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July 28 (Reuters) – Investor appetite for a type of debt issued mostly by banks to boost their capital is showing early signs of revival, just as interest rates on an estimated USD 120 billion of such securities are due to reset to much higher levels.

So-called preferred securities, which are one of the riskiest forms of debt but also have some characteristics of stocks, are popular among banks as a way to boost their capital for regulatory purposes.

Typically, these securities have no maturity date, but they can be redeemed, or called, in five or 10 years from the date they were issued. If they are not called, the rate resets to a new fixed or floating rate.

More than USD 160 billion of preferreds were issued in 2020 and 2021 each, when rates were low. Volume dropped last year to USD 70 billion as the US Federal Reserve embarked on an interest rate hiking cycle. Then, in March, the US regional banking crisis and the collapse of Credit Suisse effectively shut the market. In the sale of the Swiss lender to rival UBS Group UBSG.S, the European equivalent of preferreds was fully written down.

The market since has been reopening. When Wells Fargo & Co WFC.N issued a new public preferred security earlier this month, investor demand far outweighed supply. That came on the heels of improving investor sentiment about the debt.

Spreads – or difference between the yields of these securities and Treasury bonds – have tightened by 60 basis points from the height of the banking crisis in March.

Some bankers now expect more deals, primarily from US banks, which have billions of dollars of preferreds coming up for redemption.

“There is a better understanding of the risk entailed in these preferred structures after Credit Suisse and recent regional bank failures, so investors are showing more appetite for these securities,” said Daniel Botoff, global head of debt capital markets syndicate at RBC Capital Markets.

Allie Quine, a vice president and portfolio specialist at fund manager Cohen & Steers, one of the biggest investors in preferreds, said they saw buying opportunities, with prices more attractive than their long-term averages.

The revival of this market is key ahead of new capital requirements being imposed on banks. On Thursday, US regulators unveiled details of an overhaul of capital rules that would direct banks to set aside billions more to guard against risk.

To be sure, some analysts said uncertainty about the Fed’s interest rate outlook and continued caution among investors would keep a lid on new supply, which is unlikely to reach levels seen in 2020 and 2021. The impact of new regulations, which are being finalized, will also take time to be felt.

“Any new issuance will likely be targeted towards refinancing more expensive floating-rate securities within their call windows,” Quine said. “Net new issuance will generally remain limited depending on need.”

WELLS DEAL

Earlier this month, Wells Fargo sold the first public preferreds since the regional banking crisis. The USD 1.725 billion deal received orders of over USD 6 billion, bringing total issuance for the year to USD 37 billion.

If Wells Fargo had not redeemed its outstanding securities, it would have had to pay a coupon of almost 9% for life on its older preferreds, up from just 5.85% until they became callable. Its new preferreds pay a fixed coupon of 7.625%.

In the next six months, some USD 119 billion of preferreds are reaching their call date, according to data from Informa Global Markets. That tally includes those issued by not just US and European banks but also finance, insurance firms, and other companies.

It also includes securities that have already passed their call dates and were paying a spread of as much as 400 basis points over a floating rate benchmark, like the Secured Overnight Financing Rate, which could keep increasing as the Fed hikes rates further.

RBC’s Botoff said many of the large US banks have as much as USD 20 billion of old preferred deals that need to be redeemed or extended into more expensive floating rate coupons. “The tone and support for refinancing have improved substantially over the last few weeks,” he added.

(Reporting by Shankar Ramakrishnan in New York; Editing by Paritosh Bansal and Matthew Lewis)

NEW YORK, July 27 (Reuters) – Global equity markets fell while the US dollar gained on Thursday following news of stronger-than-expected US economic growth despite consecutive interest rate hikes from the Federal Reserve and European Central Bank.

US gross domestic product (GDP) increased 2.4% in the second quarter, Commerce Department data on Thursday showed, beating estimates from economists polled by Reuters and dampening concerns of a recession due to the Fed’s aggressive rate-tightening cycle. A Labor Department report also beat expectations as fewer people sought to claim unemployment benefits, indicating labor market resilience.

The Fed on Wednesday delivered its 11th consecutive rate hike, raising its benchmark policy rate by 25 basis points to a 5.25%-5.50% range.

The European Central Bank followed on Thursday with a 25-basis-point hike, its ninth increase in a row, taking its main reference rate to 3.75% to contain high consumer prices.

“Because there’s no risk in the market in the near term and everything looks so positive, everybody thinks this is going to be a soft landing and that’s what is being priced in the market currently,” said Aash Shah, senior portfolio manager at Summit Global Investments in Utah.

The MSCI world equity index, which tracks shares in nearly 50 countries, pulled back from a 15-month high and was down 0.27%.

On Wall Street, the Dow and benchmark S&P 500 reversed earlier gains and finished lower, snapping a 13-day winning streak, driven by losses in financials, healthcare, technology, and consumer discretionary stocks.

The Dow Jones Industrial Average fell 0.67% to 35,282.72, the S&P 500 lost 0.64% to 4,537.46 and the Nasdaq Composite dropped 0.55% to 14,050.11.

European stocks added 1.35%, with Italian and Spanish shares hitting their highest levels since 2008 and 2020 respectively.

The dollar rose against a basket of its major peers after the rate hikes. The dollar index rose 0.682%, while the euro reversed gains to drop 1.05% to USD 1.0967 after ECB President Christine Lagarde told a press conference the central bank was determined to cool high consumer prices.

“We are not out of the woods yet. There’s a lot of euphoria because everyone thinks we’re not going to have a recession but lots of indicators still point towards a recession, including the yield curve,” Shah added.

US Treasury yields rose on the GDP data, to 4.010% for the benchmark 10-year note and 4.9368% for the two-year note.

Oil prices settled higher, supported by supply tightness following OPEC+ production cuts and renewed bullishness on the outlook for Chinese demand and global growth.

Brent crude settled up 1.6% to USD 84.35 a barrel while US West Texas Intermediate (WTI) crude settled up 1.7% to USD 80.09.

Gold prices slipped more than 1% to a two-week low on a stronger dollar and uptick in bond yields. Spot gold dropped 1.4% to USD 1,943.89 an ounce, while US gold futures fell 1.36% to USD 1,943.40 an ounce.

(Reporting by Chibuike Oguh in New York; Editing by Richard Chang)

July 27 (Reuters) – Gold prices slipped more than 1% to a two-week low on Thursday, weighed down by a stronger dollar and an uptick in bond yields after better-than-expected US economic data.

Spot gold dropped 1.2% to USD 1,948.69 per ounce by 01:53 p.m. EDT (1753 GMT), its lowest since July 12. US gold futures settled 1.2% lower to USD 1,945.70.

“There was a one and two punch on gold with better-than-expected initial claims numbers showing that the strength of the US labor market is resilient,” said Phillip Streible, chief market strategist at Blue Line Futures in Chicago.

“Then also that surprise upside expectation in GDP data as well shows you that if there is any recession, it’s just that no one is seeing it right now. So it paves the way for higher for longer interest rates.”

Data showed the US economy grew faster than expected in the second quarter as labor market resilience underpinned consumer spending.

A separate report from the Labor Department on Thursday showed initial claims for state unemployment benefits fell 7,000 to a seasonally adjusted 221,000 for the week ended July 22.

Following the data, the dollar index jumped 0.8% against its rivals, making gold more expensive for other currency holders. The benchmark US 10-year yield climbed to a two-week high.

On Wednesday, the US Federal Reserve raised interest rates by 25 basis points as expected. Markets priced in 57% odds of the Fed holding rates for the rest of the year, according to the CME FedWatch tool.

Meanwhile, the European Central Bank (ECB) raised interest rates for the ninth consecutive time on Thursday and kept the door open to further tightening.

Rising interest rates increase the opportunity cost of holding non-yielding bullion.

Spot silver was down 2.8% to USD 24.20 per ounce, platinum fell 2.7% to USD 935.26 while palladium dropped 1.4% to USD 1,240.99.

(Reporting by Brijesh Patel in Bengaluru; editing by Jonathan Oatis and Krishna Chandra Eluri)

July 27 (Reuters) – Oil settled higher Thursday, with Brent crude topping USD 84 a barrel for the first time since April, supported by supply tightness following OPEC+ production cuts and renewed bullishness on the outlook for Chinese demand and global growth.

Crude has posted four consecutive weekly gains on an expected tightening of supply because of output cuts by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known collectively as OPEC+, as well as some involuntary outages.

Brent crude settled up USD 1.32, or 1.6%, to USD 84.35 a barrel while U.S. West Texas Intermediate (WTI) crude settled up by USD 1.31, or 1.7%, to USD 80.09.

“We see the oil market undersupplied,” UBS analysts said in a report. “We retain a positive outlook and look for Brent to rise to USD 85–USD 90 over the coming months.”

Still, oil dropped on Wednesday after data showed U.S. crude inventories fell less than expected and the U.S. Federal Reserve raised interest rates by a quarter of a percentage point, leaving the way open for another increase.

Risk appetite in wider financial markets is being boosted by growing expectations that central banks such as the Fed are nearing the end of policy tightening campaigns, which would boost the outlook for global growth and energy demand.

The U.S. economy grew by a bigger-than-expected 2.4% last quarter, government data showed Thursday, as labor market resilience supported consumer spending, while businesses boosted investment in equipment, potentially keeping a recession at bay.

“With interest rate hikes either at or near a peak amidst increasing views that a recession will be avoided, risk assets such as oil have become increasingly appealing,” said Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois.

The European Central Bank raised interest rates for the ninth consecutive time on Thursday.

A pledge on Monday from China to boost policy support for the economy has spurred hopes of oil demand regeneration from the world’s largest crude importer, Phillip Nova analyst Priyanka Sachdeva said in a note.

Coming into focus is an Aug. 4 meeting of OPEC+ ministers to review the market.

(Reporting by Laura Sanicola; Additional reporting by Alex Lawler in London, Katya Golubkova in Tokyo, and Muyu Xu in Singapore; Editing by David Goodman, David Evans, Barbara Lewis and Diane Craft)

July 27 (Reuters) – A sense of cautious optimism could be the tone across Asia early on Thursday as China’s markets cool down, investors welcome fairly balanced comments from Federal Reserve Chair Jerome Powell and await the European Central Bank’s rate decision.

After a volatile start to markets this week, the concentration of major ‘event risk’ – the Fed and ECB meetings, the Bank of Japan’s policy decision on Friday, and potential details on China’s stimulus measures – may be keeping investors from taking big bets.

That said, some big earnings reports from some of the biggest US tech firms continue to roll in, meaning there could be big price swings in individual stocks and sectors under the hood of the broader indices.

This was in evidence on Wednesday on Wall Street. The Nasdaq fell only 0.1% and ‘big tech’ fell less than 1% but that masked huge moves in some shares which added or wiped out tens of billions of dollars of market cap. Microsoft fell 4%, Snap plunged 15%, while Alphabet surged 5.5%.

Shares in Meta jumped 7% in after-hours trade after the Facebook owner reported stronger-than-expected Q2 revenues and forecast strong Q3 revenues.

Investors in Asia will also wake up to the 11th US interest rate hike since the Fed began hiking rates last year – and the highest rates in 22 years – and a fairly balanced policy outlook for the coming months from Fed Chair Jerome Powell.

He left the door open to further tightening but also said the Fed could stay on hold if the data warranted and stressed that decisions will be made on a meeting-by-meeting basis. His measured remarks helped ensure a fairly subdued day on Wall Street.

The Dow Jones Industrials rose 0.24%, insignificant in itself but at the same time historic – it was the 13th consecutive daily rise, the index’s longest winning streak since January 1987. Few would have imagined then that the market’s biggest ever fall – the 22% crash on Black Monday – was only nine months away.

Back in Asia, a sense of realism returned over the expected measures from Beijing to revitalize the economy. After outsized gains on Tuesday – a 14% surge in property stocks – major indices in China and Hong Kong closed in the red.

The main event on Thursday’s economic calendar is Chinese industrial profits for June, which could underline how weak the economy has been since Covid restrictions were lifted.

Profits have been falling every month for a year, registering double-digit declines every month so far this year. They slumped 18.8% in May.

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

– China industrial profits (June)

– Australia import and export prices (Q2)

– European Central Bank policy decision

(By Jamie McGeever; editing by Deepa Babington)