Markets buckle under bond yield weight

Oct 19 – A sea of red across world stock markets and another surge in US Treasury yields on Wednesday will likely ensure a bearish open in Asia on Thursday, as investors also brace for monetary policy decisions and outlooks from South Korea and Indonesia.

The regional economic data calendar is pretty full too, with the latest trade figures from Japan and Malaysia, and the latest unemployment numbers from Australia and Hong Kong also on tap.

Investors may also deliver a delayed or revised verdict on China’s generally upbeat economic indicators from Wednesday, which included third-quarter year-on-year growth of 4.9%, much stronger than most economists had expected.

Chinese stocks fell sharply on Wednesday, pressured by deepening turmoil in the country’s property sector as top private developer Country Garden flirts with default. Could investors decide if the GDP and other indicators show the economy is in better shape than feared?

Maybe. But the one-two combination of new multi-year highs for US bond yields and a steep selloff on Wall Street looks set to deliver an early blow to Chinese and other markets across Asia on Thursday.

As well as rising bond yields on Wednesday, Wall Street felt the heat from downbeat US earnings. Stocks fell the most in two weeks, even though the message from Fed officials on the stump was that interest rate hikes are probably over.

The selling pressure bearing down on the US bond market simply refuses to relent. The 10-year yield scaled 4.90% for the first time since 2007, and the two-year hit a fresh 17-year high of 5.2440%.

The curve bear steepened again too. The 2s/10s yield curve has steepened 14 out of the last 17 trading sessions, and Wednesday’s move was the biggest in three weeks.

On top of that, oil and gold prices continue to move higher, reflecting investors’ ongoing unease regarding events in the Middle East.

In currencies, the dollar is pressing right up against 150.00 yen. Given how high US yields are moving, it is little wonder – the 2-year US/Japanese yield spread reached 517 basis points on Wednesday, the widest gap in favor of the dollar since December 2000.

Will the Bank of Japan intervene? It stepped into the Japanese Government Bond market on Wednesday to buy bonds and put a cap on the 10-year yield, which had spiked to a new decade high of 0.819%.

The main events on the regional calendar on Thursday will be the policy decisions from Bank of Korea and Bank Indonesia. Both are expected to keep the rate on hold, before easing policy in the second quarter of next year, according to Reuters polls.

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

– South Korea interest rate decision

– Indonesia interest rate decision

– Several Fed officials speak, including Chair Jerome Powell

(By Jamie McGeever; Editing by Josie Kao)

Wall Street falls more than 1%; yields rise, investors assess earnings

NEW YORK, Oct 18 – US stocks ended sharply lower on Wednesday, with the S&P 500 and Nasdaq falling more than 1% each, as Treasury yields rose again and investors assessed the latest batch of quarterly corporate results and forecasts.

Mounting tensions in the Middle East stoked risk aversion. Safe-haven gold hit its highest level in more than two months. The Cboe Volatility index, Wall Street’s fear gauge, jumped.

Yields edged higher after data showing US single-family homebuilding rebounded in September, supporting the view that the Federal Reserve will keep interest rates higher for longer.

“We’re in a period of sector rotation, and people are trying to figure out in this new environment – in a full reset of rates across the curve – what are the stocks that are going to continue to do well and what are the stocks that are going to suffer,” said Rick Meckler, partner at Cherry Lane Investments, a family investment office in New Vernon, New Jersey.

“Obviously, companies that are highly leveraged have difficulties in this kind of a market.”

Higher yields from risk-free US Treasuries dull the appeal of stocks.

On the earnings front, Procter & Gamble (PG) shares gained 2.6% after its quarterly sales topped market expectations, while United Airlines Holdings (UAL) shares plunged 9.7% after the company forecast weaker fourth-quarter profit due to higher costs. The S&P 500 passenger airlines index dropped 5.6%.

The Dow Jones Industrial Average fell 332.57 points, or 0.98%, to 33,665.08, the S&P 500 lost 58.6 points, or 1.34%, to 4,314.6 and the Nasdaq Composite dropped 219.45 points, or 1.62%, to 13,314.30.

Investors have been worried about repercussions from the Israel-Hamas conflict that began Oct. 7 with a Hamas attack on Israeli civilians and soldiers. US President Joe Biden, during a lightning visit on Wednesday, pledged solidarity with Israel and said a deadly blast at a Gaza hospital seemed to have been caused by a rocket misfired by militants.

Also in earnings news, Morgan Stanley’s (MS) third-quarter profit showed a hit from lethargic dealmaking. Shares ended the day down 6.8%.

After the closing bell, shares of Tesla (TSLA) were up about 2% and Netflix (NFLX) jumped about 12% after the companies reported quarterly results. Tesla ended the regular session down 4.8% and Netflix ended the session down 2.7%.

More results are expected in the coming days as the third-quarter US earnings season kicks into high gear.

Volume on US exchanges was 10.48 billion shares, compared with the 10.45 billion average for the full session over the last 20 trading days.

Declining issues outnumbered advancing ones on the NYSE by a 4.67-to-1 ratio; on Nasdaq, a 3.33-to-1 ratio favored decliners.

The S&P 500 posted 12 new 52-week highs and 25 new lows; the Nasdaq Composite recorded 25 new highs and 252 new lows.

(Additional reporting by Ankika Biswas and Shashwat Chauhan in Bengaluru; additional reporting by Sruthi Shankar; editing by Arun Koyyur, Vinay Dwivedi, Nick Zieminski, and David Gregorio)

Gold advances as Middle East tensions spur safe-haven demand

Oct 18 – Gold rose to a more than two-month peak on Wednesday as the escalating conflict in the Middle East sent investors flocking towards the safe-haven metal.

Spot gold increased 1% to USD 1,950.67 per ounce by 2:48 p.m. ET (1848 GMT), after hitting its highest since Aug. 1. US gold futures settled 1.7% higher at USD 1,968.3.

“Gold could breach USD 2,000 in the near term if there is an escalation of geopolitical conflict. Additionally, having the Fed pause rate increases or hint at a lower probability of increases in the future would be viewed positively,” said Ryan McIntyre, senior portfolio manager at Sprott Asset Management.

Gold, considered a safe store of value amid political and financial uncertainty, has climbed more than 5% so far in October. Wall Street’s main stock indexes have dipped amid risk aversion. .N

“Gold will pull back if the Middle East situation simmers down, but right now the marketplace is expecting a further escalation,” said Jim Wyckoff, senior analyst at Kitco Metals.

About 500 Palestinians were killed in a blast at a Gaza City hospital on Tuesday.

With the dollar maintaining its bullish trend and bond yields on the rise again, it is not going to take much to slam gold back down, Fawad Razaqzada, market analyst at City Index, wrote in a note.

Focus is also on Federal Reserve Chair Jerome Powell’s speech due on Thursday, which could offer some clarity on the Fed’s interest rate path after recent dovish comments from several US policymakers.

Ole Hansen, head of commodity strategy at Saxo Bank, highlighted in a note that asset managers, many of which trade gold through exchange-traded funds (ETFs), continue to focus on US economic strength, rising bond yields, and potentially another delay in peak rates.

Spot silver rose 0.2% to USD 22.87, platinum fell 1.4% to USD 884.89 and palladium fell 1% to USD 1,132.61.

(Reporting by Ashitha Shivaprasad in Bengaluru; Additional Reporting by Daksh Grover; Editing by Sharon Singleton, Shilpi Majumdar, and Shailesh Kuber)

Japan’s Nikkei ends flat as China optimism offsets Fed jitters

TOKYO, Oct 18 – Japan’s Nikkei share average ended flat on Wednesday as investors weighed better-than-forecast Chinese economic data against the possibility of a more hawkish Federal Reserve.

The Nikkei closed up just 0.01% at 32,042.25 in a volatile session where it fell as much as 0.54%, before rising 0.19% just before closing bell.

The broader Topix ended with a 0.14% gain.

Losers slightly outpaced winners on the Nikkei, with 115 components declining and 107 rising, and three flat.

Strong US retail sales overnight raised the potential for a more protracted period of tight monetary policy, at a time when investors were already on edge due to the escalating conflict in Gaza.

“The markets are in a cautious mood,” amid the risks of a broadening Gaza conflict and the prospect the Fed could even raise rates again, said Kyle Rodda, senior financial markets analyst at Capital.com.

However, key Chinese indicators such as GDP, retail sales and industrial output beating forecasts “points to further green shoots in China’s economy,” he said.

A jump in crude oil prices – partly the result of simmering Middle East tensions – also weighed on overall sentiment. O/R

At the same time, it made oil company Inpex one of the Nikkei’s top performers, with gains of 4.52%.

Banks also rose, tracking overnight gains in their US peers following strong earnings. Corcordia Financial Group climbed 2.93% and Resona jumped 2.73%.

That helped a Topix index of value shares to end the day up 0.33%, whereas the growth index slid 0.08%.

The Nikkei’s top performer was Keisei Electric Railway, which surged 7.76% after shareholder Palliser Capital said the company is trading at a large discount and has room to release value.

(Reporting by Kevin Buckland; Editing by Rashmi Aich and Varun H K)

Oil jumps 2% as hospital blast increases Middle East tensions

Oct 18 – Oil prices surged on Wednesday as tension escalated in the Middle East after hundreds were killed in a blast at a Gaza hospital, sparking concerns about potential oil supply disruptions from the region.

Brent crude futures LCOc1 advanced USD 1.75, or 2%, to USD 91.65 a barrel at 0609 GMT. West Texas Intermediate crude (WTI) futures were up USD 1.91, or 2.2%, at USD 88.57 a barrel.

In earlier trade, both benchmarks gained more than $2 to touch their highest levels in two weeks.

Markets factored in risk premiums after hundreds of Palestinians were killed in a blast at a Gaza City hospital on Tuesday that Israeli and Palestinian officials blamed on each other.

Jordan then cancelled a summit it was to host with U.S. President Joe Biden and Egyptian and Palestinian leaders.

“The cancellation of a summit between Biden and Arab leaders reduces the likelihood of a diplomatic solution to the Israel Hamas conflict,” Vivek Dhar, an analyst at Commonwealth Bank of Australia, said in a client note.

Markets are nervous about a threatened Israeli ground offensive in Gaza.

“A long occupation looms as the scenario that pushes Brent oil futures above USD US100/bbl because it raises the risk that the Israel Hamas conflict expands and potentially draws in Iran directly,” Dhar said.

Biden is set to visit Israel on Wednesday to show support for the country in its war with Islamist militant group Hamas. The White House said he will make clear he does not want the conflict to expand.

Also supporting oil prices, US crude stocks fell by about 4.4 million barrels in the week ended Oct. 13, according to market sources citing American Petroleum Institute figures on Tuesday. That was much steeper than a 300,000 barrel draw that analysts had forecast.

Official US government data is due later on Wednesday.

On the demand side, China’s economy grew faster than expected in the third quarter, official data on Wednesday showed, suggesting a recent flurry of policy measures is helping to bolster a tentative recovery.

China’s official data also showed that the country’s oil refinery throughput in September hit a record daily rate, up 12% from a year earlier as refiners increased run rates to cater for strong demand for transport fuel over the Golden Week holiday and improving manufacturing.

But analysts sounded cautious on China’s economic growth as the real estate sector remains a drag.

“The September data likely guarantee that China will hit its ‘around 5%’ growth target this year. That said, it will struggle to better it. The economic recovery is still in its infancy,” Moody’s Analytics economist Harry Murphy Cruise said in a note.

Meanwhile, U.S. retail sales increased more than expected in September, spurring expectations of another interest rate hike by the Federal Reserve by year-end. Interest rate hikes to curb inflation can slow economic growth and reduce oil demand.

Venezuela’s government and its political opposition on Tuesday agreed to electoral guarantees for 2024 presidential elections, paving the way for possible US sanctions relief that could eventually boost oil supplies.

(Reporting by Arathy Somesekhar and Muyu Xu; Editing by Sonali Paul and Lincoln Feast.)

Oil up about 2% on big US crude storage draw, Middle East tension

NEW YORK, Oct 18 – Oil prices climbed about 2% to a two-week high on Wednesday on a bigger-than-expected US storage draw and concerns about global supplies after Iran called for an oil embargo on Israel over the conflict in Gaza.

Brent futures rose USD 1.60, or 1.8%, to settle at USD 91.50 a barrel, while US West Texas Intermediate (WTI) crude rose USD 1.66, or 1.9%, to settle at USD 88.32. At their session highs, both benchmarks were up more than USD 3 a barrel.

The US Energy Information Administration (EIA) said energy firms pulled 4.5 million barrels of crude from stockpiles during the week ended Oct. 13.

That was much higher than the 0.3 million barrel draw analysts forecast in a Reuters poll. On Tuesday, the American Petroleum Institute (API) industry group reported a 4.4-million-barrel drop.

It was the fourth crude storage decline in five weeks. It far exceeded the 1.7 million barrel weekly draw a year earlier and compares with a five-year (2018-2022) average build of 2.5 million barrels.

Supplies declined 0.8 million barrels at the Cushing storage facility in Oklahoma to the lowest since October 2014, prompting concerns about the quality of oil remaining at the delivery point for US oil futures.

“The biggest concern in this report is Cushing, Oklahoma … we’re drawing that down to dangerously low levels that should be supportive for the entire complex,” said Phil Flynn, an analyst at Price Futures Group.

MIDDLE EAST TENSIONS

Flynn noted that prices surged to session highs after Iranian Foreign Minister Hossein Amirabdollahian urged an oil embargo on Israel after hundreds of Palestinians were killed in a blast at a Gaza City hospital. Israeli and Palestinian officials blamed each other.

The Organization of the Petroleum Exporting Countries (OPEC) is not planning to take any immediate action on OPEC member Iran’s call, four sources from the producer group told Reuters.

Jordan canceled a summit it was to host with US President Joe Biden and Egyptian and Palestinian leaders. Biden arrived in Israel on Wednesday pledging solidarity with Israel in its war against Hamas, and backing Israel’s account that militants caused the hospital blast.

“This turn of diplomatic fortunes again garners fear of conflict spread and therefore the leap in oil,” said John Evans of oil broker PVM.

Oil prices also drew support from official data showing faster-than-expected economic growth in China, the world’s biggest oil importer, in the third quarter.

In the US, the world’s biggest oil consumer, higher-than-expected September retail sales spurred expectations of another interest rate hike by year-end. Interest rate hikes to curb inflation can slow economic growth and reduce oil demand.

“The latest round of US and Chinese data suggest the world’s two largest economies are supportive for steady or rising crude demand,” Edward Moya, senior market analyst at data and analytics firm OANDA, said in a note.

(Reporting by Scott DiSavino and Nicole Jao in New York, Natalie Grover in London, Arathy Somesekhar in Houston, and Muyu Xu in Singapore; editing by Louise Heavens, Kirsten Donovan, and David Gregorio)

China GDP eyed as global cross currents swirl

Oct 18 – Asian financial markets brace for Chinese GDP figures on Wednesday, the key number in a batch of Chinese indicators to be released as investors also try to navigate a heavy flow of global economic, market and geopolitical cross currents.

Wall Street closed flat to slightly lower on Tuesday, after forecast-busting US retail sales data stoked expectations for another Fed rate hike by year-end and pushed Treasury bond yields sharply higher.

This was set against some upbeat Q3 results from Wall Street giants like Bank of America, although chipmakers fell after the US government said it planned to halt shipments of advanced artificial intelligence chips to China.

On top of that, the Middle East crisis appeared to deepen significantly after Palestinian health authorities said an Israeli air strike on a hospital in Gaza killed around 500 people. Israel has denied conducting the attack. This comes on the eve of President Joe Biden’s planned visit to Israel on Wednesday.

Short-dated US bond yields on Tuesday surged to new historic peaks – the two-year yield near 4.25% and the five-year yield nudging 4.90%, levels last seen in 2006 and 2007, respectively.

Blame bumper US retail sales, which also sparked a spree of upward revisions to US growth forecasts. The Atlanta Fed’s GDPNow model is now running at 5.4% annualized growth for Q3.

Compare that with China.

Annualized and year-on-year growth measures are different, but the general picture is still one of a booming US and sluggish China – figures on Wednesday are expected to show a 4.4% annual rate of growth in the July-September period.

That’s the median estimate in a Reuters poll of 60 economists, and would mark a notable slowdown from 6.3% in Q2. The poll’s range is 3.5% to 5.1%. Bear in mind that the government’s 2023 GDP goal is for growth of around 5%.

Staying in China, the country’s largest private property developer Country Garden is lurching toward defaulting on its offshore debt if it is deemed not to have made a USD 15 million coupon payment on Tuesday.

Non-payment of this tranche will trigger cross defaults in other bonds. With nearly USD 11 billion of offshore bonds and USD 6 billion of offshore loans, a Country Garden default would tee up one of China’s biggest corporate debt restructurings.

The property sector has been a major drag on growth, a driver of deflationary pressures, and a trigger for the huge outflows from China’s stocks, bonds, and currency this year.

The US dollar, meanwhile, is creeping higher against Asia’s two biggest currencies, pushing Japan’s yen and China’s yuan back down to key areas that their central banks are sure to be monitoring closely – 150.00 yen and September’s 16-year high above 7.34 yuan.

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

– China GDP (Q3)

– China retail sales, investment, unemployment, industrial production (September)

– US President Biden visit to Israel

(By Jamie McGeever; Editing by Josie Kao)

Nasdaq ends down on higher yields, chipmaker share declines

NEW YORK, Oct 17 – The Nasdaq ended lower while the Dow and S&P 500 were nearly flat on Tuesday as Treasury yields rose and shares of chipmakers fell after the Biden administration said it planned to halt shipments of advanced artificial intelligence chips to China.

The Philadelphia SE Semiconductor index was down 0.8%and shares of Nvidia (NVDA) fell 4.7%, even though the world’s most valuable chipmaker said it does not expect a near-term meaningful impact on financial results from the curbs.

US Treasury yields jumped on robust economic data. Higher yields dull the allure of stocks by offering investors comparatively high income on risk-free government bonds.

Helping to limit the declines, though, were upbeat earnings reports from companies including Bank of America (BAC), whose stock gained 2.3% following the bank’s quarterly results. The financial sector was up 0.6% and was among the biggest positives on the S&P 500.

“We had some pretty good earnings from most of the major companies reporting today… but the indices are running up a brick wall as yields go higher,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

The Dow Jones Industrial Average rose 13.11 points, or 0.04%, to 33,997.65, the S&P 500 lost 0.43 points, or 0.01%, to 4,373.2 and the Nasdaq Composite dropped 34.24 points, or 0.25%, to 13,533.75.

Data earlier showed US retail sales increased more than expected in September as households stepped up purchases of motor vehicles and spent more at restaurants and bars. A separate reading showed production at US factories increased more than expected in September.

“Good news could be bad news for the stock market because it implies that the (Federal Reserve) is going to leave interest rates higher for longer, and maybe it pushes out some of the expectations for rate cuts in 2024,” said Anthony Saglimbene, chief market strategist at Ameriprise Financial in Troy, Michigan.

The Fed has raised its benchmark overnight interest rate by 525 basis points since March 2022 in an effort to cool inflation.

Investors also are still anxiously watching news on the Middle East. About 500 Palestinians were killed in a blast at a Gaza hospital amid conflicting claims, while US President Joe Biden is set to visit Israel Wednesday to show support for the country in its war with Hamas, which rules the Gaza Strip.

In other earnings news, shares of Lockheed Martin (LMT) ended up 0.2% after the US defense contractor reported better-than-expected third-quarter revenue and profit.

Goldman Sachs’s (GS) third-quarter profit dropped less than expected, though its shares fell 1.6%.

The third-quarter US earnings season is just getting underway. Analysts expect a 2.2% year-over-year increase in overall S&P 500 company earnings for the quarter, according to LSEG data Friday.

Volume on US exchanges was 10.25 billion shares, compared with the 10.41 billion average for the full session over the last 20 trading days.

Advancing issues outnumbered declining ones on the NYSE by a 1.34-to-1 ratio; on the Nasdaq, a 1.35-to-1 ratio favored advancers.

The S&P 500 posted 17 new 52-week highs and six new lows; the Nasdaq Composite recorded 48 new highs and 151 new lows.

(Reporting by Caroline Valetkevitch; additional reporting by Ankika Biswas and Shashwat Chauhan in Bengaluru and by Sinead Carew in New York; Editing by Vinay Dwivedi and Deepa Babington)

PRECIOUS-Gold firms as Middle East risks buoy safe-haven appeal

Fed Chair Powell expected to speak on Thursday

Biden to visit Israel as Gaza humanitarian crisis worsens

Updates prices as of 1814 GMT

By Ashitha Shivaprasad

Oct 17 (Reuters) – Safe-haven gold consolidated gains on Tuesday as traders kept a close eye on developments surrounding the Israel-Hamas conflict, while also positioning for cues on the U.S. rate hike path from Federal Reserve Chair Jerome Powell this week.

Spot gold XAU= was up 0.1% at $1,920.36 per ounce by 2:14 p.m. ET (1814 GMT), and U.S. gold futures GCcv1 settled 0.1% higher at $1,935.7.

U.S. President Joe Biden will make a high-stakes visit to Israel on Wednesday as Gaza’s humanitarian crisis worsens.

Until there is some type of ceasefire or de-escalation, gold is going to hover above the $1,900 range, said Everett Millman, chief market analyst at Gainesville Coins.

Gold, considered a hedge against political and financial uncertainty, has risen more than 4% so far in October.

But if there is no escalation, further upward potential in gold is likely to remain limited as U.S. interest rate cuts could come later than expected, Commerzbank said in a note, reiterating its $1,900 end-December, and $2,100 an ounce end-2024 forecasts.

Powell’s speech on Thursday could shine more light on the U.S. central bank’s monetary policy path after recent dovish rhetoric from several Fed officials.

If there is a hint that the Fed is reaching the end of this rate hike cycle, that would be good for gold, even if we do not get any rate cuts soon, Millman added.

Higher interest rates increase the opportunity cost of holding non-yielding gold.

Limiting gains for bullion prices, benchmark U.S. 10-year Treasury yield US10YT=RR hit a more than one-week high. US/

Silver XAG= firmed 1% to $22.81 per ounce, platinum XPT= rose 0.5% to $896.47. Palladium XPD= was down 0.6% at $1,136.13.

(Reporting by Ashitha Shivaprasad in Bengaluru, Additional Reporting by Daksh Grover; Editing by Nick Zieminski, Josie Kao and Shailesh Kuber)

((Ashitha.Shivaprasad@thomsonreuters.com;))

Major Gulf markets track Asian shares higher

Oct 17 – Major stock markets in the Gulf rose in early trade on Tuesday as Asian shares rebounded and oil prices steadied, although investors remain wary on tensions in the region.

US President Joe Biden will visit Israel on Wednesday as the country prepares to escalate an offensive against Hamas militants that has set off a humanitarian crisis in Gaza and raised fears of a broader conflict with Iran.

Saudi Arabia’s benchmark index gained 1.1%, with Al Rajhi Bank advancing 2.3% and oil giant Saudi Aramco adding 0.3%.

Oil prices – a catalyst for the Gulf’s financial markets – steadied after a more than $1 slide on Monday amid hopes the US would ease sanctions on producer Venezuela, and as Washington stepped up efforts to prevent an escalation of the war between Israel and Hamas.

Among other gainers, Savola Group, the kingdom’s largest food products company, jumped 5.8% after it hired Moelis & Co MC.N to advise on strategic options for its business.

That could potentially include a sale of a portion of its stake in the Middle East’s biggest dairy firm Almarai Company. Almarai shares were flat.

Separately, Saudi Arabia’s USD 778 billion sovereign wealth fund has mandated banks to arrange a bond sale, a document showed, the first high-profile debt issue from the region since last week’s Israel-Hamas conflict unsettled regional markets.

Dubai’s main share index rose 0.2%, on course to snap three sessions of losses, helped by a 1.3% rise in sharia-compliant lender Dubai Islamic Bank.

In Abu Dhabi, the index climbed 0.9%. The Qatari benchmark was also up 0.1%, led by a 0.5% rise in petrochemical maker Industries Qatar.

(Reporting by Ateeq Shariff in Bengaluru; Editing by Jan Harvey)

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