Wall Street eyes subdued open as rate cut optimism wanes

Nov 7 – Wall Street’s main indexes were set for a subdued open on Tuesday as optimism over potential rate cuts from the Federal Reserve next year waned, with investors on tenterhooks ahead of more commentary from central bank officials.

After a stellar rally last week driven by tumbling Treasury yields, equities have lost momentum in recent days as investors await commentary by Fed policymakers for any signs of a pushback against expectations that US interest rates have peaked.

Federal Reserve Bank of Minneapolis President Neel Kashkari doused hopes of early rate cuts, saying the central bank may have to do more to bring inflation back down to its 2% target.

Chicago Fed chief Austan Goolsbee acknowledged the downward trend in inflation but maintained price pressures are not yet over.

“We will be higher for longer. We think that the first rate cut will take place not in the second quarter of next year, but in the third quarter of next year,” said Sam Stovall, chief investment strategist of CFRA Research.

Adding to the pressure on stocks, US Treasury yields also rebounded from multi-week lows in the previous session, ahead of large bond auctions this week that could determine whether there is enough demand for US government debt.

The benchmark ten-year Treasury yield was last at 4.6224%, slightly lower than Monday’s level.

Market participants will parse commentary from Fed Board Governor Christopher Waller and New York Fed President John Williams later on Tuesday for more clues on the central bank’s interest rate path. Fed Chair Jerome Powell’s remarks will grab the spotlight on Wednesday.

Uncertainty about the timing of potential rate cuts and some dismal corporate forecasts for the fourth quarter have cast a doubt on whether there could be a year-end rally for stocks.

“History tells us that Q4 has always been positive. If we don’t get an advance toward the end of the year, then that implies that investors believe that something worse is likely to occur in the coming calendar year,” Stovall said.

The corporate earnings season has entered its last leg, with a majority of the companies in the S&P 500 having already reported results for the third quarter.

Uber Technologies forecast fourth-quarter adjusted core profit and gross bookings above market expectations but missed Wall Street’s profit target for the July-September period. Shares of the ride-hailing firm fell 1.8% in premarket trading.

EBay and Bumble are among those scheduled to post their results late on Tuesday.

At 8:19 a.m. ET, Dow e-minis were down 66 points, or 0.19%, S&P 500 e-minis were down 7.5 points, or 0.17%, and Nasdaq 100 e-minis were down 1 points, or 0.01%.

Oil firms including Exxon Mobil, Chevron and Occidental Petroleum fell between 0.8% and 1.1% premarket, tracking a 2% decline in crude prices on mixed economic data from China.

Shares of Intel edged up 0.7% after a report said the chipmaker was the leading candidate to likely get billions in government funding for secure defense-chip facilities.

(Reporting by Amruta Khandekar and Shristi Achar A in Bengaluru; Editing by Maju Samuel)

Oil prices ease as mixed China trade data offset supply cuts

Nov 7 – Oil prices eased on Tuesday, giving up most of Monday’s gains as mixed economic data from the world’s second largest oil consumer China and winter demand worries offset the impact of Saudi Arabia and Russia extending output cuts.

Brent crude futures slipped 47 cents, or 0.55%, to USD 84.71 a barrel by 0431 GMT while US West Texas Intermediate crude was at USD 80.45 a barrel, down 37 cents, or 0.46%.

Both benchmarks gained about 30 cents on Monday after top exporters Saudi Arabia and Russia reaffirmed their commitment to extra voluntary oil supply cuts until the end of the year.

While China’s crude oil imports showed robust growth both year on year and month on month in October, the country’s total exports still contracted at a quicker pace than expected.

“China’s export data could be seen to be worse than expected, but domestic demand may be picking up,” said CMC Markets’ Shanghai-based analyst Leon Li.

The weak trend in exports reflects downward pressure on the global economy that emerged in the fourth quarter, he added.

Expectations of crude run reductions by China-based refiners between November and December may limit oil demand and exacerbate price declines.

Some analysts also say that the extension of these output cuts mean markets are still cautious on demand drivers, which may put further pressure on prices.

“The production curbs, in light of the limited impact on oil supply of the Israel-Hamas war, suggests they (Saudi Arabia) are still concerned about demand,” said ANZ analysts in a note.

Concerns that a warmer-than-expected winter could curb energy and fuel demand weighed on prices as well.

“This year’s winter in the northern hemisphere is relatively warm, which has reduced fuel consumption to a certain extent,” said CMC Markets’ Li.

Looking ahead on the supply side, markets are waiting to see how long Saudi Arabia and Russia are ready to rein in production.

“What will be of more interest to the market is whether they will extend these cuts into early 2024 or start to bring this output back. We should get clarity on this sometime in early December,” ING analysts added.

Saudi Arabia confirmed on Sunday it would continue with its additional voluntary cut of 1 million barrels per day (bpd) translating into production of about 9 million bpd for December, a source at the ministry of energy said in a statement.

Moscow also announced it would continue its additional voluntary supply cut of 300,000 bpd from its crude oil and petroleum product exports until the end of December.

(Reporting by Yuka Obayashi; Editing by Jamie Freed & Simon Cameron-Moore)

Data deluge could douse fiery start to week

Nov 7 – Tuesday will be one of the busiest days of the year for Asian markets in terms of top-tier regional economic data and events, and investors could not be going into it on a stronger footing.

Asian and emerging market stocks rose more than 2% on Monday, bringing their gains over the last three trading sessions up to almost 6%.

This is their best run in a year, powered by easing financial conditions in the form of lower US bond yields and a weaker dollar, and renewed faith in the US economic ‘soft landing’ scenario.

Aggregate financial conditions across emerging markets and in China have slumped in recent days to their loosest in nearly two months, or in the case of India, the easiest in three months, Goldman Sachs financial conditions indices show.

South Korean shares got an added injection of rocket fuel on Monday, surging 5.7% in their biggest leap since early 2020 after authorities re-imposed a ban on short-selling through the first half of 2024 to promote a “level playing field”.

Having under-performed global and developed market benchmarks last week, Asian stocks could be set to outperform this week. That is how markets played out on Monday, as the MSCI World Index and Wall Street eked out gains of no more than 0.3%.

That may temper some of the bullishness across Asia on Tuesday, however, and there is certainly no shortage of event risk to keep investors and traders on their toes.

Australia’s central bank is expected to raise its benchmark cash rate by 25 basis points to 4.35%, the highest since 2011, and breaking a run of four meetings on hold. Sticky inflation is keeping a hawkish bias in Aussie money markets, which are pricing in at least one more quarter-point hike next year.

Also on Tuesday, the Bank of Korea publishes the minutes from its last policy meeting, while on the data front consumer inflation figures from Taiwan and the Philippines, trade data from Taiwan, industrial production figures from Indonesia, and household spending figures from Japan are all on tap.

The big one, however, could be China’s trade report for October. Steep year-on-year declines in imports and exports for most of this year – especially imports – have been a pretty good barometer of the overall economy’s underlying weakness.

But a trough looks to have been reached, the trend is improving, and the economy grew faster than expected in the third quarter. China bulls will be hoping for more encouraging signs.

Skeptical foreign investors will need more than one month of slowing imports and exports decline though. Figures on Monday showed that China recorded its first-ever quarterly deficit in foreign direct investment (FDI) since China’s foreign exchange regulator began compiling the data in 1998.

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

– Australia central bank policy meeting

– China trade (October)

– Japan household spending (September)

(By Jamie McGeever; Editing by Deepa Babington)

Multi-strategy hedge funds end October with gains – sources

NEW YORK, Nov 6 – Many of the world’s biggest multi-strategy hedge funds crossed the finishing line of a challenging October for markets with gains, sources familiar with the matter told Reuters.

Multi-strategy hedge funds have an advantage in difficult times for markets, because they trade many different assets from equities to currencies and credit, and in multiple different strategies.

The Citadel flagship hedge fund Wellington ended October up 1%, and Point72 gained 1.2%, while Millennium rose 0.6%, Schonfeld Fundamental Equity gained 1.15%, and ExodusPoint advanced 0.69%, according to the sources.

The funds’ performances year-to-date, however, are more mixed, though still positive. Citadel’s flagship soared 13.7% in the first 10 months of the year, and Millennium and Point72 gained 8.3% each. ExodusPoint and Schonfeld rose 5.39% and 2.1%, respectively.

Portfolio managers were caught with wild swings in markets in October.

US Treasury yields, which move inversely to prices, surged in October, with benchmark 10-year yields hitting 5% for the first time since 2007. The bond sell-off, which has taken Treasuries to the cusp of an unprecedented third straight year of losses, was caused by concerns that interest rates will remain high for long due to a surprisingly strong economy, and also reflected rising investor concerns over increases in government bond supply.

In equities, all major Wall Street indexes ended October down, with the S&P 500 falling 2.2% and the Nasdaq Composite down 2.8%. Both indexes posted a third straight month of losses.

(Reporting by Carolina Mandl, in New York; additional reporting by Davide Barbuscia; editing by Jonathan Oatis)

Gold eases as spotlight turns to Fedspeak for interest rate cues

Nov 6 – Gold eased on Monday as US Treasury yields rose, with investors remaining cautious as they gear up for a host of Federal Reserve speakers this week including Jerome Powell for clarity on US rate cuts.

Spot gold fell 0.7% to USD 1,979.19 per ounce by 2:41 p.m. ET (1941 GMT) after rising above the key USD 2,000 level on Friday. US gold futures settled 0.5% lower at USD 1,988.60.

Risk appetite is a bit better and there have been no major surprise developments from the Israel-Hammas war, and this is taking away a little bit of the safe-haven bidding for gold and silver, said Jim Wyckoff, senior analyst at Kitco Metals.

Bullion gained over 7% in October as the Middle East conflict boosted safe-haven demand.

Wall Street’s main indexes turned negative after inching up earlier, while Benchmark 10-year US Treasury yields rose, as investors kept their eyes peeled for at least nine Fed members speaking this week, including Powell on Nov. 9.

Traders are pricing in a 90% chance the Fed will leave rates unchanged in December, according to the CME FedWatch tool.

“Gold and silver market bulls have a little bit of ammunition as the expectation is that there will be no further rate hikes, which is pressuring the US dollar,” added Wyckoff.

Gold is sensitive to rising US interest rates, as they increase the opportunity cost of holding the non-yielding asset.

For gold to sustainably move above USD 2,000/oz, it may need a clearer signal from the Fed that cuts are coming, and the return of investors to ETFs (exchange-traded-funds), Heraeus Metals wrote in a note.

Speculators raised their net long positions in COMEX gold futures by 15,661 contracts to 106,343 in the week ended Oct. 31, CFTC data showed on Friday.

Silver was down 0.6% to USD 23.05 per ounce.

Platinum shed 2.5% to USD 906.86, and palladium fell 1.9% to USD 1,098.54, both eyeing their biggest daily declines since October.

(Reporting by Ashitha Shivaprasad and Anushree Mukherjee in Bengaluru; Editing by Krishna Chandra Eluri)

Leveraged funds record short Treasuries bet may be vulnerable

ORLANDO, Florida, Nov 6 (Reuters) – Hedge funds ended October holding a record net short position in US Treasuries futures, signaling their persistence with the so-called ‘basis trade’, although the steep plunge in yields since then may force a substantial reversal in the coming weeks.

The latest Commodity Futures Trading Commission (CFTC) figures show that speculators, especially leveraged funds, ramped up their short Treasuries positions in the week ending Oct. 31, most notably at the short end of the curve.

This fits with the ‘basis trade’, a leveraged arbitrage play profiting from price differences between cash bonds and futures that speculators have been doing for much of this year.

Regulators have expressed concern about the financial stability risks a sharp and disorderly unwind of these bets could pose in an adverse bond market scenario.

Leveraged funds – those speculators more active in the basis trade – increased their combined net short position in two-, five- and 10-year Treasuries futures by more than 300,000 contracts to nearly 5 million contracts, CFTC data show.

That is significantly larger than the peak combined net short position from 2019 of just over 4 million contracts, boosted by fresh record short positions in the two- and five-year space.

In October leveraged funds increased their net short position in two-year futures by 242,000 contracts to 1.6 million contracts, and by 193,000 contracts in five-year futures to 1.93 million. Both these totals are fresh records.

They only grew their net short position in 10-year futures by 10,000 contracts, however. ‘Non-commercial’ accounts, often seen as a broader grouping of CFTC hedge funds and speculators, actually cut their 10-year net shorts for a second month.

A short position is essentially a wager an asset’s price will fall, and a long position is a bet it will rise. In bonds falling prices indicate higher yields, and vice versa.

But funds play Treasuries futures for other reasons, like relative value trades, and this year, the basis trade. The difference between cash bond and futures prices is tiny, but funds make their money from leverage in the repo market and sheer volume of trade.

That trade may be running out of steam. Its profitability has been dented recently by rising borrowing costs in the repo market, according to Javier Corominas at Oxford Economics.

On top of that, the sharp rally in bonds, on growing hopes of a US economic ‘soft landing’ and less onerous borrowing needs for the Treasury, will almost certainly be shaking out some of these short positions.

Yields have slumped as much as 50 basis points, markets no longer expect any more rate hikes, and around 75 basis points of easing is priced into the 2024 rates futures curve, starting in June.

Citi’s US rates strategy team expects Treasuries to continue rallying this week. They cite softer economic data, dovish signals from Fed Chair Jerome Powell, and a better-than-expected refunding outlook from Treasury.

“This puts the brake on momentum-driven selling,” they wrote on Friday. “The question we’re being asked is – have yields peaked? We think so, given our valuation anchors and the extent to which momentum and sentiment has shifted over the last week.”

(Writing by Jamie McGeever; Editing by Miral Fahmy and Jonathan Oatis; The opinions expressed here are those of the author, a columnist for Reuters.)

Key markets gain on hopes of early Fed rate cuts

Nov 6 (Reuters) – Most major stock markets in the Gulf rose in early trade on Monday after softer-than-expected U.S. jobs data reinforced expectations that the Federal Reserve will not hike interest rates further.

Most Gulf Cooperation Council countries, including the UAE, peg their currencies to the US dollar and follow the Fed’s policy moves closely.

US job growth slowed in October in part as auto union strikes depressed manufacturing payrolls; the increase in annual wages was the smallest in nearly 2-1/2 years.

Saudi Arabia’s benchmark index added 0.1%, helped by 1.3% rise in Lumi Rental Co.

However, oil giant Saudi Aramco eased 0.2%, ahead of earnings announcement on Tuesday.

Saudi Arabia confirmed it would continue with its additional voluntary cut of 1 million barrels per day (bpd) in December to keep output at around 9 million bpd, a source at the ministry of energy said in a statement. The Saudi decision was in line with analysts’ expectations.

Dubai’s main share index gained 0.5%, with sharia-compliant lender Dubai Islamic Bank advancing 1.2%.

In Abu Dhabi, the index added 0.3%.

Oil prices – a key catalyst for the Gulf’s financial markets – edged up as top exporters Saudi Arabia and Russia said they would stick to extra voluntary oil output cuts until the end of the year, keeping supply tight, while investors watched out for tougher US sanctions on Iranian oil.

The Qatari benchmark increased 0.6%, driven by a 6.1% jump in Islamic lender Masraf Al Rayan.

(Reporting by Ateeq Shariff in Bengaluru; Editing by Bernadette Baum)

Oil rises by 1% as Saudi Arabia, Russia stick to cuts

LONDON, Nov 6 – Oil prices rose on Monday, after top exporters Saudi Arabia and Russia reaffirmed their commitment to extra voluntary oil supply cuts until the end of the year.

Brent crude futures LCOc1 rose USD 1.03, or 1.21%, to USD 85.92 a barrel by 0834 GMT, while US West Texas Intermediate crude CLc1 was at USD 81.58 a barrel, up USD 1.07, or 1.33%.

Oil rebounded on Monday after Brent and WTI futures each lost around 6% in the week to Nov. 3.

Saudi Arabia confirmed on Sunday it would continue with its additional voluntary cut of 1 million barrels per day (bpd) in December to keep output at around 9 million bpd, a source at the ministry of energy said in a statement.

Russia also announced it would continue its additional voluntary supply cut of 300,000 bpd from its crude oil and petroleum product exports until the end of December.

ING analysts said in a note that the oil market will be in surplus in the first quarter of next year, “which may be enough to convince the Saudis and Russians to continue with cuts.”

But price gains could have been capped by an easing of crude oil throughputs at Chinese refineries.

Refinery runs are easing from record levels in the third quarter because of eroding profit margins and a scarcity of export quotas up to year end, sources told Reuters.

“The reaction to the Saudi/Russian decision over the weekend to extend their respective output and exports cut throughout December has been, to some extent, countered by the anticipated fall in China’s refinery throughput this month,” PVM analyst Tamas Varga said.

Investors will be looking ahead to more economic data from China after the world’s second-largest oil consumer released disappointing October factory data last week.

(Reporting by Robert Harvey, Florence Tan and Colleen Howe, Editing by Louise Heavens)

Oil rises as Saudi Arabia and Russia stick to supply cuts

HOUSTON, Nov 6 – Oil prices edged higher on Monday after top exporters Saudi Arabia and Russia reaffirmed their commitment to extra voluntary oil supply cuts until the end of the year.

Brent crude futures settled 29 cents, or 0.34%, higher at USD 85.18 a barrel, while US West Texas Intermediate crude was up 31 cents, or 0.4%, at USD 80.82.

Saudi Arabia confirmed on Sunday it would continue its additional voluntary cut of 1 million barrels per day (bpd) in December to keep output around 9 million bpd, a ministry of energy source said.

Russia also announced it would continue its additional voluntary cut of 300,000 bpd from its crude oil and petroleum product exports until the end of December.

“The announcement shows that Saudi has its shoulder to the wheel as it looks to tighten markets and increase prices,” John Kilduff, partner at Again Capital LLC in New York.

The cuts could be extended into the first quarter of 2024 because of “seasonally weaker oil demand at the start of every year, ongoing economic growth concerns, and the aim of producers and OPEC+ to support the oil market’s stability and balance”, said UBS strategist Giovanni Staunovo.

Oil prices rebounded after both benchmarks lost about 6% in the week to Nov. 3, as supply concerns driven by Middle East tensions eased.

UN agency leaders demanded a humanitarian ceasefire on Monday, a month into the war in Gaza, as health authorities in the enclave said the death toll from Israeli strikes now exceeded 10,000.

A weaker dollar also helped oil prices. The dollar index fell as low as 104.84, the weakest since Sept. 20. A weaker dollar boosts demand for crude purchases by holders of foreign currency.

However, an easing of crude throughput at Chinese and US refineries hurt prices.

Refinery runs are easing at Chinese refineries from record levels in the third quarter because of eroding profit margins and a scarcity of export quotas to the end of the year, traders and industry consultants told Reuters.

Meanwhile, US crude oil refiners this quarter will pull back from red-hot summer run rates as weak gasoline margins and plant overhauls cool operating goals, according to company statements and oil analysts.

Investors will be watching for further economic data from China on Tuesday following weak October factory data last week.

Macroeconomic concerns persist in Europe, where Purchasing Managers’ Index (PMI) data showed the downturn in euro zone business activity accelerated in October as demand weakened further.

The Bank of England Chief Economist Huw Pill said it might wait until the middle of next year before cutting interest rates from their current 15-year high. Lower borrowing cost is likely to boost spending and demand for crude oil.

(Reporting by Robert Harvey, Florence Tan and Colleen Howe; Editing by Deepa Babington, Mark Potter, Christina Fincher and Bill Berkrot)

Stock investors see green light in falling Treasury yields

NEW YORK, Nov 3 – Hopes that a rout in Treasuries has run its course are tempting some investors back into the US stock market after a months-long selloff.

The relationship between stocks and bonds has been a tight one in recent months, with equities falling as Treasury yields climbed to 16-year highs. Higher yields offer investment competition to stocks while also raising the cost of capital for companies and households.

Over much of the last week, however, that dynamic has reversed, following news of smaller-than-expected US government borrowing and signs that the Federal Reserve is nearing the end of its rate hiking cycle.

Yields on the benchmark 10-year US Treasury, which move inversely to bond prices, are down about 35 basis points from 16-year highs hit in October. Meanwhile, the S&P 500 has surged nearly 6% from its October lows. The index is off 5% from its July peak, though still up nearly 14% year-to-date.

“The stability in rates is helping other asset classes find a footing,” said Jason Draho, head of asset allocation Americas as UBS Global Wealth Management. “If equities move higher you may find investors starting to feel as if they need to chase performance through the end of the year.”

Draho expects the S&P 500 to trade between 4,200 and 4,600 until investors determine whether the economy will be able to avoid a recession. The index was recently around 4,365.

Other factors may also be working in stocks’ favor. Exposure to equities among active money managers stands near its lowest level since October 2022, according to an index compiled by the National Association of Active Investment Managers – a compelling sign for contrarian investors who seek to buy when pessimism rises.

At the same time, the last two months of the year have tended to be a strong stretch for stocks, with the S&P 500 rising an average of 3%, according to data from CFRA Research. The best two weeks of the year for the index, during which it has risen an average of 2.2% – kicked off on Oct. 22, according to data from Carson Investment Research.

“We had an extremely oversold market in the midst of a strong economy, and the Fed coming out a little more dovish was the kindling we needed for a rally,” said Ryan Detrick, chief market strategist at Carson Investment Research, who believes the current rebound in stocks will take them past their July high.

Bullish sentiment received another boost on Friday from US employment data, which showed a slight gain in the unemployment rate and the smallest wage increase in 2 and a half years, suggesting that the labor market is cooling, bolstering the case for the Fed to stay its hand. The S&P 500 was recently up more than 1% on the day.

Of course, plenty of investors remain hesitant to return to stocks just yet. Technology bellwether Apple Inc (AAPL) was the latest of the market’s massive technology and growth stocks to offer an underwhelming outlook on Thursday after the iPhone maker gave a holiday sales forecast that was below Wall Street estimates. At least 14 analysts cut their price targets for the company, according to LSEG data.

At the same time, betting on reversals in Treasuries has been a losing proposition for most of the year, during which rebounds in the US government bond market have been followed by deeper selloffs. The 10-year Treasury yield is up around 125 basis points from its low for the year.

Some investors also worry that the so-called Goldilocks economy suggested by Friday’s jobs report may not last. Greg Wilensky, head of US fixed income at Janus Henderson Investors, believes that while signs of softer-than-expected growth are boosting stocks and bonds for now, they may eventually stir recession worries.

“Eventually ‘good’ moderation may turn into a debate of whether the economy and labor markets are weakening too much,” he said.

(Reporting by David Randall; Editing by Ira Iosebashvili and Louise Heavens)

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