Yen’s slide to multi-decade lows keeps markets on intervention alert

SINGAPORE, Nov 14 – The battered yen was stuck near a three-decade low against the dollar on Tuesday, struggling to find a floor as the Bank of Japan’s (BOJ) ultra-easy monetary policy settings remained at odds with the prospect of higher-for-longer rates elsewhere.

The Japanese currency similarly slumped to a 15-year low of 162.38 per euro in early Asia trade and slid to a roughly three-month trough of 186.25 per British pound.

Against the dollar, the yen last stood at 151.72, languishing near a one-year low of 151.92 hit on Monday. A break below last year’s trough of 151.94 per dollar would mark a fresh 33-year low for the yen.

The yen had jumped briefly against the greenback in New York hours on Monday after striking the year-to-date low, which analysts attributed to a flurry of trading in options that come due this week.

Despite the BOJ’s carefully orchestrated steps to phase out its controversial yield curve control (YCC) policy and hints of an imminent end to negative interest rates, the piecemeal moves have done little to prop up the yen, particularly as central banks globally maintain their hawkish rhetoric of higher-for-longer rates.

“I think the market has come to the realization that the Bank of Japan is going to exit its policy but at a very, very, very slow and cautious pace,” said Rodrigo Catril, senior FX strategist at National Australia Bank (NAB).

“A weak yen is probably going to stay here for a little bit longer, and the market has been testing to see what the appetite is, particularly for the (Ministry of Finance) and the BOJ, to allow for weaker levels.”

Japanese authorities in September last year intervened in the currency market to boost the yen for the first time since 1998 after a BOJ decision to maintain its ultra-loose monetary policy drove the yen as low as 145 per dollar.

It intervened again in October 2022 after the yen plunged to a 32-year low of 151.94.

INFLATION AND THE FED

Outside of Asia, traders also had their attention on US inflation figures due later on Tuesday, which will provide further clarity on whether the Federal Reserve would need to raise interest rates further to tame inflation.

Fed Chair Jerome Powell and his chorus of policymakers have in recent days pushed back against market expectations that the US central bank was done with its aggressive rate-hike cycle after it held rates steady at its latest policy meeting.

The comments have kept the US dollar bid, and the greenback rose marginally to 105.64 against a basket of currencies.

Sterling steadied at USD 1.22775, while the euro last bought USD 1.0701, having largely traded sideways over the past few sessions.

The New Zealand dollar languished near a one-week low and last stood at USD 0.5879.

“Overall, the market is also kind of worn out by all messages coming from central banks and the higher-for-longer and wait-and-see mode is keeping volatility low,” said NAB’s Catril.

“We need to wait for that CPI number tonight, which could be a bit of a shaker. If it’s strong, then obviously it brings in the idea that another rate hike from the Fed is there.”

Down Under, the Australian dollar edged 0.03% higher to USD 0.63785.

A survey on Tuesday showed Australian business conditions held firm in October even as confidence slipped a little, a resilience that will be tested by higher borrowing costs following a rise in official interest rates last week.

(Reporting by Rae Wee; Editing by Sam Holmes)

It’s raining – or draining? – yen

Nov 14 – The spotlight currently shining on Japan’s yen, and speculation around whether Tokyo will intervene to prevent further depreciation, will likely intensify on Tuesday with traders poised to push the currency to a fresh 33-year low.

Chinese President Xi Jinping’s visit to San Francisco on Tuesday for the Asia-Pacific Economic Cooperation leaders summit – where he will meet US President Joe Biden the next day – will grab much of the news headlines, but probably won’t move markets much.

Before those face-to-face talks, and absent major Asian economic data releases or policy events, the greatest potential for market-moving action on Tuesday could be in currencies.

The yen hit its lowest level in more than a year on Monday, near the key psychological level of 152.00 per dollar, but rallied sharply amid a flurry of options-related trading.

Market participants say there has been no sight of Japanese authorities in the market – not yet, anyway – and Japanese Finance Minister Shunichi Suzuki reiterated that the government will keep monitoring the FX market and respond appropriately.

Currency traders may be tempted to test Tokyo’s resolve again on Tuesday. The policy pressures facing Japanese authorities are intense, and the potential risks to financial markets if policymakers misstep are growing.

After battling against deflation for decades, the Bank of Japan is moving away from ultra-loose policy. It’s a delicate and complicated path to navigate though.

Bond yields are the highest in a decade and rising, the yen is the weakest in decades, stocks are near their highest in more than three decades, and according to Goldman Sachs, financial conditions are the loosest in more than three decades.

As Deutsche Bank’s George Saravelos put it on Monday, normalizing policy and unwinding the world’s biggest carry trade – which he pegs at USD 20 trillion – will not be easy or pain free.

More broadly, investors in Asia go into Tuesday’s session on a reasonably strong footing following Monday’s gains, but with little impetus to add to them.

The MSCI emerging market and Asia ex-Japan indexes both snapped four-day losing streaks on Monday, rising 0.5% and 0.6%, respectively, but trading on Wall Street was listless. It was also listless in US Treasuries, although this is perhaps a good thing given that Moody’s cut the US credit ratings outlook on Friday.

In corporate news, the major earnings releases on Tuesday include Japanese financial giants Mitsubishi UFJ and Sumitomo Mitsui Financial Group, while figures are expected to show that India’s annual wholesale price inflation rate, which has been negative since April, was -0.2% in October.

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

– India wholesale price inflation (October)

– Chinese President Xi Jinping visits the US

– Fed’s Jefferson, Barr, Mester and Goolsbee all speak

(By Jamie McGeever; Editing by Josie Kao)

Gold gains as traders strap in for US inflation data

Nov 13 – Gold prices ticked higher as the dollar eased on Monday, while investors looked toward key US inflation data due this week that could throw some light on the Federal Reserve’s interest rate stance.

Spot gold was up 0.4% at USD 1,945.25 per ounce by 3:30 p.m. ET (2030 GMT). US gold futures settled 0.6% higher at USD 1,950.20.

The dollar index was down 0.2%, making gold more expensive for overseas buyers.

US consumer prices index (CPI) data will be released on Tuesday. According to a Reuters poll, core US CPI is expected to have risen 0.3% month-over-month in October, with a year-over-year increase of 4.1%. Traders will also scan the US producer price index data due on Wednesday.

If the data shows higher-than-expected inflation, gold will likely pull back as that would raise the possibility of another rate hike, said Bob Haberkorn, senior market strategist at RJO Futures.

“But, if data comes in line, gold will trade north of USD 1,950.”

Higher interest rates dull non-yielding bullion’s appeal.

The market is pricing in an 86% chance that the Fed will leave rates unchanged in December, according to the CME FedWatch tool.

Bullion dipped 3% last week as safe-haven demand driven by the conflict in the Middle East eased, while Fed Chair Jerome Powell struck a hawkish tone.

“Going forward, in the short term the investor appetite to add length will rely on the extent of (geopolitical) escalation but (gold) will face headwinds from elevated US real rates,” Goldman Sachs said in a note.

“Tactically, we would view a potential selloff in gold as a buying opportunity as we see an environment with elevated risk channels ahead playing into gold’s hedge qualities.”

Rating agency Moody’s on Friday changed the outlook on the US government’s credit rating to “negative” from “stable”.

Spot silver gained 0.3% to USD 22.29 per ounce.

Platinum climbed 2.8% to USD 863.03 and palladium added 1.5% at USD 977.58, set for its best session in three weeks but still hovering near a five-year low.

(Reporting by Ashitha Shivaprasad and Anushree Mukherjee in Bengaluru; Editing by Pooja Desai, Aurora Ellis, and Shounak Dasgupta)

Treasuries central clearing reduces basis trades risks, says Moody’s

NEW YORK, Nov 13 (Reuters) – An expansion of central clearing in the U.S. Treasuries market would reduce liquidity risks associated with a popular hedge fund arbitrage trading strategy that could strain the broader financial markets if it unravels abruptly, said Moody’s.

So-called basis trades in U.S. Treasuries take advantage of the premium of futures contracts over the price of the underlying bonds. The trades – typically the domain of macro hedge funds with relative value strategies – consist of selling a futures contract, buying Treasuries deliverable into that contract with repurchase agreement (repo) funding, and delivering them at contract expiry.

Most hedge fund activity in repo markets – where banks and other players such as hedge funds borrow short-term loans backed by Treasuries and other securities – is done bilaterally between brokers and customers.

But more centrally cleared trades could reduce the risk of disruption to counterparties caused by a rapid unwinding of hedge funds’ leverage, the rating agency said in a note.

“The Treasury basis trade plays a crucial role in minimizing the price gap between Treasury futures and their underlying cash securities, but it also amplifies the exposure of highly leveraged hedge funds conducting such trades to market shocks, increasing counterparty risk for dealers and central counterparty clearing houses (CCPs),” said Moody’s.

“Participation in centrally cleared transactions can significantly reduce this counterparty risk,” it said.

Central counterparty clearing houses such as those operated by CME Group, the world’s largest derivatives exchange operator, and the Fixed Income Clearing Corporation, currently the chief clearer of Treasuries, can “dynamically and prudently increase collateral requirements when markets dislocate,” said Moody’s.

The unwinding of basis trades likely exacerbated a crash in the world’s biggest bond market in 2020, and the trading strategy has been under close scrutiny from regulators worried about a recent buildup of leveraged positions in Treasuries.

Treasury market participants are awaiting updates from the U.S. Securities and Exchange Commission about a key reform the regulator proposed in September last year, which would force more trades to central clearing.

“We view the proposal as credit positive because it would enhance the oversight, transparency and risk management of transactions involving US Treasury securities as well as reduce systemic risk,” Moody’s said.

(Reporting by Davide Barbuscia. Editing by Sam Holmes)

((Davide.Barbuscia@thomsonreuters.com; +1 917 285 3067; Reuters Messaging: davide.barbuscia.reuters.com@reuters.net))

APEC’s growth to slow as persistent inflation, US-China tensions weigh-report

SAN FRANCISCO, Nov 12 – Economic growth among Asia Pacific Economic Cooperation countries is expected to decline next year and remain below the global average as higher interest rates slow U.S. growth, as China continues to struggle with its recovery and tensions between the two hamper trade, the body said on Sunday.

The APEC Secretariat’s Policy Support Unit issued new forecasts on the eve of the APEC leaders’ summit in San Francisco, showing that the 21-country region’s growth rate would dip to 2.8% in 2024 from 3.3% in 2023.

The APEC GDP growth rate will average 2.9% in 2025 and 2026, below the global average of 3.2% and 3.5-3.6% in the rest of the world.

Among key downside risks for the Pacific Rim region are persistent inflation associated with export restrictions, weather conditions that have raised the price of rice and other agricultural products, and disruptions in the fertilizer supply chain. Taming inflation could require more monetary policy tightening, slowing growth further.

Trade volume growth for goods is set to rebound next year among APEC countries after a largely flat 2023 due to China’s sluggish growth, rising to 4.3% for goods exports and 3.5% for goods imports. But growth of both exports and imports are forecast to peak at 4.4% in 2025, declining slightly in 2026 due to geo-political fragmentation that is disrupting longstanding supply relationships.

Carlos Kuriyama, director of the APEC policy support unit, said the data show that it was important for the U.S. and China to patch up their differences after years of tariff battles and national security export restrictions.

U.S. President Joe Biden and Chinese President Xi Jinping are expected to meet in-person for the first time in a year on Wednesday in a high-stakes session aimed at curbing tensions between the world’s two largest economies.

Kuriyama said that national security-driven export controls and other restrictions between the U.S. and China are driving up costs in supply chains that were previously optimized for efficiency. While a full return to pre-COVID-19 trading patterns is not possible, avoiding further fragmentation is important, he added.

The data shows “how important it is to re-engage, de-risk and avoid decoupling” of the US and Chinese economies. “I think a stable relationship within US and China is a win-win situation for everyone,” Kuriyama said.

(Reporting by David Lawder Editing by Stephen Coates)

Higher US yields hurt Asia equities; yen hits one-year low

TOKYO, Nov 13 – A tick up in U.S. Treasury yields on Monday helped send the dollar to a fresh one-year high against the yen, while scuppering an early tech-led equity rally.

Benchmark 10-year Treasury yields US10YT=RR pushed to a one-week high of 4.668%, testing the top of its range since soft non-farm payroll figures at the start of the month stoked bets for earlier Federal Reserve rate cuts.

The dollar climbed to 151.78 yen for the first time since mid-October of last year, despite being stable against the euro and sterling.

Japan’s tech-heavy Nikkei gave up early gains of more than 1% to end the day almost flat.

Tech still outperformed to help Hong Kong’s Hang Seng keep its head above water, against the drag from a 1.2% slide in an index of property shares. Mainland Chinese blue chips slipped 0.24%.

U.S. equity futures also pointed 0.44% lower, following Friday’s 1.56% rally for the S&P 500.

Nomura Securities strategist Naka Matsuzawa said equities are likely close to a peak.

“Up until now the market has been taking bad economic news as good news, because that would mean a pause in Fed rate hikes,” he said.

“But now, the Treasury market has already priced in a pause, so there’s not much room for Treasury yields to fall further,” removing a support for the stock market, he added. “In short, I don’t think the stock market rally is going to continue.”

The week is packed with big risk events, from consumer inflation and retail sales figures from the United States on Tuesday and Wednesday respectively, with Chinese retail sales also due Wednesday, following lacklustre sales growth at the annual Singles Day shopping festival over the weekend.

The marquee geopolitical event is also mid-week, with a meeting between US President Joe Biden and Chinese leader Xi Jinping on the sidelines of an Asia-Pacific Economic Cooperation (APEC) summit in San Francisco.

Investors, however, paid little attention to a Moody’s announcement late on Friday that it had lowered its outlook on the US credit rating to “negative” from “stable”.

Crude oil prices eased on Monday as demand worries trumped supply concerns, amid slowing growth in the United States and China. O/R

Brent crude futures for January were down 71 cents, or 0.87%, at USD 80.72 a barrel, while the U.S. West Texas Intermediate (WTI) crude futures CLc1 for December were at USD 76.49, down 68 cents, or 0.88%.

Both benchmarks gained nearly 2% on Friday as Iraq voiced support for oil cuts by OPEC+.

(Reporting by Kevin Buckland; Editing by Christopher Cushing)

Oil settles up 1% as OPEC report dampens demand concerns

BENGALURU, Nov 13 – Oil prices rose by more than 1% on Monday after OPEC’s monthly market report eased worries about waning demand and a US probe into suspected violations of Russian oil sanctions raised concerns about potential supply disruptions.

Brent crude futures rose by USD 1.09, or 1.3%, to settle at USD 82.52 a barrel, while US West Texas Intermediate (WTI) crude futures also gained USD 1.09, or 1.4%, to settle at USD 78.26 a barrel.

In a monthly report, OPEC said oil market fundamentals remained strong and blamed speculators for a drop in prices. OPEC made a slight increase to its 2023 forecast for global oil demand growth and stuck to its relatively high 2024 prediction.

“The OPEC monthly oil market report appeared to push back against demand concerns, referencing overblown negative sentiment around Chinese demand while raising demand growth forecasts for this year and leaving them unchanged for next,” Craig Erlam, senior market analyst at OANDA, said in a note.

Oil prices were also lifted by reports of the US Treasury Department cracking down on Russian oil exports, UBS analyst Giovanni Staunovo said.

Treasury sent notices to ship management companies for information on 100 vessels it suspects of violating Western sanctions on Russian oil, a source who has seen the documents told Reuters.

The US Energy Information Administration (EIA) said last week the country’s crude oil production this year will rise by slightly less than expected and demand will fall. On Monday, the EIA forecast US oil output would decline in December for the second consecutive month.

Weak economic data last week from No. 1 crude importer China fed fears of faltering demand. Chinese refiners asked for less supply for December from Saudi Arabia, the world’s largest exporter.

Still, oil prices may have found a bottom after they slid about 4% last week and recorded their first three-week declining streak since May, said Fawad Razaqzada, an analyst at City Index.

“Given that oil prices have weakened in the last few weeks, Saudi Arabia and Russia will likely continue with their voluntary supply cuts into next year. This should therefore limit the downside potential,” Razaqzada said.

Last week, top oil exporters Saudi Arabia and Russia, part of the group known as OPEC+, confirmed they would continue with additional voluntary oil output cuts until the end of the year as concerns over demand and economic growth continue to drag on crude markets.

The next OPEC+ meeting is scheduled for Nov. 26.

(Reporting by Shariq Khan, Paul Carsten, Yuka Obayashi and Colleen Howe; Editing by David Goodman, Susan Fenton, and David Gregorio)

Bargain or trap? US bank stock outlook hinges on Fed’s path

NEW YORK, Nov 10 – Bargain hunters are swirling around beaten-down shares of US banks, even as skeptical investors say the sector’s problems are likely to persist for some time.

The S&P 500 bank index is down around 11% in 2023, a year that began with the failure of Silicon Valley Bank and several other lenders in the worst banking crisis since 2008. The broader S&P 500, by contrast, is up around 15%.

Bank stocks are at an all-time low compared with the S&P 500 based on relative prices, according to data from BofA Global Research. That tumble has made their valuations attractive to some investors: the sector trades at eight times forward earnings, less than half of the 19.7 valuation of the S&P 500.

“Right now, you can’t say for sure whether the attractive valuations are merely a value trap,” said Quincy Krosby, chief global strategist at LPL Financial, referring to a term describing stocks that are cheap for good reason.

One key factor for bank stocks is whether the Federal Reserve is close to wrapping up a monetary tightening cycle that has brought the highest US interest rates in decades.

Elevated rates allow lenders to charge customers higher interest. But they also increase the allure of short-term bonds and other yield-generating investments over savings accounts, while hurting demand for mortgages and consumer lending.

Few investors believe more rate increases are in store. Yet signs the Fed may keep rates around current levels through most of next year have weighed on bank stocks. Nevertheless, some contrarian investors appear to be moving into the sector: the Financial Select Sector SPDR Fund received net inflows of USD 694.59 million in the week ending on Wednesday, its best weekly showing in more than three months.

This month, analysts at BofA Global Research said investors should “selectively” add exposure to bank stocks in anticipation of an interest rate peak. Most risks to the sector stem from higher rates, they said, including margin pressure due to rising deposit costs and problems with commercial real estate.

Famed investor Bill Gross said last week he believed the sector had hit bottom and added he was holding a number of regional bank stocks, fueling sharp rallies in their shares.

“We think there is a lot of hidden value in banks if you are selective,” said Neville Javeri, a portfolio manager at Allspring Global Investments who is overweight banks relative to the S&P 500 in the portfolios he manages.

Javeri believes larger banks have significantly cut costs and are poised to raise dividends and increase buybacks, helping them weather a period of slower loan growth.

Among stocks recommended by BofA’s analysts are shares of Goldman Sachs and Fifth Third Bancorp.

Investors are awaiting US consumer price data next week, for a glimpse of how the Fed is faring in its fight to keep lowering inflation from last year’s multi-decade highs. A sharper-than-expected fall could bolster the case for the central bank to cut rates sooner.

Many investors and analysts remain pessimistic about bank stocks.

Historically high mortgage rates have weighed on lending. Overall, about 61% of all outstanding mortgages have an interest rate below 4%, according to the Apollo Group, leaving consumers little incentive to refinance or move. The average contract rate on a 30-year fixed-rate mortgage dropped in the week ended Nov. 3 by a quarter percentage point to 7.61%, the lowest in about a month.

Meanwhile, analysts have been cutting growth estimates for financials, which includes not only banks but insurance companies, as the Fed maintains it will keep rates higher for longer. This could hurt mortgage loan growth.

The financial sector is expected to post earnings growth of 6.2% in 2024, nearly half of prior estimates from April that showed 11.4% earnings growth, according to LSEG data.

“You don’t have any certainty that you’ve seen the worst of it and things are getting better,” said Jeff Muhlenkamp, lead portfolio manager at Muhlenkamp & Company.

(Reporting by David Randall; Additional reporting by Bansari Mayur Kamdar; Editing by Ira Iosebashvili and David Gregorio)

US bond funds rack up biggest weekly inflow in three months

Nov 10 – US investors poured a massive sum into bond funds in the seven days leading to Nov. 8 on hopes of a turnaround in Treasury bond prices following the Federal Reserve’s decision to keep interest rates unchanged.

A report from the US Labor Department indicating a slowdown in job growth in October, also lifted bond prices last week. The yields on the benchmark 10-year US Treasury bonds, which move inversely to prices, hit a five-week low of 4.484% last Friday.

According to LSEG data, US bond funds amassed a net USD 3.61 billion worth of inflows during the week, the biggest amount since July 5.

US high yield bond funds saw a significant boost in demand as they received a net USD 6.29 billion, the biggest weekly inflow since mid-April 2020.

Investors also poured about USD 867 million and USD 687 million, respectively into general domestic taxable fixed income, and loan participation funds, while pulling a net 1.92 billion out of US short/intermediate government & treasury funds.

Meanwhile, US equity funds secured USD 1.9 billion, the first weekly inflow in eight weeks.

Small-cap funds were notably in demand as they received USD 1.96 billion, the biggest amount since June 14. Additionally, large-cap funds saw USD 930 million worth of net purchases but mid-, and multi-cap funds had outflows of USD 661 million and USD 396 million.

By sector, tech and financial sector funds attracted USD 1.25 billion and USD 594 million, respectively, while consumer staples had an outflow of USD 500 million on a net basis.

At the same time, US money market received USD 6.47 billion, about a tenth of USD 56.1 billion worth of net purchase in the previous week.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Toby Chopra)

Global equity funds draw massive inflows as rate worries ease

Nov 10 – Global equity funds saw a significant uptick in demand in the week through Nov. 8 as investor sentiment improved following the decision of major central banks to keep policy rates unchanged.

A shift in rate hike expectations and a report from the US Labor Department indicating a slowdown in job growth in October further eased treasury yields, loosening financial conditions.

Investors poured a net USD 5.63 billion into global equity funds during the week, registering their biggest weekly net purchase since Sept. 13.

European, and US equity funds had purchases of USD 2.92 billion and USD 1.9 billion respectively. Asia drew just USD 708 million, the smallest amount since Aug. 16.

The technology sector stood out, securing USD 1.3 billion in inflows, its highest since early July. Financials also saw positive movements with USD 354 million in inflows, but consumer staples experienced outflows of about USD 571 million.

Money market funds continued to attract investors for the third consecutive week, with net inflows of about USD 53.75 billion.

Global bond funds broke a three-week streak of outflows, registering USD 6.73 billion in net purchases.

Reflecting improved risk appetite, high-yield bond funds saw substantial inflows of around USD 6.43 billion, the biggest weekly gain since mid-June 2020.

Government bond funds also experienced net purchases of about USD 2.76 billion. In contrast, global short-term bond funds faced approximately USD 4.44 billion in outflows.

In the commodities sector, precious metal funds continued to attract interest, garnering USD 73 million in net purchases for a second consecutive week. Energy funds also maintained their appeal with USD 54 million in inflows, marking three weeks of consecutive gains.

Emerging market data, encompassing 29,633 funds, indicated a net sell-off of USD 1.73 billion in EM equity funds, extending a 13-week withdrawal streak. In contrast, EM bond funds received USD 592 million – their first weekly inflow in 15 weeks.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Andrew Heavens)

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