Gold scales near two-week peak as Treasury yields retreat

Aug 23 – Gold prices jumped 1% to a near two-week high on Wednesday, helped by a pullback in US bond yields and the dollar as investors looked ahead to the Jackson Hole symposium for guidance on interest rates.

Spot gold rose 1% to USD 1,916.20 per ounce by 2:17 p.m. EDT (1817 GMT), after hitting its highest since Aug. 11. It was also poised to register its biggest daily percentage rise in over a month.

US gold futures settled 1.1% higher at USD 1,948.10.

“It (gold) was a little oversold ahead of itself and we’re getting a bounce on some bargain hunting and then short covering,” said Bob Haberkorn, senior market strategist at RJO Futures, adding that a slight dip in yields is also helping.

Benchmark 10-year Treasury yields slipped from near 16-year highs hit in the previous session, while the dollar fell after weak US PMI data, making gold more attractive for other currency holders.

The S&P Global’s flash US composite PMI index 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.

Market participants’ focus will be on a speech by Federal Reserve Chair Jerome Powell at Jackson Hole on Friday for additional clues about the path for interest rates.

According to the CME’s FedWatch Tool FEDWATCH, the probability that the Fed leaves rates unchanged at its September meeting is now at 88.5%.

Gold is highly sensitive to rising US interest rates, as they increase the opportunity cost of holding non-yielding bullion.

“People are expecting a continued hawkish tone from Chair Powell. It is too early for him to point to a loosening in policy on the horizon,” said Daniel Ghali, commodity strategist at TD Securities.

“The market’s attention is now shifting from how high will rates go to how long will rates remain high.”

Spot silver gained 4.1% to USD 24.34 an ounce and platinum added 1.4% to USD 931.65. Palladium was up 0.9% at USD 1,273.53.

(Reporting by Harshit Verma and Brijesh Patel in Bengaluru; editing by David Evans, Ed Osmond, and Krishna Chandra Eluri)

S&P 500 to end 2023 up 17% but little gains seen between now and year end

NEW YORK, Aug 23 – US stocks will eke out only marginal gains between now and year-end, according to strategists in a Reuters poll on Wednesday, who said inflation and higher interest rates were among the biggest risks for the market.

The benchmark S&P 500 index was forecast to end the year at 4,496, about 2.2% above Monday’s close of 4,399.77 and up about 17% from the end of 2022, according to the median forecast of 41 strategists in an Aug. 9-22 Reuters poll.

The latest prediction was higher than the 4,150 year-end target in a May poll.

Some expect optimism over artificial intelligence which has driven a sharp rally in technology stocks this year to support further market gains, while they said a cooldown in the US economy may not be as bad as feared.

The S&P 500 is up over 14% so far in 2023 after falling 19% in 2022, and the Nasdaq is up 29% year-to-date.

Eight of 13 strategists who answered an additional question said a correction in the US stock market was likely by the end of this year, and two said it was highly likely.

Confidence that the Federal Reserve has reined in inflation enough to end its rate hikes has fueled stock market gains this year. However, concerns that the US central bank will keep interest rates higher for longer have recently pushed up US Treasury yields, and fanned worries about the impact of higher borrowing costs on businesses and consumers.

The benchmark 10-year Treasury yield hit near 16-year highs this week.

“The S&P 500 may currently be in correction mode,” said Terry Sandven, chief equity strategist at US Bank Wealth Management. His year-end target on the S&P 500 is 4,600.

“Persistent inflation is kryptonite to valuation as it implies a higher-for-longer Fed hawkish stance. Elevated interest rates, due to continued inflationary pressures, result in lower present values and lower stock prices,” he said.

Earnings growth for S&P 500 companies for 2023 is estimated at just 1.8%, and the index’s forward 12-month price-to-earnings ratio is close to 19, up from 17 at the end of 2022 and above its long-term average of about 16, according to Refinitiv data.

“When a lot of the AI euphoria was in full swing a couple of months ago, the multiples that people were willing to pay for broader indices, for individual stocks, were kind of silly,” said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute in Charlotte, North Carolina.

“The environment we’re headed into is going to be marked by volatile and high sticky inflation, higher rates … and you’re probably going to see some shift in market leadership.”

Wells Fargo, which expects the S&P 500 to end this year between 4,000 and 4,200, says a US recession as still likely.

The poll’s median forecast for end-2024 for the S&P 500 was 4,800.

The survey also showed the Dow Jones industrial average is expected to finish the year at 36,000, up over 4% from Monday’s close. That forecast is also higher than the previous poll’s median target.

(Reporting by Caroline Valetkevitch; additional reporting by Noel Randewich in San Francisco, and Chuck Mikolajczak, Stephen Culp, and Sinead Carew in New York; Polling by Prerana Bhat and Rahul Trivedi; Editing by Kim Coghill)

US bond yields surge despite muted inflation as investors look beyond Fed

NEW YORK, Aug 23 (Reuters) – A recent spike in US bond yields has come alongside muted expectations for inflation, a sign to some bond fund managers that economic resilience and high bond supply are now playing a larger role than second-guessing the Federal Reserve.

Benchmark 10-year nominal yields on Tuesday hit near 16-year peaks on concerns about US Federal Reserve Chair Jerome Powell sending a hawkish message about keeping rates high at the annual Jackson Hole symposium on Friday.

Bond yields, which move inversely to prices, tend to rise in an inflationary environment because inflation erodes the value of a future bond payout.

But while higher moves in bond yields in the last several months were often driven by investors pricing in higher interest rates as the Fed sought to tame rising inflation, expectations on the pace of price rises have moved lower in recent weeks.

“The narrative has very much changed over the last few months,” said Calvin Norris, Portfolio Manager & US Rates Strategist at Aegon Asset Management.

Investors see evidence that a fresh set of drivers has taken hold, including the Bank of Japan letting yields go higher, which may reduce foreign investors’ appetite for Treasuries, and an increase in the supply of US government bonds, with investors demanding more for holding more debt.

While the timing and size of the central bank’s monetary tightening actions have preoccupied bond investors for well over a year, the market may have reached “an inflection point in terms of the primary driver of sentiment,” BMO Capital Markets analysts said in a note last week.

“The source of uncertainty is moving away from the (Fed) and toward the derivative of monetary policy in the economic fallout from policy rates at their highest level since 2001,” they said. “The issues of longer-term growth, term premium, and issuance are accounting for an increasing share of the price action.”

SOFT LANDING

Annual consumer price growth has slowed down from a peak above 9% in June 2022 to around 3%, considerably closer to the Fed’s 2% target after policymakers delivered 525 basis points of rate hikes starting in March 2022.

Meanwhile, expectations for inflation over the next decade as measured by the Treasury Inflation-Protected Securities market have remained relatively stable in recent months. The 10-year breakeven inflation, at 2.35%, is about 5 basis points higher since the beginning of the year, while 10-year nominal yields have increased by about 50 basis points.

“We’re pricing in a soft landing, which means we’re seeing things working out in the Fed’s favor, as inflation is coming down and the probability of a recession has been reduced,” said John Madziyire, senior portfolio manager and head of US Treasuries and TIPS at Vanguard Fixed Income Group.

Long-term Treasury yields account for factors such as inflation expectations and term premiums, or what investors demand to be compensated for the risk of holding long-term paper.

“A lot of the move that we’re seeing now has to do with more long-term structural questions, be it around growth or around term premiums,” said Anthony Woodside, head of US fixed income strategy at LGIM America.

Yields are also a reflection of expectations around the so-called neutral rate – the level at which interest rates are neither stimulative nor restrictive for the economy. A recent string of strong economic data despite higher interest rates has strengthened investor beliefs that interest rates will remain higher for longer, even if inflation is tamed.

“The fact that growth has been so strong and is still very resilient, even at these restrictive rates, means that potentially the neutral rate is now higher,” said Madziyire.

While such longer-term factors have become more prominent recently, the Fed’s more immediate monetary policy actions could land right back in the driver’s seat in case of a reacceleration of inflation or a sharp deterioration in the economy.

Money markets expect the Fed to maintain rates in the current 5.25%-5.5% range until the second quarter of next year before starting to ease, but many will be looking for clues about possible additional rate hikes from Powell’s Jackson Hole speech on Friday.

“I still think there’s some risk that the Fed goes further, but the market is not giving that a whole lot of credence right now,” said Aegon’s Norris.

(Reporting by Davide Barbuscia; editing by Megan Davies and Anna Driver)

Traders have good cause to think EUR/USD will rise again

Aug 23 (Reuters) – With charts painting EUR/USD in a bullish light and those betting on a rise making money this year, traders have good cause to think the pair will rise again.

What really matters is that the big number of traders betting on a rise have already seen EUR/USD meet their expectations. Many of those gambling on a rally have made money and traders making money usually hold onto, or add to, bets – or reestablish their bets after they have taken profit.

This year, traders have consistently bet on a rally, holding between USD 18-25 billion of wagers on that eventuality.

Though the pair struggled to beat February’s 1.1034 high, it did do so in July, reaching 1.1276, and while it has taken a long time for this to happen, dips during this year were modest and little threat to those long.

Pullbacks have usually followed periods where the pair is overbought, with one of these moves currently ongoing. After reaching a key bull target at 1.1270 in July, the following drop, which has reached 1.0833, represents a step up from the range which dominated for the first half of this year.

This drop may well lay foundations for bigger gains for which the next target is 1.1447. A close over the 100-MMA at 1.1250 and the 61.8% retracement of the 2021-22 slide at 1.1271 would invigorate the uptrend.

The twist of the monthly Ichimoku cloud near 1.16 in January next year has the potential to attract.

(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)

European shares open higher led by miners, healthcare

Aug 23 (Reuters) – European shares opened higher on Wednesday, with mining stocks leading gains on higher metal prices, while Swiss drugmaker Roche lifted healthcare stocks.

By 0707 GMT, the pan-European STOXX 600 gained 0.4%.

Mining stocks added 0.9% as prices of most base metals trended up.

Roche jumped 3.1% after the Swiss drugmaker said it had been made aware of an inadvertent disclosure in a study of its new immunotherapy for patients with lung cancer using an experimental class of drugs known as anti-TIGIT.

The broader healthcare index added 0.8%.

Investors will be eyeing eurozone Purchasing Managers’ Index (PMI) data for the month of August, due later in the day, to assess the state of the continental economy.

Separately, PMIs from Germany, the UK and France will also be on investors’ radar.

Among individual stocks, Societe Generale rose 2.0% after Morgan Stanley upgraded the French bank to “overweight” from “equal-weight.”

Orsted added 1.6% after the U.S. Interior Department approved the construction of a 704 megawatt (MW) wind farm off the coast of Rhode Island, which is owned by the renewable energy group.

(Reporting by Shashwat Chauhan in Bengaluru; Editing by Varun H K)

After the rebound, markets revert to type

Aug 23 – After Monday’s surprising resilience on Wall Street, world markets’ reversion to type on Tuesday should set the tone for Asia on Wednesday – weakness in stocks, a buoyant dollar, elevated bond yields, and souring investor sentiment.

The regional economic data calendar includes the release of Australian and Japanese purchasing managers index reports that will give the first glimpses into how these economies performed in August, and consumer price inflation from Singapore.

There is no obvious catalyst on Wednesday from economic indicators, central bank decisions, or policymaker commentary to shake Asian markets out of their recent funk. Until there is, rebounds like Tuesday’s are likely to be the exception rather than the rule.

China’s economic and financial travails remain top of mind for investors, so any sign of further incoming fiscal or monetary stimulus from Beijing will be well received.

Chinese President Xi Jinping, in South Africa for the summit of BRICS nations’ leaders, said on Tuesday that China’s economy was resilient and that the fundamentals for its long-term growth remained unchanged.

Platitudes aside, speculation persists that the central bank could be forced to take bolder action to support the yuan, perhaps by selling some of its large stash of US Treasuries. The same goes for Japanese authorities and the yen.

That is not something Beijing or Tokyo would do lightly, but the higher US bond yields go, the more persistent the selling pressure on their respective currencies becomes. Earlier on Tuesday the 10-year US Treasury yield touched 4.366%, its highest level since November 2007.

Yet FX markets are calm, perhaps too calm.

Implied yen volatility is relatively low in the yuan, and low across currency markets more broadly. US bond market volatility may be at a six-week high, but is in the middle of its range over the past 18 months.

Meanwhile, embattled Chinese property developer Country Garden is slated to release its latest results on Wednesday. China’s largest developer has liabilities approaching USD 200 billion, its shares have lost almost all their value in the last couple of years and they will soon be removed from Hong Kong’s benchmark Hang Seng index.

But investors will still be keen to see just how deep in the mire the company is. China’s real estate sector is the largest asset class in the world, worth around USD 62 trillion, and the systemic risks to China’s economy and financial system are huge.

US-Sino relations are also back under the spotlight after Washington on Tuesday criticized China for reducing the transparency of its reporting on basic economic data in recent months and for cracking down on firms in China that had been providing such data, calling its behavior irresponsible.

But if that was the stick, the US government also offered a carrot on Tuesday, confirming that Commerce Secretary Gina Raimondo will travel to China next week for meetings with senior Chinese government officials and US business leaders.

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

– BRICS leaders summit in Johannesburg

– Japan flash PMIs (August)

– Australia flash PMIs (August)

(By Jamie McGeever; Editing by Josie Kao)

Dow, S&P 500 end down as US interest-rate worries mount, bank shares slip

NEW YORK, Aug 22 – The Dow and S&P 500 ended slightly lower on Tuesday as investors stayed worried the Federal Reserve will keep interest rates higher for longer and as banks’ shares eased.

The Nasdaq finished barely in the green.

The financial sector fell 0.9% and was the biggest drag on the S&P 500. An S&P downgrade of credit ratings of multiple regional US lenders weighed on banks’ shares, with the KBW regional banking index sliding 2.7% and the S&P 500 banks index falling 2.4%.

Investors hope for clarity on the rate outlook when Fed Chair Jerome Powell speaks at a meeting of central bankers on Friday in Jackson Hole, Wyoming.

“Rates have backed up pretty good again, so that’s kind of putting somewhat of a damper on stocks,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.

The benchmark 10-year Treasury yield hit almost 16-year highs overnight on the view the Fed could keep rates higher for longer. Higher borrowing costs can slow spending by businesses and consumers.

The Dow Jones Industrial Average fell 174.86 points, or 0.51%, to 34,288.83, the S&P 500 lost 12.22 points, or 0.28%, to 4,387.55 and the Nasdaq Composite added 8.28 points, or 0.06%, to 13,505.87.

Investors also eagerly awaited results and a forecast from chip heavyweight Nvidia (NVDA) due after the bell on Wednesday. Nvidia surprised investors with its strong forecast in May, fueling a rally in its own and other tech stocks amid artificial intelligence hopes.

Shares of Nvidia hit an all-time high of USD 481.87 early but were down 2.8% on the day.

Department stores were among the day’s biggest decliners. Macy’s (M) sank 14.1% after the chain warned of weak consumer spending through the crucial holiday shopping season. Shares of Kohl’s Corp. (KSS) were down 10.3% while Nordstrom Inc (JWN) was down 9.8%.

Volume on US exchanges was 9.38 billion shares, compared with the 10.97 billion average for the full session over the last 20 trading days.

Declining issues outnumbered advancing ones on the NYSE by a 1.43-to-1 ratio; on Nasdaq, a 1.43-to-1 ratio favored decliners.

The S&P 500 posted 4 new 52-week highs and 13 new lows; the Nasdaq Composite recorded 39 new highs and 221 new lows.

(Reporting by Caroline Valetkevitch; additional reporting by Amruta Khandekar and Shristi Achar A; Editing by Shinjini Ganguli, Maju Samuel, and David Gregorio)

Dollar firmer as traders look to Jackson Hole gathering

NEW YORK, Aug 22 – The US dollar edged higher against a basket of currencies on Tuesday, nearing a two-month peak touched last week, as traders awaited the Jackson Hole Symposium later in the week.

The US dollar index – which measures the currency against six major counterparts – was up 0.2% at 103.57. The index was sitting just shy of the two-month high of 103.68, reached last week as worries over China’s economy and bets US interest rates will stay high lifted the greenback.

Overall moves in currency markets were expected to be limited ahead of a speech by Federal Reserve Chair Jerome Powell at the Fed’s central bank symposium at Jackson Hole, Wyoming, set for Aug. 24-26.

“Powell’s appearance will be watched very closely,” Helen Given, FX trader at Monex USA in Washington, said.

“I don’t see any huge moves for USD before the symposium; no one wants to get caught on the wrong side of the market,” she said.

Traders were also paying attention to a summit of BRICS major emerging economies – Brazil, Russia, India, China, and South Africa – underway in Johannesburg for any news on Chinese stimulus.

“Right now, the world is watching China with bated breath waiting for further stimulus measures,” Monex’s Given said.

“It would be too strong to even call China’s economic recovery ‘sputtering’ at this point; indications are those of an economy in contraction, and this in turn is keeping riskier assets depressed,” she said.

China’s leader Xi Jinping told the BRICS bloc of nations on Tuesday that China’s economy was resilient and that the fundamentals for its long-term growth remained unchanged.

Riskier assets took a knock last week and US Treasury yields soared to near 16-year peaks as investors fretted over China’s slowing economic growth and traders geared up for US interest rates to remain higher for longer.

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 0.24% lower against the yen, but not far from the 9-month high touched last week.

“My expectation still sits at that 147 mark. Verbal cues last week from the bank of Japan provided a temporary breather for the currency, but if JPY can’t hold its ground I still see a high potential for intervention,” Monex’s Given said.

China’s battered yuan briefly firmed to a one-week high before weakening again as worries about the economy continued to weigh on the currency.

The Chinese central bank set the yuan mid-point at 7.1992 per dollar on Tuesday, 1105 pips firmer than Reuters’ estimate, seeking to keep a floor under the currency after its slide to a 9-1/2-month low of 7.349 in offshore trading last week.

Tuesday’s fixing follows shallower and narrower interest rate cuts than markets had expected a day earlier, as stimulus measures continued to underwhelm in the face of property sector turmoil and weakening economic growth.

Britain’s pound slipped 0.1% on Tuesday, taking little solace from a moderate pick-up in risk appetite.

In cryptocurrencies, bitcoin fell 0.87% to USD 25,897, hovering above the 2-month low hit last week, as overall sentiment in the cryptocurrency market remained bearish.

(Reporting by Saqib iqbal Ahmed; additional reporting by Dhara Ranasinghe in London, Kevin Buckland in Toyko; Editing by Bernadette Baum, Mark Heinrich, and Chizu Nomiyama)

Gold holds near five-month low, focus turns to Jackson Hole

Aug 22 – Gold prices hovered near a five-month low on Tuesday as a stronger dollar and higher bond yields dented bullion’s appeal, while the focus shifted to the Jackson Hole symposium due later this week for more cues on the interest rate outlook.

Spot gold was nearly unchanged at USD 1,896.60 an ounce by 1:43 p.m. EDT (1743 GMT), but still held near the low of USD 1,883.70 touched on Friday. US gold futures settled 0.2% higher at USD 1,926.00.

Benchmark 10-year US Treasury yields eased for the day. However, they were still near their 15-year high levels.

Meanwhile, limiting gold’s upside, the dollar rose 0.2%, making gold more expensive for holders of other currencies.

Gold prices fell to their lowest level since March last week as strong US economic data boosted bets that US interest rates would stay higher for longer. Higher rates increase bond yields, making non-yielding bullion less attractive.

“The Fed is going to remain optimistic here and that’s probably going to support the argument that maybe the Fed will have to do more tightening,” said Edward Moya, senior market analyst of the Americas at OANDA.

Richmond Fed president Thomas Barkin said the US central bank needs to defend the 2% inflation target to ensure its own credibility remains intact with the public.

On the technical front, gold prices are trading below the 50, 100, and 200-day moving averages. Speculators who trade on technical signals regard a break below such moving averages as a bearish sign.

Indicative of sentiment, receding fears of a US slowdown, and surging bond yields have gradually eroded the appeal of exchange-traded funds (ETF) backed by safe-haven gold.

“Against this backdrop, gold will doubtless find it difficult to come out of the defensive in the near future. That said, sentiment is now already so bearish that it wouldn’t take much to spark a price recovery,” Commerzbank said in a note.

Spot silver rose 0.3% to USD 23.41 an ounce, while platinum gained 1.2% to USD 920.19. Palladium was up 1.1% at USD 1,258.34.

(Reporting by Brijesh Patel and Harshit Verma in Bengaluru; editing by Christina Fincher and Maju Samuel)

Oil prices settle lower on nagging worries about Chinese demand

Aug 22 – Oil prices settled lower on Tuesday as investors remained focused on the likelihood that China’s economic malaise will keep hobbling demand from the world’s top crude importer.

Brent crude settled down 43 cents, or 0.5% at USD 84.03 a barrel while the more active US West Texas Intermediate October contract slipped 48 cents to USD 79.64.

The front-month WTI contract settled down 37 cents at USD 80.35 a barrel on very limited volume ahead of its imminent expiry.

China, the world’s second-largest economy, is considered crucial to shoring up oil demand over the rest of the year. Its sluggish economic activity has frustrated markets as pledged stimulus has fallen short of expectations, including a smaller-than-expected cut in a key lending benchmark on Monday.

“Saudi and Russian output cuts have been largely negated by weakening crude demand from China that appeared to develop last month and is apt to continue through the rest of the summer,” said Jim Ritterbusch, president of Ritterbusch and Associates LLC in Galena, Illinois.

Amplifying demand concerns, US central bank officials have not ruled out further interest rate hikes to contain inflation.

The US continued to draw crude stocks, which dropped by about 2.4 million barrels in the week ended Aug. 18, according to market sources citing American Petroleum Institute figures on Tuesday.

The Iraqi and Turkish oil ministers have discussed the importance of resuming oil flows after finalizing pipeline maintenance, the Iraqi state news agency reported, a development that could boost global supply.

Turkey had halted Iraq’s 450,000 barrels per day (bpd) of exports – roughly 0.5% of global supply – through the northern Iraq-Turkey pipeline in March after an International Chamber of Commerce arbitration ruling.

“Such an export resumption could add almost half a million barrels per day to global oil supply in making a significant dent in Saudi Arabia’s additional production cut that is expected to extend through next month,” said Ritterbusch.

Separately on Monday, Shell (SHEL) said it was investigating a possible leak on the 180,000 bpd Trans Niger oil pipeline, though no force majeure has been declared.

(Additional reporting by Natalie Grover and Paul Carsten in London, Muyu Xu in Singapore, and Katya Golubkova in Tokyo; Editing by Tomasz Janowski, David Evans, David Goodman, David Gregorio, and Cynthia Osterman)

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