Oil prices steady, on track for second straight week of losses

Nov 3 – Oil prices were little changed on Friday, heading for their second straight week of losses as the US central bank left the door open for possible future rate hikes and worries that the Middle East conflict would disrupt supply eased.

Brent crude futures rose 6 cents to USD 86.91 a barrel by 0010 GMT, while US West Texas Intermediate crude futures gained 12 cents, or 0.2%, to USD 82.58 a barrel.

Both benchmarks had gained more than USD 2 a barrel on Thursday. Brent was on track to fall about 4% in the week, while WTI looked set to close down 3.5%.

Geopolitical concerns remained in focus, as Israeli forces on Thursday encircled Gaza City – the Gaza Strip’s main city – in their assault on Hamas, the military said, but the Palestinian militant group resisted their drive with hit-and-run attacks from underground tunnels.

The White House said it was exploring a series of pauses in the Israel-Hamas conflict to help people safely exit Gaza and allow humanitarian aid to get in, but reiterated its opposition to a full ceasefire.

On the supply side, top oil exporter Saudi Arabia is expected to reconfirm an extension of its voluntary oil-output cut of 1 million barrels per day through December, analysts expect.

US oil rig count data is expected later in the day and will serve as an indicator of future production.

Meanwhile, the US Federal delivered a ‘dovish’ pause to its rate hikes on Wednesday, while the BoE delivered a ‘hawkish’ pause on Thursday.

(Reporting by Arathy Somasekhar in Houston; Editing by Lincoln Feast)

Peering past the policy peak

Nov 3 – A powerful rally in US and global stocks on Thursday, sparked by another slump in bond yields as investors cheer what they increasingly believe is the end of the global rate-hiking cycle, paves the way for a strong end to the week in Asia on Friday.

There is a strong current of optimism surging through global markets that rate hikes from the Federal Reserve, Bank of England, European Central Bank, and others are over.

If the Fed delivered a ‘dovish’ pause on Wednesday, the BoE delivered a ‘hawkish’ pause on Thursday. But the over-arching reaction across markets was the same – huge rallies in bonds, stocks, and risk assets.

Investors are now looking to when the easing cycles start and how far they go. Around 70 to 75 basis points of Fed easing next year is priced into the US curve, and almost 50 bps of expected rate cuts are reflected in the UK curve.

Fed Chair Jerome Powell and other policymakers around the world may insist that policy needs to remain restrictive and that rate cuts are simply not on the agenda, but markets have the bit between their teeth – the pivot is in place.

Bond yields slumped again on Thursday – the US 10-year yield is down around 40 basis points from its peak above 5% only a few days ago – the dollar fell. That’s music to emerging market ears.

Asian stocks jumped 1.7% for their best day since July. Given the strength of the rally on Wall Street and around the world later in the day, few would bet against another strong rise on Friday.

The S&P 500 chalked up its best day in six months, also boosted by strong corporate earnings and guidance – Apple reported forecast-beating quarterly sales and profit, although shares fell slightly in after-hours trade.

The three main Wall Street indexes are well on course to register their best week of the year, all eyeing weekly gains of around 5%.

Japan’s Nikkei followed Wednesday’s 2.4% leap with a 1.1% spike on Thursday. Although the yen rebounded a bit Thursday, it is still below 150 per dollar near last year’s 33-year low, and is languishing at its lowest level in over half a century on a real effective exchange rate basis.

Chinese markets, however, remain the outliers. Official and unofficial figures this week showed manufacturing sector activity unexpectedly shrank in October, dampening the optimism that had built up after the strong third-quarter GDP data.

If the Caixin non-manufacturing purchasing managers report on Friday signals a contraction in services – September’s 50.2 showed slender growth – Chinese stocks could buck the global trend and close lower on the day and the week.

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

– China, India services PMI (October)

– Australia manufacturing, services PMIs (October)

– Fed’s Barr, Barkin, Kashkari speak

(By Jamie McGeever; Editing by Josie Kao)

Dollar weakens as risk appetite rises on view Fed rate hikes are done

NEW YORK, Nov 2 – The dollar fell across the board on Thursday, as investors’ appetite for riskier currencies grew as they bet the Federal Reserve is done raising interest rates after holding them steady in the previous session.

The Fed left interest rates unchanged on Wednesday as policymakers struggled to determine whether financial conditions may be tight enough already to control inflation, or whether an economy that continues to outperform expectations may need still more restraint.

Investors, however, are increasingly convinced a peak in US interest rates has been reached, with Fed funds futures sticking with a sub-20% chance that rates will rise in December.

That view helped boost investors’ risk appetite on Thursday, helping lift equities and high-yielding assets such as commodity and emerging market currencies.

Brad Bechtel, global head of FX at Jefferies in New York, said the Fed is probably finished hiking rates, but he could see the rationale for tightening one more time given the still-resilient US economy.

“But at the same time, everyone is looking at a slowdown and inflation is going in the right direction,” Bechtel said. “We can kind of debate whether they would hike another 25 (basis points) or not. It doesn’t matter. The broader theme is that the Fed is pretty much near the peak.”

The dollar index, which measures the currency’s strength against a basket of six rivals, was 0.3% lower at 106.14.

“Markets were not pricing in any further tightening before yesterday so nothing changes there. But at the margin, a bit more conviction around the next move being a cut may be emerging,” Shaun Osborne, chief currency strategist at Scotia Bank, said in a note.

Sterling, meanwhile, rose after the Bank of England kept rates at a 15-year high and stressed that it did not expect to start cutting them any time soon.

The pound rose as much as 0.6% against the dollar to USD 1.2225, its highest level in 1-1/2 weeks after the BoE voted 6-3 to hold rates steady at 5.25%, while ruling out rate cuts anytime soon. Sterling was last up 0.4% at USD 1.2201.

The Australian dollar, often used as a proxy for risk appetite, jumped 0.54% on Thursday, while the New Zealand dollar rose 0.8%.

Norway’s central bank also left its benchmark rate unchanged, as widely expected, but said it would likely raise borrowing costs next month unless inflation showed a continued decline.

The dollar was 0.2% lower against the Norwegian crown to 11.16.

Against the yen, the dollar fell 0.3% to 150.44, off a one-year high touched earlier this week.

The yen has been struggling for traction, even as the Bank of Japan on Tuesday made another relaxation of its yield curve control policy.

A fall to a one-year low of 151.74 per dollar and 15-year low of 160.83 per euro after the BoJ’s announcement had traders on watch for possible intervention to prop up the currency.

Kazuo Ueda, the central bank’s governor, will continue to dismantle its ultra-loose monetary policy and look to exit the decade-long accommodative regime sometime next year, sources told Reuters.

Bitcoin, slipped 1.7% to USD 34,836, after hitting an 18-month high of USD 35,968 earlier in the session.

(Reporting by Gertrude Chavez-Dreyfuss and Saqib Iqbal Ahmed in New York and Samuel Indyk in London; Additional reporting by Danilo Masoni in Milan, Rae Wee in Singapore, and Stella Qiu in Sydney; Editing by Alexander Smith and Susan Fenton)

Gold gains as US dollar, yields slip; focus on jobs data

Nov 2 – Gold firmed on Thursday as the US dollar and Treasury yields retreated on raised bets that the Federal Reserve may be done raising interest rates, while investors awaited US non-farm payrolls data for further cues.

Spot gold was up 0.2% at USD 1,985.69 per ounce by 3 p.m. EDT (1900 GMT). US gold futures settled 0.3% higher at USD 1,993.50.

Helping bullion’s appeal, the dollar index slipped 0.7%, and benchmark US 10-year note yields fell to a near three-week low.

Gold is supported as there are signs of cracks in the US labor market, which probably signals the Fed is backing off completely from rate hikes, said Bob Haberkorn, senior market strategist at RJO Futures.

Data showed US weekly jobless claims rose moderately as the labor market continued to show few signs of a significant slowdown.

The Fed held rates steady on Wednesday as policymakers considered whether financial conditions may be sufficiently tight to control inflation.

The market now sees an 80% chance of another Fed pause in December, according to the CME FedWatch Tool.

Investors will also monitor the US non-farm payrolls report due on Friday for further cues on the US central bank’s policy path.

Higher interest rates raise the opportunity cost of holding bullion.

Gold rose over 7% in October and surpassed the key USD 2,000-per-ounce level last week on safe-haven demand amid growing unrest in the Middle East.

“Gold already prices in the geo-political risks. If the war expands, then prices would benefit more,” Haberkorn added.

Spot silver fell 0.9% to USD 22.77 per ounce, while platinum added 0.2% to USD 922.11.

Palladium gained 0.8% to USD 1,110.75 but was down nearly 40% for the year so far.

Shares of Johannesburg-based precious metals producer Sibanye Stillwater fell more than 3% after the company said it was considering further changes at its US palladium mines to adjust the operations to metal prices that have dropped faster than anticipated.

(Reporting by Anushree Mukherjee and Ashitha Shivaprasad in Bengaluru; Editing by Tasim Zahid and Shailesh Kuber)

China regulators probe liquidity stress that sent rates to record 50% – sources

SHANGHAI, Nov 2 – China’s financial regulators are investigating a month-end liquidity crunch that saw short-term money rates surge to as much as 50%, asking some institutions to explain why they borrowed at extremely high rates, three sources said.

The overnight rate for pledged repo – a short-term financing business – hit a record high of 50% on Oct 31, as a month-end scramble for cash and a flood of government bond sales caused stress in money markets.

The China Foreign Exchange Trade System (CFETS), a central bank affiliate that operates China’s interbank market, has asked institutions that settled trades on Tuesday at the 50% rate to submit explanations, according to two sources with direct knowledge.

“Anyone who borrowed money at very high rates needs to explain to regulators the decision-making and bidding process,” said another direct source.

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

Bank of Japan likely to lift inflation forecasts, debate yield control’s future

TOKYO, Oct 31 – The Bank of Japan will likely revise up its inflation forecasts and discuss further tweaks to its bond yield control at its policy meeting on Tuesday, amid growing expectations the days of the controversial monetary tool are numbered.

The Japanese yen climbed to a two-week peak against the dollar after the Nikkei newspaper reported on Monday that the BOJ would consider making adjustments to its yield curve control (YCC) at the two-day meeting ending on Tuesday.

One of the ideas the BOJ will consider at its meeting is to allow the 10-year Japanese government bond (JGB) yield to rise above a 1% cap by revising its current guidance to conduct unlimited bond buying operations to defend that level, the Nikkei said.

“The BOJ will probably explain any such move as a technical adjustment instead of a big policy shift,” said Toru Suehiro, an economist at Daiwa Securities.

“JGB yields are already moving quite freely. Having them move even more freely won’t lead to a big change in markets.”

The BOJ sets a target of around 0% for the 10-year yield under YCC. Under criticism that its heavy defence of the cap is causing market distortions and an unwelcome yen fall, it raised its de-facto ceiling for the yield to 1.0% from 0.5% in July.

Since then, rising global bond yields and persistent inflation have put the BOJ in a tight spot with the 10-year JGB yield threatening to breach the 1% cap.

Sources told Reuters last week the BOJ could debate further tweaks to YCC at the Oct. 30-31 meeting to relax its grip on the 10-year yield.

Any such move would underpin the yen ahead of the U.S. Federal Reserve’s expected decision to keep interest rates steady at its rate review on Wednesday.

The BOJ is widely expected to maintain the 0% target for the 10-year yield and that for short-term rates at -0.1%.

In fresh quarterly forecasts due after the meeting, the BOJ is likely to revise up its projections to forecast inflation hitting or exceeding its 2% target this year and next.

But the bank is seen projecting slower inflation in 2025, reflecting weaker growth and uncertainty over next year’s wage negotiations in Japan.

Japan remains a dovish outlier among global central banks that have mostly hiked rates aggressively in recent years to combat rampant inflation.

By allowing yields to rise more, the BOJ reduces the need to ramp up bond buying and load up its already big balance sheet.

But loosening its control on Japanese yields now could heighten already increasing expectations of a near-term exit, triggering market volatility.

Despite repeated assurances by BOJ Governor Kazuo Ueda that ultra-low interest rates will stay, markets are already predicting a policy shift early next year.

Nearly two-thirds of economists polled by Reuters expect the BOJ to end negative rates next year.

Inflation has stayed above the BOJ’s 2% target for the 18th straight month in September. Surveys have shown heightening inflation expectations, which lower the real cost of borrowing.

Markets are focusing on Ueda’s post-meeting briefing for clues on how soon the BOJ could embark on a full-fledged exit.

(Reporting by Leika Kihara. Editing by Sam Holmes)

Yield curve control morphs

Japan’s yield cap has evolved into a reference rate, with the Bank of Japan redefining its 1% limit on 10-year government bond yields as an “upper bound” rather than a rigid target.

It will keep buying bonds, but time will tell whether and how tenaciously it will impede yields rising beyond 1%. The move was foreshadowed in the Nikkei newspaper and having bought the rumour, markets sold the fact.

The yen slipped back to 150 per dollar. After touching an almost 10-year low in morning trade, Japanese government bond futures 2JGBv1 rallied following the announcement. The Nikkei bounced 0.5%.

For now, investors seem to think that U.S. interest rates and the dollar will stay in the driver’s seat – leaving the yen to languish at an effective rate that is its lowest on record.

In the longer run, higher Japanese rates might encourage investors in the world’s biggest creditor nation to keep their money at home, instead of buying so many offshore assets. That could finally trigger some gains for the battered yen.

For the meantime the sense that some sort of anchor remains also spread some cheer to Treasury trade, sparking a brief rally.

Bond market focus now shifts to the US, where the Federal Reserve meets and the Treasury lays out its bond-selling plans.

On Monday the US Treasury Department said it expects to borrow USD 776 billion in the fourth quarter, USD 76 billion less than it had anticipated in July. Its detailed refunding plans are due on Wednesday, as is the Fed’s policy decision.

In Europe, GDP and inflation data is due later on Tuesday.

Around the grounds in Asia, an unexpected contraction in Chinese manufacturing activity dented hope that China’s economy had bottomed and that a recovery, however fragile, was underway.

Falls in Hong Kong and Shanghai led MSCI’s broadest index of Asia-Pacific shares outside Japan 0.9% lower.

Samsung Electronics announced its best quarterly profit of the year and an executive said the chip industry had reached bottom. Shares were steady.

In Australia, Origin Energy’s largest shareholder spurned a takeover bid from a Brookfield consortium, and Treasury Wine Estates TWE.AX agreed a USD 900 million buyout of US rival DAOU Vineyards, adding exposure to a market it has long struggled to dominate.

Meanwhile, outside of markets, Hamas said its militants fired anti-tank missiles at Israel’s invading forces in Gaza early on Tuesday as the conflict intensified.

(Tom Westbrook)

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)

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