Gold rises after China data boosts yuan against dollar

Sept 15 – Gold prices gained on Friday as the dollar eased against the yuan after promising China economic data boosted recovery hopes in the world’s top bullion consumer, although the possibility of further US. interest rate hikes kept investors on edge.

Spot gold rose 0.3% to USD 1,915.27 per ounce by 0537 GMT, while US gold futures were up 0.2% at USD 1,936.90.

The yuan hit two-week highs against the dollar after data showed China factory output and retail sales in August beat forecasts. A softer dollar makes greenback-priced bullion more attractive for overseas buyers.

Despite the gains, bullion was still on track for a small weekly decline after dropping to near USD 1,900 level, its lowest since Aug. 23, on Thursday.

“The outlook for rates to be kept high for longer has been keeping non-yielding gold prices under pressure,” said Yeap Jun Rong, a market strategist at IG.

“Given the still-resilient economic conditions in the US, it does not seem to warrant the need for rate cuts anytime soon, with the timeline for cuts constantly pushed back into mid next year.”

Data on Thursday showed US. producer prices increased by the most in more than a year last month while retail sales also beat expectations, boosted by a surge in gasoline prices.

This comes after US consumer prices in August increased by the most in 14 months, keeping bets alive for further rate hikes by the Federal Reserve after a likely pause next week.

Higher rates to curb inflation tend to lower demand for bullion, which yields no interest.

Encouraging Chinese data also supported other precious metals, with spot silver climbing 1.3% to USD 22.92 per ounce. Platinum gained 0.6% to USD 911.90 and palladium added 0.1% to USD 1,252.56, both looking poised for weekly gains.

(Reporting by Swati Verma in Bengaluru; Editing by Sherry Jacob-Phillips)

Oil gains for third straight week on tight supply, China optimism

BENGALURU, Sept 15 – Oil prices hit a 10-month high on Friday and posted a third weekly gain as supply tightness spearheaded by Saudi Arabian production cuts combined with optimism around Chinese demand to lift crude.

Brent crude futures rose 23 cents, or 0.3%, to settle at USD 93.93 a barrel, while US West Texas Intermediate futures was up 61 cents, or 0.7%, to close at USD 90.77 a barrel. Both contracts traded at 10-month highs on Tuesday for the fifth consecutive session, and gained about 4% on a weekly basis.

Oil prices are also on track for their biggest quarterly increase since Russia’s invasion of Ukraine in the first quarter of 2022.

Supply concerns continue to be a driving force for prices since Saudi Arabia and Russia this month announced an extension of their combined supply cuts of 1.3 million barrels per day to the end of this year, said Fiona Cincotta, an analyst at City Index.

Better-than-expected industrial output and retail sales data in China have also boosted oil prices this week, with the country’s economic conditions considered crucial to oil demand for the rest of this year, Cincotta added.

Data on Friday showed Chinese oil refinery processing rose by nearly 20% from a year earlier as processors kept run rates high to capitalise on high global demand for oil products.

Expectations of moderating US oil output have also boosted prices in recent weeks, Third Bridge analyst Peter McNally said.

“Supply growth from the US appears to be limited as producers there have taken drilling activity down nearly 20% from last year’s peak,” McNally noted.

The US oil rig count rose by two this week to 515, the most since April, data from oilfield services firm Baker Hughes showed on Friday. Compared to a year ago, however, the oil rig count is down by 84 units, the data showed.

(Reporting by Shariq Khan; Additional reporting by Natalie Grover and Sudarshan Varadhan; Editing by David Goodman, Nick Zieminski, Chris Reese, and Paul Simao)

New ETF looks to tap hot market for zero-day options

NEW YORK, Sept 14 – An exchange-traded fund (ETF) that started trading on Thursday offers investors a new way to participate in the hot market for short-dated equity options, a risky trading strategy that has enthralled markets over the last year.

Miami-based ETF sponsor Defiance ETFs LLC launched the Defiance Nasdaq-100 Enhanced Option Income ETF on Thursday, the first ETF to use daily options income generation, the ETF sponsor said in a press release.

The ETF seeks to tap into the dual popularity of short-dated options contracts and the heightened interest in ETFs that seek to generate income through a combination of selling options and investing in US large-cap stocks.

Short-dated options contracts, with a day or less to expiry – dubbed 0DTE (zero days to expiry) options – have grown popular with investors over the past year, often making up as much as half the daily trading volume in the options on major ETFs and indexes, including the S&P 500 and the Invesco QQQ ETF.

Their increased usage has sparked concerns about their risks and the potential for a volatility shock that could ripple out to the broader stock market.

Investors have also flocked to ETFs that look to generate income and reduce portfolio volatility by selling options against stocks.

One such ETF – the JPMorgan Equity Premium Income ETF – has grown its assets to about USD 29.5 billion from about USD 12.4 billion a year ago. Assets at another, the Global X Nasdaq 100 Covered Call ETF, have grown to USD 8.1 billion from USD 6.9 billion a year ago.

“If there is one thing that investors are eager to receive, it is a steady stream of income, and we hope to provide just that,” said Defiance ETFs’ Chief Executive Officer Sylvia Jablonski.

The new actively managed ETF, QQQY seeks monthly yield for investors by combining Treasuries and short-dated Nasdaq-100 index options. The fund will seek to generate income by selling 0DTE put options looking to capture the premium in these highly volatile derivatives contracts, the ETF sponsor said.

“QQQY is attempting to timely scratch two itches, potential income from an asset that doesn’t typically generate income and exposure to the sudden popularity of trading ODTE options,” said Lois Gregson, senior ETF analyst at FactSet Research Systems.

Gregson, however, warned the ETF’s reliance on the highly volatile 0DTE options could leave it vulnerable to losses.

“The fund is ‘betting’ the market will rise more often than fall,” Gregson said, noting that the portfolio manager would have to buy back the short put options potentially at a loss.

“The strategy is similar to picking up dimes in front of a bulldozer. The income potential is there, but there are times you could also get run over,” Gregson said.

Defiance ETFs is set to launch two other ETFs – the Defiance S&P 500 Enhanced Options Income ETF JEPY and Defiance R2000 Enhanced Options Income ETF IWMY, which will employ a similar strategy with exposure to the S&P 500 and the Russell 2000 Indexes, respectively.

The success of the new ETF may hinge on the continued growth of interest in short-dated options, said Seth Golden, president of investment research firm Finom Group.

Golden said he will be watching liquidity and trading volume for the new product to gauge its viability.

The ETF’s shares were trading about flat at USD 20.13 at 12:45 p.m. (1645 GMT) with about 7,000 shares changing hands.

(Reporting by Saqib Iqbal Ahmed; Editing by Richard Chang, Ira Iosebashvili, and Daniel Wallis)

Gold at 3-week low as strong US data lifts dollar, yields

Sept 14 – Gold prices held near a three-week low on Thursday after higher-than-expected US producer prices and retail sales data raised worries US interest rates are likely to stay higher for longer, boosting the dollar and bond yields.

Spot gold rose 0.1% to USD 1,909.05 per ounce by 1:47 p.m. EDT (1747 GMT), after touching USD 1,900.81, its lowest since Aug. 23. US gold futures settled little changed at USD 1,932.80.

“We saw some headline inflationary data that was hotter than expected and as a result, we are seeing yields tick higher once again and continue to pressure the spot gold market,” said David Meger, director of metals trading at High Ridge Futures.

Data showed US producer prices increased by 0.7% in August, the most in more than a year, while US retail sales increased by 0.6% over Reuters’ expectation of 0.2% during the same period.

The US dollar index jumped 0.6% to over six-month high, reducing gold’s appeal for overseas investors, and the yield on the benchmark 10-year note also ticked higher.

“There are concerns the Fed does have the possibility of continuing to raise interest rates or yields continue to rise and that does apply some pressure to the gold market,” Meger said.

Although markets are pricing in that the Fed would hold rates unchanged at their policy meeting next week, there’s a 39% probability of a rate rise in November, according to the CME’s FedWatch Tool.

Higher interest rates dull the appeal of bullion, which bears no interest.

Earlier in the day, The European Central Bank raised its key interest rate to a record high of 4% on Thursday, but signaled this was likely to be its final move.

However, the USD 1,900 level for gold is fairly well-supported and will attract some bargain hunting, analysts said.

Silver fell 0.8% to USD 22.66 per ounce after hitting a four-week low, while platinum rose 0.6% to USD 905.87.

Palladium fell 1% to USD 1,246.10, after touching a three-week peak.

(Reporting by Harshit Verma in Bengaluru; additional reporting by Brijesh Patel; editing by David Evans and Krishna Chandra Eluri)

China asks big banks to stagger and adjust dollar purchases – sources

SHANGHAI, Sept 14 (Reuters) – China’s central bank has asked some of the country’s biggest lenders to refrain from immediately squaring their foreign exchange positions in the market, and to run open positions for a while in order to alleviate downside pressure on the yuan, two sources with knowledge the matter said.

As part of this informal “window guidance”, banks have been asked not to square their positions in the inter-bank foreign exchange markets after any US dollar sales to clients, until their spot foreign exchange position hits a certain level, the sources said.

Most banks are allowed to run a net short or long foreign currency position in spot dollar-yuan markets, within defined limits.

The move would effectively mean some of the heavy dollar purchases by companies would be absorbed by banks and sit on their books for a while, thus partially reducing downward pressure on the sliding yuan.

The directive came from a meeting the People’s Bank of China (PBOC) held with a few commercial banks earlier this week, the sources said. Banks were also told that companies requiring to purchase USD 50 million or more will need to seek the central bank’s approval, Reuters reported.

China’s yuan CFXS has lost more than 5% against the dollar so far this year to trade 7.2735 per dollar on Thursday, becoming one of Asia’s worst-performing currencies for 2023.

The People’s Bank of China (PBOC) did not immediately respond to Reuters request for comment.

GOLDEN WEEK

The latest efforts by the PBOC to smooth currency movements come just ahead of China’s golden week holidays in early October, which traditionally sees a spurt in overseas travel and dollar demand.

The sources, who received the directive, said banks were also told to encourage their clients to hold off on dollar purchases.

Widening yield differentials with other major economies, particularly the United States, and a faltering domestic economic recovery have piled pressure on the yuan. Its steady fall has also led to a lopsided market as exporters retain their dollar earnings in deposits rather than convert them into yuan, or renminbi as the local currency is known in China.

“The source of the weakness in renminbi is very simply that interest rates in China are low, that activity in China is slow, therefore the rate of return of marginal capital invested in China is not as great as elsewhere, and therefore that impacts capital flows,” said Sid Mathur, head of Asia-Pacific macro strategy and emerging market research at BNP Paribas.

OVERSHOOT

China’s foreign exchange self-regulatory body said on Monday it would resolutely fend off risks of the yuan overshooting and pledged to take action when needed to correct one-sided and pro-cyclical activities, according to a statement published by the PBOC.

China has in recent months stepped up its efforts to slow the pace of yuan declines by setting persistently stronger-than-expected midpoint fixings. Earlier this month, it announced it would increase the supply of dollars by lowering the amount of foreign exchange that banks must set aside.

Chinese authorities “are simply smoothening the cycle. They want to avoid herding behavior. They want to avoid a scenario where the market feels that they might be losing control. And so they’re just using different administrative tools to smoothen price action,” Mathur said.

Sources told Reuters last month that China’s currency regulators asked some banks to reduce or postpone their purchases of US dollars in order to slow the yuan’s depreciation.

(Reporting by Shanghai Newsroom; Editing by Shri Navaratnam)

Oil rises to highest in 2023 on tight supply expectations

HOUSTON, Sept 14 – Oil prices climbed on Thursday to their highest this year, as expectations of tighter supply outweighed worries about weaker economic growth and rising US crude inventories.

Brent crude rose USD 1.82, or 1.98%, to settle at USD 93.70, after touching USD 93.89, its highest since November 2022.

US West Texas Intermediate crude (WTI) gained USD 1.64, or 1.85%, to USD 90.16, closing above USD 90 for the first time since November.

On Wednesday, the International Energy Agency said Saudi Arabia and Russia’s extended oil output cuts will result in a market deficit through the fourth quarter. Prices briefly pulled back on a bearish US inventories report before resuming their climb.

“That this genuinely bearish stock report only led to a brief temptation to sell speaks volumes and underlines the market mentality,” said Tamas Varga of oil broker PVM.

Both benchmarks remained in technically overbought territory.

Hedge funds have been buying crude oil futures for the past two or three weeks as “fundamentals continue to get stronger, driven mostly by heavy demand for both gasoline and diesel,” said Dennis Kissler, senior vice president of trading at BOK Financial.

A day before the IEA report, the Organization of the Petroleum Exporting Countries (OPEC) issued updated forecasts of solid demand and also pointed to a 2023 supply deficit if production cuts are maintained.

“The market is getting increasingly nervous about the sufficiency of supply,” said John Kilduff, partner at Again Capital.

“Russia and Saudi are acting in a way that could materially constrain supplies as we get into the peak northern hemisphere demand season, for the winter period,” Kilduff added.

The European Central Bank raised its key interest rate to a record peak but signaled this was likely its final move to tame inflation.

Investors see a 97% likelihood the US Federal Reserve will hold interest rates steady in its next meeting on Sept. 20, according to the CME FedWatch Tool.

Meanwhile, China’s central bank said it would cut the amount of cash that banks must hold as reserves for the second time this year to boost liquidity and support the country’s economic recovery.

China is the world’s second-largest oil consumer and its economic recovery has remained choppy, worrying markets about demand.

(Reporting by Arathy Somasekhar in Houston, Alex Lawler in London; Additional reporting by Robert Harvey and Natalie Grover in London and Jeslyn Lerh in Singapore; Editing by Jane Merriman, David Gregorio, and David Evans)

Oil prices tick up as markets zoom in on supply tightness

Sept 14 – Oil prices edged higher on Thursday, after dipping slightly in the previous session, as markets refocused on expectations of tight crude supply for the rest of 2023.

International benchmark Brent futures climbed 17 cents to USD 92.05 a barrel at 12:02 GMT, while US West Texas Intermediate crude (WTI) rose 19 cents to USD 88.71.

Saudi Arabia and Russia’s extension of oil output cuts to the end of 2023 will mean a substantial market deficit through the fourth quarter, the International Energy Agency (IEA) said on Wednesday, as it largely stuck by its estimates for demand growth this year and next.

The Organization of the Petroleum Exporting Countries (OPEC) on Tuesday stuck to its forecasts for robust growth in global oil demand in 2023 and 2024.

Both benchmarks climbed to 10-month highs on Wednesday before data showed a surprise build in US crude and fuel inventories that worried markets about demand.

US crude inventories rose by 4 million barrels last week, confounding analysts’ expectations in a Reuters poll for a 1.9-million-barrel drop. Fuel inventories also rose more than expected as refiners stepped up activity.

On the economic front, investors interpreted the latest reading of US inflation as confirmation the Federal Reserve will not raise interest rates next week and could extend its pause further, buoying hopes of strong oil demand.

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

(Reporting by Arathy Somasekhar in Houston; Editing by Leslie Adler)

Dollar climbs as Fed expectations remain intact after CPI

NEW YORK, Sept 13 – The dollar index was higher on Wednesday, after US economic data showed inflation increased for August but did little to alter market expectations for the path of rate hikes from the Federal Reserve.

The consumer price index increased by 0.6% last month, the largest gain since June 2022, as gasoline prices jumped, Labor Department data showed. Excluding the volatile food and energy components, the CPI increased 0.3%, moderated by a decline in prices for used cars and trucks.

The data failed to disrupt views the US central bank will hold rates steady at its policy announcement next week at the conclusion of its Sept. 19-20 meeting. The market is pricing in a 97% chance the Fed will keep rates at their current level, up from 92% on Tuesday, according to CME’s FedWatch Tool.

Expectations for a 25-basis-point hike at the November meeting, which had been creeping up this week, slipped to 40.8% from 41.1% a day ago.

“For me, CPI didn’t really change the story that much,” said Marvin Loh, senior global macro strategist at State Street in Boston.

“If you think that they need to go another hike, you still think they need to go another hike. If you think they’re done, there’s probably enough in here where it’s done. Probably more important is how you look at next year’s cuts and most importantly is that there was nothing in today’s number that really changed next year’s cut that much.”

The dollar index, which tracks the currency against a basket of rival currencies, was up 0.19% to 104.79.

Goldman Sachs chief economist Jan Hatzius said in a note on Wednesday the firm does not expect the CPI report to affect the outcome of next week’s meeting in which he sees policy unchanged, and continues to believe the Fed will see a final hike at the November meeting as unnecessary.

Barclays also maintained their call for a pause by the Fed next week, but continue to expect one more hike of 25 basis points by year-end.

Another inflation reading will be released tomorrow in the form of the producer price index (PPI), while retail sales data will also be released.

The euro lost 0.22% to USD 1.073 against the greenback ahead of the policy announcement from the European Central Bank (ECB) on Thursday.

A source with direct knowledge of rate setters’ discussions told Reuters on Tuesday the central bank expects euro zone inflation to remain above 3% next year, supporting the case for a tenth straight interest rate increase this week.

Sterling edged down 0.08% at USD 1.2485, after data showed the UK economy contracted in July at an unexpectedly sharp rate, as gross domestic product shrank 0.5% from June, below expectations for a 0.2% contraction.

The dollar EBS strengthened 0.27% against the yen to 147.45 as the Japanese currency continued to give back a sharp gain on Monday the resulted in the biggest one-day climb for the yen in two months.

Weekend comments from Bank of Japan (BOJ) Governor Kazuo Ueda heightened expectations the central bank could shift away from its negative interest rate policy, sending the yen surging to start the week, but these were subsequently dampened after influential ruling party lawmaker Hiroshige Seko indicated his preference for an ultra-loose monetary policy on Tuesday.

The yen has come under pressure against the dollar as the BOJ remains a dovish outlier among global central banks, especially since the Federal Reserve began its aggressive rate-hike cycle in March 2022.

Traders have been closely watching for any signs of intervention from Japan to shore up the yen since it weakened past the 145 per dollar threshold last month. A year ago, that level led to the first yen-buying intervention by the authorities since 1998.

(Reporting by Chuck Mikolajczak; Editing by Andrea Ricci and Diane Craft)

‘Higher for longer’ rates remain a threat to US stocks after inflation data

NEW YORK, Sept 13 – The latest US inflation data is unlikely to ease worries over persistently high Treasury yields that have gnawed on stocks over the last few weeks, investors said, although many believe the longer-term trend of cooling consumer prices remains intact.

US consumer prices climbed by 0.6% in August, broadly in-line with economists expectations. In the 12 months through August, the CPI jumped 3.7%, though year-on-year consumer prices have come down from a peak of 9.1% in June 2022.

While that data does not necessarily argue for more rate increases, it did little to dispel expectations that the Federal Reserve will leave interest rates at current levels for longer than previously expected, a view that has boosted Treasury yields while dulling the allure of stocks since the equity market peaked in July.

With the S&P 500 already up over 16% year-to-date and stocks richly valued by some metrics, some investors believe equities will struggle to make headway for the rest of 2023.

“As long as inflation continues to be sticky we believe that the market will face more volatility and trade sideways,” said Alex McGrath, chief investment officer for NorthEnd Private Wealth, adding that falling valuations for risk assets may be “the next shoe to drop” for the US stock market.

Futures tied to the Fed’s funds rate now show a 45% chance of at least one rate hike by December, up from a roughly 31% chance seen a month ago. Markets now anticipate that the Fed will cut rates for the first time in July 2024, compared with expectations a month ago that rates would begin falling by March.

The central bank concludes its monetary policy meeting on Sept. 20 and is expected to leave rates unchanged, though some investors believe it may deliver one more increase later this year.

Rising Treasury yields, which move in the opposite direction to bond prices, can be a stumbling block for stocks as they offer investors returns on an asset that is seen as basically risk-free because it is backed by the US government. The benchmark 10-year Treasury yield was up 2 basis points on Wednesday to 4.284%, putting it about 6 basis points below its highest level since 2007.

The S&P 500 is down 3% from its July highs.

“For the bond market the move higher over the past couple of months has been in anticipation that the Fed will be in a higher for longer position, and that is putting a downward pressure on stock multiples” and increasing the risk of volatility, said Kevin Gordon, senior investment strategist at the Schwab Center for Financial Research

JPMorgan has been one of the banks sounding the alarm on stock valuations, with strategists warning in a note on Tuesday that a metric based on real interest rates, which strip out inflation, shows the S&P 500 is over-valued by 14%. Overall, the firm estimates that the current real rate implies a forward price-to-earnings (P/E) ratio of around 15 times to 16 times versus its current ratio of about 20 times.

“Equities are up 16% YTD mostly on multiple expansion while real rates and cost of capital are moving deeper into restrictive territory,” the firm’s equity strategists said in a note. “History suggests this relationship is becoming increasingly unsustainable.”

At the same time, not everyone believes high yields are currently the market’s biggest risk. Charlie McElligott, managing director and cross-asset macro strategist at Nomura, said the market was vulnerable to an “earnings shock” to one of the handful of megacap stocks that have led markets higher this year, such as Nvidia (NVDA). Companies will begin reporting third-quarter earnings next month.

“If [the AI] story starts to lose air it doesn’t matter what the interest rates do because there is so much earnings growth built into their share prices,” he said. “Earnings are what matter from here, particularly with an AI sector that needs to justify expectations.”

(Reporting by David Randall; Editing by Ira Iosebashvili and Sharon Singleton)

Gold eases as dollar strengthens, Fed pause hopes lend support

Sept 13 – Gold inched lower on Wednesday due to a stronger dollar, although growing expectations that the Federal Reserve would leave interest rates unchanged at its policy meeting next week limited downside for the bullion.

Spot gold was down 0.2% at USD 1,909.83 per ounce at 1:51 p.m. EDT (1751 GMT), paring losses after a 0.4% drop following the release of August US consumer price index (CPI) data.

US gold futures settled 0.1% lower at USD 1,932.50 per ounce.

The dollar index rose against its rivals after the US inflation data, making gold more expensive for other currency holders.

The Labor Department data showed headline and core CPI in August rose 0.6% and 0.3%, respectively, from the previous month. Economists were expecting increases of 0.6% and 0.2%, respectively.

The CPI data was largely in line with expectations, hinting that FOMC is expected to hold rates steady, providing a floor for gold, said Chris Gaffney, president at EverBank World Markets.

Traders’ expectations for the Fed leaving interest rates unchanged at its Sept. 19-20 meeting got stronger after the data, with a 61% likelihood of a pause in November as well, according to the CME FedWatch tool.

Higher interest rates boost yields on competing safe-haven US Treasury bonds, drawing investors away from zero-interest-bearing bullion.

“Precious metal investors are less worried about higher inflation and more focused on the opportunity costs associated with holding a non-interest-bearing asset in a rising rate environment,” Gaffney added.

Investors are now looking forward to US August producer prices and retail sales data and the European Central Bank’s rate hike verdict on Thursday ahead of the Fed’s Sept. 20 policy decision.

Silver shed 1.2% to USD 22.83 per ounce, touching a three-week low, while platinum fell 0.9% to USD 901.93. Palladium rose 1% to USD 1,252.70.

(Reporting by Harshit Verma in Bengaluru; Editing by Andrea Ricci, Shinjini Ganguli, and Krishna Chandra Eluri)

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