US yields rise as central banks push back on rate cuts

NEW YORK, Jan 16 – US Treasury yields rose on Tuesday, reversing the bullish tone at the end of last week after central bankers in Europe and the United States pushed back against market expectations of imminent interest rate cuts.

Yields, which move inversely to prices, were higher across the curve after weakness in European bonds on Monday spurred by European Central Bank officials pushing back on market bets on rate cuts. US markets were closed on Monday for a national holiday.

A report over the weekend showed Atlanta Fed President Raphael Bostic said inflation could “see-saw” if the central bank cuts rates too soon. Meanwhile, on Tuesday, Fed Governor Christopher Waller said the path of policy change must be carefully calibrated, not rushed.

Fed funds futures traders on Tuesday were pricing for over 150 basis points in rate cuts this year, but assigned a 60% chance of a rate cut in March after Waller’s speech, down from about 70% earlier.

The mismatch between market expectations and indications from the Federal Reserve, which has penciled in 75 basis points of cuts in 2024, is likely to continue to cause swings in yields, said Doug Huber, vice president for investment strategies at Wealth Enhancement Group.

“There’s the questions of when rates get cut and how many are there … to us that will set us up for an environment where we’re anticipating more volatility in rates,” he said.

While higher compared to their close last week, yields declined on Monday after the New York Federal Reserve’s Empire Manufacturing survey came much lower than expected.

Benchmark 10-year yields were last seen at 4.037%, up from a 3.95% close last week. Two-year yields, which more closely reflect monetary policy expectations, were at about 4.21%, up from 4.138% on Friday.

The curve comparing two and 10-year yields steepened to minus 17.8 basis points, the least inverted it has been since early November. That part of the Treasury yield curve, when inverted, is generally seen as a sign of an upcoming recession.

(Reporting by Davide Barbuscia; Editing by Nick Zieminski and Jonathan Oatis)

Gold dips over 1% as dollar, yields rise on hawkish remarks by Fed’s Waller

Jan 16 – Gold prices fell over 1% on Tuesday, pressured by a firmer dollar and higher US Treasury yields after Federal Reserve Governor Christopher Waller’s hawkish remarks on interest rate cuts this year, but safe-haven buying limited bullion’s downside.

Spot gold was down 1.3% at USD 2,027.26 per ounce as of 2:36 p.m. ET (1936 GMT), after gaining in the previous three sessions.

US gold futures settled more than 1% lower at USD 2030.2.

“Strong gains in the US dollar index are pressuring the gold market as well as a rise in US Treasury yields today on this first day back from the three-day holiday weekend,” said Jim Wyckoff, senior analyst at Kitco Metals.

“However, one could argue that losses in gold are not bad compared to how strong the dollar is as tensions in the Middle East are keeping a floor under the prices.”

The dollar index rose nearly 1% to a more than one-month high, making bullion less attractive for other currency holders, while yields on the benchmark US 10-year Treasury notes also gained.

Waller said the United States was “within striking distance” of the Fed’s 2% inflation goal, but the central bank should not rush towards cuts in its benchmark interest rate until it is clear lower inflation will be sustained.

The Fed bank is widely expected to hold its policy rate steady at the end of its Jan. 30-31 meeting. Traders see a 67% probability of an interest rate cut in March, according to the CME Fedwatch tool.

Elsewhere, European Central Bank officials also pushed back against market expectations for rapid rate cuts this year.

Spot silver fell 1.2% to USD 22.93 per ounce.

Platinum declined 2.1% to USD 895.56 and palladium slipped 3.8% to USD 934.32, marking its lowest level in over one month.

(Reporting by Anushree Mukherjee in Bengaluru; Editing by Sharon Singleton and Emelia Sithole-Matarise; Editing by Shailesh Kuber)

Japan Inc.’s value boost plan lacks key endorsement

SINGAPORE, Jan 16 – The Tokyo Stock Exchange’s big push to improve shareholder value is missing some big names. On Monday, the bourse released a long-awaited list meant to showcase which companies have taken steps to improve capital efficiency. Just 40% of the 1,656 prime-listed firms made it, underscoring the long road ahead for Japan Inc to lift valuations. But what’s more disappointing is the omission of many influential corporate titans.

Marquee names like Toyota Motor, Fast Retailing, Nintendo, and SoftBank Group are conspicuously absent. The 20 largest companies whose names are missing from the list make up about a quarter of the Nikkei 225’s market value.

Toyota said its plan for “growth with stakeholders” was effectively the same as what the bourse was requesting. The company may have a point: the stock has returned some 62% over the past year, outperforming a 42% return in the broader index.

It also reported a record operating profit in its second quarter and announced a big buyback to please investors. Even so, in a consensus-driven country, if corporate leaders can’t be bothered to heed the TSE’s calls, then efforts to spur smaller laggards into action will be harder.

The good news is that the publication will be updated on a monthly basis. Rising peer pressure and shareholder activism, including recent campaigns in Seven and Fujitec Co., should help, then. The Topix, already up 6% this year, is outperforming all other major global indices. The rally can only be sustained if Japan Inc’s heavy hitters start taking Tokyo’s corporate governance efforts seriously.

(By Anshuman Daga; Editing by Robyn Mak and Katrina Hamlin)

China stocks rise as investors await GDP data; HK shares fall

SHANGHAI, Jan 16 – China stocks ended higher on Tuesday as investors awaited annual economic growth data due out on Wednesday for further direction, while Hong Kong shares hit a more than one-year low, dragged down by losses in technology and property stocks.

** China’s blue-chip CSI300 Index closed up 0.6%, while the Shanghai Composite Index gained 0.3%. Hong Kong’s benchmark Hang Seng Index closed down 2.2%, hitting the lowest level since November 2022.

** Unlike the US stock market, China’s stock market has a high dispersion among individual stock performances, Herald Van Der Linde, head of Asia Pacific equity strategy at HSBC, said at a media briefing on Monday.

** “So, the strategy I think is the best to adopt is to go deep and look for individual companies that have growth that is structural and not sensitive to what happens either in the broad economy or the broad market,” he said.

** Meanwhile, investors are awaiting China’s 2023 full-year gross domestic product figures to see whether the country beats its around 5% economic growth target for last year.

** December activity data due on Wednesday is also in focus to see if the economy gained momentum heading into 2024.

** Chinese transportation stocks hit a one-month high, rising for the fourth session as investors bet the escalating Red Sea crisis will push up crude freight prices, generating windfall profit for oil tankers and shipping companies.

** Tourism stocks continued their rally, rising 1.9%.

** Local investors have shifted their attention to overseas markets. China AMC Nomura Nikkei 225 Index ETF traded in Shanghai has seen market premium over its net asset value reach a record high this week.

** In Hong Kong, tech shares slumped 2.3%.

(Reporting by Shanghai Newsroom; Editing by Subhranshu Sahu)

Gold frail as dollar, yields dim shine

Jan 16 (Reuters) – Gold prices were subdued on Tuesday as the dollar and Treasury yields rose, while traders waited to hear from a slew of US Federal Reserve speakers this week for more clarity on the central bank’s rate cut prospects.

Spot gold was down 0.3% at USD 2,048.70 per ounce, as of 0758 GMT. US gold futures rose 0.1% to USD 2,053.00.

The dollar has strengthened ahead of Christopher Waller’s speech, which is arguably the bigger event for the week, said Matt Simpson, a senior analyst at City Index.

The dollar index touched a 10-day high, making bullion less attractive for other currency holders, while yields on benchmark US 10-year Treasury notes rose above 4%.

At least six Fed officials are due to speak this week, with Governor Christopher Waller scheduled to deliver a speech on the economic outlook before the Brookings Institution at 1600 GMT.

“With multiple rate cuts having been priced in by market, I wouldn’t be surprised if Waller feels inclined to push back…a move back to USD 2035 (for spot gold) could be plausible,” Simpson said.

At the end of its Jan. 30-31 meeting, the US central bank is expected to hold its policy rate steady.

Traders are betting on six rate cuts of 25 basis points each this year, with about a seven-in-ten chance that the first one could come as soon as March, according to LSEG’s interest rate probability app, IRPR.

Lower interest rates increase non-yielding bullion’s appeal.

Elsewhere, European Central Bank officials pushed back against market expectations for rapid rate cuts this year.

According to Reuters technical analyst Wang Tao, spot gold may retrace to USD 2,042 per ounce, after its repeated failures to break resistance at USD 2,060.

Spot silver fell 0.3% to USD 23.13 per ounce, platinum declined 0.7% to USD 908.59, and palladium slipped 0.8% to USD 963.38.

(Reporting by Harshit Verma in Bengaluru; Editing by Subhranshu Sahu, Rashmi Aich and Sohini Goswami)

Oil steadies as stronger dollar counteracts Red Sea disruptions

NEW YORK, Jan 16 – Oil prices were little changed on Tuesday, pressured as the dollar jumped to its highest in a month but supported by jitters about the impact on energy supplies from escalating tensions in the Middle East.

Global benchmark Brent crude futures rose 14 cents, or 0.2%, to settle at USD 78.29 a barrel. At the session high, Brent futures were up by a dollar a barrel.

US West Texas Intermediate crude futures (WTI) ended at USD 72.40 a barrel, down 28 cents, or 0.4%, from Friday’s settlement. US markets were closed for a public holiday on Monday.

“Oil prices are looking for a direction,” said Rob Thummel, managing director at energy investment firm Tortoise Capital.

Weighing on prices, the US dollar hit a one-month high as investors dialed back expectations of an interest rate cut by the Federal Reserve in March. A stronger greenback dents demand for dollar-denominated oil among buyers using other currencies.

Forecasts for milder weather later in January in the major US production hubs also weighed on prices, said Jay Hatfield, portfolio manager at InfraCap in New York.

Warmer weather could dampen demand for heating oil, a refined product used to warm homes in parts of the US Northeast and Midwest, Hatfield noted.

Meteorologists projected weather in the US Lower 48 states would switch from colder than normal this week to mostly warmer than normal from Jan. 22-31.

Oil prices drew support from signs of escalating tensions in the Middle East, as the US military carried out a new strike in Yemen against four Houthi anti-ship ballistic missiles.

Houthi attacks on Red Sea shipping have been disrupting global movement of goods through the key trading route.

“Tensions in the Middle East are rising so the geopolitical risk premium in oil prices should be rising as well,” Tortoise Capital’s Thummel said.

Concerns of the conflict spreading throughout the region grew on Tuesday, as Iran’s striking of targets in the semi-autonomous Kurdistan region of Iraq triggered a diplomatic dispute. Iran also attacked Islamic State positions in Syria.

Despite the escalation, oil traders appear to be waiting for hard evidence of supply disruption before they push prices higher, said Fiona Cincotta, analyst at City Index.

Global energy trader Gunvor Group expects oil prices to hold at current levels and does not expect a major impact to oil production from the Red Sea disruptions, its CEO told Reuters on the sidelines of the World Economic Forum in Davos.

(Reporting by Shariq Khan; additional reporting by Robert Harvey, Arathy Somasekhar, and Trixie Yap; editing by David Gregorio and Marguerita Choy)

Japan’s equity juggernaut rolls on

Jan 16 – Another day, another leap to a fresh 34-year peak. Is there anything that will stop the Japanese equity juggernaut?

There isn’t much on the Asian economic and policy calendar to give markets a steer on Tuesday – volume will pick up as US markets reopen after the Monday holiday – but Japanese producer price figures could give Japan bulls pause for thought.

Or the green light for another whoosh higher.

The consensus view in a Reuters poll of economists suggests the year-on-year disinflation in the country’s goods-producing sector seen over the last year flipped into outright deflation in December.

The annual rate of goods inflation is expected to fall to -0.3% in December from 0.3% in November, sliding below zero for the first time since February 2021. A year ago in December 2022, prices were rising at a 10.2% annual rate.

These figures will be closely scrutinized. Easing producer price pressures will likely keep consumer inflation on its downward path toward the Bank of Japan’s 2% target, relieving the pressure on the central bank to “normalize” policy.

The Japanese bond market reflects the extent to which investors are rethinking the BOJ policy path, with the two-year yield on Monday falling below zero for the first time since July.

The Nikkei 225 index registered its sixth consecutive rise on Monday through 36,000 points. The cumulative gain in those six sessions is almost 10%, so perhaps a hotter-than-expected producer price report will be the catalyst for some profit-taking.

On a longer-term horizon, the market may be ripe for a correction too. Otavio Costa at Crescat Capital notes that the Japanese stock market cap is around 150% of GDP, which he reckons makes it one of the most overvalued in the world.

In China, meanwhile, the central bank on Monday surprised markets by keeping its medium-term policy rate steady, dashing hopes for a cut to shore up the country’s uneven post-pandemic recovery.

The People’s Bank of China disappointed market expectations for a cut as it held the rate on almost 1 trillion yuan worth of one-year medium-term lending facility (MLF) loans to some financial institutions unchanged at 2.50%. The MLF was last cut in August 2023, from 2.65%.

The PBOC is in a tight spot. The economy needs stimulus but cutting rates will probably push the already weak yuan even lower, which could risk domestic capital flight and deter investment from overseas.

The onshore yuan weakened anyway on Monday, sliding to a one-month low of 7.1813 per dollar, an indication of just how delicate the PBOC’s task is.

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

– Japan corporate goods prices (December)

– Australia consumer sentiment (January)

– South Korea import, export prices (December)

(By Jamie McGeever; Editing by Lisa Shumaker)

Dollar little changed on MLK Day, sterling slides in risk-off trading

LONDON, Jan 15 – The dollar was little changed on Monday in cautious during a US public holiday, while risk-sensitive sterling slid ahead of a busy week for UK economic data.

The dollar index, measuring the US currency against six peers, was up 0.13% at 102.64, on the Martin Luther King (MLK) Day holiday.

Bets on Federal Reserve cuts this year, beginning as early as March, have intensified after data on Friday showed US producer prices unexpectedly fell in December.

Market pricing now points to a 77% chance that the US central bank will begin easing rates in March, up from 68% a week ago, according to the CME FedWatch tool.

“Despite the upside surprise to the CPI on Thursday, investors grew increasingly confident that the Fed is likely to cut rates soon,” said Jim Reid, strategist at Deutsche Bank.

In the broader market, traders also watch out for UK inflation, jobs data, and retail sales due later in the week, as markets continue to focus on how soon major central banks globally could begin easing rates this year.

Sterling slipped 0.27% to USD 1.2717, though it remained close to a two-week peak hit last week.

“It’s a big UK data week,” said Jeremy Stretch, head of G10 FX Strategy at CIBC Capital Markets, adding that the general risk-off mood across markets and speculation on the upcoming data is keeping the pound under pressure.

CIBC expects earnings, inflation, and retail spending data to come all below consensus forecasts.

The euro hovered near the $1.10 mark and was last 0.08% lower on the day at $1.0941.

In Asia, the yen remained under pressure, down 0.63% at 145.83 per dollar, moving closer to its lowest level since mid-December, on expectations that the Bank of Japan will keep its ultra-loose policy settings unchanged at its policy meeting next week.

CHINA, TAIWAN

The yuan fell on Monday to a one-month low after China’s central bank surprised markets by keeping its medium-term policy rate unchanged, defying market expectations it would cut rates to shore up China’s bumpy post-pandemic economic recovery.

That sent the onshore yuan sliding to a one-month low of 7.1813 per dollar before it recouped some of those losses to trade down 0.08% at 7.1744.

“Some economists have argued that the PBoC may have chosen to hold rates steady to avoid further downside in the yuan, and excess volatility in the FX market,” said Kathleen Brooks, research director at XTB.

Rate cuts could still be on the table, said Tommy Wo, senior economist at Commerzbank.

“There will be more room for PBoC rate cuts when the timing of Fed’s rate reduction becomes clearer.”

Elsewhere, the Taiwan dollar fell to a more than three-week low of 31.284 per US dollar, after the Democratic Progressive Party’s (DPP) Lai Ching-te won the presidency over the weekend, though his party lost its majority in parliament

Analysts now fear policy paralysis.

“DPP lost the majority in the parliament. Hence Lai is ruling with a weaker mandate than Tsai Ing-wen,” said Allan von Mehren, director at Danske Bank.

He expects continued tensions in the Taiwan Strait but not a further escalation.

“China will continue to deter Taiwanese independence with military drills around the island and Taiwan and the US are likely to continue to have closer relations but without crossing China’s red line”.

(Reporting by Joice Alves in London; Additional reporting by Rae Wee and Vidya Ranganathan, Faith Hung in Taipei; Editing by Jamie Freed, Angus MacSwan, Sharon Singleton, and Tomasz Janowski)

European stocks fall as yields rise, China skips rate cut

LONDON/SYDNEY, Jan 15 – European stocks fell on Monday as bond yields climbed, and Chinese equities dipped after the country’s central bank unnerved investors by skipping an expected rate cut.

US markets were closed for Martin Luther King, Jr. Day.

Europe’s STOXX 600 index was last down 0.5%, taking its fall for the year to around 1%, after a 13% increase in 2023.

Britain’s FTSE 100 was 0.4% lower and Germany’s DAX was off by 0.5%.

The Chinese CSI 300 index fell to its lowest since 2019 but finished 0.1% lower as investors digested the central bank’s decision to leave its medium-term policy rate unchanged on Monday, defying expectations for a cut.

Investors are set for a busy week with data on Chinese fourth-quarter growth, British inflation, and US retail sales all due on Wednesday.

They will also be listening closely to central bank officials, especially the Federal Reserve’s Christopher Waller, whose dovish turn in late November helped to send markets soaring and who speaks on Tuesday.

Duncan Toms, multi-asset strategist at HSBC, said markets were vulnerable to a reconsideration of expectations for heavy rate cuts this year.

“With so much in the price… there is little support to be expected for valuations,” he said. “We expect a rather broad-based correction across all asset classes.”

Traders expect around 165 basis points of rate cuts from the Fed this year, and see an 80% chance of them starting in March, according to money market pricing.

“The first half of January has shown a dislocation between rate expectations and data in the US,” said Francesco Pesole, currency strategist at ING.

“The two most important data points for the Federal Reserve, labor and CPI inflation figures, both came in hotter than expected.”

ECB OFFICIALS PUSH BACK ON RATE CUTS

US Treasury trading was shut on Monday, but Germany’s 10-year bond yield was up 5 basis points at 2.195%, around its highest level since mid-December.

Prices, which move inversely to yields, fell as European Central Bank officials pushed back against market expectations for rapid interest rate cuts this year.

Japanese stocks continued to shine, with the Nikkei 225 index hitting a 34-year high above 36,000. The market has been buoyed by falls in the yen and US bond yields in recent days.

The focus of world leaders and executives gathering for the 54th World Economic Forum meeting this week in Davos, Switzerland, will be global politics.

However, markets showed a limited reaction to the victory of the ruling Democratic Progressive Party in Taiwan over the weekend, a result which displeased Beijing.

The US Republican Iowa caucus will be run in frigid weather later on Monday. At the same time, concern is running high about a broadening of the Middle East conflict.

The euro was treading water at USD 1.095, while the dollar index rose 0.14% to around 102.65.

Oil prices have drawn support from disruptions to shipping in the Red Sea, though doubts about demand this year have limited the rally.

Brent crude oil was last down 0.8% at USD 77.66 a barrel, down from a two-week high of USD 80.75 on Friday.

(Reporting by Harry Robertson in London and Wayne Cole in Sydney; Editing by Sonali Paul, Christopher Cushing, Angus MacSwan, Barbara Lewis, and Alex Richardson)

Gold rises as safe-haven demand, rate cut bets keep prices elevated

Jan 15 – Gold prices advanced on Monday, as the metal’s appeal was boosted by safe-haven demand owing to tensions in the Middle East, while markets raised bets that the Federal Reserve will cut rates as soon as March.

Spot gold was up 0.2% at USD 2,052.10 per ounce, as of 10:34 a.m. ET (1534 GMT). US gold futures rose 0.2% to USD 2,056.40, with trading expected to be low due to the Martin Luther King Day holiday.

The war between Israel and Hamas has passed the 100-day mark as Israel continues its fierce offensive, while the Houthi militia’s threat to respond to US air strikes on Yemen kept risks elevated.

Gold tends to perform well during economic turmoil, with reliability that can help offset the risk of more volatile assets in conditions such as geopolitical uncertainty.

“Spot gold is also rising as markets cling on to hopes that the Fed will cut its benchmark rates as early as March,” said Han Tan, chief market analyst at Exinity Group.

“Gold’s window for posting fresh record highs should remain open as long as the Fed can move in line with market expectations,” Tan added.

Bullion hit an all-time high of USD 2,135.40 on Dec. 4.

Supporting gold, data on Friday showed US producer prices unexpectedly fell in December, sending 10-year Treasury yields lower.

Traders are now pricing in a 73% chance that the Fed could cut rates in March, according to CME’s Fed watch tool.

Higher interest rates raise the opportunity cost of investing in non-yielding bullion.

In other metals, spot silver was down 0.1% to USD 23.16 per ounce, platinum climbed 0.6% to USD 910.92 and palladium lost 0.8% to USD 968.25.

“Despite the gradual shift towards surplus, we believe (palladium) prices may rally modestly this year,” HSBC said in a note.

(Reporting by Anjana Anil in Bengaluru; Editing by Sharon Singleton, Louise Heavens, and Andrea Ricci)

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