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)

Dollar rises ahead of Jackson Hole gathering

NEW YORK, Aug 24 – The dollar rose across the board on Thursday as investors awaited Fed Chair Jerome Powell’s speech on Friday at the Jackson Hole Economic Policy Symposium.

Investors are looking forward to Powell’s address on monetary policy at 10:05 am ET on Friday for clues to the Fed’s thinking on whether it is about done with interest rate hikes and how long it plans to hold rates high.

“I think what we are seeing is largely pre-Jackson Hole position readjustments,” said Stuart Cole, chief macroeconomist at Equiti Capital in London.

“Nobody knows what Powell is going to say tomorrow and therefore the default currency to move into is the US dollar,” Cole said.

Two Federal Reserve officials – Philadelphia Fed President Patrick Harker and Boston Fed President Susan Collins – on Thursday tentatively welcomed a jump in bond market yields as something that could complement the US central bank’s work to slow the economy and get inflation back to the 2% target, while also noting they see a good chance that no more interest rate increases will be needed.

Data on Thursday showed the number of Americans filing new claims for unemployment benefits fell last week, as labor market conditions remained tight despite the Fed’s aggressive interest rate hikes.

“I think possibly the jobless claims numbers have also provided some support for the dollar as they were not as soft as had been feared and go some way to offsetting the downwards revision to the payrolls number we had yesterday,” Cole said.

“But the reaction to them was pretty muted overall, suggesting the Jackson Hole symposium is the main thing on the markets’ mind,” he said.

The US dollar index – which measures the currency against six major counterparts – was up
0.63% at 103.99, its highest since June 8.

Softer-than-expected data this week in Europe and the US has weighed on investors’ appetite for riskier currencies and supported the safe-haven greenback.

Elsewhere, the Turkish lira 3 rallied to a 2-month high against the dollar, up about 6% to
25.55 against the dollar after the Turkish central bank hiked the 1-week repo from 17.5% to a much higher-than-expected 25%.

According to the median estimate in a Reuters poll, economists were expecting the policy rate to increase to 20%.

Turkey’s central bank embarked on a tightening cycle in June after President Tayyip Erdogan appointed former Wall Street banker Hafize Gaye Erkan as governor.

The central bank on Thursday repeated its pledge to tighten policy further as necessary in a gradual manner, even as it raised its one-week repo rate by an aggressive 750 basis points.

“Today’s decision sends a very strong signal that the CBRT (central bank) is determined to rein in inflation and the initial market response is very positive,” said Piotr Matys, Senior FX Analyst at Touch Capital Markets in London.

The pound declined against the dollar and euro on Thursday, a day after data showed a contraction in British activity in August, prompting markets to trim expectations for further rate hikes from the Bank of England. The British currency was down 1.03% to USD 1.26085, a near 2-month low.

British factory output slumped, leaving the economy on course for recession and prompting markets to trim expectations for further rate hikes from the Bank of England.

The yen remained under pressure as traders watched for any signs the Japanese government was ready to intervene to prop up the currency, as it did last year.

The dollar was 0.7 % higher against the yen, not far from the 9-month high 146.565 touched last week.

(Reporting by Saqib Iqbal Ahmed; Additional reporting by Joice Alves, Tom Westbrook, and Ankur Banerjee; Editing by Angus MacSwan, Andrea Ricci, and Nick Zieminski)

US stocks may not be ready for hawkish Powell at Jackson Hole, options data show

WASHINGTON, Aug 24 – Investors may be underestimating the degree of potential market turbulence stemming from the Federal Reserve’s economic symposium at Jackson Hole, Wyoming, potentially leaving them more vulnerable to a hawkish surprise, options strategists said.

Pricing in the options market – where investors often hedge against stock swings – shows expectations of a 0.9% move in the S&P 500 Index between now and the end of trading Friday, the day Fed Chair Jerome Powell is expected to give his address on monetary policy at 10:05 a.m. ET (1405 GMT).

Some strategists believe that outlook may not be cautious enough, especially if last year is any guide.

A more hawkish-than-expected message from Powell at Jackson Hole last August sank the S&P 500 by 3.4% on the day of his address – the biggest reaction to a Fed chair’s speech at the annual symposium in at least 11 years, a Reuters analysis showed. At that time, options markets were primed for a move of around 1.4%.

With many investors sitting on big year-to-date gains in stocks and bond yields pushing higher, investors may be caught flat-footed if a hawkish Powell spurs a run out of risky assets, Steve Sosnick, chief strategist at Interactive Brokers, said

Markets “have shaken off some of the outright complacency that existed about a month or two ago but (they) are hardly risk averse,” Sosnick said.

Analysts at Bank of America also believe markets may be ill-prepared for a hawkish message from Powell, writing earlier this week that recent strength in US economic data would probably increase policymakers’ concerns about a reacceleration in inflation.

“Fading expectations of recession have brought the focus back to inflation and a potential tight Fed … and risk assets have started showing more signs of weakness than at any other point this year,” they said. “We therefore think equities are more at risk of a macro-driven shock than the market is pricing in.”

Barring the market drop last year and a 2019 tumble, Fed chairs’ Jackson Hole speeches have not been big market movers in recent years, with the S&P 500 logging an average swing of 0.9% on the day of the address over the last decade.

Still, there may be greater scope for market gyrations this time around, analysts said. The S&P 500 has gained more than 15% year-to-date but the rally has stumbled this month as soaring yields on Treasuries threaten to dull the allure of stocks.

Though the Fed has made significant progress in cooling consumer prices, the pressure may be on Powell to reinforce his “higher for longer” mantra on rates to avoid giving the impression that the battle against inflation was already won, BofA’s analysts wrote.

This year’s symposium also comes at a time when various asset classes have become more vulnerable to outsized moves following the Jackson Hole event, according to an analysis by derivatives strategists at Barclays.

Across asset classes, the average volatility-adjusted move around Jackson Hole has almost doubled in the 2017-2022 period, compared with 2010-2016, the bank’s strategists wrote in a note on Tuesday.

To be sure, there’s little guarantee that Powell’s message will be a starkly hawkish one. Treasury yields soaring to their highest levels in more than a decade suggests the Fed’s “higher for longer” message may be getting through to some investors.

At the same time, there are signs that investors may not be totally unprepared for fireworks. The Cboe Volatility Index, which measures demand for protection from market swings, stands at 16.15, well off the recent low of 12.74 touched in late July.

“I think if anything this event has been hyped up and Powell will have much less of an ax to grind compared to last year,” said Chris Murphy, Susquehanna Financial Group co-head of derivative strategy.

(Reporting by Saqib Iqbal Ahmed; Editing by Ira Iosebashvili and Andrea Ricci)

Asian bonds see foreign inflows for fifth straight month in July

Aug 24 – Asian bonds recorded net foreign inflows for a fifth straight month in July, helped by expectations that the US Federal Reserve’s monetary tightening cycle is nearing the end as price pressures show signs of easing.

Foreigners were net buyers of bonds worth USD 4.5 billion in Malaysia, Indonesia, South Korea, India, and Thailand, compared with about USD 4.2 billion worth of purchases in June, data from regulatory authorities and bond market associations showed.

“Easing inflationary pressures and expectations that Asian central banks are now on hold were supportive of bond inflows into the region,” said Khoon Goh, head of Asia research at ANZ.

Malaysian bonds received about USD 2.5 billion worth of foreign capital during the month, the biggest amount since June 2020.

Indonesian bonds gained USD 600 million, while Thai, South Korean, and Indian bonds also secured about USD 500 million each last month.

However, US bond yields have risen this month after a steady stream of stronger-than-expected economic data, and minutes from the Federal Reserve’s July rate-setting meeting showed officials are still focusing on containing inflation.

Chris Wong, investor director, Asia fixed income at Schroders, said he was still optimistic about Asian local currency bonds doing better in the second half of 2023, as central banks in Asia who have hiked interest rates earlier are likely to ease ahead of the Fed.

“That should be a tailwind to Asian local rates relative to the US and potentially generate capital appreciation that (US dollar) cash cannot offer,” he said.

“Asian currencies will likely be on a better footing given their attractive valuations, resilient growth, as well as stabilization of interest rate differentials against the developed markets.”

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Rashmi Aich)

Japan’s Nikkei rises for fourth straight day as Nvidia lifts chip shares

TOKYO, Aug 24 (Reuters) – Japan’s Nikkei share average rose for a fourth straight session on Thursday, its longest winning streak since mid-June, as US chip designer Nvidia’s record earnings lifted Japanese tech shares.

The Nikkei finished up 0.87% at 32,287.21, near the day’s high, taking its gains for the week to 2.66%.

Chip-making equipment firm Tokyo Electron and chip-testing machine manufacturer Advantest powered the Nikkei, contributing a combined 104 index points. AI-focused startup investor SoftBank Group contributed another 36 points.

Nvidia – the centre of global AI fervour – surged nearly 10% following the Wall Street close after it forecast fiscal third-quarter revenue well above analysts’ estimate.

Of the Nikkei’s 225 components, 156 rose versus 67 that fell, with two flat.

The broader Topix added 0.42%.

The gains come ahead of the US Federal Reserve’s annual symposium in Jackson Hole, Wyoming, later in the day, which could offer hints on the monetary policy trajectory. Bank of Japan governor Kazuo Ueda will also attend.

Tokyo Electron advanced 3.25% and Advantest rose 1.6%. SoftBank Group added 2.68%.

The Nikkei’s biggest gainer, though, was Pacific Metals, which jumped 5.1% after announcing a deal to develop nickel refining technology using microwaves, which will reduce greenhouse gas emissions.

Meanwhile, the banking sector climbed 0.71%, resuming its march towards the eight-year peak hit at July end, when the BOJ unexpectedly doubled the effective cap on 10-year yields to 1%, boosting the outlook for revenue from lending.

The 10-year yield touched a 9-1/2-year high of 0.675% on Wednesday, although it pulled back as far as 0.645% in the current session.

“Chances are that the BOJ will be reducing (bond) buying, as it’s already doing, allowing the yield to drift up towards 100 basis points,” which will keep banks outperforming the broader market, said Nicholas Smith, a strategist at CLSA.

“I wouldn’t be surprised if we were there within this year.”

(Reporting by Kevin Buckland; Editing by Sonia Cheema and Dhanya Ann Thoppil)

Gold hits 2-week highs as retreating US yields renews appeal

Aug 24 (Reuters) – Gold prices climbed to two-week highs on Thursday as a retreat in the US dollar and Treasury yields revived investors’ appetite for bullion as they wait to see what interest rate signals central bankers offer at the Jackson Hole meeting.

Spot gold was up 0.3% at USD 1,920.79 per ounce by 0629 GMT, hitting its highest level since Aug. 10. US gold futures GCcv1 were flat at USD 1,948.70.

The Federal Reserve is holding its annual symposium in Jackson Hole, Wyoming, from Aug. 24-26, with investors’ looking towards Chair Jerome Powell’s speech on Friday for confirmation on whether interest rates are going to stay higher for longer.

Higher US rates raise the opportunity cost of holding gold, which yields no interest.

The dollar and US yields were pulled back after softer-than-expected global economic data.

“The weaker (PMI survey) result pares the risk of further rate hikes in the US and Europe in our view, which is broadly positive for gold prices and applies downward pressure to US Treasury yields,” said Baden Moore, head of carbon and commodity strategy at National Australia Bank.

US business activity approached the stagnation point in August, with growth at its weakest since February, while Britain’s economy is also slowing and might be heading for a recession.

Traders also firmed up bets that the European Central Bank
would pause rate hikes in September as sharp contractions in business activity pointed to deepening economic pain.

Spot gold may extend gains into a range of USD 1,928-USD 1,934 per ounce, said Reuters technical analyst Wang Tao.

Spot silver fell 0.5% to USD 24.19 per ounce and platinum eased 0.1% to USD 926.86. Palladium ropped 0.9% to USD 1,263.03.

For silver, immediate resistance at USD 24.50 will be on watch next and moving past this level may potentially pave the way to retest its year-to-date high of around USD 26, Yeap Jun Rong, a market strategist at IG said.

(Reporting by Swati Verma in Bengaluru; Editing by Sonia Cheema and Sohini Goswami)

Spotlight falls on South Korea, Indonesia rate calls

Aug 24 – Interest rate decisions and policy guidance from South Korea and Indonesia take center stage in Asia on Thursday, as investors also navigate the strong cross currents from global equity and bond markets the day before.

World stocks and Wall Street jumped on Wednesday, lifted by optimism over Nvidia’s earnings, and bond yields tumbled after dismal purchasing managers index reports from Europe cast doubt over central banks’ willingness to raise rates any further.

The tech-led rally on Wall Street delivered the Nasdaq’s best day in a month, and the Nvidia mania appears to have been well-founded.

The artificial intelligence chip making giant after the bell reported strong second quarter revenue and said it expects third-quarter revenue of about USD 16 billion, smashing analysts’ expectations of USD 12.6 billion.

Asian stocks also enjoyed the Nvidia ride on Wednesday and are now up two days in a row for the first time this month. But no thanks to China – the blue chip Shanghai CSI 300 index tanked again as foreign investor selling extended to a 13th straight session, bringing total outflows to more than USD 10 billion.

The MSCI Asia ex-Japan index is down 8% so far in August and on track for its biggest monthly loss since January 2016, when Chinese markets were in turmoil and the central bank was running down FX reserves to counter capital flight and support the yuan.

Investors may go into Thursday in a ‘bad news is good news’ frame of mind, risk appetite strengthened by the sharp decline in bond yields after PMIs showed that service and manufacturing sector activity in Europe is shrinking rapidly.

Good news that market-based borrowing costs are falling and that the Bank of England and European Central Bank may raise rates far less than expected – if at all – but bad news that growth appears to be crumbling.

On the Asian policy front, the Bank of Korea is expected to leave its key policy rate unchanged at 3.50% for a fifth consecutive meeting on Thursday and hold it steady for the rest of this year.

With inflation down to 2.3%, the lowest in over two years and close to the BOK’s 2.0% target, markets are betting that the tightening cycle is over.

Bank Indonesia is also expected to keep its key interest rate steady, at 5.75% for the seventh consecutive meeting and for the rest of the year too.

With Indonesia’s inflation last at a 16-month low of 3.08%, well within the 2% to 4% target range, the central bank’s focus is now on keeping the currency stable. The rupiah is currently hovering around last week’s five-month low of 15,359 per dollar.

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

– South Korea interest rate decision

– Indonesia interest rate decision

– South Korea producer price inflation (July)

(By Jamie McGeever; Editing by Josie Kao)

Indexes end sharply higher; AI chip maker Nvidia jumps again after the bell

NEW YORK, Aug 23 – US stocks ended sharply higher on Wednesday as shares of Nvidia NVDA.O gained ahead of quarterly results from the company whose chips are widely used for artificial intelligence (AI) computing.

Shares of Nvidia, which reported results after the closing bell, jumped 9%, extending a gain of 3.2% during the regular session.

It forecast third-quarter revenue above Wall Street targets. Other tech companies jumped in after-hours trading as well including Microsoft (MSFT), which was last up about 2%.

Bullish investors have been hopeful that upbeat news from Nvidia could could further ear’s strong rally in tech stocks. Including the session move, Nvidia’s stock is up more than 220% for the year so far.

“Not just their numbers, but what they say in the conference call about what’s happening in AI is going to have a big impact on market sentiment,” said Rick Meckler, partner, Cherry Lane Investments, a family investment office in New Vernon, New Jersey.

Nvidia is part of the so-called Magnificent Seven group of megacap stocks including Apple (AAPL) and Tesla (TSLA) that have powered the S&P 500’s sharp gains this year.

During the trading session, stock investors were encouraged as the yield on the 10-year US Treasury note eased from near 16-year highs after weak business activity data from the United States and the euro zone.

US Federal Reserve Chair Jerome Powell’s comments on Friday at the Jackson Hole conference will be scrutinized for clues on the US central bank’s interest rate path.

The Dow Jones Industrial Average rose 184.15 points, or 0.54%, to 34,472.98, the S&P 500 gained 48.46 points, or 1.10%, to 4,436.01 and the Nasdaq Composite added 215.16 points, or 1.59%, to 13,721.03.

Data showed US business activity approached the stagnation point in August, with growth at its weakest since February, as demand for new business in the vast service sector contracted, while the downturn in euro zone activity was far deeper than expected.

Before the PMI data, yields on the 10-year note had been rising this month as investors were thinking the Fed could keep rates higher for longer.

According to strategists in a Reuters poll, the S&P 500 will eke out only marginal gains between now and year end, after its strong move up already this year. The index was forecast to end the year at 4,496.

Shares of drugmaker Gilead Sciences GILD.O rose 0.9% and Merck & Co (MRK) advanced 3.8% after Swiss rival Roche (ROG) inadvertently published positive lung cancer drug trial data.

Advancing issues outnumbered declining ones on the NYSE by a 3.74-to-1 ratio; on Nasdaq, a 2.07-to-1 ratio favored advancers.

The S&P 500 posted 8 new 52-week highs and 10 new lows; the Nasdaq Composite recorded 46 new highs and 156 new lows.

(Reporting by Caroline Valetkevitch; additonal reporting by Amruta Khandekar and Shristi Achar A; Editing by Shinjini Ganguli, Anil D’Silva, and David Gregorio)

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