Wall St rallies 1%, yen gains vs dollar; talk of BOJ policy tweak

NEW YORK, Oct 31 – Global stock indexes advanced on Monday, with US stocks rallying more than 1% after recent sharp declines, while the yen rose to a two-week high against the dollar after a report that the Bank of Japan is considering tweaking its yield curve control policy.

Oil prices settled more than 3% lower, partly as fears eased about the Israel-Hamas war disrupting supply from the region.

The Nikkei report, that the BOJ is considering adjusting its yield curve control policy to allow the 10-year Japanese government bond yield to rise above 1%, pushed the yen to 148.81 per dollar, its strongest level since Oct. 17.

The greenback was last down 0.4% at 149.05 yen.

The BOJ kicked off its two-day monetary policy meeting Monday. The recent surge in global interest rates has heightened pressure on the BOJ to change its bond yield control policy.

The US Federal Reserve and Bank of England are also meeting this week. The US monthly jobs report is due on Friday.

“If the BOJ does not do anything tomorrow, which I think that’s what economists expect, and just wait until December, I think the dollar jumps right back versus the yen,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

The dollar index fell 0.469%, with the euro up 0.51% at USD 1.0618.

Stock investors also are closely monitoring quarterly earnings this week, with several big US companies including Caterpillar and Apple due to report this week.

The Dow Jones Industrial Average rose 511.37 points, or 1.58%, to 32,928.96, the S&P 500 gained 49.45 points, or 1.20%, to 4,166.82 and the Nasdaq Composite added 146.47 points, or 1.16%, to 12,789.48.

Wall Street stocks posted losses for last week as economic data seemed to support the “higher for longer” interest rate scenario.

The pan-European STOXX 600 index rose 0.36% and MSCI’s gauge of stocks across the globe gained 0.86%.

In US Treasuries, yields pared gains after the Treasury Department said it expects to borrow USD 76 billion less this quarter than anticipated in the third quarter on expectations of higher revenue receipts.

The Treasury said it expects to borrow USD 776 billion in the fourth quarter, down from $852 billion the prior quarters, assuming an end of December cash balance of USD 750 billion, the department said in a statement.

Yields on 10-year Treasury notes were last up 4.1 basis points at 4.886%, after reaching 4.922% earlier in the day. Last week the benchmark note hit a 16-year high of 5.021%.

In energy, US crude CLc1 fell USD 3.23 to settle at USD 82.31 a barrel, while Brent LCOc1 dropped USD 3.03 to USD 87.45.

Spot gold dropped 0.4% to USD 1,997.86 an ounce.

(Reporting by Caroline Valetkevitch; additional reporting by Gertrude Chavez-Dreyfuss in New York and by Elizabeth Howcroft in London; Editing by Marguerita Choy and Richard Chang)

China’s additional sovereign bonds won’t change issuance schedule -sources

SHANGHAI, Oct 31 – China’s issuance of an additional 1 trillion yuan (USD 137 billion) in sovereign bonds will not change the schedule of the central government’s bond issuance during the fourth quarter, three sources with direct knowledge of the plan said.

“The fourth quarter’s issuance schedule was not changed and was still following the original issuance window. No new additional tranches will be added,” one of the sources said.

China’s additional 1 trillion yuan issuance in sovereign bonds will be completed via adjusting the size of each tranche, the sources said.

The Ministry of Finance has asked brokerages to submit bids in a rational manner to ensure smooth operation of the sovereign bond market, the sources said.

The Ministry of Finance has also communicated with China’s central bank to ensure liquidity remains at a reasonable level during such sovereign bond issuance, the sources said.

China last week announced plans to sell additional sovereign bonds to help stimulate economic growth.

The Ministry of Finance and the People’s Bank of China (PBOC) did not immediately respond to Reuters’ requests for comment.

(Reporting by Shanghai Newsroom; Editing by Jacqueline Wong)

US Treasury cuts Oct-Dec borrowing estimate to USD776B, yields ease

Oct 31 – The US Treasury Department said on Monday it expects to borrow USD 776 billion in the fourth quarter, USD 76 billion less than its forecast in July, citing increased revenue estimates, bringing some relief to bond markets rattled for months by a glut of new debt.

A US Treasury official said revenue is expected to rise in the October-December period partly because income tax payments from California and some other states deferred due to natural disasters were now starting to flow into the Treasury.

The projections prompted US Treasury debt yields to fall slightly, with the benchmark 10-year yield last at 4.88%.

Treasury yields, especially on longer-dated securities, have risen with growing bond supply as budget deficits widened and the Treasury rebuilds its cash balance drained by a debt ceiling standoff in Congress in the spring.

“Interest in today’s borrowing projections have been higher than normal,” said Thomas Simons, money market economist at Jeffries in New York. “Given that it isn’t on the higher end of expectations, it’s causing some relief in the market.”

Investors awaited the Treasury’s quarterly refunding statement on Wednesday for details on which maturities will be increased as the department pursues record borrowing levels.

The Treasury said in July it expected to borrow $1.007 trillion in the July-September quarter, $274 billion more than it had predicted in May, sparking a large bond sell-off.

‘Sloppy’ auctions

Auction sizes have been growing across most maturities, and some recent sales have led to what some dealers have called “sloppy” results.Last week’s sale of USD 52 billion of 5-year Treasury notes, for instance, was the largest ever outside of the COVID-19 issuance bulge from 2020 through early 2022. It featured the lowest-bid-cover ratio, an indicator of investor demand, in more than a year and the transaction went off at a slightly higher yield than predicted by the so-called “when-issued” market.

The 5-year sale was later blamed for sending yields higher across government bond markets.

Steven Zeng, US rates strategist at Deutsche Bank, said he did not believe the reduced estimates would push down the
“term premium” on longer dated securities, adding that much depended on the composition of Wednesday’s refunding announcement.

“We still think the term premium has some room to move up,” Zeng said. “There still may be some ways the Treasury surprises the market if they choose to be more aggressive” with higher long-end issuance.

Total outstanding US debt has grown to USD 33.7 trillion, from USD 31.5 trillion in June and has surged from USD 23.2 trillion in early 2020 before the pandemic led to record US deficits.

Quarterly records

The reduced USD 776 billion borrowing estimate would still be a record for any October-December period, exceeding the USD 689 billion in the 2021 quarter boosted by high COVID-19 relief outlays.

The Treasury also estimated borrowing USD 816 billion in the first quarter of 2024, a record for that period, though it noted cases in which borrowings plus cash balance drawdowns have been higher for the period. The Treasury estimates a high cash balance of USD 750 billion for both end-December and end-March.

In the third calendar quarter of 2023, the Treasury said it borrowed $1.01 trillion and ended that period with a cash balance of USD 657 billion.

That was the largest net debt issuance during a third quarter. It was, however, well below the almost USD 3 trillion the Treasury borrowed in the second quarter of 2020, when the government ramped up spending due to COVID business closures.

(Reporting by Karen Brettell and David Lawder; Additional reporting by Daniel Burns and Davide Barbuscia; Editing by Andrea Ricci and Richard Chang)

Gold set for third weekly gain as Middle East worries reign

Oct 27 – Gold prices were poised for a third consecutive weekly gain on Friday as the Middle East conflict kept investors drawn towards safety of bullion despite a higher-for-longer U.S. interest rate backdrop.

Spot gold rose 0.2% to USD 1,987.78 per ounce by 0555 GMT. US. gold futures GCcv1 were steady at USD 1,997.80.

“Gold prices will be a function of the Israel-Hamas conflict for as long as things are at risk of escalating,” said Kyle Rodda, financial market analyst at Capital.com.

Israeli forces executed their biggest ground attack in Gaza in their war with Hamas overnight as anger grew in the Arab world over Israel’s unrelenting airstrikes on the besieged Palestinian territory.

“The yellow metal is commanding a hefty geopolitical premium. It will need continuous feed of concerning geopolitical developments to keep it afloat at current levels,” said Praveen Singh, associate vice-president at BNP Paribas’ Sharekhan.

Spot gold has gained about 9% as investors sought refuge from the potential fallout of the Israel-Hamas war that escalated earlier this month.

But the lingering prospects of US interest rates staying higher for longer have kept prices below the USD 2,000 ceiling last breached in May.

Investor focus is also on the US personal consumption expenditure (PCE) price index due later in the day for cues on what to expect from the U.S. Federal Reserve’s policy meeting next week.

“Gold is holding where it is because of geopolitical risks, with prices diverging from the typical fundamental drivers … if it were a factor of real yields and the dollar, gold would be lower,” Rodda added.

The dollar was set for a weekly gain on Friday, while U.S. Treasury yields edged 0.2% higher after data showed the U.S. economy surged at the fastest pace in nearly two years in the third quarter.

In other metals, spot silver rose 0.3% to USD 22.87 per ounce, platinum climbed 0.8% to USD 907.17 and palladium added 0.5% to USD 1,138.59.

(Reporting by Swati Verma in Bengaluru; Editing by Sherry Jacob-Phillips)

Oil rises more than USD1 on fears of spread of Middle East conflict

SINGAPORE, Oct 27 – Oil prices rose by over $1 on Friday as reports that the U.S military struck Iranian targets in Syria raised concerns of a widening of the Israel-Hamas conflict that could impact supply from the key Middle East producing region.

Brent crude futures for December rose USD 1.32, or 1.5%, to USD 89.25 a barrel by 0638 GMT. The US West Texas Intermediate contract for December climbed USD 1.29, also 1.6%, to USD 84.50 a barrel.

The strikes on two facilities in eastern Syria used by the Iran’s Islamic Revolutionary Guard Corps and groups it backs was in response to recent attacks on US troops in Iraq and Syria, the Pentagon said on Thursday. Those attacks have increased since the start of the Israel-Hamas conflict on Oct. 7.

Though the strike did not directly impact supply, it
increases fears that the conflict in the Gaza Strip between Israel, backed by the US, and Hamas may spread and disrupt supply from major crude producer Iran, which backs Hamas. A wider war could also impact shipments from Saudi Arabia, the world’s largest oil exporter, and other large producers in the Gulf.

Both Brent and WTI are on track to post their first weekly drop in three weeks as the geopolitical premium built on these fears has ebbed as there has been no disruption of oil supply outside of the immediate region of the fighting.

“As a trader I’m going to have to say we are somewhat out of our league here – trying to ascribe a value to geopolitics when no meaningful supply has been disrupted outside of the Levant,” said Kelvin Yew, a senior oil trader at Ocean Leonid Investments.

Israeli forces carried out their biggest Gaza ground attack in their 20-day-old war with Hamas overnight, angering the Arab world.

Prime Minister Benjamin Netanyahu had said Israeli troops were still preparing for a full ground invasion, while the United States and other countries urged Israel to delay, fearing it could ignite hostilities on other Middle East fronts.

“… (It) remains incredibly difficult even for the most knowledgeable regional watchers to make high conviction calls about the trajectory of the current crisis as the redlines that could bring more players onto the battlefield remain largely indiscernible,” RBC Capital analyst Helima Croft said in a note.

Goldman Sachs analysts have kept their first quarter 2024 Brent crude price forecast at $95 a barrel but added that lower Iranian exports could cause baseline prices to rise by 5%.

Prices could jump 20% in the less likely scenario of an interruption of trade through the Strait of Hormuz where 17% of global oil production transit, they said in a note.

Voluntary supply cuts by Saudi Arabia and Russia, which will be in place until the end of the year, are tightening markets globally and supporting prices, analysts said.

(Reporting by Florence Tan; Editing by Sam Holmes and Christian Schmollinger)

Japan to respond to FX moves with ‘strong sense of urgency’ -finmin

TOKYO, Oct 27 – Japan will continue to respond to the currency market “with a strong sense of urgency,” Finance Minister Shunichi Suzuki told reporters on Friday, as the yen weakened past 150 against the US dollar.

“It’s important for currencies to move stably reflecting fundamentals,” Suzuki said. “Excessive currency volatility is undesirable.”

Suzuki, while repeating his usual mantra on market moves, declined to comment further when asked whether there had been any recent currency intervention.

The Japanese currency broke past 150 yen to the dollar this week to reach its weakest level since October last year when authorities intervened in the market to stem the weakness.

The 150 yen line is perceived by investors as a danger zone that could trigger currency intervention by Japanese authorities.

(Reporting by Tetsushi Kajimoto and Kantaro Komiya; Editing by Chang-Ran Kim and Jamie Freed)

Ominous signal: Wall Street slides despite yield slump

Oct 27 – Asian markets look to round off a difficult week with a flourish on Friday, but ominous signals from US trading on Thursday – stocks closed in the red again despite a steep decline in bond yields – do not auger well.

The conditions for a sharp rebound on Wall Street were in place – third quarter US GDP beat forecasts, and the ‘soft landing’ narrative was bolstered by some signs of cooling inflation and a sharp pullback in yields.

But not only did stocks fail to claw back any of Wednesday’s heavy losses, they fell almost as much again, pushing the S&P 500 and Nasdaq to new lows since May.

This is the backdrop to Friday’s open in Asia, where Japanese economic data, bonds, and currency will again be under intense scrutiny ahead of next week’s Bank of Japan policy meeting.

The main data release in Asia on Friday will be consumer price inflation in Tokyo for September. Core consumer inflation in the Japanese capital is expected to have held steady at a 2.5% annual rate in October, according to a Reuters poll, the lowest since July last year.

The BOJ next week is set to raise its national core consumer inflation forecast for the fiscal year ending in March 2024 to near 3% from the current 2.5% projection made in July, sources told Reuters.

The BOJ is inching closer to ending negative interest rates and phasing out ultra-accommodative monetary policy. Twenty-five of 28 economists polled by Reuters expect no policy change next week, but the remaining three – at Barclays, JP Morgan, and UBS – think the BOJ will begin unwinding its easy stance then.

Japanese Prime Minister Fumio Kishida on Thursday called for Japan to make a “total break” from its deflationary past, and markets continued to test the BOJ’s resolve.

The yen on Thursday sank below 150.00 per dollar to its weakest since October 21 last year. The low that particular day near 152 per dollar was the yen’s weakest level in 32 years.

There has been no yen-supporting intervention to temper the current exchange rate depreciation, but the BOJ has been more active in the bond market, where the 10-year yield hit a decade-high on Thursday at 0.89%.

In China, meanwhile, industrial sector profit figures for the first nine months of the year are on the docket Friday.

Year-to-date profits at China’s industrial firms have been falling every month since July last year, and at a double-digit pace every month this year. The good news, however, is the pace of decline has been easing since March.

China’s main CSI 300 index is flat for the week but down almost 5% this month, while the MSCI Asia ex-Japan index is down 1.75% and 4.5%, respectively.

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

– Tokyo CPI inflation (September)

– China industrial profits (Sept, YTD)

– Australia producer price inflation (Q3)

(By Jamie McGeever; Editing by Marguerita Choy)

US yields down on day after weak inflation, income figures

Oct 26 – US Treasury yields fell on Thursday following the release of weaker-than-expected US inflation and disposable income data, supporting market sentiment that interest rates are at, or near, their peak.

The benchmark yield on 10-year Treasury notes was down 10.6 basis points at 4.847%. It breached 5% on Monday after doing so last week for the first time in 16 years.

The yield on the 30-year Treasury bond was down 10.4 basis points at 4.988%.

The closely watched gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at -19.7 bps.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was down 7.9 basis points at 5.042%.

Yields have rallied in October on expectations the US Federal Reserve will maintain a higher-for-longer rates course in the face of persistent inflation.

But yields moved lower on Thursday after the release of several economic datapoints, including headline GDP of 4.9% which came in line with expectations.

A measure of inflation, core personal consumption expenditures (PCE), came in weaker than expected at 2.4%, its lowest since the fourth quarter of 2020.

“So that at the margin maybe underscored the expectation that central banks are done hiking, giving the markets a bit more optimism,” said Kim Rupert, managing director of global fixed income at Action Economics in San Francisco.

The data showed consumer spending remained strong in the third quarter, which analysts have pointed to as a major factor in the economy’s resilience.

But disposable personal income increased only 1.9% to USD 95.8 billion, in the third quarter, a significant decline from the 6.1% jump to USD 296.5 billion seen in the second quarter.

Meanwhile, new unemployment claims rose 10,000 last week from the prior week to 210,000.

“Today’s numbers suggest there’s still a lot of momentum in the economy, but that there are several headwinds on the horizon,” Rupert said.

Yields fell further on Thursday after the US Treasury Department auctioned USD 38 billion in seven-year notes at a high yield of 4.908%.

The auction followed weak sales of five-year notes on Wednesday, which helped boost yields.

The seven-year sale was “on the market,” extending the rally in government bonds seen throughout the day, according to Lou Brien, economic strategist at DRW Trading Group.

The yield on existing seven-year notes has fallen 2.5 bps to 4.893% after the auction.

Several sets of data are slated for Friday which will further paint the US economic picture and inform the Fed’s rate path. These include September personal income and spending figures and October consumer sentiment data.

October 26 Thursday 3:03 PM New York / 1903 GMT

	Price	Current Yield %	Net Change (bps)
Three-month bills	5.32	5.4666	-0.015
Six-month bills	5.31	5.5466	-0.022
Two-year note	99-236/256	5.0415	-0.079
Three-year note	99-78/256	4.8789	-0.097
Five-year note	100-86/256	4.7986	-0.117
Seven-year note	98-148/256	4.8687	-0.108
10-year note	92-124/256	4.8466	-0.106
30-year bond	86-168/256	4.9895	-0.102

(Reporting by Matt Tracy; editing by Christina Fincher, Sharon Singleton, and Giles Elgood)

Mideast risks cushion safe-haven gold despite strong US data

Oct 26 – Gold ticked higher on Thursday as steady safe-haven demand fuelled by the Middle East conflict helped bullion weather pressure from strong US data that quelled recession fears.

Spot gold was up 0.3% at USD 1,986.39 per ounce by 1:50 p.m. ET (1750 GMT). Earlier in the session, prices were just shy of the five-month high hit on Friday.

US gold futures settled 0.1% higher at USD 1,997.4.

The US economy grew at its fastest pace in nearly two years in the third quarter, again defying dire warnings of a recession issued since 2022.

The number of people filing new claims for state unemployment benefits rose to a seasonally adjusted 210,000 during the week ending Oct. 21 from 200,000 in the prior week, the Labor Department reported. Claims are at the very low end of their range of 194,000 to 265,000 for this year.

The data “paint the picture of a very strong US economy,” supporting the narrative that the Fed might need to raise rates more, which is negative for gold, said Edward Moya, senior market analyst at OANDA.

“I am surprised we are not seeing a big move downward in gold. I think there is a realization that geo-political risks are not going away anytime soon.”

The US dollar rose 0.1%, making gold more expensive for overseas buyers.

Gold has gained 9% over the past two weeks as investors sought refuge from the potential fallout of the Israel-Hamas conflict. But the lingering prospects of higher interest rates have softened any upside in non-yielding bullion.

In Europe, the ECB left interest rates unchanged as expected, snapping an unprecedented streak of 10 consecutive hikes.

Focus shifts to the PCE price index due on Friday for cues on what to expect from the Fed’s policy meeting next week.

Silver slipped 0.4% to USD 22.79 an ounce, platinum was steady at USD 902.74 and palladium gained 0.8% to USD 1,134.86.

(Reporting by Ashitha Shivaprasad and additional reporting by Sherin Elizabeth in Bengaluru; Editing by Dhanya Ann Thoppil, Richard Chang, and Krishna Chandra Eluri)

China’s pump-priming spurs investor bets on further monetary easing

SHANGHAI/SINGAPORE, Oct 26 – As China’s government speeds up spending plans to strengthen an economic recovery that has spluttered this year, investors are betting the central bank will help out by easing monetary policy further.

Yuan interest rate swaps CNYIRS moved swiftly lower after the government on Tuesday announced a 1 trillion yuan (USD 136.69 billion) sovereign bond issue and also said provincial governments would be allowed to bring forward borrowings.

The announcement came on the same day that sources told Reuters that President Xi Jinping made his first known visit to the central bank and as the government wealth Fund Central Huijin Investment vowed to keep buying in the stock market.

“We continue to expect more policy support to come,” said Wang Tao, chief China economist at UBS.

Wang expects banks’ reserve requirement ratio (RRR) to be cut to facilitate the upcoming massive government borrowings, along with other monetary and fiscal measures, including a reduction in the policy interest rate.

The People’s Bank of China has cut both the RRR and its main policy rate twice this year.

The one-year medium-term lending facility (MLF) rate, a key policy rate, has been lowered twice by a total of 25 basis points so far this year, to 2.50%.

But borrowing costs in the world’s second-largest economy remain elevated as authorities try to keep monetary conditions stimulative without deviating from a longer-term mission of reducing leverage in the property and municipal sectors while trying to manage a weak yuan.

The interest rate on one-year AAA-rating negotiable certificates of deposit (NCDs), which measure the short-term inter-bank borrowing costs, is at a six-month high of 2.5505%, about 5 basis points higher than the MLF rate the central bank charges financial institutions.

“Cash conditions have been relatively tight for some time, so an RRR cut could replenish the liquidity drained by the new bond issuance as banks will invest in those new bonds,” said a trader at a foreign bank.

“But if market rates continue to go up after the RRR cut, policymakers will have to cut policy rates.”

WAYS TO EASE

Several global investment banks, including J.P.Morgan and Goldman Sachs, forecast a 25-basis-point RRR cut in the fourth quarter of this year.

The sovereign bond issuance approval supported “our call for a 25 bp RRR cut and a 10 bp policy rate cut in Q4,” analysts at Goldman Sachs said.

That expectation led to China’s benchmark 10-year government bond futures CFTZ3 rallying to a two-week high of 101.795 on Thursday. In the derivatives market, one-year interest rate swaps, which show investor expectations of future yields, have fallen 6 basis points this week to 2.03%.

Money markets could face another huge liquidity shortfall in November and December when a large number of MLF loans mature, and the expectation is that the PBOC will replace those funds, even if the excess cash weighs on the yuan exchange rate.

The PBOC has already injected 2.617 trillion yuan (USD 357.60 billion) in short-term cash over the past seven trading days.

PBOC lending via MLF loans is at its highest in more than two years at 5.675 trillion yuan, leading to speculation that it’s easier for the central bank to cut the RRR to replace this funding. Of that, 1.5 trillion yuan matures this year.

“I think the most pessimistic period of funding conditions has passed,” said Zou Wang, investment director at Shanghai Anfang Private Fund Management.

Zou expects easing measures, including an RRR cut to cope with the debt issuance.

Market rates have peaked and all the “bad news” for the bond market, ranging from the government borrowing announcement to quarterly tax payments, has passed, said Su Jiangning, senior product manager at Shanghai Hesheng Assets Management Co.

Ming Ming, chief economist at Citic Securities, also expects a turn in monetary settings will lure investors back into long-term bonds.

(USD 1 = 7.3182 Chinese yuan renminbi)

(Reporting by Winni Zhou and Li Gu in Shanghai, Tom Westbrook in Singapore; Editing by Vidya Ranganathan and Simon Cameron-Moore)

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