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)

Oil prices rise as supply concerns outweigh demand fears

SINGAPORE, Sept 22 (Reuters) – Oil prices rose on Friday as concerns that a Russian ban on fuel exports could tighten global supply outweighed fears that further US interest rate hikes could dent demand, but they were still headed for their first weekly loss in four weeks.

Brent futures climbed 46 cents, or 0.5%, to USD 93.76 a barrel by 0630 GMT, while US West Texas Intermediate crude (WTI) futures gained 65 cents, or 0.7%, to USD 90.28 a barrel.

Both benchmarks were on track for a small weekly drop after gaining more than 10% in the previous three weeks amid concerns about tight global supply as the Organization of the Petroleum Exporting Countries and allies (OPEC+) maintain production cuts.

“Trading remained choppy amid a tug-of-war between supply fears that were reinforced by a Russian ban on fuel exports and worries over slower demand due to tighter monetary policies in the United States and Europe,” said Toshitaka Tazawa, an analyst at Fujitomi Securities Co Ltd.

“Going forward, investors will focus on whether the OPEC+ production cuts are being implemented as promised and whether the rise in interest rates will reduce demand,” he said, predicting WTI to trade in a range of around $90-$95.

Russia temporarily banned exports of gasoline and diesel to all countries outside a circle of four ex-Soviet states with immediate effect to stabilise the domestic fuel market, the government said on Thursday.

The shortfall, which will force Russia’s fuel buyers to shop elsewhere, caused heating oil futures Hoc1 to rise by nearly 5% on Thursday.

“Crude oil bounced off a session low after Russia banned diesel exports, which included gasoline. The action reversed a downside movement in crude markets following the hawkish Fed decision,” said Tina Teng, an analyst at CMC Markets, in a note.

“However, mounting fears of a recession in the Eurozone could continue pressuring oil prices.”

The US Federal Reserve on Wednesday maintained interest rates, but stiffened its hawkish stance, projecting a quarter-percentage-point increase to 5.50%-5.75% by year-end.

That buoyed fears that higher rates could dampen economic growth and fuel demand while boosting the US dollar to its highest since early March, making oil and other commodities more expensive for buyers using other currencies.

The Bank of England mirrored the Fed and held interest rates on Thursday after a long run of hikes, but said it was not taking a recent fall in inflation for granted.

A European Central Bank (ECB) governing council member said the central bank will most likely keep interest rates stable at its next policy meeting.

(Reporting by Yuka Obayashi in Tokyo and Emily Chow in Singapore; Editing by Michael Perry, Stephen Coates and Tom Hogue)

Oil ends week lower as demand concerns face Russia supply ban

HOUSTON, Sept 22 – Oil prices held steady on Friday but closed the week lower on profit-taking and as markets weighed supply concerns stemming from Russia’s fuel export ban against demand woes from future rate hikes.

Brent futures settled 3 cents lower at USD 93.27 a barrel. It fell 0.3% in the week, breaking a three-week streak of gains.

US West Texas Intermediate crude (WTI) futures rose 40 cents, or 0.5%, to USD 90.03 a barrel, as US oil rig counts fell. The benchmark fell 0.03% for the week, the first decline in four weeks.

“Investors are anticipating a slack in demand coming into October as refineries go into maintenance and as a higher interest rate is going to further pressure markets,” said Dennis Kissler, senior vice president of trading at BOK Financial, adding that there was also some profit taking.

The contracts have rallied more than 10% in the previous three weeks on concerns about tight supply.

US Federal Reserve officials warned of further rate hikes, even after voting to hold the benchmark federal funds rate steady at a meeting this week.

“Inflation is still too high, and I expect it will likely be appropriate for the (Federal Open Market) Committee to raise rates further and hold them at a restrictive level for some time,” Fed Governor Michelle Bowman said.

A potential further rise in energy prices, she noted, was a particular risk she was monitoring.

Higher interest rates increase borrowing costs, which could slow economic growth and reduce oil demand.

Meanwhile, Russia’s temporary ban on exports of gasoline and diesel to most countries was expected to tighten supplies.

Russia’s Transneft suspended deliveries of diesel to the key Baltic and Black Sea terminals of Primorsk and Novorossiysk on Friday, state media agency Tass said.

The ban will “bring new uncertainty into an already tight global refined product supply picture and the prospect that the impacted countries will be seeking to bid up cargoes from alternative suppliers,” RBC said in a note.

Russian wholesale gasoline prices were down nearly 10% and diesel was down 7.5% on Friday on the St. Petersburg International Mercantile Exchange.

US oil rig counts, an indicator of future production, also fell by eight to 507 this week, their lowest since February 2022, energy services firm Baker Hughes said.

Refineries in the United States routinely do maintenance in autumn after heavy runs to meet fuel demand from the summer driving season. Offline refinery capacity was expected to reach 1.4 million barrels per day (bpd) this week according to IIR Energy versus 800,000 bpd offline last week.

Money managers raised their net long US crude futures and options positions in the week to Sept. 19, the US Commodity Futures Trading Commission said.

(Reporting by Arathy Somasekhar in Houston and Nicole Jao in New York; Robert Harvey, Yuka Obayashi in Tokyo, and Emily Chow in Singapore; Editing by Marguerita Choy, David Gregorio, and Josie Kao)

Hedge fund demand for US Treasuries seen rising amid higher bond supply

NEW YORK, Sept 21 – Hedge funds will likely become increasingly important buyers of US Treasuries, providing liquidity in the world’s biggest bond market at a time of rising investor concerns over supply-demand dynamics, several market participants said on Thursday.

Hedge funds’ short positions in some Treasuries futures, contracts for the purchase and sale of bonds for future delivery, have recently hit record highs due to their involvement in so-called basis trades, which take advantage of the premium of futures contracts over the price of the underlying bonds.

The trade, which contributed to severe disruptions in the Treasuries market when it was unwound rapidly in March 2020, has recently drawn attention from economists at the Federal Reserve as well as from the Bank for International Settlements. The risk, they have warned, is that large basis positions could once again exacerbate vulnerabilities in the US bond market, which is a linchpin of the world’s financial system.

Some bond market participants, however, say hedge funds using the strategy provide crucial demand for Treasuries at a time when the government is issuing more debt while the Fed – which used to be a big buyer in the market – has been reducing its bond holdings since June last year.

“It’s necessary for those participants to come in because of the funding demands of the issuers, the issuers here being (President) Joe Biden and (Treasury) Secretary (Janet) Yellen,” said Jason Granet, chief investment officer at BNY Mellon, during a panel at the ISDA derivatives trading forum in New York on Thursday. “These basis positions with these transformations are going to be a part of the equation because it’s a necessary evil to get the capital to meet the demand.”

The Treasury announced this summer it intended to increase coupon auction sizes in the third quarter and that additional gradual increases will likely be necessary in coming quarters.

Higher supply comes as liquidity in Treasuries has been problematic for most of last year, partially due to rising volatility spurred by the Fed’s aggressive rate hiking cycle.

The Fed is also progressing with “quantitative tightening” – a reversal of the massive central bank bond purchases undertaken to support markets as the coronavirus hit in 2020.

Mark Wendland, chief operating officer and partner at DRW Holdings, which is trading the cash-future basis in Treasuries, said the trade has an essential function as it supports liquidity in the market, despite some regulators’ concerns regarding leveraged players.

“The importance of the basis trade cannot be underestimated particularly given supply-demand imbalances in Treasuries,” he told Reuters on the sidelines of the forum, referring to factors such as higher government bond issuance and lower demand from the Federal Reserve as a buyer.

Cash-futures basis trades – typically the domain of macro hedge funds with relative value strategies – consist of selling a futures contract, buying Treasuries deliverables into that contract with repurchase agreement (repo) funding, and delivering them at contract expiry.

Leverage levels were very high in Treasuries during previous episodes of market stress such as March 2020 or September 2019, when dwindling bank reserves sent the cost of overnight loans as high as 10%, forcing the Fed to intervene.

But Richard Chambers, global head of repo trading and global co-head of short macro trading at Goldman Sachs, told the trading forum on Thursday that the repo market was now more efficient.

“We will have more levered investors buying Treasuries into 2024 and so demand for leverage in Treasuries will increase,” he said.

(Reporting by Davide Barbuscia, Gertrude Chavez-Dreyfuss, Carolina Mandl, and Laura Matthews in New York; Editing by Matthew Lewis)

Dollar eases after Fed-spurred rise; yen stronger ahead of BOJ

NEW YORK, Sept 21 – The US dollar eased against a basket of currencies on Thursday, but remained near a six-month high, a day after the Federal Reserve signaled US monetary policy will remain restrictive for longer.

The Japanese yen strengthened against the greenback before Friday’s Bank of Japan policy announcement, while the pound and the Swiss franc slipped after the British and Swiss central banks kept rates unchanged.

The Fed held interest rates steady at the 5.25%-5.50% range, in line with market expectations on Wednesday, but it signaled that its officials increasingly believe hawkish policy can succeed in lowering inflation without wrecking the economy or leading to large job losses.

Along with another possible rate hike this year, the Fed’s updated projections show significantly tighter rates through 2024 than previously expected.

“Dollar bulls absolutely got what they wanted yesterday,” Helen Given, an FX trader at Monex USA.

“Though Powell didn’t go as far as to say he expects a soft landing, it’s pretty clear between the dot plot and the Fed’s updated growth forecasts the central bank has convinced markets that is where the US economy may be headed,” Given said.

“Of course, this contrasts fairly directly with guidance from the ECB and BoE, facing much more dire economic situations,” she said.

The US dollar index, which measures the currency against a basket of rivals, was 0.10% lower at 105.33, after rising as high as 105.74, its strongest since March.

The yen was up 0.58% at 147.46 per dollar. With the yen still near a 10-month low against the greenback attention remains fixed on the possibility of the Japanese government intervening in foreign exchange markets to prop up the currency.

Japan will not rule out any options in addressing excess volatility in currency markets, the government’s top spokesperson said on Thursday, issuing a fresh warning against the yen’s decline toward the psychologically important 150-mark per dollar.

“Traders are repositioning before both the meeting tomorrow and CPI releases,” Monex’s Given said.

The BOJ will end its negative interest rate policy next year, the majority of economists said in
a Reuters poll, as the market has begun to envisage the demise of its ultra-easy monetary settings.

“While we are unlikely to get a rate hike tonight we may just hear some comments that imply one is to come,” Brad Bechtel, global head of FX at Jefferies, said in a note.

The pound fell to its lowest since March after the Bank of England held interest rates steady on Thursday, following a cooler-than-expected inflation report the previous day.

Thursday marked the first time since December 2021 that the BoE did not raise rates at its monetary policy meeting, a halt to a run of 14 consecutive rate hikes.

The pound was 0.41% lower at USD 1.22935.

Earlier, the Swiss franc dropped after the Swiss National Bank unexpectedly held rates steady, marking the first time the central bank has not hiked since March 2022, although it kept options open for further rate rises.

Meanwhile, Sweden’s Riksbank and Norway’s central bank both raised rates by 25 basis points, in line with expectations.

The euro was up 0.18% against the Swedish crown and about flat against the Norwegian crown following the respective decisions.

In cryptocurrencies, bitcoin was down about 2.0% on the day at USD 26,593.

(Reporting by Saqib Iqbal Ahmed; Editing by Sam Holmes, Shri Navaratnam, Sharon Singleton, and Richard Chang)

Oil settles lower as Russia fuel export ban boosts, rate hikes weigh

Sept 21 – Oil prices settled lower after choppy trading on Thursday, rising as much as USD 1 a barrel after a Russian ban on fuel exports snatched the focus from Western economic headwinds that had pushed prices down USD 1 a barrel early in the session.

Brent futures for November delivery settled down 23 cents to USD 93.30 a barrel, while US West Texas Intermediate crude (WTI) settled down 3 cents to USD 89.63. Both benchmarks had risen and fallen more than USD 1 earlier on Thursday.

Russia temporarily banned exports of gasoline and diesel to all countries outside a circle of four ex-Soviet states with immediate effect to stabilize the domestic fuel market, the government said on Thursday.

The shortfall, which will force Russia’s fuel buyers to shop elsewhere, caused heating oil futures Hoc1 to rise by nearly 5% on Thursday.

“As diesel and gasoil likely advance to new highs, they will be positioned to provide some upward pull on the crude markets,” said Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois.

The Fed on Wednesday maintained interest rates, but stiffened its hawkish stance, projecting a quarter-percentage-point increase to 5.50-5.75% by year-end.

That could dampen economic growth and overall fuel demand. The US dollar surged to its highest since early March, making oil and other commodities more expensive for buyers using other currencies.

US unemployment benefit claims dropped to an eight-month low last week, the US Labor Department reported. John Kilduff, partner at Again Capital LLC in New York, called this another factor that would encourage high interest rates.

“The Fed stance and a strong labor market have driven equities and commodities lower, pressuring oil,” said Kilduff.

The Bank of England mirrored the Fed and held interest rates on Thursday after a long run of hikes, but said it was not taking a recent fall in inflation for granted.

Norway’s central bank raised its benchmark interest rate on Thursday and, in a surprise move, said it would probably hike again in December.

Oil prices remained supported by concern about tight supply globally entering the fourth quarter. US crude stocks at Cushing, the WTI delivery hub, are at their lowest since July 2022 as the Organization of the Petroleum Exporting Countries and allies maintain production cuts.

(Reporting by Paul Carsten and Natalie Grover in London and Laura Sanicola and Trixie Yap; Editing by Sonali Paul, Jane Merriman, Alexandra Hudson, David Gregorio, and Barbara Lewis)

Gold slides as Fed reinforces higher-for-longer rates outlook

Sept 21 – Gold extended its decline for a third consecutive on Thursday, weighed by the surge in the US dollar and US bond yields after the Federal Reserve hardened its hawkish posture on interest rates.

Spot gold shed 0.5% to USD 1,920.10 per ounce by 1149 GMT, having briefly touched its highest since Sept. 1 before closing lower in the previous session.

US gold futures eased 1.3% to USD 1,940.80.

The Fed held interest rates steady on Wednesday, but its updated quarterly projections showed that rates may be lifted once more this year and kept tight through 2024.

“Gold traders took to heart the Fed’s higher-for-longer messaging… forcing bullion bulls to temper their enthusiasm,” said Exinity chief market analyst Han Tan.

The dollar climbed over a six-month peak, while benchmark 10-year Treasuries yields sat atop a 16-year high, weighing on greenback-priced bullion that bears no interest.

But “spot gold has so far only witnessed limited post-FOMC declines, as bullion bulls are apparently clinging on to Fed Chair Powell’s words that a US rate cut ‘will come’ eventually,” Tan added.

While markets penciled in a 45% chance of another rate hike this year, they also bet on roughly a 40% chance that the Fed will ease in the first half of 2024, according to the CME FedWatch tool.

“The precious metal will probably need to rely on some slowing momentum in Treasury yields in order to post gains of any significance to the upside,” said KCM Trade Chief Market analyst Tim Waterer.

On investors’ radar later in the day will be the Bank of England’s policy decision on whether it is halting a run of interest rate hikes that stretches back to December 2021.

Silver fell 0.3% to USD 23.17 per ounce and platinum slipped 1.2% to USD 917.48. Palladium dropped 2.1% to USD 1,247.18, set for its worst session since Aug. 30.

(Reporting by Deep Vakil and Swati Verma in Bengaluru; Editing by Janane Venkatraman and Krishna Chandra Eluri)

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