S&P 500 ekes out slim gain as investors weigh elevated yields

Sept 27 – The S&P 500 eked out a fractional gain on Wednesday after a see-saw session, as investors weighed whether to start bargain hunting following a sell-off fueled by elevated Treasury yields and uncertainty about the path ahead for interest rates.

Investors were also attuned to developments in Washington as divisions among US lawmakers put the federal government at risk of a partial shutdown by the weekend.

A possible shutdown has added to worries for stock investors as they grapple with benchmark Treasury yields that have climbed to 16-year highs after the Federal Reserve last week signaled a hawkish long-term path for interest rates.

At the same time, as the S&P 500 has sharply pared its year-to-date gain, some investors are wondering if the market is close to a bottom.

“At some point, people will start to buy stocks for the fourth quarter, and the third-quarter selling might be almost done,” said Peter Tuz, president of Chase Investment Counsel.

“At a certain level, people are going to get back in thinking the fourth quarter might be a pretty good one.”

The Dow Jones Industrial Average fell 68.61 points, or 0.2%, to 33,550.27, the S&P 500 gained 0.98 points, or 0.02%, at 4,274.51 and the Nasdaq Composite rose 29.24 points, or 0.22%, to 13,092.85.

During the session, the S&P 500 rose as much as 0.4% and fell as much as 0.8% before paring losses.

Among S&P 500 sectors, the rate-sensitive utilities group fell most, dropping 1.9%. Energy rose 2.5%, as Brent crude breached USD 97 a barrel, with the jump in oil prices posing a renewed threat to inflation that has been moderating.

The S&P 500 has fallen about 7% since late July, but remains up over 11% for 2023.

“Investors are looking for a turning point,” said Art Hogan, chief market strategist at B. Riley Wealth. “Clearly, it is not going to take much of a breath of fresh air in this market for people to chase this.”

In Washington, Republican US House Speaker Kevin McCarthy rejected a stopgap funding bill advancing in the Senate, bringing the government closer to its fourth partial shutdown in a decade.

Data on Wednesday showed orders for long-lasting US manufactured goods rose in August while business spending on equipment appeared to regain momentum after faltering early in the third quarter.

Investors are focusing on Friday’s monthly personal consumption expenditures price index for a fresh view of inflation. This week also brings second-quarter Gross Domestic Product and remarks from Federal Reserve Chair Jerome Powell.

In company news, Costco Wholesale (COST) shares rose 1.9% after the retailer topped market estimates for quarterly revenue and profit.

Declining issues were roughly split with advancers on the NYSE. There were 56 new highs and 440 new lows on the NYSE.

On the Nasdaq, advancing issues outnumbered decliners by a 1.1-to-1 ratio. The Nasdaq recorded 35 new highs and 333 new lows.

About 10.9 billion shares changed hands in US exchanges, compared with the 10.2 billion daily average over the last 20 sessions.

(Reporting by Lewis Krauskopf, Sinead Carew and Herbert Lash in New York, Ankika Biswas, Shashwat Chauhan and Amruta Khandekar in Bengaluru; Editing by Maju Samuel and Richard Chang)

Gold hastens retreat on higher-for-longer rate bets

Sept 27 – Gold extended declines for the third straight session on Wednesday as appeal for non-yielding bullion took a hit from bets that the Federal Reserve may keep interest rates elevated, while traders hoped for more cues from US inflation numbers this week.

Spot gold dropped 1.4% to USD 1,874.34 per ounce by 1:47 p.m. EDT (1747 GMT), its lowest in over six months. US gold futures settled 1.5% lower at USD 1,890.90.

The prospects of higher-for-longer US rates sent investors scurrying to the safety of the dollar instead, making gold more expensive for overseas buyers.

Further hammering appetite for zero-yield gold, Treasury yields also remained near 16-year highs.

“As long as the narrative remains higher-for-longer, it’s going to continue pressuring precious metals, ” said Ryan McKay, commodity strategist at TD Securities.

“If the (inflation) data continues to come in stronger, that will be another thing that continues to weigh on gold.”

The US personal consumption expenditures (PCE) index, the Fed’s preferred inflation measure, is due on Friday.

However, “If the inflation number falls, we could see some support coming to gold and the expectation of tightening monetary policy could dampen a bit,” said ANZ analyst Soni Kumari.

A “soft landing” for the US economy is more likely than not, Minneapolis Fed President Neel Kashkari said on Tuesday, but there’s also a 40% chance that the Fed will need to raise rates “meaningfully” to beat inflation.

On the flip side, gold continued to find some support from robust physical demand, especially from central banks and in China, although “the near-term dynamics are certainly the Fed,” TD’s McKay said.

Silver was 1.7% lower at USD 22.47 per ounce, a two-week low. Platinum fell about 2.2% to USD 883.94 and palladium was down 0.3% at USD 1,219.48.

(Reporting by Arpan Varghese, Anjana Anil, Deep Vakil in Bengaluru; Editing by Maju Samuel)

Oil climbs 3% as steep US crude stocks draw adds to supply concerns

HOUSTON, Sept 27 – Oil prices surged 3% on Wednesday to the highest settlement in 2023, after a steep drop in US crude stocks compounded worries about tight global supplies.

Brent crude futures closed up USD 2.59, or 2.8%, at USD 96.55. It breached USD 97 a barrel during the session.

US West Texas Intermediate crude futures (WTI) climbed USD 3.29, or 3.6%, to USD 93.68. The session high was over USD 94.

US crude stocks fell by 2.2 million barrels last week to 416.3 million barrels, government data showed, far exceeding the 320,000-barrel drop analysts expected in a Reuters poll.

Crude stocks at the Cushing, Oklahoma, storage hub, delivery point for US crude futures, fell by 943,000 barrels in the week to just under 22 million barrels, the lowest since July 2022, data showed.

“The market is being led up by storage numbers as we are getting to the minimum operational inventories at Cushing,” said Andrew Lipow, president of Lipow Oil Associates.

Stockpiles at Cushing have been falling closer to historic low levels due to strong refining and export demand, prompting concerns about the quality of the remaining oil at the hub and whether it will fall below minimum operating levels.

Prices fell last week but were rallying again as markets worried about tight supplies heading into winter, following production cuts of 1.3 million barrels a day to the end of the year by Saudi Arabia and Russia of the Organization of the Petroleum Exporting Countries and allies known as OPEC+.

“Until a decision to raise production is made, the global energy market will remain tight,” Ole Hansen, Head of Commodity Strategy at Saxo Bank, said.

The tight supply was reflected in time spreads with front month Brent futures trading at a 42.28 premium over the second month, its highest since October, while on WTI futures, the front month traded at a USD 2.43 premium to the second month, the highest since July 2022.

WTI’s discount to Brent also hit its narrowest since late April.

“The market is overbought and a correction is definitely needed,” said Dennis Kissler, senior vice president of trading at BOK Financial.

Potentially adding to supply tightness, Russian President Vladimir Putin ordered his government to ensure retail fuel prices stabilize after a jump caused by an increase in exports.

In response, his deputy prime minister cited proposals to restrict exports of oil products purchased for domestic use.

The Federal Reserve Bank of Dallas released a survey showing oil and gas activity in three key energy producing US states has been rising with the latest jump in energy prices.

(Reporting by Paul Carsten in London, Arathy Somasekhar in Houston and Emily Chow in Singapore; Editing by Marguerita Choy, Barbara Lewis, and David Gregorio)

Back to regularly scheduled programming

Sept 27 – Normal service resumed.

Wall Street on Tuesday buckled under the weight of high and rising US bond yields, leading a steep decline in global stocks and risk appetite that looks certain to push Asian markets lower at the open on Wednesday.

A Bank of Thailand interest rate decision and the latest snapshots of Australian consumer price inflation and Chinese industrial profits are the highlights on the region’s economic and policy calendar.

Investor sentiment is weak and fragile.

The three major US equity indexes all lost more than 1% on Tuesday, with the Dow Jones Industrials posting its worst day since March and the S&P 500 and Nasdaq both on track for their biggest monthly losses this year of 5% and 7%, respectively.

The move in Treasuries was nowhere near as big as Monday’s. But another day of curve steepening, and 10-year nominal and real yields rising to new multi-year highs crushed stocks.

Volatility on Wall Street is finally picking up too, and at 19.0 the VIX ‘fear index’ of implied vol is closer to long-term averages. Only a couple of weeks ago it registered its lowest daily close since before the pandemic.

US bond market volatility – a key driver of global market stability and liquidity – had its biggest rise since early July. This will reverberate into Asian markets on Wednesday.

Investors in Asia will also note the significance of US crude oil’s rise on Tuesday after a few days of consolidation, not for the 1% rise in itself, but because it lifts the year-on-year price rise to almost 20%.

Bearing in mind that as recently as June oil was down 45% year-on-year, this is a remarkable turnaround and helps explain why longer-dated bond yields are rising so much.

In Asia on Wednesday, Thailand’s central bank is expected to leave its key policy rate unchanged at 2.25% and likely through 2024, marking an end to a year-long tightening cycle, although a minority of economists polled by Reuters still expect one final hike.

Despite inflation edging up slightly to 0.88% in August, it has been below the central bank’s 1% to 3% target range for four months in a row, suggesting the Bank of Thailand can stop hiking.

Add this to the US dollar’s global tear higher, the Thai baht has slumped to its weakest level since November. It is down almost 4% this month, on track for its second-biggest monthly fall in two years.

Meanwhile, there is still no sign of Japanese authorities intervening in the FX market to support the yen, which hit a new 11-month low closer to the 150 per dollar level.

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

– Bank of Thailand rate decision

– Australia consumer price inflation (August)

– China industrial profits (August)

(By Jamie McGeever; Editing by Josie Kao)

Wall Street pounded as investors grapple with higher rates

Sept 26 – Wall Street’s main indexes ended down over 1% on Tuesday as 10-year Treasury yields held their multi-year highs, with investors still wrestling with prospects for a long period of high interest rates and the economic fallout.

The Dow posted its biggest one-day percentage drop since March, while all three major averages ended at their lowest closing levels in well over three months.

Adding to investor anxiety was the potential of a partial US government shutdown by the weekend, which ratings agency Moody’s warned would harm the country’s credit.

Benchmark 10-year Treasury yields have climbed to 16-year highs in the wake of the Federal Reserve’s hawkish longer-term rate outlook last week.

“We continue to adjust to the higher interest rates,” said Brad McMillan, chief investment officer for Commonwealth Financial Network.

“What you are getting is increasingly a sense that the market is overvalued. … There’s a real sense out there that this isn’t sustainable, and buyers are being scared away.”

The Dow Jones Industrial Average fell 388.00 points, or 1.14%, to 33,618.88, the S&P 500 lost 63.91 points, or 1.47%, to 4,273.53 and the Nasdaq Composite dropped 207.71 points, or 1.57%, to 13,063.61.

All 11 S&P 500 sectors ended lower. The heavyweight tech sector dropped 1.8%, while the rate-sensitive utilities and real estate groups fell 3.05% and 1.8%, respectively.

The CBOE volatility index, known as Wall Street’s “fear gauge,” closed at its highest level since May 25.

Megacap stocks that have propelled indexes higher this year dragged on Tuesday.

Amazon.com (AMZN) shares dropped 4% as the US Federal Trade Commission filed a long-awaited antitrust lawsuit against the online retailer.

Investors are focused on Friday’s personal consumption expenditures price index for a fresh view of the inflation picture. This week also brings other data including on durable goods and second-quarter gross domestic product, as well as remarks by Fed policymakers such as Chair Jerome Powell.

In company news, Immunovant (IMVT) shares surged 97% after early-stage data from the drug developer’s experimental antibody treatment exceeded analysts’ expectations.

Declining issues outnumbered advancers by a 5.9-to-1 ratio on the NYSE. There were 37 new highs and 388 new lows on the NYSE.

On the Nasdaq, declining issues outnumbered advancers by a 2.1-to-1 ratio. The Nasdaq recorded 35 new highs and 390 new lows.

About 10.2 billion shares changed hands in US exchanges, in line with the daily average over the last 20 sessions.

(Reporting by Lewis Krauskopf in New York, Ankika Biswas and Shashwat Chauhan in Bengaluru; Editing by Maju Samuel and Richard Chang)

Gold retreats as dollar, yields rise on hawkish Fed

Sept 26 – Gold prices on Tuesday were set to fall for a second straight session as Treasury yields and the dollar rose on prospects of the Federal Reserve keeping interest rates higher for longer.

Spot gold slipped 0.7% to USD 1,901.49 per ounce by 1:43 p.m. EDT (1743 GMT), after hitting its lowest since Aug. 23, while US gold futures settled 0.9% lower at USD 1,919.80.

Inflation staying above the Fed’s 2% target remains a greater risk than tight central bank policy slowing the economy, Chicago Fed President Austan Goolsbee said on Monday.

“The market is not currently positioned for gold to behave as a safe haven yet. If there is a fear that the Fed is going to over-tighten and anticipation of significant deterioration in the economy, then it is good news for gold,” said Edward Moya, senior market analyst at OANDA.

Higher interest rates raise the opportunity cost of holding bullion, which is priced in dollars and does not yield interest. The dollar ticked up while the benchmark 10-year Treasury yields scaled a fresh 16-year peak.

Investors await the personal consumption expenditures (PCE) price index, the Fed’s preferred inflation gauge, due on Friday to gauge the Fed’s interest-rate path.

“If we get a hot report, then there will be further downward pressure on gold,” Moya added.

Reflecting investor interest in bullion, SPDR Gold Trust GLD, the world’s largest gold-backed exchange-traded fund, said its holdings fell on Monday to their lowest level since January 2020.

“The (gold) bears would be eying liquidity resting below recent lows at USD 1,900 and then at USD 1,885 next,” Fawad Razaqzada, market analyst at City Index, said in a note.

Silver dropped 0.8% to USD 22.92 per ounce. Platinum shed 0.8% of USD 903.63 and palladium slipped 0.5% to USD 1,223.11.

“Strong supply and weak industrial demand has pushed platinum prices down,” Bernstein analysts wrote in a note.

(Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Vinay Dwivedi, Richard Chang and Krishna Chandra Eluri)

China, Hong Kong stocks fall on economic worries, geopolitical tensions

SHANGHAI, Sept 26 – Chinese and Hong Kong stocks fell on Tuesday as lingering economic worries and geopolitical tensions weighed on sentiment, with thin trading seen ahead of China’s National Day holiday.

** China’s blue-chip CSI 300 Index ended the session down 0.6%, while the Shanghai Composite Index declined 0.4%. Hong Kong’s Hang Seng Index lost 0.9% to a 10-month closing low.

** Most sectors dropped in China. The banking sector slid 0.4% and the Defence Index lost 1.1%.

** The recent improvement in some economic activity indices has convinced many market participants that China’s economy has already bottomed out, but “we remain cautious,” Nomura said in a note.

** Many private developers in lower-tier cities are still being trapped, rise in prices of imported commodities and energy was not passed to downstream sectors, and “geopolitical tensions have not really improved, if they have not deteriorated,” Nomura added.

** US President Joe Biden’s administration on Monday imposed new trade restrictions on 11 Chinese and five Russian companies, accusing some of supplying components to make drones for Russia’s war effort in Ukraine.

** Latest development at China Evergrande and China Oceanwide Holdings 0715.HK reversed a brief early respite for the property sector, which accounts for roughly a quarter of China’s economy.

** An index tracking Hong Kong-listed mainland developers dropped 2.2%, as Country Garden and Longfor Group slumped 4.2% and 3.3%, respectively.

(Reporting by Shanghai Newsroom; Editing by Rashmi Aich and Varun H K)

Oil prices fall as economic outlook outweighs tight supply

LONDON, Sept 26 – Oil prices fell on Tuesday as a stronger US dollar compounded concerns that demand for fuel will be held back by major central banks holding interest rates higher for longer.

Brent crude futures were down USD 1.16, or 1.24%, at USD 92.13 a barrel at 0844 GMT, while US West Texas Intermediate crude futures were trading USD 1.13 lower, or 1.26%, at USD 88.55.

“Fears of an economic recession may again dominate the oil market’s movement due to surging U.S. bond yields following the Fed’s hawkish stance last week,” said Tina Teng, a market analyst at CMC Markets in Auckland.

The world’s top economic policymakers, the US Federal Reserve and the European Central Bank, have over recent days reiterated their commitment to fight inflation, signalling tight policy may persist longer than previously anticipated. Higher interest rates slow economic growth, which curbs oil demand.

Meanwhile, the US dollar hit a 10-month high on Tuesday, as higher bond yields attracted investors towards the greenback.

As the major currency used for oil pricing, a stronger dollar typically weighs on oil demand as it becomes more expensive for importers relative to their local currency.

Rating agency Moody’s said on Monday that a U.S. government shutdown would harm the country’s credit, a warning coming one month after Fitch downgraded the U.S. by one notch on the back of a debt ceiling crisis.

“The threat of US government shutdown and its potential impact on the country’s credit rating can also be a factor in oil finding it increasingly challenging to provoke the magical USD 100/bbl target,” said Tamas Varga, analyst at oil broker PVM.

But supply remains tight as Russia and Saudi Arabia have extended production cuts to the end of the year. “Oil supply is expected to underwhelm demand in the foreseeable future and therefore any weakness, even if it is achingly startling, should not last,” Varga added.

Oil prices have risen by around 30% since mid-year driven mostly by tighter supply, wiping off 0.5 percentage points from global GDP growth in the second half of this year, according to JP Morgan.

But the shock “is not large enough to threaten the expansion by itself”, JP Morgan added in a note.

(Reporting by Robert Harvey in London, Katya Golubkova in Tokyo and Andrew Hayley in Beijing; Editing by Sonali Paul and Kim Coghill)

UPDATE 9-Oil prices rebound, settle higher on worries about tight supply

Moody’s says government shutdown bad for U.S. credit

Russia lifts export ban on low-quality diesel, marine fuel

POLL-US crude, product inventories likely fell last week

API shows crude stocks rise, fuel stocks fall – market sources

Adds API data on U.S. crude stockpiles, paragraph 12

By Nicole Jao

NEW YORK, Sept 26 (Reuters) – Oil prices settled nearly 1% higher on Tuesday, rebounding from a slump to a two-week low in early trading as expectations of tighter supply outweighed worries that an uncertain economic outlook would crimp demand.

Brent crude LCOc1 futures settled 67 cents higher, or 0.7%, at $93.96 a barrel. U.S. West Texas Intermediate crude CLc1 futures settled 71 cents higher, or 0.8%, at $90.39.

On Monday, Russia softened its gasoline and diesel export ban. Exports of products already accepted by Russian Railways and Transneft can to go ahead, while higher-sulphur gasoil and fuel used for bunkering will be exempt from the ban.

But the ban on exports of high-quality diesel and gasoline remains in place.

Oil supply remains tight as Russia and Saudi Arabia have extended production cuts to the end of the year. “Oil supply is expected to underwhelm demand in the foreseeable future and therefore any weakness, even if it is achingly startling, should not last,” said Tamas Varga, an analyst at oil broker PVM.

The world’s top central banks, the U.S. Federal Reserve and the European Central Bank, have in recent days reiterated their commitment to fight inflation, signalling tight monetary policy may persist longer than previously anticipated. Higher interest rates slow economic growth, which curbs oil demand.

“Refined products remain under pressure as fears of higher oil prices for a longer period of time combined with higher interest rates for a longer period of time may depress demand,” said Andy Lipow, president of Lipow Oil Associates LLC.

Limiting gains, the U.S. dollar hit a 10-month high on Tuesday, as higher bond yields attracted investors towards the greenback.

As the major currency used for oil pricing, a stronger dollar typically weighs on oil demand as it becomes more expensive for importers relative to their local currency.

Rating agency Moody’s said on Monday that a U.S. government shutdown would harm the country’s credit, a warning coming one month after Fitch downgraded the United States by one notch on the back of a debt ceiling crisis.

“The threat of U.S. government shutdown and its potential impact on the country’s credit rating can also be a factor in oil finding it increasingly challenging to provoke the magical $100/bbl target,” Varga added.

Industry data released after settlement showed U.S. crude oil stockpiles rose last week by about 1.6 million barrels, according to market sources citing American Petroleum Institute figures. Analysts had expected a drop of 300,000 barrels. API/S U.S. government data on crude stockpiles is due on Wednesday.

Investors’ concerns about tightening supplies in the Cushing, Oklahoma storage hub also boosted prices during the session, said Price Futures Group analyst Phil Flynn.

Crude stockpiles at Cushing are at their lowest in 14 months due to strong refining and export demand, prompting concerns about the quality of the remaining oil and the potential to fall below minimum operating levels.

(Reporting by Nicole Jao in New York; additional reporting by Robert Harvey in London, Katya Golubkova in Tokyo and Andrew Hayley in Beijing; Editing by Sonali Paul, Kim Coghill, Emelia Sithole-Matarise, Paul Simao, Timothy Gardner and David Gregorio)

((Nicole.Jao@thomsonreuters.com))

Will Wall Street bounce trump latest yield surge?

Sept 26 – Asian markets on Tuesday might take heart from Wall Street’s impressive late show on Monday, but with the dollar and US Treasury yields continuing their relentless march higher, the bigger picture looks much more ominous.

Add to that another wave of turbulence to rock the Chinese property sector and the yen sliding closer to 150 per dollar with still no intervention from Japanese authorities, and caution will probably suppress whatever risk appetite investors have.

Global shares, as measured by the MSCI World Index, may only have dipped less than 0.2% on Monday but it marked the seventh decline in a row, the index’s worst run since late August-early September last year.

The MSCI Asia ex-Japan index also fell by a heftier 0.7%.

Wall Street’s three main indexes rose, however, and the S&P 500 and Nasdaq’s gains of 0.4% were particularly impressive given the latest leap in US bond yields to new multi-year highs.

The back end of the US yield curve is where the action is – the 10-year yield rose 10 basis points on Monday to 4.55%, the highest since 2007. As analysts at Deutsche Bank note, this is also historically significant territory – the 10-year yield’s average going back to 1799 is around 4.50%.

The 10-year inflation-adjusted ‘real’ US Treasury yield is also breaking new ground, climbing further above the 2% level. Analysts at Barclays point out that rising long-term US real rates, especially after a Fed policy meeting, put emerging market currencies under near blanket pressure.

This largely played out on Monday – China’s yuan slid back to a two-week low – and the dollar’s broad value against a basket of major currencies hit its highest since November.

The basic ingredients of a tightening in emerging market financial conditions are in place, and this is exactly what is underway. Goldman Sachs’ financial conditions indexes for China and emerging markets at large are the highest in almost a year.

In China, meanwhile, the property sector is back under the spotlight after shares of property developer Evergrande tumbled 21% on Monday on renewed uncertainty about the firm’s debt restructuring. The broader property sector index fell 2.5%.

Evergrande shares are virtually worthless, but the company is systemically important – it is the world’s most indebted developer and the property sector accounts for roughly a quarter of China’s economy.

Recent headlines surrounding China’s trade disputes with major trading partners like the US and European Union have been mostly negative, but there appears to be some progress in EU-China talks between EU trade commissioner Valdis Dombrovskis and officials in Beijing, even if they are only baby steps.

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

– Japan services PPI inflation (August)

– Singapore manufacturing output (August)

– Fed’s Neel Kashkari speaks

(By Jamie McGeever; Editing by Josie Kao)

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