Euro zone bond yields trade near seven-month lows before US jobs data

LONDON, Dec 7 – Euro zone bond yields were little changed on Thursday after hitting multi-month lows the previous day, as investors waited for impetus from U.S. jobs data.

Germany’s 10-year bond yield was last down less than 1 basis point (bp) at 2.205%, just above its lowest level in seven months.

Bond yields, which move inversely to prices, have tumbled this week after influential European Central Bank official Isabel Schnabel told Reuters that further interest rate hikes were “rather unlikely” given that inflation slowed to 2.4% in November.

Italy’s 10-year bond yield was last up unchanged at 3.957% after falling to 3.95% on Wednesday, the lowest since July.

The US employment report on Friday will give investors a sense of whether their expectations for steep Federal Reserve interest rate cuts next year are appropriate. Before that, US weekly jobless claims data is due at 1330 GMT on Thursday.

Pricing in money markets shows that investors currently expect around 120 bps of rate cuts in the U.S. and 140 bps in the euro zone by December next year.

Sonja Laud, chief investment officer at Legal & General Investment Management, said at an event on Wednesday that she expects euro zone inflation to remain above the ECB’s 2% target by the end of 2024.

“If we’re right on that, clearly we might not see the full extent of the rate cuts,” she said.

Yet she said it has historically paid off to buy bonds when central banks have finished hiking interest rates.

“This journey might not be straightforward, but if you accept (that and) you got in here at the top, then you might well be in for a very profitable journey.”

Germany’s 2-year bond yield, which is sensitive to ECB rate expectations, was last down 1 bp at 2.596% after falling to its lowest since May at 2.57% on Wednesday.

Global bond yields rose in the Asian session overnight, with Deutsche Bank credit strategist Jim Reid pointing to comments from Bank of Japan officials that pushed up Japanese market rates.

BoJ Deputy Governor Ryozo Himino said on Wednesday that an exit from ultra-loose monetary policy, if done properly, could reap rewards for the country’s economy.

Japan’s 10-year bond yield rose around 11 bps overnight and last stood at 0.756%.

Japanese investors are large holders of foreign bonds and some analysts have said a sharp rise in domestic yields could suck money back to Japan and out of global assets.

Mixed economic data on Thursday showed that German industrial output unexpectedly fell for a fifth month in a row in October, while Chinese exports grew for the first time in six months.

(Reporting by Harry Robertson; Editing by Angus MacSwan)

Gold firms as spotlight shifts to US jobs print

Dec 6 – Gold firmed on Wednesday as Treasury yields eased, stabilizing after a rapid retreat from a record high hit earlier this week, while investors braced for the US jobs report for further clues on how soon interest rate cuts may materialize.

Spot gold rose 0.4% to USD 2,027.48 per ounce by 3:10 p.m. ET (2010 GMT). US gold futures settled 0.6% higher at USD 2,047.90.

Benchmark 10-year Treasury yields hit a more than three-month low.

Gold scaled an all-time peak of USD 2,135.40 on Monday on elevated bets for a Fed cut, before dropping more than USD 100 on uncertainty over the timing of the reductions.

Further direction could come from the US non-farm payrolls data due on Friday, coming ahead of the US central bank’s policy meeting next week.

“Gold and silver traders are sitting on a tinderbox, and this payroll Friday could spark the flames … While we expect macro headwinds to weigh on precious metals short positions in the medium term, the current set-up is ripe for a squeeze,” analysts at TD Securities said in a note.

Traders are pricing in about a 60% chance of a rate cut by March next year, CME’s FedWatch Tool showed.

Safe-haven inflows driven by wars in Ukraine and the Middle East, coupled with the rate cut bets, have driven a more than 10% rise in bullion prices. Lower interest rates make zero-yield gold more attractive than competing assets such as bonds and the dollar.

Anticipation of monetary easing is the biggest driver of gold now and prices should move higher into next year, said Daniel Pavilonis, senior market strategist at RJO Futures.

“Geopolitics can play an important role in moving gold up, for the remainder of this year and next year.”

Silver fell 0.9% to USD 23.92 per ounce, while platinum dropped 1% to USD 890.35, both down for a third straight session.

Palladium climbed 1.3% to USD 946.31, snapping a six-session losing streak from last session’s five-year low.

(Reporting by Anushree Mukherjee in Bengaluru; Editing by Maju Samuel)

Dollar at 2-week high, euro softer as market bets on rate cuts

WASHINGTON, Dec 6 – The US dollar was at a two-week high on Wednesday, while the euro was weak across the board as markets ramped up bets that the European Central Bank (ECB) will cut interest rates as early as March.

Although markets are still pricing at least 125 basis points of interest rate cuts from the US Federal Reserve next year, the dollar was able to hold steady as rate cut bets for other central banks intensified.

The dollar index, which measures the currency against six other majors, was last up 0.19% at 104.16. The euro was down 0.29% to USD 1.0764.

Traders are betting that there is around an 85% chance that the ECB cuts interest rates at the March meeting, with almost 150 basis points worth of cuts priced by the end of next year. Influential ECB policymaker Isabel Schnabel on Tuesday told Reuters that further interest rate hikes could be taken off the table given a “remarkable” fall in inflation.

The euro also touched a three-month low against the pound, a five-week low versus the yen, and a 6-1/2 week low against the Swiss franc.

“It’s a reasonably sized sell-off and the market is trying to digest, is it just a correction? Did the market get over-exuberant in the previous weeks? I think there is definitely an element of that,” said Amo Sahota, director at FX consulting firm Klarity FX in San Francisco.

‘A BIT OVERBOARD’

The ECB will set interest rates on Thursday next week and is all but certain to leave them at the current record high of 4%. The Fed and Bank of England are also likely to hold rates steady next Wednesday and Thursday respectively.

The Bank of Canada on Wednesday held its key overnight rate at 5% and, in contrast to its peers, left the door open to another hike, saying it was still concerned about inflation.

Traders have priced around a 60% chance of the US central bank cutting rates in March, according to CME’s FedWatch tool.

“Markets have aggressively priced in rate cuts, without any kind of confirmation from central banks,” said Adam Button, chief currency analyst at ForexLive in Toronto. “As December continues, we need either a change in tune from central bankers or a repricing in markets.”

If the Fed were to cut rates as markets expect, it could result in the dollar loosening its grip on other G10 currencies next year, dimming the outlook for the greenback, according to a Reuters poll of foreign exchange strategists.

The spotlight in Asia was on China, as markets grappled with rating agency Moody’s cut to the Asian giant’s credit outlook.

The offshore Chinese yuan was flat at USD 7.1728 per dollar, a day after Moody’s cut China’s credit outlook to “negative”.

China’s major state-owned banks stepped up US dollar selling forcefully after the Moody’s statement on Tuesday, and they continued to sell the greenback on Wednesday morning, Reuters reported.

Elsewhere in Asia, the Japanese yen weakened 0.15% versus the greenback at 147.38 per dollar. The Australian dollar fell 0.02% to USD 0.65495.

In cryptocurrencies, bitcoin eased 0.06% to USD 44,049, still near its highest since April 2022.

The world’s largest cryptocurrency has gained 150% this year, fueled in part by optimism that a US regulator will soon approve exchange-traded spot bitcoin funds (ETFs).

(Reporting by Hannah Lang in Washington; additional reporting by Samuel Indyk in London and Ankur Banerjee in Singapore; Editing by Christina Fincher, Mark Potter, and Diane Craft)

Oil falls 4% as build in gasoline stocks fuel demand concerns

HOUSTON, Dec 6 – Oil prices fell nearly 4% on Wednesday to their lowest settlements since June, as worries about global fuel demand mounted after US data showed a larger-than-expected rise in gasoline inventories.

Brent crude futures settled down USD 2.90, or 3.8%, at USD 74.30 a barrel. US WTI crude futures fell by USD 2.94, or 4.1%, to USD 69.38 a barrel.

“There is demand destruction coming in from the fuel side,” said Dennis Kissler, senior vice president of trading at BOK Financial.

“The market is more demand focused than supply focused right now.”

Concerns over China’s economic health and future fuel demand also weighed on prices, a day after rating agency Moody’s lowered the outlook on China’s A1 rating to negative from stable.

US gasoline stocks rose by 5.4 million barrels last week, the Energy Information Administration said, more than quintuple the 1 million-barrel rise that analysts had expected. US gasoline futures RBc1 plummeted to their lowest in two years.

“Even though it was not the peak gasoline season, demand during the long Thanksgiving holiday weekend was lackluster,” said John Kilduff, partner with Again Capital LLC.

Gasoline demand last week lagged the 10-year seasonal average by 2.5%.

The US dollar also touched a two-week high, which pressures demand by making oil more expensive for holders of other currencies.

An unexpected fall in US crude inventories did little to support prices. Crude inventories fell by 4.6 million barrels, far exceeding the 1.4 million-barrel drop analysts had expected. EIA/S

OPEC+, the Organization of the Petroleum Exporting Countries and allies such as Russia agreed late last week on voluntary output cuts of about 2.2 million barrels per day (bpd) for the first quarter of 2024.

This week, Saudi and Russian officials said the cuts should prevent a buildup in oil inventories in the first quarter and could be extended or deepened.

Despite the OPEC+ supply curbs, prices have slipped nearly 11% since the settlement on Nov. 29, the day before OPEC+ met.

On Wednesday, Russian President Vladimir Putin traveled to the United Arab Emirates and Saudi Arabia to meet with the UAE’s President Sheikh Mohammed Bin Zayed Al Nahyan, and Saudi Crown Prince Mohammed bin Salman. Oil and OPEC+ were on the agenda.

Forward prices for US crude were at their steepest premium to prompt barrels, a sign of ample supply and growing fears of slow demand.

(Reporting by Arathy Somasekhar and Georgina McCartney in Houston, Robert Harvey in London, Andrew Hayley in Beijing, and Trixie Yap in Singapore, Editing by Louise Heavens, Elaine Hardcastle, Simon Webb, and David Gregorio)

Dollar’s dominant grip on FX markets to loosen further

BENGALURU, Dec 6 – The dollar will loosen its grip on other G10 currencies in 2024, with a dimmer outlook for the currency as the US Federal Reserve was expected to start cutting interest rates next year, a Reuters poll of FX strategists found.

Dominating currency markets since mid-2021, the dollar stayed relatively strong for the better part of this year but lost momentum after a few Fed officials made dovish comments last week.

Erasing all of its yearly gains, the dollar index fell 3.0% in November, its biggest monthly drop in a year.

Much of the greenback’s strength was down to the US economy’s superior performance compared to its peers. The world’s largest economy expanded at an annualized rate of 5.2% last quarter, the fastest pace since Q4 2021.

While analysts expected the currency’s weakening trend to continue into next year, median predictions in the Dec. 1-5 Reuters poll of 71 analysts showed a majority of the falls coming in the later part of 2024.

“We are looking for the dollar to weaken further next year, but we think the weakness will be more in the second half of next year,” said Lee Hardman, senior currency strategist at MUFG.

“In the first half of the year, we’re still relatively cautious about predicting a bigger dollar sell-off because we think the global growth story outside of the US still remains very, very weak and challenging.”

While predictions showed the dollar will remain resilient in the first six months of 2024, there was no clear consensus on what will drive the currency’s performance.

Among analysts who answered an additional question, 20 of 47 said interest rate differentials, 17 said economic data and seven said safe-haven demand. The remaining three gave varied reasons.

“We are at that turning point in the global economy and central bank policy that maybe it is creating more uncertainty over what’s going to be the key drivers for FX markets over the next six months,” added MUFG’s Hardman.

But beyond that time period, economic growth and currency valuations were likely to dictate currency moves.

“From Q2 onwards … we do think cyclical conditions globally will begin to improve and that should lead to markets moving away from being driven primarily by rate dynamics and move towards cyclical dynamics and valuations where the likes of EUR/USD and USD/CAD will all of a sudden look cheap on that basis,” said Simon Harvey, head of FX analysis at Monex Europe.

The euro EUR=, which is up 1.0% for the year was expected to end December at USD 1.08, around the same level it was seen trading on Tuesday.

It was then forecast to change hands at USD 1.09, USD 1.10 and USD 1.12 in three, six and 12 months gaining 0.4%, 1.5% and 3.6% respectively.

The Japanese yen, the worst performing major currency this year, has lost about a third of its value in the past three years and was expected to gain 7.4% to trade at 137/dollar in a year.

Sterling, already up over 4.0% for the year was predicted to gain 1.7% to USD 1.28 in a year.

(Reporting by Hari Kishan; Polling by Prerana Bhat, Pranoy Krishna, and Anant Chandak:
Editing by Nick Zieminski)

Gold’s record run faces speed bumps, but new peaks beckon

Dec 5 – The momentum propelling gold to a record USD 2,135.40 per ounce on Monday may fizzle short-term, due to uncertainty over the timing of US monetary easing, but wider geopolitical risks should also drive further gains towards fresh peaks, analysts said.

Safe-haven inflows driven by war in Ukraine and the Middle East, coupled with bets for a cut in US interest rates – making zero-yield gold more attractive than competing assets such as bonds and the US dollar – have driven a more than 10% rise in bullion prices.

Gold vaulted on a more dovish tilt by the Federal Reserve, but has since given up some of those gains.

“Bullish expectations have been brought forward into the first quarter of 2024 but it is not going to be a straight line to revisit the all-time peak again,” said Nicky Shiels, head of metals strategy at MKS.

Steady central bank purchases led by China have also supported gold this year and this should continue next year, analysts noted.

Holdings in the largest gold-backed exchange traded fund (ETF), the SPDR Gold Shares ETF, posted net inflows of over USD 1 billion in November, the most since March 2022.

However, most analysts have highlighted that prices will pull back near-term, before resuming the climb next year to target USD 2,150 to USD 2,300 per ounce.

“Gold has been known to price in monetary policy expectations prematurely over the past two years. While we expect the Fed’s next move to be a rate cut, we do not expect it to materialise immediately,” Standard Chartered analyst Suki Cooper said.

(Reporting by Ashitha Shivaprasad and Brijesh Patel in Bengaluru; additional reporting by Deep Vakil and Anushree Mukherjee; Editing by Arpan Varghese and Josie Kao)

Stock-hungry volatility funds, ‘gamma-heavy’ options dealers could buoy US equities

NEW YORK, Dec 5 – An epic rally in US stocks has sent Wall Street’s fear gauge to a post-pandemic low. Options strategists believe market gyrations may stay subdued for some time – potentially smoothing the way for further gains in equities.

The Cboe Volatility Index, which measures investor demand for protection against stock swings, is hovering just above that low of 12.45 hit late last month, in contrast with a long-term average level of about 20.

The move occurred as expectations that the Federal Reserve is done cutting interest rates fueled a rebound in the S&P 500, taking the index to a new closing high for the year. The S&P 500 is up 19% year-to-date, following a 9% gain in November – its best monthly performance since July 2022.

A 0.5% decline in the S&P 500 on Monday took the VIX to 13.08.

Since the VIX tends to move inversely to stocks, market participants watch it closely as an indicator of investor sentiment and positioning. With momentum firmly on the side of the bulls and investors’ risk appetite high, options mavens say volatility is likely to remain subdued for the remainder of the year.

“Volatility has really collapsed,” said Ilya Feygin, consultant to institutional execution services firm WallachBeth Capital. Feygin believes volatility is likely to remain suppressed until at least to year-end.

Among the factors closely watched by market participants are the funds that take their signals from market volatility, selling when volatility picks up and buying when it subsides. As market gyrations have calmed, these volatility-targeting funds have become buyers of US equities, sucking up some USD 30 billion worth of purchases in the week ended Nov. 30, according to data from Nomura Securities.

If stocks average only a 0.5% move daily over the next month, the funds could buy around USD 21 billion more worth of equities, Nomura strategist Charlie McElligott said, offering upside support for stocks into year-end.

Another volatility dampener comes from options dealers, who act as intermediaries between buyers and sellers. These dealers are now net long “gamma” – meaning they have to sell stock futures when markets rally and buy futures when markets sell off in order to square the risk on their books.

“Hedging flows associated with this should restrict market movements,” Brent Kochuba, founder of options analytic service SpotGamma.

History also shows that once volatility expectations become subdued, they can linger at low levels for a while. The VIX took anywhere from three weeks to more than three months to break decidedly above 13 the last five times it fell below that level for more than a couple of days, a Reuters analysis showed.

Overall, the VIX has been below 13 for roughly 20% of its three decade history.

The calm in markets has rewarded those betting against volatility. The 1x Short VIX Futures ETF SVIX, which tracks the Short VIX Futures Index and seeks to provide greater returns as volatility falls, is up 135% for the year, making it the 20th best performing US-listed ETF, according to VettaFi data.

Still, some market watchers see a potential warning sign in the recent calm.

In November, traders’ expectations of S&P 500 30-day implied volatility – which measures expectations for stocks’ gyrations – fell below 30-day realized volatility – or how much stocks were actually moving – by the widest margin since December 2022.

The last four times a similar drop happened saw the S&P 500 decline, on average, by 8.5% over the next 31 days, data from Cantor Fitzgerald showed.

Eric Johnston, Cantor Fitzgerald’s head of equity derivatives and cross asset, said those drops occurred within the scope of a 250% gain for the S&P 500 in the period, which stretched from 2014 to the present.

Nevertheless, hedges bought now would pay well should another market decline materialize, he said.

Implied volatility falling below realized volatility, “tends to be the calm before the storm,” Johnston said.

(Reporting by Saqib Iqbal Ahmed; Editing by Ira Iosebashvili and Grant McCool)

Trend hedge funds start holiday season by buying stocks, JPMorgan says

LONDON, Dec 5 – Trend-following hedge funds began December in a bullish mood, buying US, European, and Japan stocks, a prime brokerage note from JPMorgan said.

The S&P 500 and Japan’s blue-chip Nikkei both rallied almost 9% in November. European shares posted gains of over 6%.

Hedge funds overall finished November by posting a 2.3% positive performance result, said the bank in a note released on Sunday and seen by Reuters.

They did best with a 3.2% return in Europe, Middle East, and Africa, with a 2.1% return in North America, and were marginally positive in Asia with a 0.5% positive result, the note said.

Trend hedge funds, or CTAs (commodity trading advisers), trade systematically – meaning they try to catch market moves big enough to be a trend.

Systematic hedge funds recovered from losses earlier in the year in the October bond sell-off, with government bond yields from the United States to Germany hitting multi-year highs as concern about elevated interest rates and high debt levels took hold, hurting stocks in turn.

These hedge funds typically take hundreds of small bets across equities, bonds, commodities, and currencies.

Stocks of companies that distribute materials as well as firms that make discretionary products consumers like to buy but do not need, did well for these traders but they suffered losses speculating on financial stocks, including banks, said JPMorgan.

(Reporting by Nell Mackenzie; editing by Barbara Lewis)

Dollar regains ground after sell off; bitcoin breaches USD 42,000

WASHINGTON, Dec 4 – The dollar ticked higher on Monday, regaining some ground after falling for three straight weeks on bets that the US Federal Reserve will soon be cutting interest rates, while bitcoin breached USD 42,000 for the first time since early 2022.

The dollar index, which tracks the currency against six major peers, rose by 0.54% to 103.67, while the euro was last down 0.49% to USD 1.0828

“We’re kind of seeing a rebound and reshaping of expectations back to what we expected towards the end of the year,” said Helen Given, FX trader, at Monex USA in Washington.

Fed Chair Jerome Powell said on Friday that the central bank was prepared to tighten policy further if needed, but also said that interest rates were “well into restrictive territory” and were slowing inflation.

“Yes, he said that interest rate hikes are done, but that was already kind of baked in the cake when it comes to the Fed,” said Given. “The more important side of the coin that we saw was that he laid down the law and said that cuts are not coming anytime soon.”

In cryptocurrencies, bitcoin ripped to its highest since April 2022 at more than USD 42,100, buoyed by expectations that US regulators will soon approve an exchange-traded bitcoin fund. It was last at USD 41,912.

“An approval is expected to bring short-term capital influx from the traditional finance investors, fueling the uptrend, while a rejection might trigger a short-term negative price action due to high expectations of approval by market participants,” said Matteo Greco, a research analyst at fintech investment firm Fineqia International, in a note.

Investors’ bets that the Fed’s rate-hiking cycle is over have also boosted riskier assets in financial markets. The key data point for investors this week is the November US jobs report, which is expected to show the American economy added 180,000 jobs last month, up from 150,000 in October.

Last month, the euro rallied 3% against the dollar and hit its highest since August at more than USD 1.10 as data showed US inflation was cooling rapidly. The dollar index dropped 3.1% in November in its biggest monthly fall in a year.

“A lot of people are … realizing that the strength of the euro, primarily because of the US weakness to this point, is now potentially an inflection point,” said Eugene Epstein, Moneycorp’s head of structured products, North America. “The tone of the conversation seems to have shifted a little bit in that direction.”

Sterling was at USD 1.262, down 0.6% on the day, while the Australian dollar was 0.88% lower at USD 0.66140. The US dollar also rose against the Swiss franc, last up 0.41%.

The dollar was last down 0.33% against the yen at 147.300, after falling to 146.24 yen per dollar in the Asian session, its lowest since mid-September.

Data on Monday showed that exports from Germany unexpectedly fell in October, denting hopes that Europe’s biggest economy was stabilizing.

Eurozone retail sales data are due on Wednesday, ahead of Chinese trade figures on Thursday.

(Reporting by Hannah Lang in Washington; additional reporting by Harry Robertson in London and Brigid Riley in Tokyo; Editing by Marguerita Choy and Alison Williams)

Gold retreats from record peak on tempered outlook for Fed rate cuts

Dec 4 – Gold fell more than 2% after hitting an all-time high on Monday, but zero-yield bullion’s retreat halted above USD 2,000 an ounce after traders trimmed bets for the first rate cut by the US Federal Reserve in early 2024.

Spot gold slipped 2.1% to USD 2,026.69 per ounce by 2:31 p.m. ET (1931 GMT). Prices swung in a wide USD 115 range but were finally headed for their worst day since February.

US gold futures settled down 2.3% at USD 2,042.20.

Early in the Asian session, gold hit a fresh record high of USD 2,135.4 on growing confidence about a rate cut following Fed Chair Jerome Powell’s comments on Friday.

“Despite the fact that we are closer to a Federal Reserve pivot, it may be premature to see these prices being sustained… this market is getting a little tired,” said Bart Melek, head of commodity strategies at TD Securities.

“We’re going to need more catalysts, and they will come in the form of weak economic data.”

The Fed appears on track to end the year with interest rate hikes as a thing of the past, but with a coming challenge over when and how to signal a turn to rate cuts.

Pressuring gold, the dollar index rose 0.5%, making bullion more expensive for other currency holders. US 10-year Treasury yields also ticked higher.

Traders saw a 57% chance for a rate cut by March, down from 63% on Friday, CME’s FedWatch Tool showed. Lower rates reduce the opportunity cost of holding bullion.

Data last week pointed out cooling inflationary pressures and a gradually easing labor market reinforcing the notion of an early rate cut.

Traders are awaiting Friday’s release of US non-farm payrolls data, which could help further gauge the interest rate outlook.

Silver slipped 3.6% to USD 24.50 per ounce, set for its worst day in two months after hitting a seven-month peak earlier in the session.

Palladium fell 1.7% to USD 917.31, and platinum dipped 2.8% to USD 972.67.

(Reporting by Anushree Mukherjee in Bengaluru; Editing by Shailesh Kuber and Maju Samuel)

2024 Mid-Year Economic Briefing: Navigating the Easing Cycle

Investing with Love: A Mother’s Guide to Putting Money to Work

Investor Series: An Introduction to Estate Planning

Inflation Update: Weak demand softens shocks

Monthly Economic Update: Fed cuts incoming