Ten-year yield hits 3-week low, while 3-year auction sees decent demand

NEW YORK – The yield on the benchmark 10-year Treasury note fell on Tuesday amid persistent hope that the Federal Reserve would lower rates this year, while other maturities were steady after a chunky sale of three-year notes saw decent demand without a rate concession.

The Treasury sold USD 58 billion of the notes at a high yield of 4.605%, about a basis point below where three-years were trading at the time, with a bid-to-cover ratio of 2.63, the highest since a three-year sale in January.

The three-year was just a first taste of supply in the pipeline this week. The Treasury will sell USD 42 billion in 10-years on Wednesday and USD 25 billion of 30-year bonds on Thursday.

Kim Rupert, managing director of fixed income at Action Economics in San Francisco said the auction went well and gave it a “B” grade.

“It’s a good start,” Rupert said. “It priced a little bit through where it was trading right into the auction, so the fact that yields were a little bit lower was a good sign and demand was a little bit better than average.”

The three-year note was last yielding 4.649%, up 0.6 bp from late Monday.

The yield on 10-year notes was 2.8 basis points lower from late Monday at 4.461%. It fell to 4.42%, the lowest since April 10, continuing a decline that accelerated after Friday’s release of a smaller-than-expected rise in April nonfarm payrolls.

The jobs report added juice to a Treasuries rally after the Federal Open Market Committee said the recent uptick in inflation and economic growth was unlikely to derail rate cuts this year. It all but ruled out rate hikes.

The 2-year note yield, which typically moves in step with interest rate expectations, was up 0.6 basis points at 4.8283%. On Friday it fell to 4.716%, the lowest since April 5.

“When the 2-year was over 5% and the 10-year was nearly at 4.70%, there was a good interest in the Treasury market. Now that we’re down 25-30 basis points there is less interest in it,” said Stan Shipley, fixed income strategist at Evercore ISI in New York.
“I don’t think the auctions we get this week are going to be nearly as robust as the last ones we had,” he said. “And from what we hear from clients they are not as enthusiastic about this either.”

The calendar of economic indicators is light this week. So the waiting game is on ahead of the April reads on producer prices next Tuesday and especially the widely watched CPI number next Wednesday, which will provide insight on whether inflation has begun to come down toward the Fed’s 2% target rate.

Meanwhile, numerous Fed officials are on record this week. On Tuesday, Federal Reserve Bank of Minneapolis President Neel Kashkari told the Milken Institute 2024 Global Conference that a rate cut this year is still a possibility, but also said if rates need to be held for an extended period, or raised, the Fed would do that.

The 30-year bond yield was down 3.8 basis points at 4.6044%, also hitting its lowest since April 10.

The yield-curve spread between yields on two- and 10-year Treasury notes, closely watched as an indicator of economic expectations, was at a negative 34.8 basis points, more inverted than -33.9 bp late on Monday.

In the fed funds futures market, traders are pricing in a 66% chance the Fed will pivot in September with a 25 basis point cut at that meeting, unchanged from Monday. The second cut is priced for December.

(Reporting by Alden Bentley, Editing by Nick Zieminski)

US dollar rises as yen weakness resumes

NEW YORK – The US dollar rose against most currencies on Tuesday, steadily gaining ground throughout the day as investors digested the latest comments from Federal Reserve officials about the possible path of interest rates.

Minneapolis Federal Reserve President Neel Kashkari said at a Milken Institute conference that stalled inflation, kept higher in part by housing market strength means the central bank will need to hold borrowing costs steady for an “extended period,” and possibly all year.

Kashkari did, however, also say it is still possible the Fed could cut if inflation being to cool again.

The comments came on the heels of remarks from Fed officials on Monday that seemed to lean toward indicating the central bank’s next move would be to lower interest rates.

“There isn’t any consistent trend here other than what we’ve seen and that does not point to lower rates as much as various people in the market certainly and maybe even some people in the Fed itself would like,” said Joseph Trevisani, senior analyst at FX Street in New York.

The dollar index gained 0.26% to 105.42, on track for its first consecutive daily gain in nearly a month, with the euro down 0.18% at USD 1.0749.

The greenback strengthened against the Japanese yen for a second straight session as expectations of large interest rate differentials continued, even after new warnings from Japanese officials about their willingness to prop up their currency.

Japan’s top currency diplomat Masato Kanda said the country may have to take action against any disorderly, speculative-driven foreign exchange moves, signaling the Bank of Japan remained ready to intervene in the market after two suspected interventions of possibly almost USD 60 billion last week.

“The big action last week and a little bit before was the BOJ, which has achieved some success, but there’s nothing really to go on right now, so things are just sort of sitting still,” said Trevisani.

Against the Japanese yen JPY=, the dollar strengthened 0.55% to 154.73 after tumbling more than 3% last week, its biggest weekly percentage drop since early December 2022.

Following last week’s Fed policy meeting and softer-than-expected US jobs report, market expectations for two rate cuts this year have increased, with expectations for a cut of at least 25 basis points in September currently at 64.5%, according to CME’s FedWatch Tool.

With a light economic calendar this week, highlighted by the consumer sentiment reading from the University of Michigan on Friday, a host of Fed officials are due to speak, including Fed Governors Lisa Cook and Michelle Bowman later in the week.

The Australian dollar fell against the greenback after the Reserve Bank of Australia kept rates steady and held back from taking a hawkish stance, although RBA Governor Michele Bullock cautioned inflation risks were on the upside, signaling policy was unlikely to be eased anytime soon.

The Australian dollar weakened 0.53% versus the greenback at USD 0.6589 after falling as low as 0.6587 on the day.

Sterling weakened 0.46% to USD 1.2503 ahead of the Bank of England’s policy announcement on Thursday, where interest rates are expected to be kept unchanged.

(Reporting by Chuck Mikolajczak; Editing by Mark Potter and Jonathan Oatis)

Bullish momentum fades, yen intervention risks rise

Asian markets reach the mid-point of the week still sailing in fairly calm waters, although signs that the recent decline in US bond yields and the dollar is losing steam could be about to suck the life out of the recent rally in risk assets too.

There is some evidence over the last 24 hours of this playing out – Hong Kong stocks finally posted a down day on Tuesday, and broad Asian and emerging market equity indexes essentially ended the day flat.

That may be nothing more than rational profit-taking and position-trimming. The Hang Seng had been on its longest daily winning streak since 2018, and earlier on Tuesday the MSCI Asia ex-Japan and Emerging Market indexes had hit new 15-month and two-year highs, respectively.

Japanese markets, meanwhile, are once again dancing to their own tune with the yen back on the slide after last week’s suspected intervention, which has helped lift the Nikkei to its highest since April 15 and close to the 39,000 point mark.

There doesn’t appear to be any obvious local catalyst on Wednesday to give markets much impetus one way or the other, with only unemployment and trade figures from the Philippines and trade data from Taiwan on the calendar.

The yen and Indonesian rupiah could get a steer from their respective central bank chiefs – Bank of Japan governor Kazuo Ueda speaks at a seminar hosted by Japan’s Yomiuri newspaper, and Bank Indonesia governor Perry Warjiyo addresses the current economic situation in a briefing with the press.

With the yen falling back toward 155.00 per dollar, Japan’s top currency diplomat Masato Kanda warned on Tuesday that Tokyo may have to take action against any disorderly, speculative-driven FX moves.

Meanwhile, investors got another reminder on Tuesday – as if they needed one – of frayed Sino-US relations when TikTok and its parent company ByteDance sued in US federal court seeking to block a law signed by President Biden that would force the divestiture of the popular short video app or ban it.

This comes the same day Chinese President Xi Jinping left France after a two-day trip during which he offered no major concessions on trade or foreign policy, even as President Emmanuel Macron pressed him on market access.

French and Chinese companies concluded some agreements on Monday ranging from energy, finance and transport, but most were agreements to cooperate or renewed commitments to work together. Nothing significant enough to suggest icy trade tensions between China and the West are about to thaw.

On the corporate front, Japanese automaker Toyota releases full-year 2024 earnings. Analysts are expecting record-breaking results from the world’s top-selling automaker, lifted by demand for hybrids.

Other big firms reporting include Mitsubishi and Yamaha.

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

– Bank of Japan Governor Ueda speaks

– Taiwan trade (April)

– Toyota earnings (FY 2024)

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

EUR/USD firm on soft US and better euro zone data, yen weak

The dollar index was little changed on Monday as broader weakness following Friday’s far-below forecast US jobs and ISM services reports was offset by a slide in yen after last week’s USD/JPY 160.245-151.86 plunge attracted dip buyers near 2023 and 2022’s peaks.

Monday’s comments from Federal Reserve Bank of New York President John Williams and Richmond Fed President Thomas Barkin had little impact on markets.

EUR/USD rose 0.1%, aided slightly by the final eurozone PMI composite business activity index growing at its fastest in nearly a year led by the service sector and despite weakness in the manufacturing sector. Also supportive of the euro was less negative investor sentiment.

Friday’s EUR/USD high at 1.08125 on EBS ran into the downtrend line from March’s swing highs, just above the 200-day moving average. The 100-DMA and twisting cloud by 1.0840 and the downtrend line from December at 1.0848 on Tuesday are nearby hurdles as well.

As with most dollar pairs, a better read on the likelihood of Fed rate cuts will come from US CPI and retail sales releases on May 15. If they are dovish enough to suggest the view that the top in Treasury yields was made last month and the Fed can consider more than the roughly two 2024 rate cuts currently priced in, EUR/USD could rise to key resistance at 1.1000.

USD/JPY rose 0.6%, continuing its rebound from Friday’s 151.86 low by its 2023/22 peaks, the April breakout above which reached 160.245 by last Monday before suspected interventions erased the entire breakout.

Friday’s disappointing US data and a further pullback in Treasury yields were not enough to keep active traders from buying the dip back to the big breakout point. But gains have been guarded so far by a 154.01 high because of the potential risk of intervention and that the May 15 US data might also leaning dovish.

Sterling rose 0.16%, but like EUR/USD, it was unable to reach Friday’s post-payroll miss peak before trimming gains. The BoE is seen holding steady at Thursday’s meeting, with a first rate cut not being priced in until August, and 47bp of cuts by year-end. The Fed isn’t favored to cut rates until September, with 44bp by year-end.

Aussie rose 0.28% ahead of Tuesday’s RBA meeting, which is seen steady, but with a hawkish bias.

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

Gold gains on soft dollar, rate cut hopes

Gold prices climbed more than 1% on Monday, as the US dollar weakened after softer-than-expected US jobs data fueled expectations of potential interest rate cuts by the Federal Reserve later this year.

Spot gold rose 1% to USD 2,324.94 per ounce by 2:00 p.m. ET (1800 GMT). US gold futures for June delivery settled 0.9% higher at USD 2,331.2 per ounce.

“The downside that we’ve seen over the last few weeks might actually be running out of steam, opening (the) door for gold prices to resume their upward trajectory,” said Daniel Ghali, commodity strategist at TD Securities.

Bullion lost about 1.5% last week.

Data on Friday showed job growth in the US slowed more than expected in April, while the increase in annual wages fell below 4.0% for the first time in nearly three years.

While gold is traditionally considered a hedge against inflation, lower interest rates reduce the opportunity cost of holding bullion and weigh on the dollar, in which gold is priced.

The US dollar was a touch lower on Monday, after hovering near its lowest level in about a month on Friday, following the employment report.

“We continue to expect two rate cuts this year, in July and November,” Goldman Sachs wrote in a note. The April employment report was soft but not weak, it said.

Chances of rate cuts in September were about 66% on Monday, as per CME’s FedWatch Tool.

Gold also found support from ongoing tensions in the Middle East, with Israel’s military operation in Rafah adding a layer of uncertainty to the market.

Other precious metals also advanced, with spot silver rising 3.3% to USD 27.40 per ounce, and palladium adding 3.6% to USD 979.83.

Platinum was steady at USD 955.35 per ounce.

(Reporting by Rahul Paswan in Bengaluru; Editing by Shilpi Majumdar and Alan Barona)

Yields move sideways as investors prepare for supply deluge

NEW YORK – US Treasury yields were mixed in quiet trade on Monday as investors digested Friday’s data showing moderating job creation last month, which validated the Federal Reserve’s suggestion that the economy was not so overheated that it held off cutting interest rates this year.

This week’s calendar looks much lighter than last week’s, which included the Treasury’s refunding plans, the Fed’s policy announcement keeping interest rates on hold, and Friday’s report of a smallish 175,000-job April nonfarm payroll rise that sent the yield on the two-year note skidding to a three-week low and the 10-year yield to a two-week low.

With the Consumer Price Index release more than a week away, attention will turn to Treasury auctions and how a parade of Fed speakers spin last week’s decision to hold rates steady while all but committing to ease in 2024, and almost ruling out a hike, even as the economy looks robust and inflation sticky.

The 2-year yield nudged up and the 10-year slipped in early afternoon trade after Richmond Fed President Thomas Barkin said getting inflation under control is a “stubborn road,” and the Fed will need to get demand down to finish the inflation fight.

Those comments came after New York Fed President John Williams told the Milken Global Conference that the Fed will eventually cut interest rates, which did not move the needle much either.

“I don’t think either Barkin or Williams said anything we haven’t heard before,” said Subadra Rajappa, head of US rates strategy and Societe Generale in New York. “I think for the most part the focus is going to be on how the market takes on the supply and how much of a concession we build.”

The yield on benchmark US 10-year notes was off 1.1 basis points from its late Friday level at 4.489%. It bottomed at 4.453% after Friday’s jobs report, the lowest yield since April 10.

The 2-year note yield, which typically moves in step with interest rate expectations, rose 2 basis points to 4.8264%. On Friday it fell to 4.716%, the lowest since April 5.

With last week’s fall in yields, it’s an open question how much demand will show up when the Treasury auctions USD 58 billion in 3-year notes on Tuesday, USD 42 billion in 10-years on Wednesday, and USD 25 billion of 30-year bonds on Thursday.

“The macro influences aren’t going to be quite as pronounced this week, but we’re back into supply,” said Jack McIntyre, portfolio manager, global bonds, at Brandywine Global. “Now the market is going to have to deal with this never-ending onslaught of Treasury supply.”

The April read on producer prices is due on May 14, followed by widely watched CPI for April on May 15. Both will be indicators of whether inflation has begun to come down again toward the Fed’s 2% target rate.

In the Fed funds futures market, traders are currently pricing in a 66% chance the Fed will pivot in September with a 25 basis point cut at that meeting. The second cut is priced for December.

The 30-year bond yield fell 1.8 basis points to 4.643% from 4.661%.

The yield-curve spread between yields on two- and 10-year Treasury notes US2US10=RR, seen as an indicator of economic expectations, was at a negative 33.9 basis points, more inverted than -32.35 late on Friday.

(Reporting by Alden Bentley; editing by Jonathan Oatis)

Oil steadies as ceasefire eludes Hamas, Israel

HOUSTON – Oil futures ended largely unchanged on Monday as a ceasefire agreement between Hamas and Israel continued to elude negotiators.

Both crude oil benchmarks settled 37 cents, or 0.5%, higher with Brent crude futures at USD 83.33 a barrel and U.S. West Texas Intermediate crude futures (WTI) at USD 78.48 a barrel.

Last week, both contracts posted their steepest weekly loss in three months, with Brent falling more than 7% and WTI down 6.8%, as investors weighed weak U.S. jobs data and the possible timing of a Federal Reserve interest rate cut.

Throughout trading on Monday, global benchmark Brent climbed and then retreated on prospects for a ceasefire, reaching a high of USD 83.83 and a low of USD 82.77.

“(A possible agreement) took some air out of the oil market,” said Andrew Lipow, president of Lipow Oil Associates. “Any ceasefire agreement would lessen the tension in the Middle East.

An Israeli official said the ceasefire proposal from Egypt that Hamas accepted had some far-reaching aspects that were unacceptable.

Hamas has demanded for an end to the war in exchange for the freeing of hostages and Israel appeared poised to launch a long-threatened assault in the southern Gaza Strip.

“Markets are a little jaded about geopolitical risk from the war,” said John Kilduff, partner with Again Capital. “I think you’re going to have to see more kinetic activity to move the markets.”

Also supporting oil was Saudi Arabia’s move to raise the official selling prices for its crude sold to Asia, Northwest Europe, and the Mediterranean in June, signaling expectations of strong demand this summer.

Lipow said he expects the Organization of the Petroleum Exporting Countries and its allies (OPEC+) will announce at meetings in June plans to continue production cuts in the third quarter.

In China, the world’s largest crude importer, services activity remained in expansionary territory for the 16th straight month, while growth in new orders accelerated and business sentiment rose solidly, boosting hopes of a sustained economic recovery.

(Reporting by Erwin Seba; Additional reporting by Noah Browning in London, Deep Vakil in Bengaluru and Florence Tan; Editing by Marguerita Choy and Jonathan Oatis)

Global equity funds attract robust weekly inflows, led by Asia

Global equity funds experienced renewed interest from investors in the seven days through May 1, buoyed by a surge in inflows to Asia amid optimism about an economic recovery in the region, particularly in China.

Investors secured a net USD 4.86 billion worth of global equity funds during the week, marking their first weekly net buying since March 27, data from LSEG showed.

Regionally, Asian equity funds attracted a net USD 5.68 billion, marking the largest weekly inflow since March 27. Meanwhile, investors put USD 4.46 billion into European funds and withdrew USD 5.48 billion from US funds.

Federal Reserve Chair Jerome Powell kept rates steady on Wednesday, indicating future rate cuts may be delayed due to persistent inflation.

“The delay in Fed cuts is likely to postpone rate cuts in Asian markets, but that does not derail an ongoing Asian export, industrial, and real growth recovery, thanks to a supportive US economy and improving Chinese growth,” said Mark Haefele, chief investment officer of global wealth management at UBS.

“We see several areas of dip-buying opportunities in the region that investors can consider despite a return in market volatility.”

Among sector funds, technology received USD 408 million, marking its first weekly inflow in four weeks. Conversely, the healthcare and consumer discretionary sectors each faced net outflows of nearly USD 800 million.

At the same time, bond funds attracted USD 6.69 billion worth of inflows, the largest amount in a week since April 10.

Government bond funds had USD 1.54 billion worth of net purchases in contrast to USD 773 million worth of net selling in the previous week.

Loan participation and dollar-denominated mortgage bond funds drew inflows of USD 1.58 billion and USD 1.34 billion, respectively. Additionally, inflation-linked bonds received USD 532 million, the largest inflow since July 2023.

Money market funds acquired about USD 8.14 billion in inflows, marking the first weekly net purchase in four weeks.

Among commodities, investors shed USD 401 million worth of precious metal funds, posting the third weekly outflow in four weeks. Energy funds saw a marginal USD 11 million worth of net buying.

Data covering 29,511 emerging market funds showed a net outflow of USD 769 billion from bond funds during the week, the third straight week of withdrawal. Equity funds, however, received about USD 74 million in net purchases.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; editing by Christina Fincher)

Oil settles down on US jobs data, steepest weekly loss in 3 months

NEW YORK – Oil prices settled lower on Friday, and posted their steepest weekly loss in three months as investors weighed weak US jobs data and possible timing of a Federal Reserve interest rate cut.

Brent crude futures for July settled 71 cents lower, or 0.85%, to USD 82.96 a barrel. US West Texas Intermediate crude for June fell 84 cents, or 1.06%, to USD 78.11 a barrel.

Investors were concerned that higher-for-longer borrowing costs would curb economic growth in the US, the world’s leading oil consumer, after the Federal Reserve decided this week to hold interest rates steady.

For the week, Brent declined more than 7%, while WTI fell 6.8%.

US job growth slowed more than expected in April and the annual wage gain cooled, data showed on Friday, prompting traders to raise bets that the US central bank will deliver its first interest rate cut this year in September.

“The economy is slowing a little bit,” said Tim Snyder, economist at Matador Economics. “But (the data) gives a path forward for the Fed to have at least one rate cut this year,” he said.

The Fed held rates steady this week and flagged high inflation readings that could delay rate cuts. Higher rates typically weigh on the economy and can reduce oil demand.

The market is repricing the expected timing of possible rate cuts after the release of softer-than-expected monthly jobs data, said Giovanni Staunovo, an analyst at UBS.

US energy companies this week cut the number of oil and natural gas rigs operating for a second week in a row, to the lowest since January 2022, Baker Hughes said in its closely followed report on Friday.

The oil and gas rig count, an early indicator of future output, fell by eight to 605 in the week to May 3, in the biggest weekly decline since September 2023. The number of oil rigs fell seven to 499 this week, in the biggest weekly drop since November 2023.

Geopolitical risk premiums due to the Israel-Hamas war have faded as the two sides consider a temporary ceasefire and hold talks with international mediators.

Further ahead, the next meeting of OPEC+ oil producers – members of the Organization of the Petroleum Exporting Countries and allies including Russia – is set for June 1.

Three sources from the OPEC+ group said it could extend its voluntary oil output cuts beyond June if oil demand does not increase.

Money managers cut their net long US crude futures and options positions in the week to April 30, the US Commodity Futures Trading Commission (CFTC) said.

(Additional reporting by Ahmad Ghaddar and Deep Kaushik Vakil in London and Sudarshan Varadhan in Singapore; Editing by Barbara Lewis, Mark Potter, Laila Kearney, Paul Simao, Emelia Sithole-Matarise, and David Gregorio)

US small caps struggle as elevated interest rates take a toll

NEW YORK – The prospect of interest rates remaining elevated as the Federal Reserve battles inflation is further clouding the outlook for shares of smaller US companies, which have lagged broader markets this year.

Small-cap stocks surged at the end of 2023, as expectations grew that the Fed was done raising interest rates and would soon begin easing monetary policy. That would be a welcome change for smaller companies, which rely more heavily on debt financing and consumer spending.

But stubbornly strong inflation has eroded prospects of rate cuts this year, and small-cap stocks have suffered as a result. The Russell 2000 is up just 0.4% year-to-date, far less than the S&P 500’s 7.5% gain. Earnings are also expected to be shaky, giving investors little reason to shift allocations from larger companies and other, less risky parts of their portfolios.

“Investors are skeptical right now about small cap stocks because of higher rates and stickier inflation, and they need greater clarity that the Fed will be cutting rates this year before moving in,” said Michael Arone, Chief Investment Strategist for State Street’s SPDR Business, who has been buying small caps in anticipation of rate cuts later in the year.

The case for smaller stocks may have improved over the last few days. US employment data on Friday showed that jobs growth, while still relatively robust, slowed last month, easing fears that rates will remain elevated for the rest of the year. The Russell 2000 was up about 1% on the day.

On Wednesday, Fed Chairman Jerome Powell said he still believed rates were heading lower this year, despite stubborn inflation.

Futures markets on Friday showed investors pricing in around 45 basis points of interest rate cuts this year, from less than 30 priced in earlier this week. That remained far lower than the 150 points they had priced in January.

Stronger-than-expected earnings in the coming weeks could help allay investor concerns. Overall, the Russell 2000 is expected to post earning growth of -8.4% over the most recent quarter, compared with a 10.2% earnings growth rate for the S&P 500, according to LSEG data. At the same, the Russell 2000 is trading at a forward price-to-earnings ratio of 22 compared with 20 times earnings multiple for the S&P 500, making small-caps more expensive.

“The earnings pickup we expected has just not been there,” said David Lefkowitz, CIO Head of US Equities at UBS Global Wealth Management, who has been overweight small caps since December. “I still think the preference for small makes sense, but it depends on your rate view.”

Among the notable small-cap companies reporting in the week ahead are nutrition company Bellring Brands BRBR.N, gambling company Light & Wonder, and oil and natural gas company Permian Resources.

Larger caps reporting next week include Walt Disney, Wynn Resorts, and Akamai Technologies, as US corporate earnings season continues.

Despite the encouraging developments of the last few days, few believe the path to rate cuts is clear.

Jill Carey Hall, equity & quant strategist at Bofa Global Research, said investors buying small caps should focus on companies positioned to withstand an extended Fed pause, including those with higher percentages of fixed dent and comparatively low leverage.

“It’s too soon to price in more rate cuts,” said Timothy Chubb, chief investment officer at Girard. “One number doesn’t make a trend. Overall, the Fed is getting the evidence it needs.”

(Reporting by David Randall; Editing by Ira Iosebashvili and David Gregorio)

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