Hedge funds boost bearish bets on US equities amid market jitters

NEW YORK, Sept 25 – Hedge funds increased their bearish bets mainly on US stocks last week when the major stock indexes plunged, Goldman Sachs (GS) showed in a report.

The bank said its clients mostly added short positions while also getting rid of long positions. Among sectors, consumer discretionary, industrials, and financials were the most net sold.

“Hedge funds have been pressing US shorts in five of the past six weeks, and this week’s notional short selling was the largest since Sept. 22,” Goldman Sachs’ prime brokerage team wrote.

Hedge funds added short positions mainly in so-called macro products, including equity index and exchange-traded funds, the bank said.

Since the beginning of the year, short flows in US stocks are up over 20%, another Goldman report showed.

Goldman Sachs, as one of the biggest providers of lending and trading services through its prime brokerage unit, is able to track hedge funds’ investment trends.

After a tumultuous week for stocks, as Treasury yields hit 16-year highs, all three major US stock indexes posted weekly losses, with the S&P 500 and the Nasdaq registering their largest Friday-to-Friday percentage drops since March.

Goldman Sachs also said hedge fund managers decided to unwind risk last week, mostly by selling long equity positions. “This week’s notional de-grossing activity in Japan – long and short combined – was the largest since Dec. 21,” the bank said.

The Bank of Japan maintained ultra-low interest rates on Friday and its pledge to keep supporting the economy until inflation sustainably hits its 2% target.

(Reporting by Carolina Mandl in New York; Editing by Richard Chang)

Wall Street posts gains as investors eye rate outlook

Sept 25 – Wall Street’s main indexes posted gains on Monday, with increases in Amazon.com shares and the energy sector, as Treasury yields rose further and investors looked to economic data and Federal Reserve policymakers’ remarks later in the week for clarity on the path for interest rates.

Investors are grappling with the rise in benchmark Treasury yields to 16-year highs after the Fed gave a hawkish longer-term rate outlook. The S&P 500 rebounded on Monday after last week it had its biggest weekly drop since March.

There is a “tug of war between investors seemingly getting more concerned about ‘higher for longer’ … and bulls wondering maybe we have seen the correction and we can start to build from these levels higher,” said Chuck Carlson, chief executive officer at Horizon Investment Services.

The Dow Jones Industrial Average rose 43.04 points, or 0.13%, to 34,006.88; the S&P 500 gained 17.38 points, or 0.40%, at 4,337.44; and the Nasdaq Composite added 59.51 points, or 0.45%, at 13,271.32.

Among S&P 500 sectors, energy led the way, rising 1.3%, while materials gained 0.8%. Defensive sectors lagged, with the consumer staples group dropping 0.4%.

With the end of the third quarter drawing near, investors said market moves may be relatively muted until companies report quarterly results in the coming weeks.

The S&P 500 has slid about 5.5% since late July but remains up about 13% for 2023.

“There is less urgency to aggressively buy pullbacks in a higher-for-longer world and that is what the market is going to have to deal with over the coming months,” said Angelo Kourkafas, senior investment strategist at Edward Jones.

Investors through the week will be monitoring data including on durable goods and the personal consumption expenditures price index for August, and second-quarter Gross Domestic Product, as well as remarks by Fed policymakers, including Chair Jerome Powell.

Chicago Fed President Austan Goolsbee said in an interview with CNBC on Monday that inflation staying above the Fed’s 2% target remains a greater risk than tight central bank policy slowing the economy more than needed.

In company news, Amazon.com (AMZN) shares rose 1.7% after the e-commerce giant said it will invest up to USD 4 billion in startup Anthropic to compete with growing cloud rivals in artificial intelligence.

Declining issues outnumbered advancers by a 1.2-to-1 ratio on the NYSE. There were 52 new highs and 341 new lows on the NYSE.

On the Nasdaq, declining issues outnumbered advancers by a 1.1-to-1 ratio. The Nasdaq recorded 45 new highs and 426 new lows.

About 9.1 billion shares changed hands in US exchanges, compared with the 10 billion daily average over the last 20 sessions.

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

US yields continue ascent on Fed rate outlook

NEW YORK, Sept 25 – US Treasury yields were mostly higher on Monday, with the benchmark 10-year Treasury yield adding to three straight weeks of gains on expectations the US Federal Reserve was likely to keep interest rates at higher levels for longer than initially anticipated.

Chicago Fed President Austan Goolsbee said on Monday that inflation remaining entrenched above the central bank’s 2% target remains a bigger risk than tight Fed policy slowing the economy more than needed.

The yield on 10-year Treasury notes was up 10 basis points to 4.542% after climbing to 4.533%, its highest since October 2007.

“What you are seeing over the past couple of months and that was kind of re-emphasized over the last week is that the market is getting used to the economic data and paying attention to the economic data and the thinking the economy can handle itself with rates currently where they are is starting to resonate,” said Jim Barnes, director of fixed income at Bryn Mawr Trust in Berwyn, Pennsylvania.

“The core rationale over the past couple of months has been pretty consistent in that the market continues to position itself for the ‘higher for longer’ type of environment.”

Goldman Sachs last week pushed out its expectations for a Fed rate cut from the second quarter of next year to the fourth quarter of 2024.

Expectations for another 25 basis point hike by the Fed at its November meeting lessened to 21.1%, down from 34.1% a week ago, according to CME’s FedWatch Tool.

The yield on the 30-year Treasury bond was up 13 basis points to 4.656%.

Economic data was light on Monday but investors will get a look at several data points on the housing market this week, along with the final reading of second-quarter gross domestic product and personal consumption expenditures.

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 a negative 59.1 basis points, its steepest in about four months.

“Essentially, the yield curve is going to start pricing in a recession, that is usually what happens when the yield curve steepens as much as it does,” said Tom di Galoma, co-head of global rates trading at BTIG in New York.

“You had the big inversion move, we’ve been inverted for a good 15 to 18 months, and now the curve is steepening out, and that is a bit because the long-end has just kind of given way to higher rates.”

More supply will come to the market this week when the Treasury auctions off USD 48 billion in two-year notes on Tuesday, USD 49 billion in five-year notes on Wednesday, and USD 37 billion in seven-year notes on Thursday.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, edged up 1 basis point to 5.131%.

The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.317%, after closing at 2.316% on Friday, its lowest close in about a week.

The 10-year TIPS breakeven rate was last at 2.371%, indicating the market sees inflation averaging 2.4% a year for the next decade.

(Reporting by Chuck Mikolajczak; Editing by Alison Williams and Richard Chang)

Gold subdued by Fed’s higher-for-longer interest rate stance

Sept 25 – Gold prices slipped on Monday as the dollar and US Treasury yields firmed on the Federal Reserve’s higher-for-longer stance on interest rates.

Spot gold was down 0.5% at USD 1,915.61 per ounce by 2:15 p.m. EDT (1815 GMT), while US gold futures settled 0.5% lower at USD 1,936.6.

“Slightly hawkish Fed and global central banks are currently suppressing gold,” said Everett Millman, chief market analyst at Gainesville Coins.

Millman forecast prices to trade between USD 1,910 and USD 1,950 for the rest of this quarter.

Fed officials warned on Friday of further rate hikes even after voting to hold the benchmark rate steady last week, with three policymakers saying they remain uncertain about whether the inflation battle is over.

Bullion tends to underperform when higher interest rates boost yields on rival safe havens like US bonds.

The dollar index was up 0.3%, while benchmark 10-year Treasury yields were near a 16-year peak.

“My baseline forecast is that gold will reach a new all-time high in 2024 if we see at least a mild recession in the global economy. If we get a recession, the Fed will be forced to cut rates sooner,” Millman added.

Market focus now shifts towards the personal consumption expenditures (PCE) price index, the Fed’s preferred inflation gauge, which is scheduled to be released on Sept. 29.

Mirroring investor sentiment, holdings in the SPDR Gold Trust GLD, the world’s largest gold-backed ETF, fell to their lowest level since Jan. 2020.

Spot silver fell 1.9% to USD 23.08 per ounce, platinum shed 1.4% to USD 912.99 and palladium dropped 1.5% to USD 1,230.73.

Lower Chinese palladium imports as a result of likely destocking could be a factor weighing on prices, alongside the ongoing substitution from palladium to platinum in auto catalysts, UBS wrote in a note.

(Reporting by Ashitha Shivaprasad and Harshit Verma in Bengaluru; Editing by Sharon Singleton and Shweta Agarwal)

Oil prices settle near flat in choppy trade; Russia eases fuel export ban

NEW YORK, Sept 25 – Oil prices settled nearly flat in choppy trade on Monday as Russia relaxed its fuel ban and investors eyed elevated interest rates that could curb demand.

Brent crude futures settled 2 cents higher at USD 93.29 a barrel.

US West Texas Intermediate crude settled 35 cents lower at USD 89.68.

Crude prices fell last week after a hawkish Federal Reserve rattled global financial markets and raised concerns that interest rates could stay higher for longer, crimping oil demand. That snapped a three-week rally of more than 10% after Saudi Arabia and Russia constrained supply by extending production cuts to the end of the year.

“The market may be still wrestling with the Fed keeping interest rates higher for a longer period of time, which can impact the demand side of the equation,” said Andrew Lipow, president of Lipow Oil Associates.

Russia approved changes to its fuel export ban, lifting restrictions for fuel used as bunkering for some vessels and diesel with high sulphur content, a government document showed on Monday.

The export ban on all types of gasoline and high-quality diesel, announced last Thursday, remained in place.

Last week, Moscow issued a temporary ban on gasoline and diesel exports to most countries to stabilize the domestic market, fanning concerns of low product supply as the Northern Hemisphere heads into winter.

Also weighing on oil prices, the US dollar index strengthened to its highest since November 2022. A stronger greenback makes US dollar-priced oil more expensive for holders of other currencies, curtailing demand.

“We seem to have risk-off sentiment because of strength in the dollar,” Price Futures Group analyst Phil Flynn said.

On the supply side, the number of operating oil rigs in the US fell by eight to 507 last week – the lowest count since February 2022 – despite higher prices, a weekly report from Baker Hughes showed on Friday.

Compounding supply constraints, US oil refiners are expected to have about 1.7 million barrels per day (bpd) of capacity offline for the week ending Sept. 29, decreasing available refining capacity by 324,000 bpd, research company IIR Energy said on Monday.

Offline capacity is expected to rise to 1.9 million bpd in the week ending Oct. 6, IIR added.

In Iran, an explosion was reported on Monday at Iran’s southern refinery of Bandar Abbas, according to the official IRNA news agency, following a gas leak.

Expectations of better economic data this week from China, the world’s largest crude importer, lifted sentiment. However, analysts flagged that oil prices face technical resistance at the November 2022 highs reached hit last week.

China’s manufacturing sector is expected to expand in September, with the purchasing manufacturing index forecast to rise above 50 for the first time since March, Goldman Sachs analysts said.

(Reporting by Stephanie Kelly and Nicole Jao in New York; additional reporting by Paul Carsten in London and Mohi Narayan and Florence Tan; Editing by Louise Heavens, David Goodman, Bernadette Baum, Paul Simao, and David Gregorio)

Fed-wary investors eye mounting risks to US stock rally

NEW YORK, Sept 22 – A hawkish stance from the Federal Reserve, soaring Treasury yields and a looming government shutdown are adding to a cocktail of risks that has spooked investors and clouded the outlook for US equities.

US stocks have slid more than 6% from their late July highs, and the past week has been particularly nerve-wracking for investors. The Fed projected it would leave interest rates at elevated levels for longer than expected, sparking selloffs in US stocks and bonds.

The S&P 500 tumbled 2.9% this week, its biggest weekly decline since March. Investors sold global equities at the fastest rate this year, with a net USD 16.9 billion leaving stocks in the week to Wednesday, data from BoFA Global research showed. The index is up 12.8% year-to-date.

“We’ve had resilient growth for the summer months but we’re running into a period where there’s significant risk to the economy,” said Charlie Ripley, senior investment strategist for Allianz Investment Management. “Investors are seeing a reason to take risk off the table and that’s going to diminish some appetite” for stocks, he said.

Yields on the benchmark US 10-year Treasury, which move inversely to prices, stand near 16-year highs. High Treasury yields dull the allure of stocks by offering investors an attractive payout on an investment seen as virtually risk-free.

Market participants are also grappling with several potential threats to US economic growth, whose resilience this year has helped push stocks higher. Foremost is the challenge presented by higher rates, if the Fed follows through on its pledge to keep borrowing costs elevated as it seeks to decisively turn the tide on inflation.

“The Fed is overly confident in the soft-landing narrative,” said Brian Jacobsen, chief economist at Annex Wealth Management. “A confident Fed is a dangerous Fed because it will ignore early signs of weakness.”

Other risks include high oil prices, a resumption of student loan payments in October and a government shutdown that is set to begin if lawmakers are unable to pass a budget by Sep. 30.

Seasonal factors also look grim, at least for the near term. The S&P 500 entered what has historically been its weakest 10-day stretch of the year on Sept. 18, according to BofA Global Research. The index has historically fallen by 1.66% over the period when performance during the first 10 days of the month is below average, as it has been this year, the bank’s data showed.

“Seasonality shows nasty down days into October,” BoFA’s analysts wrote, noting however that declines could provide opportunities for dip buyers.

Meanwhile, a drawn-out government shutdown could aggravate concerns over US government gridlock and send Treasury yields even higher. Early this year, lawmakers waged a protracted battle to raise the debt ceiling. This drew a credit downgrade from ratings agency Fitch, analysts at Societe Generale wrote.

Higher yields could exacerbate the headwinds to stocks, which have struggled as yields surged over the past several weeks.

Of course, strategists’ metrics have shown there is plenty of cash on the sidelines to be deployed by investors looking to buy on weakness. Buyers would likely step in if the S&P 500 fell to 4,200, which is about 3% from current levels, said Keith Lerner, co-chief investment officer at Truist.

Such a decline would put the index at a 17.5 price-to-earnings ratio, in line with its 10-year average, he said in a Friday report.

“We anticipate, at least initially, buyers would come in around this vicinity … to help contain short-term weakness,” he said.

Adam Turnquist, chief technical strategist for LPL Financial, remained optimistic in a late Friday report even though most momentum indicators he tracks – including market breadth – have turned bearish. He noted that the S&P 500 remains above its 200-day moving average and there have been few signs of investors fleeing to safety.

“Overall, the market is down but not out,” he wrote. “Pullbacks are entirely ordinary within the context of a bull market.”

(Reporting by David Randall; Editing by Ira Iosebashvili and David Gregorio)

Dollar up as data highlights US economic resilience; yen slumps

NEW YORK, Sept 22 – The US dollar advanced against a basket of currencies on Friday as the latest batch of data on business activity from around the globe highlighted the superior position of the United States relative to other major economies.

S&P Global said its flash US Composite PMI index, which tracks the manufacturing and service sectors, dipped to a reading of 50.1 in September from a final reading for August of 50.2. September’s result was barely above the 50 level that separates expansion and contraction.

Still, the US economy so far this year has defied projections for sliding into a recession that most economists had expected would be triggered by the Federal Reserve’s aggressive interest rate increases aimed at quelling inflation.

The data comes on the heels of disappointing data from Europe, which showed that economic activity in France fell much more quickly than expected in September.

Separate survey data covering the whole eurozone showed that the economy likely contracted in the third quarter.

“The US is continuing to outpace the rest of the world and I think it will continue to do so for some time,” Michael Brown, market analyst at Trader X, said of the US data.

“Unless we see a sustained pickup in growth in the rest of DM (developed markets), I struggle to take a bearish view on the buck over the medium-term, as the FX market’s focus increasingly shifts to which central bank will spend the longest time at its terminal rate,” Brown said.

The US dollar index – which measures the currency against six major counterparts – was 0.2% higher at 105.6 after having risen as high as 105.78 earlier in the session. That puts the index on pace for a weekly gain of about 0.3%, its 10th straight week of gains, its longest winning streak in nearly a decade.

The US central bank needs to raise interest rates further to control inflation in a “timely way,” Federal Reserve Governor Michelle Bowman said on Friday in remarks that sketched out a hawkish argument based on a potential rise in energy prices and a possibility the inflation battle may take years to complete.

The Federal Reserve left interest rates at 5.25% to 5.5% on Wednesday but stressed that it would hold them at that level for as long as needed to push inflation back to 2%.

The yen fell on Friday after the Bank of Japan (BOJ) kept interest rates in negative territory days after the Federal Reserve signaled US borrowing costs would stay high, piling pressure on the Japanese currency.

The BOJ held interest rates at -0.1% on Friday and reiterated its pledge to keep supporting the economy until it is confident inflation will stay at the 2% target.

“We have yet to foresee inflation stably and sustainably achieve our price target,” BOJ Governor Kazuo Ueda told a press conference.

The yen dropped as low as 148.42 to the dollar, nearing the 150-mark at which analysts have said government intervention to prop up the currency is likely. The dollar was last up 0.53% at 148.375 yen.

“I think it’s rather dovish, and that’s why we’ve seen the yen go past 148,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.

Speculation that Tokyo could intervene to support the yen gathered steam. Japan’s finance minister, Shunichi Suzuki, said on Friday he would not rule out any options, warning against a yen sell-off that would hurt the trade-reliant economy.

Meanwhile, sterling was 0.47% lower at USD 1.2237 after data showed that the UK economy slowed sharply in September and is likely on the brink of recession.

It was near the roughly six-month low of USD 1.22305 it hit on Thursday when the Bank of England (BoE) halted its long run of interest rate increases, a day after Britain’s fast pace of price growth unexpectedly slowed.

(Reporting by Saqib Iqbal Ahmed in New York; Additional reporting by Harry Robertson in London, Rae Wee in Singapore; Editing by Sharon Singleton and Matthew Lewis)

Gold ekes out gains as US dollar, yields ease

Sept 22 – Gold prices edged higher on Friday, helped by a slight pullback in the dollar and bond yields as investors digested a still hawkish stance from the Federal Reserve.

Spot gold rose 0.3% to USD 1,925.21 per ounce by 1:59 p.m. EDT (1759 GMT), following three sessions of losses. US gold futures GCcv1 settled 0.3% higher at USD 1,945.60 per ounce.

The dollar retreated from a six-month peak against a basket of major currencies, making gold less expensive for other currency holders, while benchmark 10-year Treasury yields slipped from 16-year highs.

“The main focal point is the idea that Fed will keep rates higher for longer and that has driven the dollar, yields higher and has applied pressure to not just gold, but commodity markets across the board,” said David Meger, director of metals trading at High Ridge Futures.

The US central bank held interest rates steady this week, but they could be raised one more time by 25 basis points before the end of the year, according to the Fed’s updated quarterly projections.

Non-yielding gold tends to fall out of favor among investors when interest rates rise.

“There is going to be a huge amount of emphasis now on the economic data, which is going be a massive driver now for the next six weeks in the run-up to the next (central bank) meetings,” said Craig Erlam, senior markets analyst at OANDA.

US business activity showed little change in September, with the vast services sector essentially idling at the slowest pace since February, a survey published on Friday showed.

Minneapolis Federal Reserve President Neel Kashkari said US consumer spending continues to defy expectations for it to falter in the face of the US central bank’s stiff interest rate increases.

Silver was up 0.7% at USD 23.54 per ounce after hitting its highest since Sept. 5. Platinum climbed 0.8% to USD 926.45 and palladium fell 1% to USD 1,250.78.

(Reporting by Brijesh Patel and Anjana Anil in Bengaluru; Editing by Kirsten Donovan)

US equity funds see biggest weekly outflow in four weeks

Sept 22 – US equity funds suffered substantial outflows in the seven days to Sept. 20, hit by worries that the Federal Reserve would potentially extend the duration of its restrictive monetary policy.

According to LSEG data, investors pulled out a net USD 6.64 billion from US equity funds in their biggest weekly net selling since Aug. 23.

The US Federal Reserve held interest rates unchanged on Wednesday but flagged the potential for an additional rate hike this year and fewer reductions next year.

Equity growth funds witnessed USD 2.41 billion of outflows, in stark contrast to USD 3.88 billion in net purchases a week ago. Investors also liquidated USD 1.26 billion worth of equity value funds.

Among sectors, financials, healthcare, and tech suffered net disposals to the tune of USD 1.51 billion, USD 388 million, and USD 357 million, respectively.

Meanwhile, US bond funds received USD 1.3 billion, the highest weekly net inflow since July 26.

US general domestic taxable fixed income funds obtained USD 1.29 billion, the biggest amount in five weeks. Investors also poured USD 645 million and USD 405 million respectively into short/intermediate investment-grade, and short/intermediate government & treasury funds.

High yield bond funds, however, suffered the most significant weekly outflow in four weeks, amounting to USD 583 million.

Meanwhile, investors exited about USD 9.68 billion of US money market funds after three weekly net purchases in a row.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Emelia Sithole-Matarise)

China climate envoy says phasing out fossil fuels ‘unrealistic’

SINGAPORE, Sept 22 – The complete phasing-out of fossil fuels is not realistic, China’s top climate official said, adding that these climate-warming fuels must continue to play a vital role in maintaining global energy security.

China is the world’s biggest consumer of fossil fuels including coal and oil, and its special climate envoy Xie Zhenhua was responding to comments by ambassadors at a forum in Beijing on Thursday ahead of the COP28 climate meeting in Dubai in November. Reuters obtained a copy of text of Xie’s speech, and a video recording of the meeting.

Countries are under pressure to make more ambitious pledges to tackle global warming after a UN-led global “stocktake” said 20 gigatons of additional carbon dioxide reductions would be needed this decade alone to keep temperatures from exceeding the critical threshold of 1.5 degrees Celsius.

The stocktake will be at the centre of discussions at the COP28 climate meeting, with campaigners hoping it will create the political will to set clear targets to end coal and oil use.

Xie, however, said the intermittent nature of renewable energy and the immaturity of key technologies like energy storage means the world must continue to rely on fossil fuels to safeguard economic growth.

“It is unrealistic to completely phase out fossil fuel energy,” said Xie, who will represent China at COP28 this year.

At climate talks in Glasgow in 2021, China led efforts to change the language of the final agreement from “phasing out” to “phasing down” fossil fuels. China also supports a bigger role for abatement technologies like carbon capture and storage.

While ending fossil fuel use would not be on the table at COP28, Xie said China was open to setting a global renewable energy target as long as it took the divergent economic conditions of different countries into account.

He also said he welcomed pledges made to him by his U.S. counterpart John Kerry that a USD 100 billion annual fund to help developing countries adapt to climate change would soon be made available, adding it was “only a drop in the bucket”.

China and the United States, the world’s two biggest greenhouse gas emitters, resumed top-level climate talks in July after a hiatus brought about by US politician Nancy Pelosi’s visit to the self-governing island of Taiwan, which China claims.

China has rejected US attempts to treat climate change as a diplomatic “oasis” that can be separated from the broader geopolitical tensions between the two sides, with U.S. trade sanctions on Chinese solar panels still a sore point.

Xie said protectionism could drive up the price of solar panels by 20-25% and hold back the energy transition, and called on countries not to “politicise” cooperation in new energy.

He also reiterated China’s opposition to the E.U. Carbon Border Adjustment Mechanism, which will impose carbon tariffs on imports from China and elsewhere

(Reporting by David Stanway; editing by Miral Fahmy)

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