Wall Street ends higher as investors await US inflation, jobs data

Aug 28 – Wall Street ended higher on Monday, with gains in 3M and Goldman Sachs ahead of key inflation and jobs data this week that will offer more clues on the Federal Reserve’s interest rate path.

All three major stock indexes rose as investors digested last Friday’s comments from Fed Chair Jerome Powell that the US central bank may need to raise interest rates further to ensure inflation is contained.

Focus now shifts to a report on the personal consumption expenditures price index, the Fed’s preferred inflation gauge, to be released on Thursday, and non-farm payrolls data due on Friday.

“The fact that Powell didn’t come out and say anything particularly hawkish or particularly unnerving to markets – that has proven to make this a bit of a risk-on day, even if he wasn’t outright dovish either,” said Ross Mayfield, Investment Strategy Analyst at Baird.

Nvidia rose 1.78% and was the most traded stock in the S&P 500, with USD 31 billion worth of the chipmaker’s shares exchanged.

Other megacaps also gained, with Apple and Alphabet both adding 0.9%.

3M jumped 5.2% after a report that the conglomerate has tentatively agreed to pay more than USD 5.5 billion to resolve over 300,000 lawsuits claiming it sold the US military defective combat earplugs.

Goldman Sachs gained 1.8% after the lender struck a deal to sell an investment advisory business to wealth management firm Creative Planning LLC.

The S&P 500 climbed 0.63% to end the session at 4,433.31 points.

The Nasdaq gained 0.84% to 13,705.13 points, while Dow Jones Industrial Average rose 0.62% to 34,559.98 points.

US-listed shares of Chinese companies including JD.com, Baidu, and Alibaba rallied over 2% after China halved the stamp duty on stock trading effective Monday to boost its ailing market.

US Commerce Secretary Gina Raimondo discussed concerns about restrictions on American businesses including Intel and Micron with Chinese Commerce Minister Wang Wentao. Micron’s stock rose 2.5% and Intel added 1.1%.

The US Federal Trade Commission suspended its challenge of Amgen’s USD 27.8 billion purchase of Horizon Therapeutics. Horizon’s shares 5.2%.

Advancing issues outnumbered falling ones within the S&P 500 by a 5.5-to-one ratio.

The S&P 500 posted 10 new highs and 2 new lows; the Nasdaq recorded 54 new highs and 162 new lows.

Volume on US exchanges was relatively light, with 8.1 billion shares traded, compared to an average of 10.8 billion shares over the previous 20 sessions.

(Reporting by Shristi Achar A and Amruta Khandekar in Bengaluru, and by Noel Randewich in Oakland, Calif.; Editing by Shounak Dasgupta and David Gregorio)

Hedge fund exposure to 7 biggest tech stocks at record high, Goldman Sachs says

LONDON/NEW YORK, Aug 28 – Hedge funds hold record exposure to the seven biggest tech stocks by market capitalization, according to data released on Friday by Goldman Sachs, in a week Nvidia hit an all-time high after beating revenue expectations.

The largest seven US stocks collectively now make up about 20% of the total net market value held by hedge funds tracked by Goldman Sachs. They have also been instrumental in the gains in the broader US equity market this year.

Microsoft, Apple, Alphabet, Meta, Amazon, Nvidia, and Tesla saw the biggest percent of single stock exposure as of Aug. 24, meaning the positions were trades in individual stocks, not just in the indices like the Nasdaq.

“Hedge funds continue to embrace mega-cap tech and the artificial intelligence theme,” Goldman Sachs’ prime brokerage said in a note sent to a restricted group of clients and obtained by Reuters. The investment bank did not immediately comment on the note.

The companies did not immediately respond to a request for comment.

Last week, Nvidia reported record quarterly revenue fueled by strong demand for its artificial intelligence (AI)-focused chips and said the AI boom has legs.

“We essentially have had two markets: the ‘Magnificent Seven’ and all the rest of equities. Hedge funds will be forced into capturing these returns regardless of analysis,” said Jim Neumann, chief investment officer of Sussex Partners.

“It is momentum on steroids,” he said, adding that stock-picking hedge funds might find it harder to outperform investments in other asset classes, like fixed income.

Goldman Sachs, which runs one of Wall Street’s largest prime brokerages, is able to track trends in flows.

Shares in these companies have all risen over 35% this year, with performances ranging from Apple’s 38% rise to Nvidia’s 211% jump.

“The primary objective of hedge funds is to generate returns, rather than to be imaginative for the sake of diversification,” said Bruno Schneller, managing director at INVICO Asset Management.

Given the stocks’ outperformance, it makes sense to have invested in them, Schneller said.

Daniel Loeb, the CEO of Third Point – which had around USD 12.6 billion in assets under management at the end of February – said earlier in August that his top five winners in 2023 had included Microsoft, Amazon, and Alphabet.

HFR’s long/short index, which tracks the performance of stock-trading hedge funds that buy and sell stocks, was up about 7% for the year through July, according to the data company’s website.

(Reporting by Nell Mackenzie and Carolina Mandl; Editing by Sharon Singleton and Paul Simao)

Oil steady as possible rate hikes stoke demand worry, storm could hit supply

HOUSTON, Aug 28 – Oil prices held steady on Monday, pressured by worries further US interest rate hikes could dent demand but supported by the potential of a supply disruption from a tropical storm off the US Gulf Coast.

Brent crude settled 6 cents lower at USD 84.42 a barrel, after touching a session high of over USD 85 earlier in the day. US West Texas Intermediate crude was 27 cents, or 0.3%, higher at USD 80.10.

On Friday, crude posted a second week of losses after Federal Reserve Chair Jerome Powell said the US central bank may need to raise rates further to cool stubborn inflation.

“There are concerns still about demand going to lighten especially if we see another click higher in interest rates, the market is very nervous,” said Dennis Kissler, senior vice president of trading at BOK Financial.

Personal consumption expenditures price index, the Fed’s preferred inflation gauge, is set for release on Thursday and non-farm payrolls data is due on Friday.

China halved stamp duty on stock trading, but Chinese stock markets erased most of their strong opening gains on nagging worries about a stuttering economy.

The oil market’s focus is on “China actions to support its economy, Tropical Storm Idalia heading for Florida and whether Brent can regain momentum on a break above USD 85,” said Ole Hansen, head of commodity strategy at Saxo Bank.

Tropical Storm Idalia was expected to intensify into a major hurricane on Monday as it barrelled toward Florida’s Gulf Coast. Some worried it could hit the eastern side of US Gulf Coast crude production.

Idalia most likely impact was a day or two of power outages, said IG market analyst Tony Sycamore. That “should see some short-term support for the oil price”, he said.

Oil prices have remained above USD 80 a barrel with support from falling oil inventories and supply cuts from the OPEC+ group of oil producers.

Saudi Arabia is expected to extend a voluntary oil output cut of 1 million barrels a day into October, analysts told Reuters last week, as the kingdom seeks to further support the market.

(Additional reporting by Alex Lawler in London, Florence Tan, and Sudarshan Varadhan; editing by Jason Neely, Kirsten Donovan, Louise Heavens, Sharon Singleton, David Gregorio, and Tomasz Janowski)

China-linked assets squeezed as slowdown ripples across markets

SINGAPORE/LONDON, Aug 28 – Investors looking for clues about the state of China’s economy beyond official data are seeing red warnings flash across a range of informal gauges, prompting many to back out of global assets exposed to the slowdown.

The selling is sucking the wind out of stock markets from London to Bangkok and weighing on China proxies from the Australian dollar to New Zealand dairy prices and shares from luxury goods giant LVMH to miner BHP and casino Las Vegas Sands.

As the post-pandemic period has failed to bring a sustained recovery in consumer spending or to thaw the near-frozen property market, most analysts now figure the world’s second-largest economy is going to miss its 5% growth target this year.

Beneath the headlines, investors are even gloomier with higher-frequency and more arcane data from a shrinking current account surplus to ballooning deposits and soft surveys pointing to a deep-seated confidence problem.

“It’s pretty weak,” said Sat Duhra, a portfolio manager at Janus Henderson who devises a macro score for countries by tracking seven factors including PMI surveys, real exchange rates, current accounts, growth estimates and liquidity.

“PMIs have been weak, GDP is being revised downward. It’s a tricky situation,” he said. “And I don’t see any point, at this point, in taking a bullish view on China when all of these things are going on.”

His fund invests in China, but away from economically sensitive sectors such as banks, property or industrials.

Beyond China, which is the largest trading partner of most of its neighbors and other big economies, souring demand is beginning to take a toll.

New Zealand’s Fonterra, the world’s biggest dairy exporter, has cut its farmgate milk price forecast twice in a month citing “reduced demand from key importing regions.” It previously noted that the largest slowdown was in China.

Last week BHP Group posted its weakest annual profit in three years and manganese-focused spinoff South32 said profit fell by nearly two-thirds. New Zealand’s a2 Milk Co warned of weak growth in China’s infant formula market.

Shares of BHP, S32 and a2 fell.

Seema Shah, chief global strategist at Principal Global Investors in London, sees the slowdown biting in Europe, where investors tend to connect the fortunes of German manufacturers with those of their Chinese customers.

“We have become a bit more gloomy on Europe,” she said, noting China also poses a risk to US equities.

RETREAT

This year’s run of bad indicators has wrong-footed investors, who had been positioning for companies such as BHP and currencies such as the Australian dollar and Thai baht to rally as China emerged from the COVID-19 pandemic in a blaze of spending.

Instead, Chinese visitors to top destination Thailand, for example, are barely a third of pre-pandemic levels, the baht is stalled and in Asia, only Hong Kong’s Hang Seng has fallen further than Thai stocks’ 6.5% drop.

Even in Japan, the stock market success story of the year so far, portfolio manager Zuhair Khan at UBP Investments says he’s shorting or avoiding companies reliant on China sales.

The scale of the problem, with data showing consumer and producer prices falling and youth unemployment running over 20%, indicates an aggressive policy response is needed, and quickly, he said, something that is so far yet to arrive.

To be sure, although they too have lately retreated, stocks of companies such as casino operator Las Vegas Sands and luxury-goods seller LVMH are up 11% and 16%, respectively, this year, against a 10% gain for world stocks, and some investors remain bullish.

“We expect group travel to resume in late 2023 and support Chinese spend on luxury goods globally,” said Prashant Bhayani, Asia chief investment officer at BNP Paribas Wealth Management.

But it’s now a waiting game for valuations to reflect more realistic assumptions.

“The China reopening as a thematic has played out to some extent. However, I think more importantly, it has fallen short of initial expectations,” said Jagdeep Ghuman, a portfolio manager for US asset manager Nuveen.

“It’s (now) very much on a case-by-case basis, driven by valuations. Overall, we have seen that reset of expectations play out in the market and so there has been volatility in the shares of these companies.”

(Reporting by Tom Westbrook and Rae Wee in Singapore, Dhara Ranasinghe in London and Summer Zhen and Xie Yu in Hong Kong. Editing by Sam Holmes)

Powell’s steady hand steers dollar higher: McGeever

ORLANDO, Florida, Aug 25 – Federal Reserve Chair Jerome Powell’s speech in Jackson Hole is likely to maintain the ‘higher for longer’ outlook for US interest rates and bond yields – good news for dollar bulls, especially given the contrasting picture elsewhere in the world.

While the US economy appears to be humming along quite nicely – at a near-6% annualized rate, according to the latest Atlanta Fed tracking estimate – the same cannot be said for its main rivals, most notably the eurozone and China.

The dollar had already clocked a two-month high against a basket of major currencies before Powell’s keynote address at the Kansas City Fed’s annual gathering of US and global policymakers on Friday.

Short-dated yield spreads, typically a key driver of exchange rates, have been widening in recent weeks in favor of the dollar over most major currencies including the euro, sterling, yen, and yuan.

While it’s always dangerous to infer too much from market moves on any given day, especially days prone to knee-jerk reactions to major data or policy events, it is noteworthy that there was no pullback on Friday.

The two-year US yield remained more than 200 basis points higher than its German equivalent, around the widest gap in favor of the dollar this year, and the US-UK 2-year spread hit its widest in two and a half months.

The two-year US-Japanese yield spread, meanwhile, spiked up towards the peaks from July and March that marked levels not seen since the year 2000.

“Yield spreads relative to other developed markets are likely to provide support for the dollar to move into a higher trading range,” said Yung-Yu Ma, chief investment officer at BMO Wealth Management.

MIND THE GAP

If Powell’s speech can be boiled down to a sentence or two, it is probably this: “…we will proceed carefully as we decide whether to tighten further or, instead, to hold the policy rate constant and await further data.”

It is a ‘win-win’ for the dollar, at least in the coming weeks and possibly into year-end. Further tightening is not yet priced into US rates markets, so another quarter-point hike will likely give the buck a boost.

Even if the Fed doesn’t raise rates again, it is in no rush to cut them. That may change if the data suddenly deteriorates, but right now eurozone and UK rate curves are more vulnerable to a darkening growth outlook than the US curve.

Money markets are still anticipating an almost one-quarter-point rate hike from the European Central Bank this year and 65 bps from the Bank of England by next May. If the latest purchasing managers index reports are any guide, that pricing could be too optimistic – eurozone and UK activity are contracting at a rapid clip, according to the PMIs.

The bullish US rate outlook relative to China and Japan is perhaps even more justified.

Facing deflation, an imploding property sector, and deepening economic malaise, the People’s Bank of China is reluctantly being forced to cut rates and loosen monetary policy. The US-China yield gap, now the widest since 2007 when comparing 10-year yields, is unlikely to narrow much in the coming weeks.

The US-Japan yield spread of more than 500 bps may be the most vulnerable, given how wide it is. But the Bank of Japan has shown no inclination to follow its tentative ‘yield curve control’ tweaks with actual rate hikes, and Tokyo inflation data this week suggests national price pressures continue to ease.

The dollar is up 5% in the last six weeks, so a pause or profit-taking dip would come as little surprise. But as long as US yields offer such a cushion, it shouldn’t be long before the dollar is bouncing higher again.

(The opinions expressed here are those of the author, a columnist for Reuters.)

(By Jamie McGeever; Editing by Andrea Ricci)

Options show extent of Jackson Hole risk to USD/FX

Aug 25 – FX volatility expectations are a key consideration when determining an FX option premium, so any change to those premiums over a major event like Friday’s speech from Federal Reserve Chairman Jerome Powell at the Jackson Hole Symposium can offer clues on the perceived FX reaction.

FX volatility traders use options in conjunction with an opposing cash position, which removes the directional risk and allows them to capture actual volatility by adjusting that hedge when the FX spot moves. The aim for option holders is to capture more FX pips than the premium paid.

Overnight options expire the next working day at 10-am New York (now Monday) and consequently include Powell’s speech at 10:05 AM New York time on Friday. The premium for simple overnight expiry at-the-money straddle options in EUR/USD has increased from 42 USD pips to 54 USD pips in either direction. Overnight expiry USD/JPY premium is now 90 JPY pips from 58 JPY pips and AUD/USD now 49 USD pips from 37 USD pips in either direction.

To give those prices a little more context, before the US Fed rate decision on July 26, the overnight expiry FX volatility premium for EUR/USD was 75 USD pips, USD/JPY 110 JPY pips and AUD/USD 53 USD pips in either direction.

While traders are clearly not complacent about the Jackson Hole risk to FX volatility, they are likely to remain more focused on hard data like next week‘s NFP and ISM ahead of September‘s US policy meeting.

(Richard Pace is a Reuters market analyst. The views expressed are his own)

China plans to cut stamp duty on stock trading by up to 50% to revive sentiment-sources

HONG KONG/BEIJING, Aug 25 – Chinese authorities are planning to cut the stamp duty on domestic stock trading by as much as 50%, three people with knowledge with the matter said, in a further attempt to revitalise the country’s struggling stock market.

Chinese regulators including the Ministry of Finance, under the guidance of the State Council, submitted a draft proposal to the cabinet earlier this month, said two of the people, adding a decision could be made and announced as soon as Friday.

The proposal to reduce the current 0.1% stamp duty on securities trading suggested a cut of either 20% or 50%, which would be the first such cut since 2008, the two people said.

The quantum of the cut, which has not been reported before, is likely to be set at 50%, they said.

All the sources declined to be named as they were not authorised to speak to the media.

The State Council Information Office, which handles media queries on behalf of the government, did not immediately respond to a faxed request for comment. The Ministry of Finance and the China Securities Regulatory Commission (CSRC) did not immediately respond either.

(Reporting by Hong Kong and Beijing newsrooms; Additional reporting by Shanghai newsroom; Editing by Sumeet Chatterjee and Lincoln Feast.)

Oil heads for weekly fall on demand worries, dollar strength

Aug 25 – Oil prices fell slightly in early Asian trade on Friday, on track for a weekly decline as weak manufacturing activity hurt the global demand outlook and the dollar remained buoyant.

Brent crude fell 16 cents, or 0.2%, to USD 83.20 a barrel by 0013 GMT, while US West Texas Intermediate crude fell 18 cents, or 0.2%, to USD 78.91 a barrel.

Crude prices are set to fall between 2%-3% for the week, a second consecutive week of decline.

Oil settled modestly higher in the previous session after Dutch consultancy Insights Global posted data showing gasoil stocks held in independent storage in the Amsterdam-Rotterdam-Antwerp (ARA) refining and storage hub declined by 3% in the latest week.

Investor caution ahead of remarks from Federal Reserve Chair Jerome Powell at the Jackson Hole Symposium lifted the safe-haven dollar to a 10-week high, its biggest rise in a month, as markets waited for word on how long rates would stay high. A strong dollar makes oil more expensive for holders of other currencies, denting demand.

Oil fell for much of the week as global economies reported shrinking factory activity. Japan reported lower factory activity for a third straight month in August. Eurozone business activity also declined more than expected and Britain’s economy looked set to shrink in the current quarter.

India’s oil consumption growth has also slowed in recent months due to high inflation and slowing global trade. The increase in the first seven months was equivalent to roughly 255,000 barrels per day (bpd), down from growth of 415,000 bpd in 2021/22.

On the supply side, the market largely shrugged off reports earlier in the week that Saudi Arabia would likely extend its production cuts of 1 million barrels per day into October.

Iran’s crude oil output will reach 3.4 million bpd by the end of September, the country’s oil minister was quoted as saying by state media, even though US sanctions remain in place.

(Reporting by Laura Sanicola; Editing by Jacqueline Wong)

Keeping control ahead of Jackson Hole

Aug 25 – Barring a collapse of 1.5% or more on Friday, Asian stocks are about to chalk up their first weekly rise in four, but will this mark a turning point or merely a temporary lifting of the gloom?

The answers to that will begin to unfold next week as investors give their verdict on what comes out of the Federal Reserve’s Jackson Hole Symposium, particularly Chair Jerome Powell‘s speech on Friday.

The latest Tokyo inflation figures for July top Asia’s economic data calendar on Friday, offering an insight into Japan’s national inflation picture and potential implications for Bank of Japan policy in the coming months.

The market mood in Asia on Friday will be one of caution – Wall Street sold off sharply on Thursday, the dollar had its biggest rise in a month to hit a 10-week high, and investors are reluctant to be too gung-ho ahead of Powell’s remarks.

The MSCI Asia Pacific ex-Japan index rose 1.5% on Thursday, its best day in a month. But despite this flurry, August has been a bruising month and the index is on track for its steepest monthly fall since September last year.

Broadly speaking, Asia-Pacific stocks seem reasonably priced right now, trading roughly in the middle of their long-term ranges and standard deviation levels. Indian stocks are by far the most expensive, and China’s are the cheapest.

China’s economic, market, and policy challenges this year have been well documented, so stocks are cheap for good reason. There’s little to suggest these issues will be fixed any time soon, so decent market bounces like Thursday’s will probably continue to be the exception rather than the rule.

Foreign investors were buyers of Chinese stocks on Thursday for the first day in 13, according to Stock Connect data, a long stretch of outflows that authorities in Beijing will be hoping is not repeated.

Tech stocks could come under extra pressure following the Nasdaq’s 1.9% slump on Thursday, a slightly perplexing fall given long-dated bond yields didn’t rise that much and Nvidia managed to close in positive territory. Just.

The macro focus in Asia on Friday shifts to Tokyo inflation. The annual rate for July is seen easing below 3% for the first time since September last year.

The dilemma for Japanese policymakers runs deep. National core inflation has exceeded the central bank’s 2% target for 16 straight months, as firms continue to pass on higher import costs driven in part by the weak yen.

Worried about hurting a fragile economy, the BOJ has stressed its resolve to keep interest rates ultra-low even as it decided last month to raise a cap on long-term bond yields.

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

– US Fed’s Jackson Hole Symposium

– Japan Tokyo CPI inflation (August)

– Malaysia CPI inflation (July)

(By Jamie McGeever; Editing by Josie Kao)

Major indexes fall 1%, focus shifts to upcoming Powell speech

NEW YORK, Aug 24 – The three major US stock indexes ended down more than 1% each on Thursday, led by a drop in the Nasdaq after this week’s sharp gains and as investors were nervous ahead of Federal Reserve Chair Jerome Powell’s speech Friday.

Shares of Nvidia ended barely higher after they hit a record high early in the session. The company late Wednesday gave a much stronger-than-expected forecast amid demand for its artificial intelligence chips and said it would buy back USD 25 billion in stock.

All of the major S&P 500 sectors were down on the day, however, and an index of semiconductors dropped 3.4%.

Central bankers and other economic leaders gathered Thursday for an annual symposium in Jackson Hole, Wyoming. Powell’s highly anticipated speech on the economic outlook is due Friday.

“As much as investors want to focus on Nvidia and want to focus on tech – and it’s been a good year so far – this is still a market that is Fed obsessed. This is still all about what is Jay Powell going to say tomorrow to mess things up… that may lead investors to be sellers instead of buyers,” said Jake Dollarhide, chief executive officer of Longbow Asset Management in Tulsa, Oklahoma.

The market had gained along with Nvidia this week ahead of the company’s report on hopes that its forecast could extend this year’s artificial intelligence tech stock rally.

The Dow Jones Industrial Average fell 373.56 points, or 1.08%, to 34,099.42, the S&P 500 lost 59.7 points, or 1.35%, to 4,376.31 and the Nasdaq Composite dropped 257.06 points, or 1.87%, to 13,463.97.

Data earlier Thursday showed claims for US unemployment benefits pointed to a still-strong jobs market, news that some say could support the Fed’s hawkish message of higher interest rates for longer. Treasury yields edged higher.

Investors also digested comments from Philadelphia Fed President Patrick Harker, who in an interview on CNBC on Thursday said the Fed will need to keep rates restrictive for a while.

The Fed has been raising rates since March 2022 in an effort to bring down inflation, and investors are looking for clarity on whether more rate increases are ahead and how long the Fed plans to hold rates high.

Among the day’s decliners, Dollar Tree shares dropped 12.9% after the retailer forecast annual profit largely below estimates.

Volume on US exchanges was 9.99 billion shares, compared with the 10.87 billion average for the full session over the last 20 trading days.

Declining issues outnumbered advancing ones on the NYSE by a 2.95-to-1 ratio; on Nasdaq, a 2.61-to-1 ratio favored decliners.

The S&P 500 posted 10 new 52-week highs and 13 new lows; the Nasdaq Composite recorded 35 new highs and 220 new lows.

(Additional reporting by Amruta Khandekar, Shreyashi Sanyal, and Shristi Achar A in Bengaluru; Editing by Savio D’Souza, Shinjini Ganguli, and Deepa Babington)

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