Yields rise as investors await growth, inflation data

NEW YORK, Jan 23 – Treasury yields rose on Tuesday as investors await economic growth and inflation data later in the week that could influence when the Federal Reserve decides to cut interest rates.

The Treasury sold USD 60 billion in two-year notes at a high yield of 4.365%, in an auction that barely budged prices despite concerns about rising government debt issuance, which has led some investors to demand a higher risk premium.

The yield on two-year notes, which reflects interest rate expectations, rose 0.4 basis points to
4.381% after trading as high as 4.419%.

The Treasury has increased sales of two-year notes at auction from USD 57 billion in December and USD 54 billion in November. Another USD 61 billion of five-year notes will be sold on Wednesday and USD 41 billion of seven-year notes on Thursday.

The likelihood policymakers cut rates in March has fallen to less than 50% from about a 75% probability a month ago after Fed officials last week pushed back on market expectations of up to 150 basis points of rate cuts this year.

The recent bond rally might not have been priced for perfection, but it was anticipating a lot of good news and set up for disappointment, said Kevin Flanagan, head of fixed income strategy at WisdomTree in New York.

“Every week the Treasury market has been getting a little punch here, a little punch there, you know, trying to take some of the air out of that balloon,” he said.

“You had the pushback from the Fed last week. That played a big role in just resetting Treasury yields here in 2024.”

Investors await the first estimate of gross domestic product for the fourth quarter on Thursday and the Personal Consumption Expenditures index (PCE) on inflation on Friday.

The Treasury will issue a general financing estimate on Monday and details on any auction size increases on Jan. 31.

The Treasury is likely to increase auction sizes across most maturities, with the exception of 20-year bonds, said Vail Hartman, US rates strategist at BMO Capital Markets.

The Treasury’s refinancing estimate has gained greater focus since the government last July sparked a bond sell-off after announcing higher-than-expected borrowing needs for the third quarter.

“Who’s going to buy all this Treasury debt?” said Tom Simons, money market economist at Jefferies in New York. “It’s fair to expect that we’re probably going to get some pushback on the supply side here through the end of the month.”

The yield on the benchmark 10-year note rose 4.6 basis points to 4.140%.

The curve that measures the difference between yields on two- and 10-year Treasuries flattened further at -24.3 basis points. When the shorter-dated security’s yield is higher than the long end, or inverted, it is seen as a recession harbinger.

The yield on the 30-year Treasury bond was up 5.9 basis points at 4.375%.

The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.266%.

The 10-year TIPS breakeven rate was last at 2.291%, indicating the market sees inflation averaging about 2.3% a year for the next decade.

(Reporting by Herbert Lash; additional reporting by Karen Brettell in New York; editing by Jonathan Oatis and Richard Chang)

Gold edges up as traders eye cues on US rate cuts

Jan 23 – Gold prices inched higher on Tuesday, as investors awaited a slew of US economic data this week for more cues to the Federal Reserve’s timeline for interest rate cuts.

Spot gold was up 0.2% to USD 2,025.09 per ounce by 2:00 p.m. ET (1900 GMT).

Gold futures settled 0.2% higher at USD 2025.8.

“The gold market is just above the USD 2,000 mark and it seems to be a neutral market. Every time we start to break higher, we come back down,” said Daniel Pavilonis, senior market strategist at RJO Futures.

“There is a lot of uncertainty on what is going to happen here economically in the United States.”

Focus this week will be on the US flash PMI report on Wednesday, fourth-quarter advance GDP estimates due on Thursday, and personal consumption expenditures data on Friday.

Fed officials last week said the US central bank needs more inflation data in hand before any rate cut judgment could be made and that the baseline for cuts to start was in the third quarter.

Markets are pricing in the US central bank to hold rates unchanged at the end of the policy meeting on Jan. 30-31 and have pared back the timing of the first interest rate cut, according to CME’s FedWatch Tool.

Recent rebounds (in gold) appear to be getting shallower, which raises the prospect of further weakness if central banks continue to push back on market expectations of rate cuts, Michael Hewson, chief market analyst at CMC Markets, wrote in a note.

Lower interest rates decrease the opportunity cost of holding bullion.

Meanwhile, the European Central Bank meets on Thursday and is expected to hold monetary policy steady.

On the physical front, India increased the import duty on gold and silver findings, used in making jewellery.

Spot silver rose 1.2% to USD 22.35 per ounce, platinum climbed 0.7% to USD 898.41 and palladium gained 0.9% to USD 944.42.

(Reporting by Anushree Mukherjee in Bengaluru; Editing by Shweta Agarwal, Tasim Zahid, and Krishna Chandra Eluri)

Oil prices settle down slightly on more supply in US and abroad

NEW YORK, Jan 23 – Oil prices settled lower on Tuesday as traders focused on rebounding crude output in parts of the US, along with rising supply in Libya and Norway, rather than risks to supply posed by conflict in Europe and the Middle East.

Brent crude settled at USD 79.55 a barrel, losing 51 cents, or 0.6%. US West Texas Intermediate crude settled at USD 74.37 a barrel, shedding 39 cents, or 0.5%.

In North Dakota, the third-largest oil-producing US state, some oil output came back online after shutting because of extreme cold, the state’s pipeline authority said. However, output was still down as much as 300,000 bpd.

Persistent weakness in US gasoline demand has also hit oil prices, said John Kilduff, partner at Again Capital LLC.

While US crude stocks dropped by 6.67 million barrels last week, gasoline inventories jumped by 7.2 million barrels, according to market sources citing American Petroleum Institute figures. Official US government data is due on Wednesday.

Rising production elsewhere further pressured prices.

Norway’s crude production rose to 1.85 million barrels per day (bpd) in December, up from 1.81 million bpd the previous month and beating analysts’ forecasts of 1.81 million bpd, according to the Norwegian Offshore Directorate (NOD).

In Libya, production at the 300,000 bpd Sharara oilfield restarted on Jan. 21 after the end of protests that had halted output since early this month.

Geopolitical uncertainty limited losses.

“You’ve got the geopolitical pressures that aren’t enough to really rally the oil market, but they’re enough to keep the market from bottoming out of the range,” said Bob Yawger, director of energy futures at Mizuho Bank.

Crude prices rose by around 2% on Monday after a Ukrainian drone strike on Novatek’s Ust-Luga Baltic fuel export terminal near Russia’s second city St Petersburg raised supply concerns.

In the Middle East, tensions rose after US and British forces carried out a second joint round of strikes on Houthi positions in Yemen.

(Additional reporting by Robert Harvey and Noah Browning in London, and Emily Chow and Trixie Yapp in Singapore; Editing by Kevin Liffey, David Gregorio, Christina Fincher, and Deepa Babington)

S&P 500 ends with record high for 2nd session in row

NEW YORK, Jan 22 – The S&P 500 posted a second straight record high close on Monday as tech stocks added to recent gains and investors awaited upcoming corporate reports for clues on this year’s profit outlook.

Friday’s finish confirmed that the S&P 500 has been in a bull market since it closed at its low on Oct. 12, 2022, according to one commonly used measure.

Netflix, Tesla, Abbott Laboratories, Intel, and Johnson & Johnson, are due to report this week.

Several top tech-related heavyweights, including Microsoft and Apple, are expected to report results next week.

“The earnings and guidance are going to be crucial to continue to underpin the mega tech force in the market,” said Quincy Krosby, chief global strategist at LPL Financial in Charlotte, North Carolina.

An index of semiconductors ended up 0.3% and hit a fresh all-time high, while Nvidia also gained 0.3% and notched a fresh record. The S&P 500 technology index was up 0.4%.

Investors also await reports this week on the personal consumption expenditure (PCE) index, S&P Global PMI readings and an advance fourth-quarter GDP print for possible clues on the US central bank’s next policy decision.

“It does make sense that the equity market is pretty confident here, just given the strength that we’ve seen so far in the first few weeks of the year on the back of the consumer,” said Matt Stucky, chief portfolio manager for equities at Northwestern Mutual Wealth Management Company.

The Dow Jones Industrial Average rose 138.01 points, or 0.36%, to 38,001.81, the S&P 500 gained 10.62 points, or 0.22%, to 4,850.43 and the Nasdaq Composite added 49.32 points, or 0.32%, to 15,360.29.

Traders have scaled back their expectations of an at least 25-basis-point rate cut first arriving in March, with the focus now more on May, with a 53% chance, according to the CME Group’s FedWatch Tool.

The S&P 500’s biggest daily percentage decliner was Archer-Daniels-Midland. Its shares dropped 24.2% in its biggest percentage fall in decades after placing its CFO on administrative leave for an investigation and cutting its full-year profit forecast.

Also, Gilead fell 10.2% after it said its drug, Trodelvy, failed to significantly improve survival for previously treated patients with advanced non-small cell lung cancer (NSCLC) in a late-stage study.

Volume on US exchanges was 11.86 billion shares, compared with the 11.42 billion average for the full session over the last 20 trading days.

Advancing issues outnumbered declining ones on the NYSE by a 3.17-to-1 ratio; on Nasdaq, a 2.38-to-1 ratio favored advancers.

The S&P 500 posted 82 new 52-week highs and 3 new lows; the Nasdaq Composite recorded 161 new highs and 130 new lows.

(Reporting by Caroline Valetkevitch; additional reporting by Ankika Biswas and Johann M Cherian in Bengaluru, and Sinead Carew in New York; Editing by Maju Samuel and Aurora Ellis)

BOJ takes center stage, China markets slump

Jan 23 – The Bank of Japan’s policy decision – and perhaps more importantly, Governor Kazuo Ueda’s press conference – is the main focus for Asian markets on Tuesday, as the deepening slump in Chinese and Hong Kong markets continues to unnerve investors.

While sentiment toward China’s economy and markets is clearly deteriorating, the spillover to the rest of Asia may be contained to a certain extent by the more upbeat mood globally.

The S&P 500 on Monday hit a fresh record high for a second consecutive day while Japan’s Nikkei 225 registered another 34-year peak. This helped limit the downside in Asia on Monday, and the MSCI Asia ex-Japan index slipped 0.6%.

The BOJ is not expected to alter policy, so the statement and Ueda’s guidance will be intensely scrutinized for signals of when and how the ‘normalization’ process and eventual move away from negative interest rates will unfold this year.

Recent inflation data has been soft, taking pressure off the BOJ to act. With inflation seemingly gliding back toward the BOJ’s 2% target, traders are adjusting their rate expectations and Japanese assets are reacting accordingly.

Stocks are up almost 10% this month, the yen is sliding back toward the 150.00 per dollar area, and bond yields are significantly lower than they were a few months ago, despite being dragged higher in recent days by the rise in global yields.

The difference between investors’ outlook towards Japan and China is night and day. Both may be over-cooked right now, but market momentum in both countries is strong and showing little sign of reversing.

China and Hong Kong shares slumped again on Monday. China’s bluechip CSI300 Index skidded 1.6% to its lowest closing level in five years, the Shanghai Composite Index sank 2.7% – its biggest fall since April 2022 – and in Hong Kong the Hang Seng Index fell 2.3% to its lowest level in 14 months.

China’s central bank stood pat on interest rates on Monday, as expected. But many traders and investors will be wondering how much longer policymakers can sit on their hands. The longer it does, the longer the stock market selloff might go on.

Beijing has said it will take more forceful and effective measures to support market confidence, state media CCTV reported on Monday, citing a cabinet meeting chaired by Premier Li Qiang.

Also on Monday, China’s major state-owned banks moved to support the yuan, tightening liquidity in the offshore foreign exchange market while actively selling US dollars onshore as equities slid, sources told Reuters.

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

– Japan monetary policy decision

– South Korea PPI (December)

– Australia business confidence (December)

(By Jamie McGeever; Editing by Deepa Babington and Bill Berkrot)

US dollar flat as Japan, European policy meetings loom

NEW YORK, Jan 22 – The US dollar was little changed to modestly higher against a basket of currencies on Monday ahead of central bank policy decisions in Japan and the eurozone that may determine the currency’s direction this year.

Japan’s yen moved away from Friday’s 148.80 per US dollar, its weakest in a month, and rose to as high as 147.61, as the BOJ started its two-day policy meeting. The dollar was last down 0.1% against the Japanese currency at 148.06 yen.

Wagers for an exit from negative rates at this meeting have been wound down following the New Year’s Day earthquake on Japan’s west coast, alongside dovish BOJ commentary.

“BOJ Governor (Kazuo) Ueda is likely to tilt against expectations for an April move out of negative-rates territory in the post-decision press conference, and the bank may lower its full-year inflation forecast, pulling the yen closer to the 150 threshold against the dollar,” said Karl Schamotta, chief market strategist at Corpay in Toronto.

The yen, which is sensitive to the difference in interest rates between the U.S and Japan, has been the worst hit against the dollar this year, tumbling about 5% in a swift reversal of December’s bounce to five-month peaks near 140.

“It’s incredibly unlikely they’ll (BOJ) actually touch their benchmark policy rate, but comments from currency officials are proving to once again have a bit of weight on the (dollar/yen) pair,” said Helen Given, FX trader, at Monex USA in Washington.

“We’ll have to see whether Ueda mentions FX pricing in his press conference following the decision. To put things into context though, this is a relatively small retracement to the losses JPY has taken so far this year.”

Traders said one factor also driving the yen moves was the expiry of a large amount of currency options this week and the hedging around those contracts.

LSEG data showed strike prices between 147.15 and 148.10 dollar-yen levels this week totaled around USD 2.6 billion.

The European Central Bank is also holding a policy meeting this week and is expected to leave rates unchanged at 4%, with ECB officials saying it is too early for rate cuts. With the ECB likely to remain data-dependent, investors will focus on the tone of the policy statement and President Christine Lagarde’s press conference.

The euro was last down 0.1% on the day at USD 1.0883. Speculators pared back net long positions on the euro to their lowest since early November, data from the Commodity Futures Trading Commission showed last Friday.

The dollar index was flat to slightly higher at 103.34. It has gained the most among developed market currencies in January, rising about 1.8% from the start of this year. Its rally, however, has been up and down as investors try to make up their minds about when the Federal Reserve will start cutting rates.

Data late last week showing US economic activity remains resilient despite interest rates at their highest level in decades caused markets to scale back expectations of rate cuts beginning as soon as March.

The US rate futures market on Monday priced in a roughly 40% chance of a rate cut at the March meeting, down from as much 80% 1-1/2 weeks ago, according to LSEG’s rate probability app. For 2024, futures traders are betting on five rate cuts of 25 bps each, compared with expectations of six two weeks ago.

In cryptocurrencies, bitcoin fell below USD 40,000 for the first time since early December, as investors continued to book profits following the US approval of spot bitcoin exchange-traded funds a few weeks ago.

The world’s largest cryptocurrency in terms of market capitalization dropped to USD 39,335.37 BTC=, the lowest level since December 4. Bitcoin was last down 3.5% at USD 40,284. So far this year, bitcoin has fallen 5.3%.

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Alun John in London, Vidya Ranganathan in Singapore, and Kevin Buckland in Tokyo; Editing by Sharon Singleton, Kirsten Donovan, and Cynthia Osterman)

Yields ease as investors buy after recent bond weakness

NEW YORK, Jan 22 – Treasury yields fell on Monday as investors took advantage of a recent decline in bond prices to buy ahead of economic reports this week that could influence the Federal Reserve and its assessment of US interest rates.

Treasuries began the day tracking European bonds, said Tom di Galoma, managing director and co-head of global rates trading at BTIG.

“That’s just pulling us down a bit,” he said. “We started to see lower yields in US Treasuries and I think it’s really just a function of European rates falling.”

After the 2023 year-end bond rally, Treasury yields, which move inversely to their price, rose sharply last week as central bank officials pushed back against market expectations that the Fed would soon cut rates as inflation cools.

Fed funds futures show the likelihood of a Fed rate cut in March has slipped to 41.5% from 81% on Jan. 12, according to CME Group’s FedWatch Tool. The odds the Fed’s target rate stays in a range of 5.25%-5.50% has increased to 15% from zero.

A string of economic indicators last week showed resilience despite high interest rates, suggesting the Fed may not shift to a less restrictive posture as soon as previously expected.

Monday’s lower yields are the result of “a retracement of what we saw last week, when we got a bit of a pushback against the market rally that we saw late last year,” said Jonathan Mondillo, head of North American fixed income at abrdn.

“Portfolio managers have cash to put to work, and a nice parking position is Treasury bonds.”

Benchmark 10-year Treasury yields were down 4.8 basis points (bps) at 4.097%, but still up more than 20 bps from their close of 3.86% on the last trading day of 2023.

Two-year yields, which typically reflect market expectations for interest rate changes, fell 2.5 bps to 4.383%.

The larger drop in 10-year yields deepened the inversion of the two- and 10-year yield curve to -28.8 bps. The curve has been inverted, with short-term bonds yielding more than longer ones, since July 2022. The phenomenon has reliably preceded recessions.

Investors await gross domestic product data for the fourth quarter on Thursday, and the Personal Consumption Expenditures index (PCE) on inflation on Friday.

The Treasury will sell USD 60 billion in two-year notes on Tuesday, USD 61 billion of five-year notes on Wednesday and USD 41 billion on seven-year notes on Thursday.

(Reporting by Davide Barbuscia and Herbert Lash; Editing by Kirsten Donovan and Richard Chang)

Gold slides on trimmed US rate cut bets, rallying equities

Jan 22 – Gold prices eased on Monday as investors rolled back expectations of a US interest rate cut at the end of March, with a surge in equity markets further dampening interest in safe-haven bullion.

Spot gold was down 0.5% at USD 2,020.09 per ounce at 1:49 p.m. ET (1849 GMT).

US gold futures settled 0.3% lower at USD 2022.2.

Technical selling and a rally in stock markets are likely the two main factors limiting buying interest in the gold and silver markets, said Jim Wyckoff, senior analyst at Kitco Metals.

“We have had better US economic data lately, that suggests the Fed may have to hold off longer on lowering interest rates.”

Higher interest rates increase the opportunity cost of holding bullion.

Gold fell about 1% last week, its biggest weekly decline in six, after the US Federal Reserve said it needs to see more inflation data before any rate cut judgment could be made and that the baseline for cuts to start was in the third quarter.

Traders are pricing in about a 41.6% chance that the Fed will cut interest rates in March, according to the CME Fed Watch Tool, compared with more than 70% at the beginning of last week.

Investors are waiting for the US flash PMI report on Wednesday, fourth-quarter advance GDP estimates due on Thursday, and personal consumption expenditures data on Friday for more cues on interest rates.

Spot silver fell 2.1% to USD 22.13 per ounce, platinum was down 0.7% at USD 892.89 and palladium slipped 1% to USD 936.69.

UBS expects platinum to be undersupplied by 300,000 ounces in 2024, for a second consecutive year, mainly on the back of the platinum to palladium substitution in autocatalysts.

(Reporting by Anushree Mukherjee in Bengaluru; Editing by Kirsten Donovan, Christina Fincher, and Krishna Chandra Eluri)

China moves to support yuan as stock markets tumble – sources

SHANGHAI/BEIJING, Jan 22 – China’s major state-owned banks moved to tighten yuan liquidity in the offshore foreign exchange market on Monday, actively selling US dollars onshore, four sources with knowledge of the matter said.

The goal was to prevent the yuan from falling too fast as China’s A shares plunged, said one of the people.

Offshore yuan tomorrow-next forwards jumped to a more than two-month high of 4.25 points, reflecting signs of tighter liquidity conditions.

The benchmark Shanghai Composite index lost 2.7% on Monday, posting the biggest one-day drop since April 2022.

State banks often act on behalf of China’s central bank in the foreign exchange market, but they can also trade on their behalf or execute clients’ orders.

(Reporting by Shanghai and Beijing Newsroom; Editing by Kirsten Donovan)

Oil rises 2% on supply disruptions in Russia, US

HOUSTON, Jan 22 – Oil prices rose about 2% on Monday on concerns over global energy supplies following a Ukrainian drone strike on Russia’s Novatek fuel terminal and as extreme cold weather continued to hamper US crude production.

Brent March crude futures settled at USD 80.06 a barrel, up USD 1.50, or 1.9%.

Front-month US West Texas Intermediate crude futures contract (WTI) for February delivery closed at USD 75.19, up USD 1.78, or 2.4%, as the contract expired. The more active March WTI contract was up USD 1.36 at USD 74.61.

“There are finally concerns in the market about genuine supply disruptions,” said John Kilduff, partner at Again Capital LLC, citing the drone strike that idled portions of the Novatek terminal.

Severe cold weather across the US is limiting crude oil output in North Dakota, as well hampering production in other states, said Phil Flynn, analyst with Price Future Group.

Over 20% of output in the third largest oil producing state remained shut in on Monday after being halved last week by extreme cold weather and operational challenges, North Dakota’s pipeline authority said.

Flynn added that stock markets continue to gain, pointing to greater demand in the coming months.

“Pessimism about the economy is going away,” he said.

The benchmark S&P 500 scaled a fresh record high, extending a bull run into a new week on a boost from megacap and chip stocks.

There are no signs of respite in Israel’s offensive in Gaza while attacks by Iran-aligned Houthis on commercial vessels in the Red Sea have continued despite retaliatory measures from the United States.

Still, oil fundamentals could continue to drag on prices, according to IG analyst Tony Sycamore.

Oil production is higher while the growth outlook in China and Europe is mixed and data this week is expected to show US economic growth has slowed considerably, he said.

“Investors want to be bullish, but tepid data and a cautious narrative from policymakers keep them on the back foot,” said Tamas Varga of oil broker PVM.

The latest demand growth forecasts by the US Energy Information Administration, the International Energy Agency and the Organization of the Petroleum Exporting Countries for 2024 range between 1.24 million and 2.25 million barrels per day, though all three organizations expect demand growth to slow in 2025.

Separately, production at Libya’s Sharara oilfield resumed on Sunday, state oil company NOC said, after protesters ended a sit-in that had halted output since early January.

(Reporting by Erwin Seba; additional reporting by Natalie Grover, Noah Browning, Mohi Narayan, and Florence Tan; Editing by Marguerita Choy, Jane Merriman, and Tomasz Janowski)

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