European shares decline as Powell stamps out rate peak hopes

Nov 10 – European shares fell on Friday, hurt by higher bond yields, with comments from US Federal Reserve chief Jerome Powell pouring cold water on investor optimism over a peak in interest rates and bets around rate cuts.

The pan-European STOXX 600 fell 0.4% by 0810 GMT, although it remained poised for a second weekly gain.

Fed officials including Powell on Thursday expressed uncertainty in their battle against inflation and added that they would tighten policy further if need be.

The comments, perceived as hawkish by markets, follow European Central Bank and Bank of England policymakers also pushing back against expectations around rate cuts.

Richemont CFR.S shed 3.0% after the Swiss luxury group reported weaker-than-expected earnings, while Diageo slid 8% as the Johnnie Walker whisky maker expects organic operating profit growth to decline in its current financial year’s first half.

GN Store Nord jumped 13.1% to top the STOXX 600 following third-quarter results and forecast.

(Reporting by Ankika Biswas in Bengaluru; Editing by Varun H K)

Oil prices settle up as Iraq backs more output cuts from OPEC+

NEW YORK, Nov 10 – Oil prices gained about 2% on Friday as Iraq voiced support for OPEC+’s oil cuts ahead of a meeting in two weeks and as some speculators covered massive short positions ahead of weekend uncertainty.

Still, prices settled with weekly losses of 4%, their third straight weekly decline.

“This was the perfect technical storm. We came into this week with an almost record short position and now we’re seeing some short covering going into the weekend,” said Phil Flynn, an analyst at Price Futures Group.

Flynn noted that in addition to Iraq’s comments, Saudi Arabia and Russia confirmed this week that they would continue oil output cuts through year-end.

In the US, energy firms cut the number of oil rigs operating for a second week in a row to the lowest since January 2022, energy services firm Baker Hughes said. The rig count points to future output.

Brent futures rose USD 1.42, or 1.8%, to settle at USD 81.43 a barrel, while US West Texas Intermediate (WTI) crude rose USD 1.43, or 1.9%, to settle at USD 77.17.

Brent and WTI notched their third straight weekly losses for the first time since May, although both benchmarks exited technically oversold territory.

“Concerns about demand have replaced the fear of production outages related to the Middle East conflict,” analysts at Commerzbank said.

Weak Chinese economic data this week increased worries of faltering demand. Refiners in China, the largest buyer of crude from Saudi Arabia, the world’s largest exporter, asked for less supply for December.

US consumer sentiment fell for a fourth straight month in November and households’ expectations for inflation rose again.

US Federal Reserve Bank of San Francisco President Mary Daly said she is not ready to say yet whether the Fed is done raising rates, echoing Fed Chair Jerome Powell’s comments on Thursday.

Higher interest rates can reduce oil demand by slowing economic growth.

In Britain, the stagnating economy failed to grow in the July-to-September period but did avoid a recession, according to the UK’s Office for National Statistics.

UPCOMING OPEC MEETING

OPEC+, the Organization of the Petroleum Exporting Countries and allies including Russia, will meet on Nov. 26.

Iraq’s oil ministry said Baghdad is committed to the OPEC+ agreement on determining production levels.

Chances Saudi Arabia will extend its output cut into the first quarter of 2024 “is certainly increasing given renewed market concerns about Chinese demand and the broader macro outlook,” RBC Capital Markets analyst Helima Croft said.

Analysts at Capital Economics said OPEC+ might cut supply further if prices continue to fall.

“We are sticking with our forecast of Brent ending both this year and next year at around USD 85 per barrel,” the research firm said in the note.

(Reporting by Scott DiSavino in New York, Ahmad Ghaddar in London, and Sudarshan Varadhan in Singapore; Editing by Nick Macfie, Kirsten Donovan, and David Gregorio)

Some investors see Powell’s hawkish lean as response to looser financial conditions

Nov 10 – A hawkish lean from Federal Reserve Chair Jerome Powell chilled a recent rebound in stocks and bonds, with some investors suggesting the central bank was pushing back against loosening financial conditions.

Speaking at an International Monetary Fund conference on Thursday, Powell said the Fed would “not hesitate” to tighten monetary policy if needed and that the fight to restore price stability “had a long way to go.”

Though the comments did not go much beyond those given after the Fed’s Oct. 31 – Nov. 1 monetary policy meeting, some investors believe Powell’s tone was more hawkish compared with those earlier remarks, which contributed to last week’s powerful rebound in stocks and Treasuries.

By contrast, the S&P 500 fell 0.8% on Thursday, snapping an eight-day winning streak that was its longest in two years. Yields on the benchmark 10-year Treasury, which move inversely to bond prices, rose 12 basis points, their largest one-day gain in three weeks.

“Powell seemed to be course-correcting some of the dovish comments from last week and circling back to the idea that the Fed is prepared to raise rates again if they need to,” said Charlie Ripley, senior investment strategist for Allianz Investment Management.

Some investors said Powell may have been leaning against a recent loosening of financial conditions that has come as yields have tumbled in recent weeks. The benchmark 10-year Treasury yield has fallen nearly 40 basis points to 4.63%, from a 16-year high of just above 5%.

Evidence of the dynamic between yields and financial conditions – factors that reflect the availability of funding in an economy – was on display in last week’s 0.5% decline in the Goldman Sachs Financial Conditions Index, its sixth-biggest weekly drop since 1990.

Average rates on 30-year mortgages, which move together with Treasury yields, fell 25 basis points last week, the largest weekly tumble in nearly 16 months. Meanwhile, the S&P 500 is up 5.5% from its October lows.

“The noticeable drop in yields from last week may have caused some caution at the FOMC, which then led Chair Powell … talking up yields again,” said Spencer Hakimian, CEO of Tolou Capital Management, a New York-based macro hedge fund.

“If their concept is to have tighter financial conditions, they can’t really let those yields go down. They need them to stay restrictive in order to not actually have to raise rates,” he said.

Sonal Desai, chief investment officer of Franklin Templeton Fixed Income, echoed that sentiment, saying the Fed was trying to calm “an exuberance” it unintentionally created in the markets.

“The rally of the markets both in equity and fixed income unwound the financial conditions tightening to a large degree,” Desai said. “This is Powell pushing back against markets trying to put into his mouth the words ‘mission accomplished.'”

At the same time, the weakest auction for 30-year Treasuries since August 2011 also hit government bond prices. Yields on the 30-year Treasury recently stood at 4.77%, from a low of 4.6% earlier this week.

“The rates market was still somewhat jittery after the auction so higher yields were the path of least resistance,” said Vassili Serebriakov, a foreign exchange strategist at UBS.

Investors are awaiting US consumer price data next week, which could show how the Fed is faring in its fight to keep lowering inflation from last year’s multi-decade highs.

“Chairman Powell issued a warning to investors too giddy on the prospect of rate cuts next year,” said Jeffrey Roach, chief economist for LPL Financial, in a note. However, “next week’s inflation data should provide some salve for the markets as headline inflation will likely be soft from easing energy prices.”

(Reporting Davide Barbuscia and David Randall; Additional reporting by Saqib Iqbal Ahmed and Karen Brettell; Writing by Ira Iosebashvili; Editing by Sam Holmes)

Gold poised for second week of declines on hawkish Powell remarks

Nov 10 – Gold prices dropped on Friday and were on track for a second consecutive week of declines, weighed by a stronger US dollar and Treasury yields after hawkish remarks from Federal Reserve Chair Jerome Powell.

Spot gold fell 0.2% to USD 1,954.60 per ounce by 0758 GMT after hitting its lowest since Oct. 18 on Thursday. US gold futures fell 0.5% to USD 1,959.70.

Gold has slid 1.9% so far this week, on track for the biggest weekly decline in more than a month.

“Gold has been consolidating below USD 2,000 since the beginning of November, after getting ahead of itself. However, I remain bullish for the year-end as long as it stays above USD 1,900,” said Hugo Pascal, a precious metals trader at InProved.

Denting market expectations of a peak in U.S. interest rates, Fed officials, including Powell, said on Thursday they still aren’t sure that rates are high enough to finish the battle with inflation.

Following Powell’s comments, the benchmark 10-year US Treasury yield rose from more than one-month lows, making non-yielding bullion less attractive for investors.

Traders pushed out bets on the Fed’s first rate cut to June of next year, from May earlier. Higher rates raise the opportunity cost of holding gold, which yields no interest.

Meanwhile, the dollar index was heading for its biggest weekly gain in over three months, making gold more expensive for holders of other currencies.

“On the technical front, USD 1,940 looks very important support level for gold. If we break that, we’re looking at another test at USD 1,900,” said Ilya Spivak, head of global macro at Tastylive.

Palladium slipped 1.7% to USD 975.19 per ounce, its lowest since 2018, and was set for its worst week in 11 months.

Platinum fell 0.2% to USD 857.58 and was headed for its worst week since mid-June, 2021. Silver fell 0.1% to USD 22.61.

(Reporting by Brijesh Patel and Anjana Anil in Bengaluru; Editing by Rashmi Aich, Varun H K, Eileen Soreng and Savio D’Souza)

Powell dishes out cold reality check

Nov 10 – Asian markets are set to end the week with a bump on Friday, after Fed chief Jerome Powell the day before warned that US interest rates may need to rise further to win the war on inflation.

Powell’s remarks were a swift reality check for those who had become increasingly convinced that the Fed’s tightening campaign was over – the 10-year US Treasury yield had gone as low as 4.4750% late in the Asian session on Thursday, but closed the US day at 4.63%.

The three main US equity indices quickly sank, and ended between 0.7% and 1% lower on the day. If Asian and emerging stocks follow Wall Street’s lead, they will close the week in the red.

The rebound in US bond yields on Thursday boosted the dollar, which is quietly resuming its climb higher. It is now up four days in a row, eyeing its best week since early September, and has appreciated in 14 of the last 17 weeks.

Since mid-July, it has gained 6.5% on a broad basis. One of the dollar’s best runs has been against the Japanese yen – the dollar is now up more than 10% in that period to within one yen of the three-decade-high near 152.00 yen hit late last year.

Traders remain on high alert for yen-buying intervention from Japanese authorities, but that could just as easily come against the euro, which rose to a fresh 15-year high on Thursday of 161.80 yen.

The last time euro/yen was that high in August 2008, euro/dollar was USD 1.50 (it’s USD 1.0650 today), dollar/yen was 110.00 (it’s over 150 yen today) and the US-Japanese 2-year yield gap was 150 basis points (today it is almost 500 bps).

It’s pretty clear that, from a fundamental and yield spread perspective, the yen is much weaker today than it was then and that the dollar is much stronger. This may be one of the reasons why Tokyo seems reluctant to intervene.

Bank of Japan Governor Kazuo Ueda said on Thursday the central bank will proceed carefully in exiting ultra-loose monetary policy to avoid causing huge volatility in the bond market.

Ueda said Japan was making progress towards sustainably achieving the central bank’s 2% inflation target, but said there is “still some distance to cover” before the BOJ can fully scrap its yield curve control and negative interest rate policy.

Sentiment towards China, meanwhile, suffered another blow on Thursday after inflation figures showed that consumer prices swung lower in October.

On the political front, Chinese Vice Premier He Lifeng and US Treasury Secretary Janet Yellen hold talks in San Francisco. Yellen called for “open and substantive” discussions on the US-China economic relationship.

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

– New Zealand manufacturing PMI (October)

– India industrial production (September)

– Australia central bank issues statement on monetary policy

(By Jamie McGeever; Editing by Deepa Babington)

Gold holds some gains after Fed’s Powell speaks; palladium sinks

Nov 9 – Gold held on to some gains on Thursday after Federal Reserve Chair Jerome Powell reiterated the need for higher interest rates to rein in inflation, while auto-catalyst palladium fell below the USD 1,000 an ounce level for the first time since 2018.

Spot gold was up 0.4% to USD 1,957.62 per ounce by 4:15 p.m. ET (2115 GMT). US gold futures settled up 0.6% at USD 1,969.80.

Prices rose as much as 0.8% earlier in the session, after touching their lowest since Oct. 18.

Powell said Fed officials “are not confident” that interest rates are yet high enough to finish the battle with inflation, sending the US dollar and Treasury yields higher.

“Powell’s comments are less dovish than hoped which has prevented a further advance in gold, though it has broken a three-day losing streak,” said Tai Wong, a New York-based independent metals trader.

“Gold seems likely to stay in a range under USD 2,000 as geopolitics is still exercising an outsized influence.”

Bullion has fallen over USD 40 after hitting USD 2,000 last week when escalating tensions in the Middle East boosted safe-haven inflows.

Silver was up 0.4% to USD 22.6.

“Gold could move above USD 2,100 in the second quarter of 2024 and the catalyst will be the Fed needing to start cutting rates,” said Bart Melek, head of commodity strategies at TD Securities.

Traders pushed out bets on the Fed’s likely first interest-rate cut to June of next year from May earlier.

Lower interest rates boost zero-yield bullion’s appeal.

Palladium slipped 5.5% to USD 992.69, hitting its lowest level since 2018.

“Large short positions have exacerbated the downside risk for palladium,” Standard Chartered analyst Suki Cooper said.

“In the near term, supply curtailments have not materialized and demand has been weaker than expected following the UAW strike action.”

Platinum fell 0.8% to USD 859.49.

(Reporting by Ashitha Shivaprasad, Anushree Mukherjee, and Deep Vakil in Bengaluru; Editing by Shinjini Ganguli, Krishna Chandra Eluri, and Shounak Dasgupta)

China asks brokerages to curb leveraged stock trades – sources

SHANGHAI/SINGAPORE Nov 9 – China’s securities watchdog is asking brokerages to restrict leverage available to hedge funds that borrow large sums of money via a complex derivative business to trade stocks, three sources told Reuters.

Hedge funds using the so-called DMA-Swap strategy were told by their brokers late on Wednesday to start limiting leveraged bets, two sources who received notices from regulators said.

A source at one of China’s big brokerages confirmed the guidance, citing regulators’ concern over market risks.

Through the DMA-Swap, hedge funds can borrow up to USD 4 against every USD 1 they deposit with the broker in the margin account, while also skirting regulatory borrowing limits by having such trades sit on brokers’ books.

The new restrictions come after China’s securities watchdog vowed to strengthen supervision and prevent risks in a volatile stock market.

Yi Huiman, chairman of the China Securities Regulatory Commission (CSRC) told a conference on Wednesday that regulators would “strictly guard against excessive leverage, and gradually reduce the size of leveraged trades to a reasonable level.”

The CSRC did not reply to a request from Reuters for comment.

Sources told Reuters in September that regulators were probing brokerages for data around the DMA-Swap business.

Hedge fund managers received notices from their brokerages after trading closed on Wednesday asking them to cap their DMA-Swap business at current levels, two sources said.

A brokerage source said that the new guidance effectively prevents the expansion of the DMA-Swap business, which Chinese media says has grown to roughly 400 billion yuan (USD 54.94 billion).

In a typical deal, hedge funds deploying long-short equity strategies buy shares and sell stock index futures with borrowed money through DMA. The swap, wherein funds get to reap gains from the trade, while brokers earn interest, sits on the books of brokerages.

The business has been popular as annualized returns of some DMA-Swap products exceed 150%, an eye-popping contrast to a domestic stock market struggling to steady in a wobbly economic backdrop.

Those returns have spurred a social media outcry against funds profiting from bleak market conditions.

Analysts have cautioned that a combination of heavy leverage and sudden, unexpected market movements could burn investors, hurt brokerages, and trigger market disorder.

CSRC Chairman Yi on Wednesday attributed previous market crises – including China’s 2015 stock market crash – to leverage getting out of control.

“Only by putting leverage under control, can we ensure market stability over the long term”, he said.

(USD 1 = 7.2809 Chinese yuan renminbi)

(Reporting by Shanghai newsroom; Editing by Vidya Ranganathan & Simon Cameron-Moore)

Oil edges up; markets shrug off China inflation data, eye fresh drivers

SINGAPORE, Nov 9 – Oil prices edged up on Thursday as markets shrugged off deflationary indicators in China and looked for further clues on the status of demand from the world’s two biggest oil consumers.

Brent crude futures rose 67 cents, or 0.8%, to USD 80.21 a barrel by 0730 GMT. US West Texas Intermediate (WTI) crude futures climbed 56 cents, or 0.7%, at USD 75.89 a barrel.

The uptick came after both benchmarks fell more than 2% to their lowest since mid-July on Wednesday, as worry over possible supply disruptions in the Middle East eased and concern over US and Chinese demand intensified.

“The more subdued gains still reflect reservations in place, with macroeconomic factors and technicals giving sellers the upper hand for now,” said Yeap Jun Rong, a market strategist at IG.

Thursday’s gains likely reflect an attempt for prices to stabilise after the strong sell-off in previous days, said Yeap.

Meanwhile, China inflation data released on Thursday showed that October CPI fell 0.2% year on year, while PPI data fell 2.6% year on year. This was broadly in line with a Reuters’ poll that forecast CPI would fall 0.1% and PPI 2.7%.

Earlier in the week, customs data showed that China’s total exports of goods and services contracted faster than expected, although its crude imports in October were robust.

On the plus side for oil demand, central bank governor Pan Gongsheng said China was expected to achieve its annual growth target of 5% for this year.

For the United States, inventory data may indicate a weakening in demand. US crude oil inventories increased by 11.9 million barrels over the week to Nov. 3, sources said, citing American Petroleum Institute figures.

If confirmed, this would represent the biggest weekly build since February. The US Energy Information Administration (EIA), however, has delayed release of weekly oil inventory data until Nov. 15 for a system upgrade.

Barclays on Wednesday cut its 2024 Brent crude price forecast by USD 4 to USD 93 a barrel, citing resilient US oil supply and higher output from Venezuela following the relaxation of sanctions on the Latin American producer.

(Reporting by Andrew Hayley in Beijing and Jeslyn Lerh in Singapore; Editing by Tom Hogue and Stephen Coates)

Brent oil finishes over USD 80 after this week’s sell-off

HOUSTON, Nov 9 – The Brent crude oil benchmark finished above USD 80 a barrel on Thursday, after demand concerns and a fading war-risk premium triggered a sell-off earlier this week.

Brent crude futures settled at USD 80.01 a barrel, a gain of 47 cents, or 0.59%. US West Texas Intermediate (WTI) crude futures finished at USD 75.74 a barrel up 41 cents or 0.54%.

Late in Thursday’s trading, comments by US Federal Reserve Chairman Jerome Powell indicating possible future interest rate increases shook stock and crude oil markets’ hopes for strong demand.

“There’s a macroeconomic headwind affecting markets today,” said John Kilduff, partner with Again Capital LLC.

Market fundamentals dominated trader sentiments through much of Thursday as fears of Middle East supply disruptions have eased, said Jim Burkhard, vice president and head of research for oil markets at S&P Global Commodity Insights.

“The onset of the Israel-Hamas war does fuel volatility and bring additional risks, but it has not affected underlying oil market fundamentals,” Burkhard said. “Oil prices have remained below where they were in late September – a week before the Hamas attack. Strong oil market fundamentals are prevailing over any fears at the moment.”

Brent is nearly USD 20 a barrel lower than its September peak.

Data from China on Thursday showed policymakers struggling to control disinflation, casting doubt over the chances of a broad-based economic recovery in the world’s biggest commodity consumer.

Earlier in the week customs data showed that China’s total exports of goods and services contracted faster than expected.

Demand indicators also imply weakness in the United States.

US crude oil inventories increased by 11.9 million barrels over the week to Nov. 3, sources said, citing American Petroleum Institute figures.

If confirmed, this would represent the biggest weekly build since February. The US Energy Information Administration (EIA), however, has delayed the release of weekly oil inventory data until Nov. 15 for a system upgrade.

Global markets, however, were upbeat on Thursday on the belief that major central banks have completed their rate hikes. High interest rates raise the cost of borrowing, dampening demand in markets, including oil.

Both OPEC and the International Energy Agency (IEA) are due to offer their view on the state of oil demand and supply fundamentals next week.

OPEC is set to meet at the end of the month to discuss output policy for 2024.

(Reporting by Erwin Seba in Houston; Additional reporting by Natalie Grover in London, Andrew Hayley in Beijing, and Jeslyn Lerh in Singapore; Editing by Kirsten Donovan, Barbara Lewis, David Evans, and Diane Craft)

Gold hovers near 3-week low as traders await Powell’s remarks

Nov 9 – Gold prices lingered near three-week lows on Thursday as safe-haven demand spurred by the Middle East conflict slowed, while investors awaited comments from US Federal Reserve Chair Jerome Powell for more clues on interest rates.

Spot gold was steady at USD 1,948.94 per ounce by 0758 GMT after hitting its lowest since Oct. 19 on Wednesday. US gold futures fell 0.2% to USD 1,954.30.

“Following a strong rally in gold, some unwinding in previous bullish positions seems to be playing out lately, as market participants price out the risks of a wider conflict in the Middle East, while improved risk environment kept safe-haven flows at bay,” IG market strategist Yeap Jun Rong said.

Gold prices rose above the key USD 2,000-per-ounce level last week after escalating tensions in the Middle East lifted demand.

A slew of Fed officials who spoke this week maintained a balanced tone on the US central bank’s next decision, but noted that they would focus on economic data and the impact of higher long-term bond yields.

Powell did not comment on monetary policy or the economic outlook in prepared remarks at a conference on Wednesday. He is scheduled to speak at another conference later in the day.

“He’ll (Powell) probably try and maintain the higher-for-longer narrative because it’s not within their interest to admit to markets that cuts might be coming,” City Index senior analyst Matt Simpson said.

“Gold would have the potential to retest and break above USD 2,000, but now is not the time.”

Futures point to a roughly 14% chance of another hike by January, but are pricing in an 18% chance that rate cuts could come as early as March, according to the CME FedWatch Tool.

Lower interest rates boost the appeal of zero-yield bullion.

Spot silver fell 0.3% to USD 22.45 per ounce, while platinum gained 0.4% to USD 869.60.

Palladium slipped 0.2% to USD 1,047.88, hovering near its lowest level since 2018.

(Reporting by Brijesh Patel and Anjana Anil in Bengaluru; Editing by Subhranshu Sahu and Sherry Jacob-Phillips)

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