking back up to $88.55 at 0149 GMT. West Texas Intermediate (WTI) futures CLc1 were down 84 cents, or 1%, at $83.01 a barrel.

Stepped-up efforts to mediate a ceasefire between Israel and Hamas moderated geopolitical tensions and contributed to the weak opening on Monday, IG market analyst Tony Sycamore said. A Hamas delegation will visit Cairo on Monday for peace talks, a Hamas official told Reuters.

Israel’s foreign minister said on Saturday a planned incursion into Rafah, where more than one million displaced Palestinians are sheltering, could be put off in the event of a deal that involves the release of Israeli hostages.

A White House spokesperson said Israel had agreed to listen to U.S. concerns about the humanitarian effects of the potential invasion.

Markets are also on watch for the U.S. Federal Reserve’s May 1 policy review.

“Also playing a part are some nerves ahead of this week’s Federal Open Market Committee meeting which is expected to come with a more hawkish tone,” Sycamore said.

U.S. inflation rose 2.7% in the 12 months through March, data on Friday showed, above the Fed’s target of 2%. Lower inflation would have increased the likelihood of interest rate cuts, which would stimulate economic growth and oil demand.

“The sticky U.S. inflation sparks concerns for ‘higher-for-longer’ interest rates”, leading to a stronger U.S. dollar and putting pressure on commodity prices, independent market analyst Tina Teng said.

The dollar strengthened on the prospect of higher-for-longer interest rates. A stronger dollar makes oil more expensive for those holding other currencies.

Further weighing on the outlook for oil demand, China’s industrial profit growth slowed down in March, official data showed on Saturday, in the latest sign of frail domestic demand in the world’s second largest economy.

Cumulative profits of China’s industrial firms rose 4.3% to 1.5 trillion yuan ($207.0 billion) in the first quarter from a year earlier, compared to a 10.2% rise in the first two months.

But oil prices could swing higher again if U.S. inventory data and China’s PMI index show improvements this week, Teng said.

Brent had settled up 49 cents and WTI up 28 cents on Friday on concerns about disruptions to supply from events in the Middle East.

The market brushed aside potential supply disruptions stemming from Ukranian drone strikes on the Ilsky and Slavyansk oil refineries in Russia’s Krasnodar region over the weekend. The Slavyansk refinery had to suspend some operations after the attack, a plant executive said.

(Reporting by Colleen Howe; Editing by Sonali Paul)

((colleen.howe@thomsonreuters.com;))

Oil settles higher on supply concerns in the Mideast, economic woes subdue gains

HOUSTON – Oil prices settled higher on Friday, garnering support from tensions in the Middle East, but a strong dollar and US inflation data quashed hopes that the Federal Reserve would cut interest rates soon, giving prices a ceiling.

Brent crude futures settled up 49 cents, or 0.55%, to USD 89.50 a barrel. US West Texas Intermediate crude futures settled up 28 cents, or 0.34%, to USD 83.85 a barrel.

Supply concerns supported prices as tensions continued in the Middle East.

Benjamin Netanyahu, Israel’s prime minister, said any rulings by the International Criminal Court, which is investigating Hamas’ Oct. 7 attacks on Israel and Israel’s military assault on Gaza, would not affect Israel’s actions but would “set a dangerous precedent.”

As tensions escalate, Israel’s military said on Friday that its air force struck in Lebanon’s West Beqaa District and killed a militant who advanced attacks against Israel.

Israel stepped up air strikes on Rafah on Thursday after saying it would evacuate civilians from the city in southern Gaza and launch an all-out assault despite allies’ warnings that doing so could cause mass casualties.

“Israel is not afraid to come and support themselves on their own if they have to, people are watching to see what happens between Netanyahu and Biden,” said Tim Snyder, chief economist at Matador Economics.

“The geopolitical element is not over, the proxy battles going on right now will continue,” and this is still providing support and helping to offset the negative pressure from the inflationary data, Snyder added.

Meanwhile, macroeconomic pressures capped gains after data released on Friday showed growing inflation.

In the 12 months through March, US inflation rose 2.7% after an advance of 2.5% in February. Last month’s increase was broadly in line with economists’ expectations.

The Fed has a 2% inflation target. The US central bank is expected to leave rates unchanged at its policy meeting next week.

“The economic data this morning was enough for market participants to conclude that the Fed is not going to be forthcoming with interest rate cuts any time soon,” said John Kilduff, partner with Again Capital LLC.

“Geopolitical jitters in the market are what is keeping us aloft. Those two competing forces should keep us in check,” Kilduff added.

US Treasury Secretary Janet Yellen told Reuters on Thursday that US GDP growth for the first quarter could be revised higher, and inflation will ease after a clutch of “peculiar” factors held the economy to its weakest showing in nearly two years.

US economic growth was likely stronger than suggested by the weaker quarterly data, Yellen said. Oil prices have flip-flopped since Yellen’s comments and the release of the inflation data on Friday.

Meanwhile, the dollar soared to a fresh 34-year high against the yen on Friday, bolstered in part by the US inflation data.

“Dollar strength is helping to exert negative pressure today,” Kilduff said.

Elsewhere, OPEC Secretary General Haitham Al Ghais said in an op-ed article that the end of oil is not in sight, as the pace of energy demand growth means that alternatives cannot replace it at the needed scale, and the focus should be on cutting emissions, not oil use.

(Additional reporting by Noah Browning and Ahmad Ghaddar in London, and Sudarshan Varadhan in Singapore; Editing by Jason Neely, Mark Potter, David Gregorio, Will Dunham, and Paul Simao)

Global equity funds face fourth week of outflows amid dampened Fed rate cut hopes

Global equity funds recorded outflows for the fourth consecutive week as of April 24, affected by diminishing hopes of rapid Federal Reserve rate cuts this year amid a series of higher-than-expected US inflation readings.

Investors pulled out USD 2.7 billion worth of global equity funds during the week, which was much less than the outflow of USD 23 billion in the previous week.

US equity funds experienced outflows of USD 1.2 billion, while European equity funds saw USD 6.3 billion leave during the week. Conversely, Asian markets, primarily driven by Japanese equity funds, recorded inflows of USD 5.1 billion.

Recent inflation reports surpassed forecasts and tempered market expectations for Federal Reserve rate cuts. The markets now see a 70% likelihood of a cut in September — down from earlier projections of six cuts this year.

Global stocks were heading towards their worst month since September on Friday, with investors cautious ahead of the release of March’s core PCE price index data later in the day for further clues on the US rate outlook.

Among equity sector funds, tech sector funds experienced outflows of approximately USD 770 million during the week, while consumer staples and healthcare funds saw outflows of USD 339 million and USD 275 million, respectively. Conversely, energy and industrial sector funds recorded inflows of about USD 544 million and USD 588 million, respectively.

Meanwhile, global bond funds secured inflows of USD 2.17 billion, significantly higher than the USD 820 million recorded in the previous week.

Government bond funds drew USD 781 million, high-yield bond funds received USD 647 million, and corporate bond funds attracted USD 2.3 billion.

Among commodities, precious metal funds attracted an inflow of USD 205 million, reversing outflows from the previous two weeks, while energy funds experienced a modest outflow of USD 35 million.

Data covering 29,598 emerging market funds (EM) showed a net outflow of USD 782 million from bond funds, which was their second consecutive weekly outflow. EM equity funds saw an outflow of USD 1.6 billion during the week.

(Reporting By Patturaja Murugaboopathy; Editing by Tasim Zahid)

Yields fall as inflation largely meets expectations

Longer-dated US Treasury yields fell on Friday after data showed that inflation gains in March were largely in line with economists’ expectations, easing concerns about the closely watched report showing a much higher-than-expected price jump.

The personal consumption expenditures (PCE) price index increased 0.3% last month for an annual increase of 2.7%. Economists polled by Reuters had forecast the index climbing 0.3% on the month and 2.6% year on year.

Core prices also rose 0.3% during the month, as expected, for an annual gain of 2.8%, above economists’ expectations for a 2.7% increase.

A hotter-than-expected consumer price inflation report for March released earlier this month raised concerns that price pressures will take longer to decline closer to the Federal Reserve’s 2% annual target.

Gross domestic product (GDP) data for the first quarter released on Thursday also showed inflation rising more than previously thought.

“Investors were braced for a still slightly hot inflation number thanks to the first quarter GDP report,” said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.

University of Michigan sentiment data, meanwhile, showed that consumers raised their one-year inflation outlook to 3.2%.

Traders have pushed back expectations on when the Fed is likely to begin cutting rates as price pressures remain elevated.

That repricing may give Fed Chair Jerome Powell room to acknowledge a lower chance of interest rate cuts in the near term after the US central bank concludes its two-day meeting on Wednesday, without roiling the market.

“They’re now in a place where the market is expecting a whole lot less,” said Stephen Gola, head of US Treasuries Sales & Trading at StoneX Group in New York. “If the Fed changes its tone a little bit it’s not going to shock anyone.”

Fed funds futures traders are now pricing in one-and-a-half 25 basis point cuts this year, with the first cut likely in September. That compares to expectations of three cuts at the Fed’s March meeting, which were anticipated to begin as soon as June.

Gola expects Powell to make similar comments after the Fed meeting to those he made last week, when he indicated that monetary policy needs to be restrictive for longer.

“The recent data have clearly not given us greater confidence and instead indicate that it’s likely to take longer than expected to achieve that confidence,” Powell said.

Benchmark 10-year Treasury note yields were last down 4 basis points on the day at 4.671%, after reaching 4.739% on Thursday, the highest since Nov. 2.

Two-year yields were little changed at 4.998%, after peaking at 5.027% on Thursday, the highest since Nov. 14.

The inversion in the yield curve between two- and 10-year notes widened three basis points to minus 33 basis points.

The Treasury Department is also expected to leave most auction sizes unchanged when it announces its refunding plans for the coming quarter next week, and is likely to launch a bond buyback program.

(Reporting By Karen Brettell; Additional reporting by Chuck Mikolajczak; Editing by Kirsten Donovan)

Yields on China ultra-long bonds extend rises as PBOC flags interest rate risks

SHANGHAI – Yields on China’s ultra-long bonds extended their rises on Monday, after sharp jumps last week, as the country’s central bank has flagged interest rate risks to some financial institutions.

Yield on China’s benchmark 10-year government bonds CN10YT=RR rose about two basis points to 2.34% in early trade on Monday, while yield on the 30-year tenor CN30YT=RR edged up about 1.5 bps.

Yields have an inverse relation with bond prices — as the price increases, yield falls.

A branch of the People’s Bank of China (PBOC) told financial institutions to cut leverage and reduce their exposure to long-dated bonds following a feverish rally, sources told Reuters.

(Reporting by Shanghai Newsroom; Editing by Kim Coghill)

US Treasury refunding set to offer relief from supply rises

NEW YORK – The US Treasury Department is expected to offer markets some relief next week when it details refunding plans for the coming quarter, by keeping the size of most of its auctions steady after three quarters of increases.

Investors will focus on an expected debt repurchase program and whether it offers any insights into longer-term financing plans as concerns mount over rapidly rising US debt.

While the Treasury may increase the size of some issues, including the 10-year Treasury Inflation-Protected Securities (TIPS), most auctions are expected to be unchanged.

The pause in auction size increases would likely be positive for investors after larger-than-expected debt needs last year sent bond yields higher and rattled stock markets.

“It shouldn’t be as big of an event risk as it was the past couple of quarters,” said Vail Hartman, US rates strategist at BMO Capital Markets in New York.

The Treasury will give its financing estimate for the coming two quarters on Monday and more detailed plans on Wednesday.

Near-term financing needs are improving due to stronger tax receipts and a less bad than previously expected deficit. At the same time, the Federal Reserve is expected to taper its quantitative tightening program, in which it lets bonds roll off its balance sheet without replacement.

That will also reduce the Treasury’s need to raise cash via Treasury bills, with the issuance of short-term debt in the last nine months of 2024 likely to be net negative, said Angelo Manolatos, macro strategist at Wells Fargo in New York.

A bigger focus will be on the likely launch of a buyback program, in which the Treasury will repurchase bonds for cash management purposes or to support liquidity.

“We think that the buybacks are going to be unveiled next week and we’ll get that first actual schedule,” said Manolatos.

For cash management purposes, the Treasury is likely to buy back shorter-dated debt mainly around major tax payment dates.

For liquidity, it will focus on buying back off-the-run securities, older and less liquid issues trading at a discount.

The US government may give more details on how the program would work, including on selecting issues to repurchase.

Meanwhile, any comments on the Treasury’s longer-term financing plans would be a focus as the rapidly rising US debt gains more attention.

“There are very large upside risks to the deficit in coming years … that’s the important issue for them to address, I just don’t know if necessarily they are going to be addressing them in great detail here because there’s an election looming,” said Gennadiy Goldberg, head of US rates strategy at TD Securities in New York.

TD sees a “significant risk” that the Treasury will need to resume auction size increases next year.

(Reporting by Karen Brettell; Editing by Alden Bentley and Alexander Smith)

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