US equity funds witness outflows for fifth week in a row

US investors were net sellers of equity funds for a fifth successive week in the seven days to May 1, exercising caution ahead of the Federal Reserve’s policy decision and scaling back expectations for interest rate cuts that were prevalent at the start of the year.

According to LSEG data, investors shed a net USD 5.48 billion worth of US equity funds, extending the weekly selling trend into a fifth consecutive week.

Fed Chair Jerome Powell kept rates steady on Wednesday, signaling future rate cuts but cautioning they might be delayed due to persistent inflation in the first quarter.

However, US large-cap equity funds were in demand, recording approximately USD 1.2 billion in net purchases during the week — marking the second consecutive weekly inflow, buoyed by strong earnings from Alphabet, and Microsoft.

Meanwhile, US small-cap, mid-cap, and multi-cap funds experienced net outflows of USD 2.14 billion, USD 1.08 billion, and USD 637 million, respectively.

By sector, investors withdrew USD 790 million, USD 684 million, and USD 295 million from the healthcare, consumer discretionary, and industrial sectors, respectively.

US bond funds attracted approximately USD 674 million in net purchases, marking the second consecutive week of inflows.

US mortgage funds received a substantial USD 1.35 billion, marking the largest weekly inflow since January 2023. Loan participation and municipal debt funds also recorded net purchases of USD 665 million and USD 515 million, respectively, during the week.

Meanwhile, investors withdrew approximately USD 2.66 billion from US short/intermediate government and treasury funds, ending a four-week buying streak.

Money market funds secured USD 26.53 billion in a second successive week of net buying.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; editing by Jonathan Oatis)

US yields fall as Fed’s rate cut view in focus, ahead of payrolls

NEW YORK – US Treasury yields slipped on Thursday, with investors continuing to digest the Federal Reserve’s less-than-hawkish stance after Wednesday’s policy meeting that suggested interest rate cuts were very much on the table even though inflation remained stubbornly above the 2% target.

Earlier in the session, US yields rose due to stronger-than-expected labor market data that reinforced the view that the Fed will delay cutting interest rates to later this year.

In afternoon trading, the benchmark 10-year yield slid to a more than one-week low of 4.567%. It was last down 1.4 basis points (bps) at 4.576%.

The yield on the 30-year Treasury bond was slightly up at 4.725%.

On the shorter end of the curve, the two-year Treasury yield, which typically reflects interest rate moves, was down 5.8 bps at 4.881%.

Treasury yields got an initial boost after a report showed unit US labor costs – the price of labor per single unit of output – jumped to a 4.7% rate in the first quarter after being unchanged in the previous three months. Labor costs increased at a 1.8% pace from a year ago.

Those moves have now faded in the afternoon as investors braced for Friday’s US nonfarm payrolls report for April. The forecast is 243,000 new jobs, down from 303,000 the previous month, but a still-lofty number. The rise in average earnings is expected at 0.3%, unchanged from the previous month, according to a Reuters poll.

“Markets have returned to digesting what happened yesterday with the Fed and the refunding announcement,” said Will Compernolle, macro strategist at FHN Financial in New York, referring to the quarterly outlook by the US Treasury for debt issuance in the May to July period.

“A lot of the rally today (yields lower) was driven by essentially eliminating the possibility of a rate hike. The Fed’s reaction function to higher inflation is going to be extend the pause longer than consider a hike.”

The Fed on Wednesday kept interest rates steady, but noted that it does not expect to cut them any time soon until it has gained greater confidence that inflation is moving sustainably toward its 2% target.

Fed Chair Jerome Powell was also less hawkish, echoing the central bank statement that kept the fed funds rate at the 5.25% to 5.50 range.

“Certainly, the labor market and inflation data have not only provided the Fed with no urgency to consider easing monetary policy anytime soon, but they have also called into question whether any rate cuts are needed at all,” wrote Kevin Flanagan, head of fixed income strategy at WisdomTree in his latest blog.

“As a result, the voting members apparently believe they can just sit back and be patient. Looking ahead, though, you get the sense that Chairman Powell is itching to cut rates, but the data needs to lead him there.”

The US yield curve, meanwhile, steepened or narrowed its inversion. The spread between US two- and 10-year yields was minus 30.8 bps, from minus 33.6 bps late on Wednesday.

This curve, effectively a “bull steepener,” shows a scenario in which short-term interest rates are falling faster than the long-dated ones. This suggests that the Fed’s next move is to lower interest rates.

Post-data and after Powell’s press briefing on Wednesday, US rate futures have priced in a 68% chance of a rate cut in November, rising to 80% in December, according to CME’s FedWatch tool.

The rate futures market has also priced in just one rate cut of 25 bps this year, from as much as six at the beginning of 2024.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Will Dunham and Jonathan Oatis)

Oil settles near 7-week lows, focus shifts to economy

NEW YORK – Oil prices settled on Thursday near their lowest level in seven weeks, narrowly mixed and under pressure from weaker global demand, rising inventories, and fading hopes for a quick cut in US interest rates.

US West Texas Intermediate crude futures fell 5 cents to settle at USD 78.95 a barrel, the lowest since March 12. Global benchmark Brent crude futures also hit the lowest since early March, then bounced off session lows to settle 23 cents, or 0.3%, higher at USD 83.67 a barrel.

Both benchmarks closed below their 200-day moving average, which is the key technical indicator of a bear market shift in crude oil prices, StoneX oil analyst Alex Hodes said.

Oil investors have grown worried about a possible economic slowdown in the US, as the war between Israel and Hamas continues without any major hit to Middle Eastern oil supplies.

On Wednesday, oil prices fell more than 3% after the US government reported a surprise jump in crude oil stocks and the Fed left interest rates unchanged citing stubborn inflation.

“Now it’s all a story of demand as risk premium from tensions in the Middle East seen last month morphs into residual risk,” said Gaurav Sharma, an independent oil analyst in London.

A slump in worldwide diesel demand is also feeding concerns about slowing oil demand growth in big economies. Gasoil stocks, which include diesel, rose by more than 3% in Europe’s Amsterdam-Rotterdam-Antwerp refining and storage hub during the week to Thursday, data from consultancy Insights Global showed.

Diesel demand in the US Gulf Coast refining hub, also called PADD 3, is estimated to be below the prior three-year range, Hodes said. “The bearish kicker is that even with these inventory builds, production of distillates in PADD 3 is at its lowest level since the start of March,” he added.

US ultra-low sulfur diesel futures fell to their lowest since July 2023 for the third session on the trot.

Supporting prices, the Organization of Petroleum Exporting Countries and allies (OPEC+) could extend output cuts if demand fails to pick up, three sources from the group told Reuters.

Traders were watching whether lower oil prices would spur the US government to replenish strategic reserves.

“The oil market was supported by speculation that if WTI falls below USD 79, the US will move to build up its strategic reserves,” said Hiroyuki Kikukawa, president of NS Trading.

(Reporting by Robert Harvey in London, Deep Vakil in Bengaluru, Mohi Narayan in New Delhi, and Yuka Obayashi in Tokyo; Editing by David Goodman, Jan Harvey, and David Gregorio)

Japan’s May 1 intervention may have cost USD 23.6 billion, BOJ data shows

TOKYO – Japanese officials may have spent some 3.66 trillion yen (USD 23.59 billion) on Wednesday in the latest attempt to pull the yen back from near 34-year lows, Bank of Japan data showed on Thursday.

Japan’s Ministry of Finance may have spent around 6 trillion yen intervening in the market on Monday to prop up the Japanese currency after it dropped to 160.245 per dollar for the first time since April 1990, the data showed.

On Wednesday, the yen was trading at around 157.55 per dollar when it suddenly spiked, strengthening as far as 153 over the following half hour.

The Ministry of Finance each time declined to say whether or not it was behind the yen rallies, only repeating its readiness to step in at any time to stem disorderly moves.

Currency trades take two business days to settle, and Japan’s markets are closed for public holidays on May 6 and May 7.

The central bank’s projection for money market conditions on May 8 indicates a 4.36 trillion yen net receipt of funds, compared with a 700 billion-1.1 trillion yen estimate from money market brokerages that excludes intervention.

“This is a very large sum in a short period of time,” said Shoki Omori, chief Japan desk strategist at Mizuho Securities, referring to the two rounds of apparent intervention this week.

“Now that the MOF has spent roughly 9 trillion yen, it is going to be less easy for them to intervene if the US payrolls or other data come out strong,” providing more momentum for dollar buying, he said. “MOF is getting pushed into a corner.”

Despite the yen’s sudden steep rallies, it remains down some 10% against the dollar so far this year, and was last changing hands at 155.22.

The speed with which the yen has resumed its decline despite such large-scale buying shows how difficult it is to stem the downward momentum.

Analysts point to the gaping gap between Japanese and US government debt yields as the force behind the yen’s slide.

Even after the Bank of Japan raised interest rates for the first time since 2007 in March, policymakers have signaled a go-slow approach to further tightening, which has kept long-term Japanese government bond yields well below 1%.

Equivalent Treasury yields have been pushing towards 5% as a robust economy and stubborn inflation forced markets to scale back their bets on Federal Reserve rate cuts.

Fed Chair Jerome Powell reinforced that idea on Wednesday when he reiterated that it “will take longer than previously expected” for policymakers to become comfortable that inflation will resume the decline towards their 2% target.

(USD 1 = 155.1400 yen)

(Reporting by Kevin Buckland; editing by Jason Neely and Alexander Smith)

Tech giants’ market cap falls on AI doubts, high rates; Alphabet, Tesla gain

The market capitalization of top technology giants fell sharply in April, pressured by diminishing enthusiasm for artificial intelligence and a scaling back of expectations for central bank interest rate cuts.

Microsoft’s market value plummeted by USD 232.5 billion, or 7.4%, ending the month at USD 2.89 trillion. Meta Platforms Inc. also suffered a drop of USD 146.8 billion, or 11.9%, ending at USD 1.09 trillion, following a lower-than-expected revenue forecast and rising expenses associated with burgeoning AI costs.

Nvidia Corp’s market cap fell 4.4% to USD 2.16 trillion, driven by diminishing AI optimism and concerns over slowing revenue growth from competitor chipmakers, with its stock further declining on Wednesday following weak guidance from rival Advanced Micro Devices.

European luxury conglomerate LVMH saw its market cap decline by about 8% to USD 415.1 billion as its first-quarter sales growth slowed to 3%, with higher prices deterring consumer purchases of its high-end products.

Conversely, Alphabet Inc saw its market cap surge 7.3% to USD 2.02 trillion, buoyed by the announcement of its first-ever dividend, a USD 70 billion stock buyback, and first-quarter earnings that exceeded expectations.

Electric car maker Tesla Inc saw its market value increase by 4.4% to USD 584.4 billion, boosted by the removal of regulatory barriers in China that had previously hindered the rollout of its autonomous driving technology.

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

Markets loving the Fed, yen loving the BOJ

The dovish waves from Fed Chair Jerome Powell’s press conference on Wednesday continue to wash over world markets, putting Asian stocks on the cusp of a second straight weekly gain and highs not seen in well over a year.

Investor sentiment is positive and risk appetite looks strong going into the Asian open on Friday, after world stocks rose and US bond yields and the dollar fell the previous day.

The upbeat mood may be strengthened by the first quarter results from Apple after the US close on Thursday, as the world’s second most valuable company reported a smaller-than-expected decline in revenue and Chief Executive Tim Cook said he expects a return to sales growth in the current quarter.

The regional economic and corporate calendar is light on Friday – the Australian services PMI, consumer inflation from Thailand, and retail sales from Singapore are the highlights.

Perhaps the most important news for world markets on Friday, apart from the US employment figures for April, will come from Tbilisi, where the Asian Development Bank is hosting its 57th annual meeting.

Japan’s Finance Minister Shunichi Suzuki and Bank of Japan governor Kazuo Ueda are scheduled to hold a press conference on the sidelines of the meeting and if they do face reporters, they will be grilled about Japan’s apparent intervention in the currency market this week buying yen.

Japan likely intervened early on Monday and early on Thursday local time buying yen to stem its rapid decline that culminated in a fresh 34-year low of 160.00 per dollar.

Estimates suggest Tokyo spent just under USD 60 billion in the two yen-buying forays, around the same amount used in the three interventions over September and October 2022, the last time authorities waded into the market.

The targeted action, when market liquidity was particularly thin, appears to have worked, for now at least – the yen hit 153.00 per dollar on Thursday, its strongest since April 15 and up 4.5% from that historic low on Monday.

In Asian equities, meanwhile, Hong Kong stocks go into Friday’s session at a six-month high, having leaped 2.5% on Thursday thanks to gains in local technology, property, and financial stocks. Beijing’s pledge this week to step up economic support has helped underpin sentiment.

The Hang Seng is now up eight days in a row, its best stretch in five and a half years. It still has some way to go to beat that run though – in late 2018 and early 2019 the index rose 14 days in a row, and only had one ‘down’ day in 22.

Mainland China markets are closed on Friday, the last of a three-day holiday.

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

– Australia services PMI (April)

– Thailand consumer inflation (April)

– Japan finance minister, central bank governor press conference

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

US high yield spreads still tight despite pick-up in distress

By Matt Tracy

May 2 (Reuters) – Spreads on U.S. high yield bonds, or the premium companies pay over U.S. Treasuries, remain tight despite a pick-up in distress within the asset class, as investors see the majority of issuers weathering higher-for-longer interest rates.

Elevated rates and persistent inflation have eaten into the bottom lines of many U.S. corporate borrowers, particularly those with high leverage and lower credit ratings.

The dollar volume of defaulted debt rose to over $33 billion in the first quarter from roughly $19 billion in the fourth quarter of 2023, according to a Monday report by Moody’s Ratings.

In addition, the default rate among junk-rated borrowers came in at 5.8% over the last 12 months, its highest in three years, Moody’s noted.

High-yield bond spreads widened 3 basis points on May 1 but they have tightened 33 basis points so far this year, according to the ICE BofA High Yield index.

Distressed exchanges continue to play a significant role in these defaults. There have been $12.8 billion in distressed exchanges so far this year, on pace to beat out the $35.2 billion record high reached in 2008, according to a Thursday research note by JPMorgan.

The volume of distressed exchanges so far in 2024 accounts for half of all default volume, also on pace to be the highest percentage on record.

Despite a pickup in distress, U.S. high-yield spreads have narrowed in recent weeks. The ICE BofA High Yield Index Option-Adjusted Spread stood at 3.21% on Wednesday, down 21 basis points from their April high of 3.42%.

“Some of the companies that have defaulted either technically or actually entered bankruptcy thus far in the credit cycle are the ones that were weaker fundamentally heading into this cycle,” said Sinjin Bowron, portfolio manager and head of high yield and leveraged loan strategies at investment firm Beach Point Capital Management.

“So there haven’t been any real surprises in the market yet, and I think that’s one reason why spreads have been generally range-bound over the past several months,” he said.

Treasury bonds rallied on Thursday following Fed Chair Jerome Powell’s Wednesday remarks that while the central bank was unlikely to raise rates further, they could potentially remain steady in the 5.25% to 5.50% range that has been in place since July as inflation remains persistent.

High-yield bonds have provided a yield to maturity of 8.18% so far this year, according to the S&P U.S. High Yield Corporate Bond Index.

“Obviously any increase in default distress is concerning,” said Andrew Bellis, head of private debt at private equity firm Partners Group.

“But I think if you have to put it in comparison with where you’re coming from, the overall returns in the asset class are still very attractive,” he said.

(Reporting by Matt Tracy; Editing by Josie Kao)

((Matt.Tracy@thomsonreuters.com;))

Gold climbs over 1% as dollar, yields fall after Fed’s interest-rate decision

Gold prices climbed over 1% on Wednesday as the dollar and US Treasury yields tumbled lower after the Federal Reserve’s interest-rate decision and Chair Powell’s speech.

Spot gold was up 1.7% at USD 2,323.38 per ounce as of 15:15 p.m. ET (1915 GMT), after hitting its lowest level since April 5 earlier in the session.

US gold futures settled 0.4% higher, at USD 2,311.

The dollar eased 0.3%, making gold less expensive for other currency holders. Benchmark US 10-year bond yields also crept lower.

The US Federal Reserve held interest rates steady and flagged a “lack of further progress” towards its 2% inflation objective.

However, the Federal Reserve’s next rate move is unlikely to be an increase, Fed Chair Jerome Powell said, adding that the central bank’s focus has been to maintain its current restrictive policy stance.

“I believe that we’re in like a stagflationary environment that the Fed will ultimately end up cutting at some point forward,” said Phillip Streible, chief market strategist at Blue Line Futures in Chicago.

“In order to rekindle a new flame back up to USD 2,400, we need a new trigger, and then we start talking all-time highs again,” Streible said.

Gold hit a record high of USD 2,431.29 on April 12 due to strong purchases by central banks and demand from Chinese retail investors.

“There is a little more uncertainty about the global economy and along with geopolitical tensions and the uncertainty regarding the political elections, there’s just a lot that is working in favor of gold,” said Chris Gaffney, president of world markets at EverBank.

Data showed US private payrolls increased more than expected in April, suggesting that the labor market maintained its momentum early in the second quarter.

Spot silver rose 2%, to USD 26.81 per ounce, and platinum climbed 2.5%, to USD 956.75. Palladium rose 0.1%, to USD 954.50.

(Reporting by Anushree Mukherjee, Anjana Anil, and Brijesh Patel in Bengaluru; Editing by Pooja Desai)

Japan’s yen climbs against US dollar amid signs of intervention

NEW YORK – The yen soared against the US dollar late on Wednesday, as market participants suspected Japan’s monetary authorities were in the market to prop up the beleaguered currency.

The Japanese unit rose as high as 153.19 per dollar from about 157.55. It was last at 154.83.

Market participants said the move happened right after the US stock market close and after Fed Chair Jerome Powell wrapped up his press briefing.

“It looks like intervention. The Japanese, I don’t think, are going to say anything or admit to it. They didn’t the last time, but it certainly looks like it,” said Joe Trevisani, senior analyst at FX Street.

The yen also jumped on Monday to 154 after hitting a 34-year low of 160.245 per dollar. Japanese officials on Monday declined to comment.

But Bank of Japan data showed that the Japanese central bank, which acts on behalf of the Ministry of Finance, may have spent some 5.5 trillion yen (USD 35.06 billion) supporting the currency on Monday.

The yen has been under pressure as US interest rates have climbed and Japan’s have stayed near zero, driving cash out of yen and into dollars to earn so-called “carry”.

The US dollar, meanwhile, fell on Wednesday after the Fed signaled it is still leaning toward eventual reductions in borrowing costs, but repeated that it wants to gain “greater confidence” that inflation will continue to fall before cutting rates.

“In recent months, there has been a lack of further progress towards the Committee’s 2% inflation objective,” the Fed said in its statement.

The statement was largely as expected while Powell also said at a press conference that it is unlikely that the US central bank’s next move will be a hike, easing some concerns about the Fed potentially pivoting to a more hawkish stance.

Stickier-than-expected consumer price inflation in March dashed hopes that elevated readings in January and February were anomalies, leading traders to push back expectations on when the US central bank is likely to cut interest rates.

Fed fund futures traders are now pricing in 35 basis points of easing this year, up from 29 basis points before the Fed statement.

“The lack of change in forward guidance was marginally dovish, and I am not sure the new inserted phrase about lack of progress on inflation is enough to offset that,” said John Velis, FX and macro strategist at BNY Mellon in New York.

In late trading, the dollar index fell 0.6% to 105.69 after earlier reaching 106.49, the highest since April 16. A break above 106.51 would be the highest since early November.

The Fed also announced it will scale back the pace at which it is shrinking its balance sheet starting on June 1, allowing only USD 25 billion in Treasury bonds to run off each month versus the current USD 60 billion. Mortgage-backed securities will continue to run off by up to USD 35 billion monthly.

The next major economic indicator will be Friday’s jobs report for April, which is expected to show that employers added 243,000 jobs during the month.

The ADP Employment report on Wednesday showed that US private payrolls increased more than expected in April while data for the prior month was revised higher.

A US Labor Department report on Wednesday, meanwhile, showed that US job openings fell to a three-year low in March, while the number of people quitting their jobs declined.

The euro was last flat at USD 1.0711. The pound was also little changed at USD 1.2525.

In cryptocurrencies, bitcoin rose 0.8% to USD 57,708, after earlier reaching USD 56,483, the lowest since Feb. 27.

(Reporting by Gertrude Chavez-Dreyfuss, Karen Brettell, and Caroline Valetkevitch; Additional reporting by Laura Matthews and Chibuike Oguh in New York; editing by Barbara Lewis, Will Dunham, and Cynthia Osterman)

Oil falls to 7-week low on surprise US storage build, Middle East hopes

NEW YORK – Oil prices fell about 3% to a seven-week low on Wednesday on a surprise build in US crude stocks, the prospect of a Middle East ceasefire agreement, and as hopes faded for near-term US interest rate cuts that could boost oil demand.

Brent futures for July delivery fell USD 2.89, or 3.4%, from where the July contract closed on Tuesday to settle at USD 83.44 a barrel on Wednesday.

That was down about 5.0% from where the Brent June contract closed on Tuesday when it was still the front-month, which would be the front-month’s biggest daily percentage decline since October 2023.

US West Texas Intermediate (WTI) crude fell USD 2.93, or 3.6%, to settle at USD 79.00 a barrel.

Those were the lowest closes for both benchmarks since March 12 and left both in technically oversold territory for the first time since December 2023.

In other energy markets, US diesel futures closed at their lowest since July 2023, while US gasoline RBc1 settled at a seven-week low.

The US Energy Information Administration (EIA) said energy firms added a surprise 7.3 million barrels of crude into stockpiles during the week ended April 26.

That compares with the 1.1-million-barrel withdrawal analysts forecast in a Reuters poll and the 4.9 million barrel increase shown in data from the American Petroleum Institute (API), an industry group.

“The crude build is a big one. At this time of year, we should be drawing down on crude oil as more barrels go through the refinery,” Bob Yawger, director of energy futures at Mizuho, told Reuters.

EIA also reported a surprise 0.3-million-barrel build in gasoline inventories. Analysts expected gasoline stocks would decline by 1.1 million barrels.

In the Middle East, expectations grew that a ceasefire agreement between Israel and Hamas could be in sight following a renewed push by the US and Egypt. Still, Israeli Prime Minister Benjamin Netanyahu has vowed to go ahead with a long-promised assault on the southern Gaza city of Rafah.

“The crude market is weighed down by continued hopes for a ceasefire,” Ole Hansen of Saxo Bank said.

In other news, the US accused Russia of violating the international chemical weapons ban by deploying the choking agent chloropicrin against Ukrainian troops and using riot control agents “as a method of warfare” in Ukraine.

US INTEREST RATES

The US Federal Reserve held interest rates steady and signaled it is still leaning towards eventual reductions in borrowing costs, but put a red flag on recent disappointing inflation readings.

The Fed’s latest policy statement did note that “inflation has eased” but any delay in rate cuts could slow economic growth and dampen demand for oil.

(Reporting by Scott DiSavino in New York and Alex Lawler in London; additional reporting by Deep Vakil in Bengaluru, Laila Kearney in New York, and Sudarshan Varadhan in Singapore; editing by Jason Neely, Mark Potter, Will Dunham, and Franklin Paul)

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