All eyes on US employment report to set the tone

Jan 4 – Asian markets must wait over the weekend to trade on US December employment data, the first globally significant economic release of 2024 that comes out after they close on Friday.

But if subdued US trade on Thursday is any indication, investors will be content to keep their powder dry Friday. Wall Street tried to steady from its two-day selloff and the Dow eked out a gain for the second time this week. But there was no obvious inclination to resume the late 2023 buying spree, while Treasuries leaned toward risk-off, though not enough to hump benchmark yields decisively back over 4.0%.

That underpinned the dollar, especially against the yen which also had a Nikkei selloff, an earthquake, and a deadly aircraft collision to reckon with on its first day back from a holiday break.

Against the yen, the greenback rose to two-week peaks, climbing for three straight days. The dollar was last up 0.9% at 144.52 yen.

It rose against the Chinese yuan to 7.1776, reaching the highest price since December 13 in US trade. The Australian dollar fell to its lowest price since December 18.

Thursday’s ADP National Employment report showed US private employers hired more workers than expected in December. Other reports showed the labor market cooling. The question for financial markets is whether Friday’s nonfarm payrolls release solidifies current futures betting on five or more rate cuts by the Fed, starting in March.

The yield on 10-year Treasury notes was up 8.8 basis points to 3.995%. Its yield, which moves in the opposite direction of prices, briefly traded above 4% Wednesday, but has not maintained that level since falling below 4% in mid-December. Yields of the benchmark 10-year are up about 15 basis points over the first three trading days of the new year.

“The market is ahead of itself and is not listening to what the Fed is saying,” said Judith Raneri, a portfolio manager at Gabelli Funds.

The yield on 10-year Treasury note was up 8.8 basis points at 3.995%. It has taken a couple halfhearted runs at clearing 4% this week but has not maintained that level since falling below it in mid-December.

What that means today for JGBs and other Asian government debt is not glaringly obvious but Japanese yields did tick higher on Thursday in a catch up with Treasuries after the extended market holiday.

In related news, Citigroup said it aimed to launch its China investment banking unit as early as the end of this year, with about 30 staff.

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

– Japan consumer confidence (December)

– US Nonfarm Payrolls and Unemployment(December)

(Reporting by Alden Bentley, additional reporting by David Randall)

Yields march higher following better-than-expected labor data

NEW YORK, Jan 4 – US Treasury yields extended gains on Thursday, with the benchmark 10-year yield hovering around 4%, as data suggesting the US labor market remains strong tempered expectations of an interest rate cut by the Federal Reserve at its March meeting.

Futures markets are now pricing in a 35% chance that the Fed will keep rates at their current range of 5.25% to 5.5%, up from a 13% chance a week ago, according to CME’s FedWatch Tool. Markets estimate a 60% chance of a 25-basis-point rate cut in March.

The number of Americans filing initial claims for unemployment benefits, known as jobless claims, fell more than expected to 202,000 last week, below consensus estimates of 216,000, according to the Labor Department. New state unemployment benefit claims rose by 12,000 last week to 218,000.

At the same time, US private employers hired more workers than expected in December, according to the ADP National Employment Report. Private payrolls increased by 164,000 jobs last month, the largest monthly increase since August.

“People are looking at the labor market data and starting to second-guess whether that is enough for the Fed to cut rates,” said Matthew Routh, a portfolio manager at Barrow Hanley Global Investors.

The yield on 10-year Treasury notes was up 8.6 basis points to 3.993%. Its yield, which moves in the opposite direction of prices, briefly traded above 4% Wednesday, but has not maintained that level since falling below 4% in mid-December. Yields of the benchmark 10-year are up about 15 basis points over the first three trading days of the new year.

The yield on the 30-year Treasury bond was up 8.2 basis points at 4.139%. The two-year US Treasury yield, which typically moves in step with interest rate expectations, was up 6.7 basis points at 4.385%.

Minutes from the Fed’s December policy meeting released Wednesday showed a majority of policymakers see benchmark rates trimmed by at least three-quarters of a percentage point by the end of the year. Markets, meanwhile, are pricing in six rate cuts over the same time, totaling 140 basis points.

“The market is ahead of itself and is not listening to what the Fed is saying,” said Judith Raneri, a portfolio manager at Gabelli Funds. At the same time, increased corporate bond issuance will likely increase volatility in the fixed income market overall, she said.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at -39.9 basis points. It fell to a low of -43.2 on Wednesday.

January 4 Thursday 3:30 PM New York / 2030 GMT

	Price	Current Yield %	Net Change (bps)
Three-month bills	5.235	5.3928	-0.006
Six-month bills	5.055	5.274	-0.003
Two-year note	99-191/256	4.3845	0.067
Three-year note	100-158/256	4.1492	0.079
Five-year note	99	3.9729	0.081
Seven-year note	98-132/256	3.9955	0.084
10-year note	104-24/256	3.9931	0.086
20-year bond	106	4.2974	0.085
30-year bond	110-108/256	4.1385	0.082

(Reporting by David Randall; editing by Jonathan Oatis)

Gold gets a breather as US payrolls loom; palladium slips

Jan 4 – Gold held steady on Thursday after four sessions of decline as investors braced for the US non-farm payrolls data that could influence the Federal Reserve’s interest-rate path, while palladium prices slipped on a dim long-term demand outlook.

Spot gold edged up 0.2%, to USD 2,044.39 per ounce by 2:50 p.m. ET (1950 GMT), a day after hitting its lowest since Dec. 21. US gold futures settled up 0.4%, at USD 2,050.00.

“The gold market bulls need a fresh new spark to jump-start a price rally,” said Jim Wyckoff, senior analyst at Kitco Metals.

“(But) if the jobs data comes in stronger, that will put some pressure on prices and probably dial back (market) expectations for Fed interest rate cuts.”

The US non-farm payrolls report is due on Friday.

Data on Thursday showed that US weekly jobless claims fell more than expected last week and US private employers hired more workers than expected in December, pointing to persistent strength in the labor market.

Traders are pricing in about a 65% chance of a rate cut from the Fed in its March policy meeting, according to the CME FedWatch tool.

Lower interest rates decrease the opportunity cost of holding non-yielding bullion.

The minutes of the Fed’s last meeting, released on Wednesday, revealed a growing conviction among officials that inflation was under control and a concern that “overly restrictive” monetary policy posed threats to the economy.

“With the Fed implementing several rate cuts this year, this should bring back financial investors via ETF and bar demand and lift the price of gold to USD 2,250 per ounce by the end of the year,” said UBS analyst Giovanni Staunovo.

Silver rose 0.2% to USD 23.00 per ounce, after hitting a three-week low earlier, while platinum was down 1.7%, at a two-week low of USD 954.28.

Palladium fell about 3% to USD 1,035.49, extending its losing streak for the eighth session as concerns that the growing popularity of electric vehicles would destroy
long-term demand unraveled some of the December gains that followed the UK’s expansion of sanctions against Russian-origin metal.

(Reporting by Sherin Elizabeth Varghese and Hissay Bhutia in Bengaluru, additional reporting by Deep Vakil in Bengaluru; Editing by Andrea Ricci, Sriraj Kalluvila, and Pooja Desai)

Gold rises as dollar slips; focus on jobs data for Fed cues

Jan 4 – Gold prices rose on Thursday as the dollar edged lower, while investors looked out for more U.S. jobs data to gauge the Federal Reserve’s next steps on its monetary policy.

Spot gold was up 0.3% at USD 2,047.19 per ounce, as of 0659 GMT, after hitting its lowest since Dec. 21 on Wednesday. US gold futures rose 0.6% to USD 2,054.50 per ounce.

The dollar index ticked down by 0.1%, making gold more attractive for other currency holders.

“The fundamental thing to reasonably support gold is the US economy that is likely to slow down this year and rate cuts that are likely to arrive,” said Kyle Rodda, a financial market analyst at Capital.com.

However, waning expectations of early interest rate cuts this year are putting downward pressure on gold prices and it would be the case over the next few days as well, said Rodda.

Futures markets see a 72% chance that the Fed could begin cutting rates in March, compared with a 90% chance a week ago, according to CME’s FedWatch Tool.

Minutes of the Fed’s Dec. 12-13 meeting released on Wednesday showed officials were convinced inflation was coming under control but also noted an elevated degree of uncertainty about the rate cut outlook.

Lower rates decrease the opportunity cost of holding non-yielding bullion.

US manufacturing contracted further in December, though the pace of decline slowed, while job openings fell for a third straight month in November, pointing to easing labour market conditions.

Investors now await the weekly jobless claims data due at 1330 GMT and the non-farm payrolls report on Friday for further clarity on how much room the Fed has to lower rates.

Spot silver rose 0.2% to USD 23.01 per ounce, while platinum slipped 0.4% to USD 967.01. Palladium fell 0.1% to USD 1,065.30.

(Reporting by Harshit Verma in Bengaluru; Editing by Mrigank Dhaniwala and Rashmi Aich)

Oil extends gains on Middle East supply worries

SINGAPORE, Jan 4 – Oil prices rose on Thursday, adding to solid gains in the previous session on persisting concerns over Middle Eastern supply following disruptions at a field in Libya and heightened tensions around Israel-Gaza war.

Brent crude rose 53 cents, or 0.7%, to USD 78.78 a barrel by 0730 GMT, while US West Texas Intermediate crude futures rose 66 cents, or 0.9%, to USD 73.36.

Both benchmarks rose by around 3% to settle higher for the for the first time in five days on Wednesday, with WTI seeing the biggest daily percentage gain since mid-November.

“A confluence of headlines around further tensions in the Red Sea and a full shutdown of Libya’s Sharara oilfield from local protests have renewed concerns about global oil supply disruptions,” said Yeap Jun Rong, market strategist at IG.

On Wednesday, local protests forced a full shutdown of production at Libya’s Sharara oilfield, which can produce up to 300,000 barrels per day. The field, one of Libya’s largest, has been a frequent target for local and broader political protests.

Earlier on Tuesday, Hamas’ deputy leader was killed in a strike in Beirut – the first strike to hit the Lebanese capital in almost three months of near daily fire between the Israeli military and Iran-backed Hezbollah that had been confined to the border region.

Shipping concerns in the Red Sea lingered after Yemen’s Iran-backed Houthis said on Wednesday they had “targeted” a container ship bound for Israel. U.S. Central Command said the militant group had fired two anti-ship ballistic missiles in the southern Red Sea the previous day.

The market was also supported by data from the American Petroleum Institute, showing U.S. crude stocks fell by 7.4 million barrels in the week ended Dec. 29, which was double the drawdown that analysts polled by Reuters had expected.

Weekly data from the Energy Information Administration, the statistical arm of the U.S. Department of Energy, is due at 11:00 a.m. (1600 GMT) on Thursday, delayed by a day due to the New Year’s holiday on Monday.

Meanwhile, the Organization of the Petroleum Exporting Countries (OPEC) said on Wednesday that cooperation and dialogue within the wider OPEC+ producer alliance will continue, after OPEC member Angola said it would leave the bloc last month.

A meeting of the group has been announced for Feb. 1 to review implementation of its latest oil output cut.

Analysts at Goldman Sachs expect Brent to range between USD 70 and USD 90 a barrel in 2024 based on flexible OPEC+ supply, a low risk of recession, and opportunistic strategic petroleum reserve purchases by China and the U.S.

Geopolitical risk scenarios will remain a key upside risk to the forecast, the analysts added in a Jan. 3 client note.

(Reporting by Andrew Hayley in Beijing and Jeslyn Lerh in Singapore; Editing by Sonali Paul and Michael Perry)

Oil settles lower on massive US fuel inventory builds

Jan 4 – Oil settled lower on Thursday in a choppy see-saw session, as massive weekly gasoline and distillate stock builds overshadowed a larger-than-expected crude stock draw.

Brent crude settled down 66 cents, or 0.8%, to USD 77.59. During the session it both rose and fell over USD 1. US West Texas Intermediate crude futures settled down 51 cents, or 0.7%, to USD 72.19.

Low fuel demand and large inventory increases in data from the US Energy Information Administration weighed on prices.

Gasoline stocks rose by 10.9 million barrels to 237 million barrels, their highest week-on-week rise in more than 30 years.

Distillate stocks rose last week by 10.1 million barrels to 125.9 million barrels. Distillate product supplied, a proxy for demand, fell to its lowest level since 1999, EIA data showed.

“The key Northeast region is still indicating relatively mild temperatures well into the 3rd week of this month in likely limiting diesel gains,” said Jim Ritterbusch, president of Ritterbusch and Associates LLC in Galena, Illinois.

While crude inventories drew by 5.5 million barrels in the week, EIA data showed, much of that reflects shipping disruptions in the Red Sea, said Bob Yawger, director of energy futures at Mizuho.

“The situation in the Red Sea has forced a lot of refiners and buyers of crude oil to go to the United States rather than sail their boat around the Horn of Africa,” Yawger said.

Shipping concerns lingered after Yemen’s Iran-backed Houthis on Wednesday said they had “targeted” a container ship bound for Israel. US Central Command said the militant group had fired two anti-ship ballistic missiles in the southern Red Sea the previous day.

Downbeat economic data sent prices lower earlier in the session. Eurozone business activity shrank in December. German inflation rose, possibly offering the European Central Bank an argument in favor of keeping interest rates steady for some time.

Both oil benchmarks gained about 3% on Wednesday to settle higher for the first time in five days. Oil also found support from American Petroleum Institute data showing crude stocks fell by 7.4 million barrels, double the expected drawdown.

On Wednesday two explosions killed nearly 100 people and wounded scores at a ceremony in Iran to commemorate commander Qassem Soleimani, who was killed by a US drone in 2020. Iran has vowed revenge.

(Reporting by Laura Sanicola; Editing by Elaine Hardcastle and David Gregorio)

Gold steady as traders await jobs data for Fed cues

Jan 4 – Gold prices were little changed on Wednesday as higher US dollar and bond yields kept a lid on bullion’s upside while investors looked out for more jobs data to gauge the Federal Reserve’s next steps on monetary policy.

FUNDAMENTALS

* Spot gold was up 0.1% at USD 2,042.35 per ounce, as of 0200 GMT, after hitting a two-week low in the previous session. US gold futures rose 0.3% to USD 2,049.40 per ounce.

* Lowering gold’s appeal, the dollar index lingered near a three-week peak hit in the previous session, while yields on 10-year Treasury notes rose to 3.9255%.

* Minutes of the Dec. 12-Dec. 13 Fed meeting released on Wednesday showed officials were convinced inflation was coming under control and were concerned about the damage that “overly restrictive” monetary policy might do to the economy.

* However, the minutes noted an elevated degree of uncertainty about the outlook on rate cuts, with policymakers still seeing a need for rates to stay restrictive for some time.

* Lower interest rates decrease the opportunity cost of holding non-yielding bullion.

* Futures markets see a 72% chance that the Fed could begin cutting rates in March, compared with a 90% chance a week ago, according to CME’s FedWatch Tool.

* Data out on Wednesday showed US manufacturing contracted further in December, though the pace of decline slowed, while US job openings fell for the third straight month in November, pointing to easing labour market conditions.

* Investors now await the weekly jobless claims data due at 1330 GMT and the non-farm payrolls report on Friday for further clarity on how much room the Fed has to lower rates.

* Spot silver fell 0.2% to USD 22.92 per ounce, while platinum slipped 0.4% to USD 967.37. Palladium fell 0.2% to USD 1,064.81.

DATA/EVENTS (GMT)

0900 Eurozone HCOB Svcs Final PMI Dec

0930 UK Composite PMI Final Dec

1315 US ADP employment Dec

1330 US Initial Jobless Clm w/e Dec. 30

1445 US S&P Comp, Svcs PMI Dec

(Reporting by Harshit Verma in Bengaluru; Editing by Mrigank Dhaniwala)

Oil prices rise on Middle East supply worries

BEIJING, Jan 4 – Oil prices rose in early trade on Thursday, extending the previous day’s sharp gains on concerns about Middle Eastern supply following disruptions at a field in Libya and heightened tension around the Israel-Gaza war.

Brent crude rose 33 cents, or 0.42%, to USD 78.58 a barrel by 0101 GMT, while US West Texas Intermediate crude futures rose 40 cents, or 0.55%, to USD 73.10.

Both benchmarks rose by around 3% to settle higher for the first time in five days on Wednesday, with WTI seeing the biggest daily percentage gain since mid-November.

Also on Wednesday, nearly 100 people were killed in blasts at an event to commemorate commander Qassem Soleimani who was killed by a US drone in 2020, as Iranian officials blamed unspecified “terrorists” and vowed revenge.

However, no group has yet taken responsibility for the attack. The US has seen no indication Israel was behind the blasts, White House national security spokesperson John Kirby said.

Swirling regional tensions from the ongoing Israel-Hamas war also continue to support oil prices.

On Tuesday, Hamas’ deputy leader was killed in a strike in Beirut – the first strike to hit the Lebanese capital in almost three months of near-daily fire between the Israeli military and Iran-backed Hezbollah that had been confined to the border region.

Shipping concerns in the Red Sea also remained after Yemen’s Iran-backed Houthis said on Wednesday they had “targeted” a container ship bound for Israel. US Central Command said the militant group had fired two anti-ship ballistic missiles in the southern Red Sea the previous day.

The market was also supported by data from the American Petroleum Institute showing US crude stocks fell by 7.4 million barrels in the week ended Dec. 29, which was double the drawdown that analysts polled by Reuters had expected.

However, gasoline inventories rose about 6.9 million barrels, against forecasts for a 200,000-barrel drop, and distillate stockpiles rose more than expected.

Weekly data from the Energy Information Administration, the statistical arm of the US Department of Energy, is due at 11:00 a.m. (1600 GMT) on Thursday, delayed by a day due to the New Year’s holiday on Monday.

In other oil news, the Organization of the Petroleum Exporting Countries (OPEC) said on Wednesday that cooperation and dialogue within the wider OPEC+ producer alliance will continue, after OPEC member Angola said it would leave the bloc last month.

A meeting of the group has been announced for Feb. 1 to review the implementation of its latest oil output cut.

(Reporting by Andrew Hayley; Editing by Sonali Paul)

Dollar rebounds as traders rethink Fed rate cut expectations

SINGAPORE, Jan 4 – The dollar edged higher on Thursday as investors reassessed their expectations of the scale of rate cuts by the Federal Reserve this year, with an air of caution hanging over markets after an impressive risk rally last month.

The greenback was on the front foot in early deals in Asia, as trading returned to full swing with Japan back from an extended New Year break.

Against the yen, the dollar stood near a two-week peak and last bought 143.09 yen, having jumped more than 0.9% against the Japanese currency in the previous session, its best day since October.

The Australian dollar, often used as a proxy for risk appetite, languished near Wednesday’s two-week low of USD 0.6703 and last bought USD 0.6734.

The risk-sensitive New Zealand dollar similarly changed hands at USD 0.6249, near its weakest level in two weeks.

Minutes of the Fed’s December policy meeting released on Wednesday showed officials were convinced that inflation was coming under control and were concerned about the risks of the central bank’s “overly restrictive” monetary policy on the economy.

However, there were no clear-cut clues on when the Fed could begin easing rates, with policymakers still seeing a need for rates to stay restrictive for some time.

“The messaging that rates will stay elevated raises a second look at the aggressive cut expectations markets are pricing,” said Christopher Wong, a currency strategist at OCBC.

“Global growth concerns, risk-off sentiment in US equities and markets partially unwinding some of their aggressive bets on Fed cuts are some of (the) factors driving the U.S dollar rebound so far.”

Against a basket of currencies, the greenback rose 0.06% to 102.46, flirting with a three-week peak of 102.73 hit in the previous session.

The euro eased 0.02% to USD 1.0921, while sterling edged 0.05% higher to USD 1.2669 but remained pinned near its recent three-week low.

Separate data out on Wednesday showed US manufacturing contracted further in December, though the pace of decline slowed, while US job openings fell for the third straight month in November, pointing to easing labor market conditions.

Recent data pointing to a cooling US economy have continued to underpin bets of Fed rate cuts this year as inflation comes under control.

However, rising expectations of a soft-landing scenario in the world’s largest economy have left traders divided over the pace and scale of easing from the US central bank.

Market pricing now shows a roughly 72% chance that the Fed could begin cutting rates in March, compared with a 90% chance a week ago, according to the CME FedWatch tool.

The closely-watched US nonfarm payrolls report is due on Friday, which will likely give further clarity on how much room the Fed has to lower rates.

In geopolitics, Hezbollah in Lebanon and the Israeli army made statements suggesting the two avowed enemies wanted to avoid risking the further spread of war beyond the Gaza Strip, after a drone strike killed a Palestinian Hamas deputy leader in Beirut.

(Reporting by Rae Wee; Editing by Shri Navaratnam)

Risk rally hits reality check

The risk rally that has been raging since the Federal Reserve’s dovish tilt in December is pausing for breath as 2024 awakes markets to the prospect the central bank’s interest rate cuts may not be as aggressive as investors expected.

Markets had been pricing in as much as 160 basis points of cuts in 2024, double than what Fed projected, but the New Year has led traders to reassess their outlook, with markets now pricing in less than 150.

That reassessment might end up being temporary and traders may go back to expecting deep rate cuts. However, if risky assets’ early stumbles this year are anything to go by we could be in for some surprises.

The economic calendar is filling up. Minutes from the Fed’s last meeting are due later on Wednesday and will help traders gauge the central bank’s thinking around monetary easing as a slew of labor data this week.

Asian shares extended a global sell-off on Wednesday, with the MSCI’s broadest index of Asia-Pacific shares outside Japan down 1.3% on the day after a near 1% drop on Tuesday, its steepest two-day percentage decline since October.

The dollar, on the other hand, remained buoyant, lifted by rising Treasury yields, keeping pressure on the Japanese yen and the euro. Bitcoin shrugged off the cautious mood and was 0.6% higher at USD 45,255, not far from a 21-month top of USD 45,922 hit on Tuesday.

Futures suggest the dark mood will carry on into Europe with a lower open expected.

In corporate news, the EV battle continues to heat up with China’s BYD claiming the spot as top EV maker, dislodging Tesla TSLA.O even though the US automaker delivered a record number of vehicles in the fourth quarter.

Tesla delivered 494,989 EVs in the October-to-December period, falling short of the 526,409 vehicles that Warren Buffett-backed BYD moved.

(Ankur Banerjee)

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