Dollar poised to halt slide after Fed minutes

NEW YORK, Nov 21 – The dollar index was on pace to stem the tide of its recent downturn on Tuesday after minutes from the Federal Reserve’s most recent policy meeting showed the US central bank was likely to maintain a restrictive stance on interest rates for some time.

Fed officials said inflation remained well above their target but noted that rates would only need to be raised if new data showed insufficient progress on reducing price pressures.

“The Fed minutes underscore the Fed’s most recent messaging, that they are still not prepared to declare victory and that they have no intention thus far to cut rates in 2024,” said Quincy Krosby, chief global strategist at LPL Financial in Charlotte, North Carolina.

The dollar has stumbled of late, dropping nearly 2% last week, as recent data has shown a slowing of the economy and inflation pressures, including the consumer price index (CPI), but not enough to increase fears of a sharp looming recession, leading markets to price out any additional Fed rate hikes.

Investors are gauging when the Fed may begin to cut rates, pricing in a nearly 60% chance of a cut of at least 25 basis points by May, according to CME’s FedWatch Tool, edging up from about 58% on Monday.

The dollar index rose 0.14% to 103.58 after falling to a fresh 2-1/2 month low of 103.17, its lowest since Aug. 31.

The dollar’s recent weakness has buoyed the yen, along with expectations the Bank of Japan may eventually start to move off its ultra-loose monetary policy next year.

The dollar pared declines against the Japanese currency, which last strengthened 0.0.1% to 148.35 per dollar. The greenback earlier hit its lowest level since mid-September at 147.14 yen, while sterling was last trading at USD 1.254, up 0.26% on the day.

“Enough people were caught off guard by the CPI number to just kind of let the market go the other way and it’s had a nice move, and now it just feels a bit tired going down,” said Erik Bregar, director, FX & precious metals risk management at Silver Gold Bull in Toronto.

Bregar said that given the size of the dollar’s drop and big option expirations in the eurodollar and yen on Wednesday, the greenback could stabilize.

US existing home sales dropped to the lowest level in more than 13 years in October as the highest mortgage rates in two decades and a dearth of houses drove buyers from the market.

The euro EUR= fell 0.24% to USD 1.0912 after reaching 1.0964, its highest since Aug. 11. European Central Bank (ECB) President Christine Lagarde said the central bank has time now to assess how inflation unfolds after a record string of rate hikes but victory has not yet been won and bets based on short-term data flow are premature.

In cryptocurrencies, bitcoin was down 1.53% at USD 36,871 after prosecutors said Binance chief Changpeng Zhao will step down and plead guilty to breaking criminal US anti-money laundering laws as part of a USD 4 billion settlement resolving a years-long probe into the world’s largest crypto exchange.

(Reporting by Chuck Mikolajczak; Editing by Nick Macfie and Richard Chang)

Gold marches ahead to the beat of a weaker US dollar

Nov 21 – Gold hurdled over the USD 2,000 mark on Tuesday, buoyed by expectations that the Federal Reserve had reached an interest rate peak after minutes from the US central bank’s latest meeting anchored a cautious approach to more hikes.

Spot gold gained 1.2% to USD 1,999.92 per ounce by 2:30 p.m. ET (1930 GMT), after earlier hitting a three-week peak at USD 2,007.29. US gold futures settled 1.1% higher at USD 2,001.60.

“Bulls are gorging themselves on gold ahead of the Thanksgiving holiday,” said Tai Wong, a New York-based independent metals trader.

Fed officials agreed at their last meeting, its minutes showed, that interest rates would only need to move higher “if” incoming information showed insufficient progress in lowering inflation.

“The minutes suggest that bond and gold bulls shouldn’t overindulge just yet,” Wong added.

The dollar hit more than a 2-1/2-month low, making gold less expensive for other currency holders. The benchmark US 10-year Treasury yields also hovered near two-month lows touched last week.

“It doesn’t look like there’s going to be any more interest rate hikes here coming up on the horizon, so that’s bullish for gold,” said Bob Haberkorn, senior market strategist at RJO Futures.

Signs of slowing inflation in the US have boosted expectations that the Fed has curbed rate hikes. Lower interest rates decrease the opportunity cost of holding gold.

“Now that concerns about the conflict in the Middle East have abated noticeably, the US interest rate outlook has regained the upper hand for gold,” Commerzbank said in a note.

Spot silver rose 1.9% to USD 23.85 per ounce on its best day in a week. Platinum gained 2% to hit a three-week high at USD 936.51 and palladium was up 0.1% at USD 1,078.56.

The global silver market faces a third consecutive year of supply deficit in 2023, the Silver Institute said last week.

(Reporting by Anjana Anil and Deep Vakil in Bengaluru; Editing by Marguerita Choy, Shailesh Kuber, and Shilpi Majumdar)

S&P 500 to see small gain in 2024 as US economic risks rise

NEW YORK, Nov 21 – The S&P 500 will end next year only about 3% higher than its current level, with a possible US economic slowdown or recession among the biggest risks for the market in 2024, according to strategists in a Reuters poll released Tuesday.

The benchmark index will finish next year at 4,700, according to the median forecast of 33 strategists polled by Reuters during the last week and a half. That is 3.4% higher than Monday’s close of 4,547.38.

Nine of 13 strategists who also answered a question on whether US stocks will hit a record high in the coming six months said yes, and most of them said they expect it to happen in the early part of 2024.

Wall Street stocks have rallied strongly in recent weeks, boosted by the view the Federal Reserve is done hiking interest rates and may begin to cut them at some point next year.

Investors cheered benign October inflation data last week as Americans paid less for gasoline. The S&P 500 is up about 18% for 2023 to date.

The Fed earlier in November held rates steady, but, since 2022, the US central bank has hiked its policy rate 525 basis points in an effort to curb inflation.

Worries persist the economy could fall into a recession next year or at least slow.

“We see the economy weakening further into 2024, and, at some point the consumer will break,” said Paul Christopher, head of global investment strategy at Wells Fargo Investment Institute.

But he said the firm thinks the US economy could quickly switch to recovery mode in the second half of the year. WFII sees the S&P 500 ending next year between 4,600 and 4,800.

Markets are anticipating inflation will decelerate and are currently pricing in a greater than 50% chance of a rate cut of at least 25 basis points by May, according to CME’s FedWatch Tool on Monday.

Still, Goldman Sachs’s economic team wrote in a recent note the Fed will hold off cutting rates until the fourth quarter of next year, with stronger-than-expected economic growth helping to forestall a recession.

Geopolitical problems are among other risks to the market heading into 2024, strategists said, with investors closely watching the war between Israel and Hamas militants in Gaza.

Ten of the 13 strategists who responded to a question on the US corporate profit outlook said they expect earnings to grow in the next six months.

Overall S&P 500 earnings growth for 2023 is estimated at 2.3% after a weak first half of the year, according to LSEG data.

Analysts expect earnings to rise 11.2% in 2024 over the previous year.

But valuations have risen with recent market gains. The S&P 500 index’s forward 12-month price-to-earnings ratio is now at 19.1, up from 17 at the end of 2022 and its long-term average of about 16, based on LSEG data.

For some strategists, technology, which is up 52% for the year so far and S&P 500’s best-performing sector, is still a favorite going into 2024.

“The technology revolution continues,” said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York.

Based on the poll, the Dow Jones industrial average will finish next year at 38,000, up about 8% from Monday’s close. The Dow is up 6% so far in 2023.

(Reporting by Caroline Valetkevitch; additional reporting by Chuck Mikolajczak, Sinead Carew and Stephen Culp in New York; Additional polling by Pranoy Krishna, Rahul Trivedi, and Sarupya Ganguly in Bengaluru; Editing by Alexandra Hudson)

Oil edges lower on caution ahead of OPEC+ meeting

NEW YORK, Nov 21 – Oil prices ended near flat on Tuesday after rallying for two sessions, with investors cautious ahead of Sunday’s scheduled OPEC+ meeting, when the producer group may discuss deepening supply cuts due to slowing global economic growth.

Brent crude futures settled 13 cents higher at USD 82.45 a barrel. US West Texas Intermediate crude futures eased 6 cents lower at USD 77.77.

Prices pared losses late, with one more session before the US Thanksgiving holiday on Thursday, which typically yields lower trading volumes in oil.

“Going into the long weekend the market would rather be a little bit long than short,” said Andrew Lipow, president of Lipow Oil Associates.

On Monday, both contracts climbed about 2% after three OPEC+ sources told Reuters the group, the Organization of the Petroleum Exporting Countries (OPEC) and allied producers, was set to consider additional oil supply cuts when it meets on Nov. 26.

OPEC+ is likely to extend or even deepen oil supply cuts into next year, eight analysts have predicted.

“We see some scope for the group to do a deeper reduction, but we would anticipate that Saudi Arabia would seek additional barrels from other members to share the burden of the adjustment,” said RBC Capital analyst Helima Croft.

Even if the OPEC+ nations extend their cuts into next year, the global oil market will see a slight supply surplus in 2024, the head of the International Energy Agency’s (IEA) oil markets and industry division said on Tuesday.

Currently though, the oil market is in a deficit with stocks declining “at a fast rate”, Toril Bosoni said on the sidelines of a conference in Oslo.

US crude stocks rose by nearly 9.1 million barrels in the week ended Nov. 17, according to market sources citing American Petroleum Institute figures on Tuesday.

Gasoline inventories dropped by about 1.79 million barrels, while distillate inventories fell by about 3.5 million barrels.

US government data on stockpiles was due on Wednesday.

Oil has fallen about 16% since late September as crude output in the US, the world’s top producer, held at record highs, while the market was concerned about demand growth and a potential economic slowdown.

Market participants kept an eye on a development in the Gulf of Mexico, as US officials said seven energy companies have been impacted by an oil discharge near Main Pass Oil Gathering Co’s (MPOG) pipeline system that is estimated to have released more than a million gallons of crude oil.

(Reporting by Stephanie Kelly in New York; additional reporting by Alex Lawler in London, Florence Tan in Singapore, and Yuka Obayashi in Tokyo; editing by Jason Neely, David Gregorio, and Bill Berkrot)

Japan’s Nikkei seen rising to 35,000 by mid-2024 on earnings boost

TOKYO, Nov 21 – Japan’s Nikkei 225 share average will continue its more-than-28% rally this year into 2024 to reach a three-decade high of 35,000 by the end of June, according to analyst estimates in a Reuters poll.

All respondents forecast continued earnings growth, despite many also expecting the tailwinds from a weaker yen starting to dissipate with the Bank of Japan approaching the end of super-accommodative stimulus and the Federal Reserve tightening cycle peaking out.

The median forecast for the Nikkei’s level in mid-2024 was 35,000, with responses ranging from 31,143 to 39,500, the Reuters poll of 10 stocks strategists taken Nov. 10-20 showed.

Japan’s equity benchmark started this week by pushing to its highest level since March 1990 at 33,853.46 following a three-week winning streak.

The rally was partly driven by a robust earnings season, as the yen’s drop to a one-year low beyond 150 per dollar during the period boosted exporters’ profit outlooks and as companies passed on higher costs to consumers – something that would have been almost unthinkable pre-pandemic.

Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui DS Asset Management in Tokyo, pointed to pent-up demand in both business investment and consumer demand, particularly for services, in forecasting the Nikkei to reach 39,500 in June and 40,900 by end-2024 – the most bullish forecasts in the survey.

“We are constructive mainly because we are optimistic about nominal GDP growth,” he said. “There is still room for equity prices to reflect the better picture in EPS growth.”

At the same time, Kichikawa and other respondents say the yen may have bottomed after pushing to the cusp of 152 per dollar earlier this month, amid expectations the Fed could begin cutting rates around May, while the BOJ may exit negative interest rate policy early next year.

That would mean some stagnation for equities in the latter half of next year, with the Nikkei still stuck at 35,000 at year-end, according to the median poll response.

IG’s Sydney-based analyst Tony Sycamore is among the most bearish – one of only two forecasters predicting a decline for the benchmark in the latter half of next year, from 35,000 to 33,000.

“35,000 looks to be about the level where Nikkei gains line up with the timing of the BOJ getting rid of negative interest rate policy,” Sycamore said.

“The Nikkei does still have the support of the BOJ being behind the curve,” he added. “But at some point early next year, they will need to do what needs to be done, and that will not be a great outcome for equities.”

(Reporting by Kevin Buckland; Additional reporting by Junko Fujita and Noriyuki Hirata; Additional polling by Rahul Trivedi and Pranoy Krishna; Editing by Alex Richardson)

Gold loses footing as focus turns to Fed minutes

Nov 20 – Gold prices edged lower on Monday, with a weaker dollar putting a floor under prices as investors awaited minutes of the Federal Reserve’s last meeting for cues on the central bank’s interest rate path.

Spot gold was down 0.1% at USD 1,977.49 per ounce by 3:33 p.m. ET (2033 GMT), after rising to as high as USD 1,993.29 on Friday. US gold futures settled 0.2% down at USD 1,980.30.

“Technically we’ve seen gold hit resistance and is back to range-bound trading with somewhat higher rates as a catalyst here,” said Bart Melek, head of commodity strategies at TD Securities.

The Fed was expected to maintain its narrative that monetary policy will depend on inflation and that it will keep rates elevated for as long as necessary, he added.

The minutes of the Fed meeting will be released on Tuesday.

Last week’s data reignited hopes that the Fed could begin easing monetary conditions sooner than expected after a slowing jobs market and a weaker-than-expected consumer inflation report.

Lower interest rates exert downward pressure on the dollar and bond yields, enhancing the appeal of non-yielding bullion.

Precious metals bulls have lost momentum and need fresh, fundamental impetus, analysts at Kitco Metals wrote in a note.

Rising US Treasury yields are trumping a lower US dollar and higher crude oil prices to keep gold and silver buyers skittish, Kitco said.

The dollar slipped 0.5% to a more than 2-1/2-month low against a basket of its rivals, limiting gold’s losses.

Holdings of SPDR Gold Trust GLD, the world’s largest gold-backed exchange-traded fund, rose 1.5% on Friday.

Elsewhere, spot silver rose 1.3% to USD 23.43 per ounce. Platinum jumped 2.2% to USD 918.95 and palladium gained 2.4% to USD 1,077.83 per ounce, both touching their highest in about two weeks.

(Reporting by Anjana Anil in Bengaluru; Editing by Emelia Sithole-Matarise and Shilpi Majumdar)

Hedge funds ghost tech stocks and sell consumer staples – Goldman Sachs

LONDON, Nov 20 – Global hedge funds ditched technology stocks by selling long positions and exiting short bets at the fastest weekly pace in seven months, Goldman Sachs GS.N said on Friday in a note to clients seen by Reuters.

In the period from Friday, Nov. 10 to Thursday, Nov. 16, traders dropped long and short positions on semi-conductor makers, as well as communications equipment providers, while exiting long positions on software companies, just as S&P 500 stock valuations climbed to a two-month high, well above a long-term average.

A short bet is one that counts on a stock price falling.

Frothy valuations and waning hedge fund interest might mark the end of the tech “performance concentration” seen over recent years, Florian Ielpo, head of macro at Lombard Odier Investment Managers, said.

“Equities valuations are expensive but it’s hard to say by how much. To surpass this level, we need earnings growth, and a lot of that is priced in already given analysts’ expectations for next year,” he said.

Hedge funds were generally net sellers of global stocks by the end of Thursday, particularly in North American and emerging Asian markets, the Goldman Sachs note said.

They were net buyers of Europe and developed markets in Asia, Goldman said.

Hedge funds also sold US consumer staples at the fastest pace since April 2020, and the sector suffered one of the heaviest selling spells of the past five years, it added.

Companies toting household goods, alcohol, and tobacco in the week ending Nov. 17 made up the second weakest performing group in the S&P 500.

These stocks are generally known to deliver consistent and higher returns than US Treasuries, but have been no match for recent soaring government bond yields.

Consumer discretionary stocks also saw hedge fund selling, whereas financial, industrial, and health care companies saw their stock mostly bought, the note said.

(Reporting by Nell Mackenzie; Editing by Amanda Cooper and Emelia Sithole-Matarise)

Dollar beaten to over two-month low as Fed cut bets take charge

SINGAPORE, Nov 20 – The dollar slid to a two-month low on Monday, extending a downtrend from last week as traders reaffirmed their belief that US rates have peaked and turned their attention to when the Federal Reserve could begin cutting rates.

The yuan struck three-month highs in both the onshore and offshore markets, propped up by China’s central bank, which gave the Australian and New Zealand dollars a leg up, as the two are often used as liquid proxies for the yuan.

The dollar index in Asia trade bottomed out at 103.53, its weakest level since Sept. 1, extending its nearly 2% decline from last week – the sharpest weekly fall since July.

Against the weaker greenback, the euro hit its highest since August at USD 1.09365, while the yen firmed at a one-month high of 148.68 per dollar.

Markets have priced out the risk of further rate increases from the Fed after a slew of weaker-than-expected US economic indicators last week, particularly after an inflation reading that came in below estimates.

Focus now turns to how soon the first-rate cuts could come, with futures pricing in a 30% chance that the Fed could begin lowering rates as early as March, according to the CME FedWatch tool.

“Market pricing for FOMC policy is likely to remain pretty steady, so the dollar should have very few catalysts to move it around this week,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia (CBA). “If we do see risk appetite improve again, then the dollar can definitely weaken further.”

Sterling edged 0.14% higher to USD 1.2480, flirting near a two-month peak, while the euro last bought USD 1.09185 ahead of flash PMI readings in the euro zone due this week.

Also due this week are minutes from the Fed’s latest meeting, which will offer some colour on policymakers’ thinking as they held rates steady for a second time this month.

“(The) FOMC minutes may be framed as a ‘Fed pivot’, thereby underscoring risk-on rallies favouring softer US Treasury yields and U.S. dollar, alongside buying in risk assets,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank. “The upshot is that the FOMC minutes may overstate incremental dovish shifts and likelihood of the Fed’s intended pivot signals.”

The Japanese yen remained on the stronger side of 150 per dollar and was last 0.3% higher at 149.17.

Elsewhere in Asia, the yuan leapt to a more than three-month high against the dollar in both the onshore and offshore markets, as the central bank guided the unit higher and exporters rushed to convert their dollar receipts into local currency.

The onshore yuan rose 0.5% to an over three-month high of 7.1700 per dollar, while the offshore yuan similarly got a boost and jumped roughly 0.6% to an over three-month top of 7.1703 per dollar.

The Aussie was last 0.5% higher at USD 0.6546, having struck a three-month high of USD 0.6563 earlier in the session, while the kiwi gained 0.54% to USD 0.6025.

China on Monday left its benchmark lending rates unchanged at a monthly fixing, matching expectations, as a weaker yuan continued to limit further monetary easing and policymakers waited to see the effects of previous stimulus on credit demand.

The yuan, which has fallen nearly 4% against the dollar this year in the onshore market, continues to be pressured by a faltering economic recovery in China and as investor sentiment remains fragile.

“I think the theme of a soft Chinese economic recovery will persist for a while,” said CBA’s Kong.

“Until we get a more meaningful recovery in the Chinese economy, I think that will be a headwind for the (yuan), Aussie and the kiwi in the near term.”

(Reporting by Rae Wee. Editing by Sam Holmes)

Oil extends gains on expectations of further OPEC+ supply cuts

SINGAPORE, Nov 20 – Oil futures edged higher on Monday, extending gains on expectations of OPEC+ deepening supply cuts to shore up prices, which have fallen for four weeks on easing concern of Middle East supply disruption amid the Israel-Hamas conflict.

Brent crude futures climbed 66 cents, or 0.8%, to USD 81.27 a barrel by 0700 GMT while US West Texas Intermediate crude was at USD 76.49 a barrel, up 60 cents or 0.8%.

The front-month December contract expires later on Monday while the more active January futures gained 65 cents, or 0.9%, at USD 76.69 a barrel.

Both contracts settled 4% higher on Friday after three OPEC+ sources told Reuters that the producer group, made up of the Organization of the Petroleum Exporting Countries and their allies including Russia, is set to consider whether to make additional oil supply cuts when it meets on Nov. 26.

Oil prices have dropped by almost 20% since late September while prompt inter-month spreads for Brent and WTI slipped into contango last week. In a contango market, prompt prices are lower than those in future months, signalling sufficient supply.

Saudi Arabia, OPEC’s de-facto leader, is balancing the desire to keep oil prices high by limiting supply with the knowledge that doing so will lead to a further drop in overall market share, said Jorge Leon, senior vice president of oil market research at Rystad Energy, in a client note.

“Oil markets will be looking to see if Saudi Arabia extends these cuts into 2024 or if it chooses to gradually unwind them or simply let them expire at the end of this year,” Leon said, citing the International Monetary Fund’s estimates of Saudi Arabia’s oil fiscal break-even price at USD 86 a barrel.

“Our analysis suggest that (the) Saudis will need to keep giving away market share, at least until June 2024, to achieve that price level.”

IG analyst Tony Sycamore said WTI prices may rise toward USD 80 a barrel on the back of the possibility that OPEC+ does announce deeper cuts at its upcoming meeting though a drop below USD 72 will encourage the Biden administration to refill the US Strategic Petroleum Reserve.

“All of which suggest that a rebound in prices is likely in the first half of this week,” Sycamore said.

Investors are also eyeing disruption in Russian crude oil trade after Washington imposed sanctions on three ships that have sent Sokol crude to India.

On Friday, Moscow lifted a ban on gasoline exports which could add to global supplies of the motor fuel. That came after Russia scrapped most restrictions on exports of diesel last month.

US energy firms last week also added oil and gas rigs for the first time in three weeks, said energy services firm Baker Hughes on Friday. The oil and gas rig count serves as an early indicator of future output.

In the Middle East, US and Israeli officials said a deal to free some of the hostages held in the besieged Gaza enclave was edging closer despite fierce fighting.

(Reporting by Florence Tan and Emily Chow; Editing by Christopher Cushing)

Oil climbs over 2% as OPEC seen deepening cuts

HOUSTON, Nov 20 – Oil prices climbed more than 2% on Monday as further supply cuts in OPEC+ production are expected to be announced following a meeting of member countries early next week.

Brent crude futures settled up USD 1.71, or 2.1%, at USD 82.32 a barrel.

The front-month December West Texas Intermediate crude (WTI) expired at USD 77.60, up USD 1.71, or 2.3%. The more active January futures gained USD 2.39 to USD 77.83, up 1.8%.

Both benchmarks have plunged for four straight weeks but started to rebound on Friday, settling 4% higher on profit-taking and after three OPEC+ sources told Reuters that the producer group, comprising the Organization of the Petroleum Exporting Countries and allies including Russia, is set to consider whether to make additional supply cuts when it meets on Nov. 26.

“The OPEC commentary signaling further cuts came right on cue,” said John Kilduff, partner with Again Capital LLC. “I would expect any cut would be modest. The Saudis have cut so much production, I don’t know how much more they can do.”

Goldman Sachs said that based on its statistical model of OPEC decisions, deeper cuts should not be ruled out given the fall in speculative positioning and in timespreads, and higher-than-expected inventories.

Oil prices have dropped almost 20% since late September as crude output in the US, the world’s top producer, held at record highs, while the market was concerned about demand growth, especially from China, the No. 1 importer of oil.

Last week, inter-month spreads for Brent and WTI slipped into contango, where prompt barrels are cheaper than those in future months, signaling ample supply.

Traders were also watching for signs of demand destruction from a possible US recession in 2024 and also considering last week’s warning about possible deflation from Walmart, the largest US retailer.

But most of all, traders were waiting for the OPEC+ meeting set for Sunday.

Andrew Lipow, president of Lipow Oil Associates, said members will be focused on supply and demand and not using crude as a weapon against the US, which is supporting Israel in its seven-week-old war against Hamas.

“Some of the countries are concerned about the war spreading to a regional conflict,” Lipow said. “They want to see their oil continue to flow.”

(Reporting by Erwin Seba in Houston; additional reporting by Paul Carsten, Florence Tan and Emily Chow, Editing by Marguerita Choy and Cynthia Osterman)

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