China, Hong Kong stocks rise after China lifts curb on foreign group tours

HONG KONG, Aug 10 – China and Hong Kong shares ended higher on Thursday, reversing losses in early trading, as the lifting of a pandemic-era ban on outbound group tours boosted airline and travel-related stocks and helped improve sentiment.

** China’s blue-chip CSI 300 Index climbed 0.21%, while the Shanghai Composite Index gained 0.31%. Both indexes snapped three consecutive sessions of losses.

** Hong Kong’s Hang Seng Index inched up 0.01%, rebounding from a two-week low seen earlier on Thursday.

** CSI Tourism Thematic Index rose 2% on news that effective on Thursday, group tours can resume on key markets such as the United States, Japan, South Korea and Australia in a potential boon for their tourism industries.

** Shanghai-listed Air China rose 4.86%, while Hong Kong-listed shares of Trip.com gained 2.71%.

** Energy and oil stocks also rose, with CSI Energy Index rising 2.12%. Yankuang Energy jumped 5.54% to hit a two-week high.

** Still, China’s faltering recovery and high youth jobless rate also capped the gains in key indexes. The state media reported on Tuesday that almost half of Chinese graduates are ditching mega-cities and returning to their home towns after graduation due to a sagging job market.

** Consumer discretionary-related stocks dropped 0.64%.

** The Hang Seng Mainland Properties Index fell 2.08% after property developer Country Garden failed to make USD 22.5 million in coupon payments due earlier this month, and as investors remained sceptical if the debt-laden sector could turn around soon.

** China Unicom 0762.HK rose 3.28% after it reported first-half net profit rose 13.1% to 12.4 billion yuan, and added 5.3 million new mobile subscribers, highest first-half net addition in four years.

** The market is also awaiting US July Consumer Price Index (CPI) data due later in the day, which is expected to show a slight year-over-year acceleration.

** “As the US Federal Reserve’s rate hike cycle is nearing an end, for the third quarter I’ll expect the HSI to find support at the 18,500 level,” said Linus Yip, chief strategist at First Shanghai Securities.

(Reporting by Georgina Lee; Editing by Rashmi Aich and Varun H K)

Gold struggles for traction as traders await US inflation report

Aug 9 – Gold prices slipped on Wednesday as investors stayed on the sidelines ahead of key US inflation data that could offer more cues on the Federal Reserve’s stance on monetary policy.

Spot gold was down 0.5% at USD 1,915.98 per ounce by 1:57 p.m. ET (1757 GMT), lowest since July 10. US gold futures settled 0.5% lower at USD 1,950.60 per ounce.

“Tomorrow’s CPI will be a pivot point for Fed policy … it’s kind of wait-and-see mode now,” said Daniel Pavilonis, senior market strategist at RJO Futures.

“Gold has been this inflationary kind of hedge also, but it is fighting an uphill battle with a 10-year yield. Gold will likely struggle if inflation is still there and the Fed is looking to raise rates too fast,” Pavilonis added. US/

US consumer price index (CPI) data, due on Thursday, is expected to show inflation slightly accelerated in July to an annual 3.3%.

Most traders expect no change from the Fed at its policy meeting in September. There is just a 13.5% chance of a quarter-point rise, according to the CME’s FedWatch Tool.

“For a sustained recovery (in gold), we believe the market will need to see increased certainty on 2024 US rate cuts,” said Baden Moore, head of carbon and commodity strategy at National Australia Bank.

Lower interest rates decrease the opportunity cost of holding non-yielding bullion and weigh on the dollar.

Offering some respite to gold, the dollar fell 0.1% against its rivals after data showing the Chinese economy slipped into deflation last month lifted hopes for more stimulus.

Spot silver eased 0.4% to USD 22.67 an ounce and platinum slipped 1.1% to USD 890.34, while palladium gained 1.2% to USD 1,234.47.

(Reporting by Brijesh Patel and Anjana Anil in Bengaluru; Editing by Krishna Chandra Eluri)

Bond strategists cling to forecasts for declining US yields

BENGALURU, Aug 9 – US Treasury yields will fall in coming months despite clear signs the Federal Reserve is reluctant to consider rate cuts any time soon, according to bond strategists polled by Reuters who said the 10-year yield would not revisit its cycle peak.

Although yields have mostly defied predictions in recent months and come in higher on a still-resilient economy and an inflation-focused Fed, bond strategists, mostly at sell-side firms, have clung to their expectations for declines.

The median forecast for the 10-year Treasury note yield was 3.60% in six months, a slight upgrade from 3.50% in a July survey, and compared with 4.03% on Wednesday and a cycle high of 4.34% last October, the Aug. 3-9 poll of 41 strategists showed.

But some analysts are showing signs of hesitation about steep falls. The 10-year note yield is still well below the two-year equivalent, usually a sign of impending recession at a time when most of the talk in markets is about the Fed avoiding one.

“We now see more limited scope for yields to fall over coming quarters,” said Phoebe White, US rates strategist at J.P. Morgan. They upgraded their year-end 10-year yield forecast to 3.85% from 3.50%.

“A stronger growth trajectory into next year than we previously forecast should allow the Fed to stay on hold for longer, and we now expect just 25bps of easing per quarter beginning in Q3 2024,” she said.

But an overwhelming 81% majority of respondents to an additional question, 29 of 36, said the 10-year yield would not revisit its October 2022 high of 4.34% at any point in this cycle. The remaining seven said it would, with most expecting that to happen this year.

A hotter-than-expected July US consumer price index inflation reading, due Thursday, could raise expectations for more hawkish Fed policy and drive bond yields up further. Prices rose 3.3% from a year ago last month from 3.0% in June, a separate Reuters poll predicted.

Interest rate futures are now pricing in the first Fed rate cut in May 2024 instead of March a few weeks back.

“The market is currently pricing six rate cuts next year. I don’t see that, because I don’t think inflation will go back down to 2%, preventing the Fed from cutting too aggressively,” said Zhiwei Ren, portfolio manager at Penn Mutual Asset Management.

“For inflation to go down from 8% to 3% was fairly easy, but going down to 2% will be very hard given the very strong labor market,” he added.

According to the poll, the interest rate-sensitive 2-year note yield will have dropped over 40 basis points to 4.33% six months from now.

If realized, this would reduce the yield curve inversion – the spread between yields of 2-year and 10-year notes – to about 30bps in a year from about 75bps currently.

That view was in line with bond traders betting on yield curves returning to a more normal shape on hopes slowing economies force central banks to cut interest rates.

“As we move forward and the Fed goes from a singular focus on fighting inflation to being on hold, we are likely to get a steeper yield curve configuration,” said Robert Tipp, chief investment strategist at PGIM Fixed Income.

“If our forecasts are correct, we will in fact achieve a soft landing … and this would be an exception to the rule for curve inversion.”

(Reporting by Sarupya Ganguly and Indradip Ghosh; Polling by Anitta Sunil, Sujith Pai, and Purujit Arun; Editing by Jonathan Cable, Ross Finley, and Jonathan Oatis)

European shares rebound as Italy eases stance on bank levy

Aug 9 – European shares hit a one-week high on Wednesday, with Italian lenders rebounding from previous session’s sharp losses after the government eased its stance on a new banking tax.

The pan-European STOXX 600 added 1.0%, with technology and bank leading gains.

Eurozone banks gained 1.9% after a 3.5% slump a day earlier, as Italy’s government announced late on Tuesday a cap on a windfall tax for the country’s lenders. It clarified that the 40% windfall tax would not amount to more than 0.1% of their total assets.

Italian lenders such as Intesa Sanpaolo ISP, Banco BPM and UniCredit added between 3.3% and 4.1%, while the banks-heavy FTSE MIB index rose 2.0%.

“We’ve had some watering down of the policy from yesterday and what it looks like is the impact should be less severe, but still a tax, nonetheless,” said Ankit Gheedia, head of equity and derivatives strategy at BNP Paribas.

Investors also appeared to shrug off data that showed China’s consumer sector fell into deflation and factory-gate prices extended declines in July.

“Economic data has already been weak and I wouldn’t say that there’s a lot of optimism baked into the market for a swift China recovery,” Gheedia said.

“If there is some policy announcement that supports growth in China, that should benefit Europe.”

The basic resources sector climbed 1.7% as copper prices advanced on a softer dollar and hope for stimulus measures from top metals consumer China.

The focus will shift to US inflation data due on Thursday, with investors looking to see if the Federal Reserve will pause its monetary tightening cycle this year.

Meanwhile, earnings for STOXX 600 companies are expected to have fallen 4.8% in the second quarter, according to Refinitiv IBES data, a clear improvement from the 8.2% drop estimated at the start of the earnings season.

Delivery Hero DHER.DE advanced 7.8% to the top of the STOXX 600 after the German online takeaway food company raised its full-year revenue outlook.

Dutch supermarket group Ahold Delhaize N.V fell 2.6%, with analysts pointing to weakening profitability in the United States even as the company raised its free cash flow forecast.

Flutter Entertainment FLTRF.I lost 5.8% after the world’s largest online betting firm posted a 76% jump in half-year core profit but warned of a weaker Australian market outlook.

(Reporting by Shashwat Chauhan and Sruthi Shankar in Bengaluru; Editing by Varun H K and Eileen Soreng)

China stocks fall as economy slips into deflation

HONG KONG, Aug 9 – China A-shares extended losses on Wednesday as consumer prices fell into deflation, with markets looking forward to more stimulus policies to revive spending. Hong Kong stocks closed higher.

** China’s blue-chip CSI 300 Index dipped 0.31%, and the Shanghai Composite Index fell 0.49%.

** Hong Kong’s Hang Seng Index edged up 0.32% and the Hang Seng China Enterprises Index rose 0.39%.

** China’s consumer prices fell into deflation in July, dropping 0.3% year-on-year, its first fall in over two years.

** Factory gate prices fell for the tenth consecutive month.

** Chinese policymakers will soon organize a meeting with four biggest cities’ top leaders to discuss property policy optimization, Chinese media Economic Observer reported on Wednesday.

** “Both CPI and PPI are in deflation territory. The economic momentum continues to weaken due to lacklustre domestic demand,” said Zhiwei Zhang, president of Pinpoint Asset Management.

** The CPI deflation may put more pressure on the government to consider additional fiscal stimulus, he said.

** Goldman Sachs analysts said in a note they expect annual PPI inflation to bottom out this quarter and CPI inflation to experience a “U-shaped” recovery in the coming months.

** Linus Yip, chief strategist at First Shanghai Securities, said the falling CPI is not all bad news.

** Given the US rate hike cycle is close to an end, today’s CPI number actually makes some investors look forward to a larger room for policy easing, he said.

** Meanwhile, major state-owned banks were seen selling US dollars to buy the yuan in the onshore spot foreign exchange market, sources told Reuters, in a bid to slow yuan declines.

** Tech giants listed in Hong Kong narrowed losses in the noon session and closed flat.

** In mainland A-shares, healthcare stocks climbed 1.4%, while artificial intelligence-related firms down 2%.

** Top homebuilder Country Garden lost another 1.8% after a 14% slump on Tuesday as the company missed two dollar bond coupon payments.

(Reporting by Summer Zhen; Editing by Savio D’Souza and Varun H K)

Oil hits new highs on US fuel demand, tighter supply

HOUSTON, Aug 9 – Oil prices hit new peaks on Wednesday with the global Brent benchmark touching its highest since January after a steep drawdown in US fuel stockpiles and Saudi and Russian output cuts offset concerns about slow demand from China.

Brent crude settled USD 1.38, or 1.6%, higher at USD 87.55 a barrel, its highest since Jan. 27.

West Texas Intermediate crude (WTI) closed USD 1.48, or 1.8%, higher at USD 84.40, at its highest since November 2022.

US gasoline stocks fell by 2.7 million barrels last week, while distillate inventories, which include diesel and heating oil, dropped by 1.7 million barrels, government data showed, compared with analysts’ expectations in a Reuters poll for both to hold mostly steady. EIA/S

“The draws in refined products continue to be bullish for the oil market,” said Andrew Lipow, president at Lipow Oil Associates in Houston.

Markets largely shrugged off a higher-than-expected 5.85-million-barrel build in US crude stocks after a record drawdown the week before.

The US fuel stock drawdown helped offset some demand concerns after Chinese data on Tuesday showed crude oil imports in July fell 18.8% from the previous month to their lowest daily rate since January.

China’s consumer sector also fell into deflation and factory-gate prices extended declines in July, as the world’s second-largest economy struggled to revive demand.

Supporting prices, however, were top exporter Saudi Arabia’s plans to extend its voluntary production cut of 1 million barrels per day for another month to include September. Russia also said it would cut oil exports by 300,000 bpd in September.

“The latest recovery is mainly driven by the pledge of major producers, like Saudi Arabia and Russia, to keep supply subdued for another month,” said Charalampos Pissouros, senior investment analyst at broker XM.

Crude posted its sixth consecutive weekly gain last week, helped by a reduction in OPEC+ supplies and hopes of stimulus boosting oil demand recovery in China.

On Tuesday, Saudi Arabia’s cabinet said it reaffirmed its support for precautionary measures by the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, to stabilize the market, state media reported.

Markets will also closely watch July’s US Consumer Price Index (CPI), due on Thursday, which is expected to show a slight year-over-year acceleration.

(Additional reporting by Alex Lawler in London, Yuka Obayashi in Tokyo, and Andrew Hayley in Beijing; Editing by Paul Simao, Kirsten Donovan, and Cynthia Osterman)

China seen sliding into deflation

Aug 9 – The first round of top-tier Chinese economic data this week was a blow for those hoping the world’s second-largest economy was emerging from its deep funk, so what will the second round on Wednesday bring?

Further disappointment, most probably.

Figures on Wednesday are expected to show that Chinese consumer prices fell 0.4% in July from the same month a year ago, meaning China will be the first G20 country to fall into deflation since Japan last posted negative CPI growth two years ago.

With cracks also reappearing in the Chinese property sector and Wall Street knocked off course by US banking downgrades by ratings agency Moody’s, risk appetite in Asia is likely to be in short supply on Wednesday.

After Tuesday’s trade data showed that exports fell a larger-than-forecast 14.5% last month and imports plunged more than twice as fast as expected, the balance of risks for July’s CPI print is probably to the downside.

Nobody can say they haven’t been warned. Producer prices in China have been falling on an annual basis every month since October, and more importantly, the pace of decline has accelerated this year.

June’s 5.4% fall marked the deepest factory gate deflation since 2015. Figures on Wednesday are expected to show a slight cooling off to 4.1% in July, but again, would anyone be completely shocked if it came in below forecasts?

The range of PPI forecasts is -6.1% to -2.9%, and the CPI range is -0.9% to 0.5%, according to Reuters polls.

Staying with China, Country Garden said on Tuesday it has not paid two-dollar bond coupons due on Aug. 6 totaling USD 22.5 million, confirming market fears that the biggest privately-owned developer in China is slipping into repayment troubles.

Hong Kong’s benchmark property index lost nearly 5% on Tuesday, and with sentiment already badly soured by the trade figures, China’s blue-chip CSI 300 index fell for a second day and the yuan fell to a four-week low against the dollar.

On the Asian corporate calendar, Bridgestone, Honda, and Sony are among the major Japanese firms publishing their latest earnings reports on Wednesday.

Asian stocks will likely open on the defensive after the downgrading of several US lenders by Moody’s reignited fears about the health of US banks and the economy.

Moody’s cut ratings on 10 small- to mid-sized lenders by one notch and placed six banking giants on review for potential downgrades. After coming within 5% of their lifetime highs last month, the S&P 500 and Nasdaq have both fallen five sessions out of six so far this month.

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

– China CPI and PPI inflation (July)

– South Korea unemployment (July)

– Japan broad money supply (July)

(By Jamie McGeever; editing by Deepa Babington)

Fund capitulation on record short US equity bet pays off

ORLANDO, Florida, Aug 8 – Better late than never.

In the two months since hedge funds began bailing on their record net short position in S&P 500 futures their equity returns have accelerated, narrowing the yawning year-to-date underperformance versus the broader market.

The latest performance numbers from hedge fund industry data provider HFR show that the HFRI Equity Hedge (Total) Index rose 2.0% in July, a solid start to the third quarter on the heels of an even stronger 3.1% rise in June.

This global index mirrors HFR’s US equity index and dovetails with Commodity Futures Trading Commission data – funds have more than halved their record net short position in S&P 500 futures since the end of May, and returns have picked up as Wall Street has marched higher.

The question now is do funds have the appetite to go outright long, bearing in mind how high the S&P 500 index is, how expensive US stocks are, and how high nominal and real bond yields are?

Against that backdrop, perhaps not, although the weekly momentum on funds’ S&P 500 futures positioning is the most bullish since December 2021.

Hedge funds have mostly been wrong on stocks recently – heavily long early last year as the S&P 500 headed for a 20% loss and its worst year since 2008, and holding a record short position as recently as May with the index up 20% year to date.

They’re starting to put that right now though.

The latest CFTC figures show that hedge funds’ net short position in e-mini S&P 500 futures at the end of July was around 200,000 contracts, the smallest net short since March.

Just two months ago, at the end of May, funds were net short to the tune of 434,000 contracts, the largest net short position on record since these contracts were launched in 1997.

That’s worth pausing for thought. By this one – admittedly far from perfect – measure, speculators only two months ago were shorting US stocks more than they did during the Great Financial Crisis, 2011 debt ceiling crisis, or the pandemic.

But as the relentless AI-fueled tech rally and solid earnings pushed equities higher, funds quickly threw in the towel and the resulting wave of short covering in June and July more than halved that record net short position.

Not coincidentally, the S&P 500 rose 10% in that period and hedge funds essentially tripled their year-to-date equity returns – the HFRI Equity Hedge (Total) Index at the end of July was up 7.83% YTD compared with 2.51% at the end of May.

That still represents a significant lag on the main indices – the S&P 500 was up 10% in the first five months of the year and up 20% in the January-July period, while the mega tech-fueled Nasdaq surge this year has been even more impressive.

But the tentative recovery in equities is helping to cement wider gains and the HFRI Fund Weighted Composite Index rose 1.51% in July. Barring the pandemic-distorted 2.97% rise in July 2020, this was funds’ best July performance since 2016.

If equity strategy-based hedge funds are slowly turning their poor 2023 performance around, their macro fund peers continue to struggle.

The HFRI Macro (Total) Index returned 0.47% in July, which reduced year-to-date losses to 0.36%. That is still failing to meet even the low bar set by benchmark fixed income indices – in the first seven months of the year the ICE BofA US Corporate Bond index was up 4%, the ICE BofA global corporate bond index was up 3%, and the ICE BofA global Treasury index was up 1%.

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

(Reporting by Jamie McGeever; editing by Jonathan Oatis)

Gold drops to near one-month low as dollar rallies

Aug 8 – Gold prices fell to a near one-month low on Tuesday as investors took refuge in the dollar after weak Chinese trade data, while caution prevailed ahead of US inflation figures later this week.

Spot gold slipped 0.6% to USD 1,925.79 an ounce by 01:46 p.m. EDT (1746 GMT), after hitting its lowest since July 10. US gold futures settled 0.5% lower at USD 1,959.9.

“A lot of nervousness about the global growth outlook and it is probably going to be a lot weaker than people anticipated and that’s triggered a move into the dollar,” said Edward Moya, senior market analyst of the Americas at OANDA.

The dollar rose 0.5% against its rivals, making gold less attractive for other currency holders.

All eyes will be on US consumer price index data due on Thursday. US inflation likely accelerated slightly in July to an annual 3.3%, while the core rate was likely unchanged at 4.8%, according to a Reuters poll of economists.

“US inflation report matters, but the one that’s more important is the one we’ll get next month and that will probably suggest that we’re going to see some choppiness in gold in the near term,” Moya said.

Fed Governor Michelle Bowman on Monday outlined the likely need for additional rate hikes to lower inflation to the Federal Reserve’s 2% target, while New York Fed chief John C. Williams expected rates could begin to come down next year.

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

Reflecting downbeat sentiment in gold, holdings of the world’s largest gold-backed exchange-traded fund, SPDR Gold Trust GLD, fell to a five-month low on Monday.

“While central banks recorded a record first half in terms of gold demand, traders and investors in futures and ETFs remain skeptical about the current upside potential,” said Saxo Bank’s head of commodity strategy Ole Hansen.

Silver dropped 1.7% to USD 22.76 per ounce, platinum fell 2% to USD 901.51 and palladium shed 1.5% to USD 1,220.99.

(Reporting by Brijesh Patel and Sherin Varghese in Bengaluru; Editing by Krishna Chandra Eluri and Sharon Singleton)

US soft landing means bumpy ride for bonds

LONDON/ NEW YORK, Aug 8 – The name is bond… long bond. The recent jump in yields of long-dated US government debt has sparked a hunt for the culprit worthy of a 007 movie. Traders are right to worry, though. If the world’s largest economy avoids a recession, persistent price pressures may keep rates elevated and compound Uncle Sam’s spending problems.

Fixed-income investors could use a holiday. Yields on 10-year US government bonds reached 4.19% last Thursday, their highest level since November 2022 and not far from the 5-year-high. Yields on 30-year US debt also jumped. Though the market eased on Friday after softer-than-expected US employment numbers, policymakers and corporate executives should still heed the warning signal in bond prices.

There are many factors that contributed to the sharp movement in bond yields. These include the downgrade of US government debt by Fitch Ratings and tighter monetary policy in Japan. But the biggest contributor is the Federal Reserve’s apparent success in guiding inflation back towards its 2% target without choking growth and employment.

This surprise feat, which economists have christened “immaculate disinflation”, has a flip side. If the United States economy can avoid a recession even during the most aggressive monetary tightening in generations, then growth – and inflation – will pick up earlier than expected. That, in turn, will require the Fed to keep rates high, putting upward pressure on bond yields.

Short-term bonds didn’t move much last week, suggesting that investors believe the Fed’s current interest rate is adequate for now. But long-dated bonds, which are much more sensitive to the long-term cost of borrowing, show the market’s outlook has changed. Investors previously believed the Fed’s sharp policy tightening would trigger a recession, leading to a quick reversal in interest rates. Now, as TS Lombard’s Dario Perkins recently wrote, “2% inflation becomes a floor as opposed to a ceiling.”

This shift has another consequence, which is also bad news for holders of government bonds: Washington’s debt interest bill will rise. Even before last week’s market gyrations, the Congressional Budget Office projected that Uncle Sam’s interest costs will double to 3.6% of GDP by 2033. In its credit downgrade Fitch forecast the US government deficit would hit 6.9% of GDP in 2025, up from 3.7% last year.

James Bond had to contend with Goldfinger. Investors in long bonds are fighting Goldilocks.

CONTEXT NEWS

The yield on 10-year US Treasury bonds climbed as high as 4.19% on Aug. 3, the highest level since November 2022. The uptick came one day after Fitch Ratings cut the US government’s credit rating to AA-plus from AAA, with the agency citing the growing federal budget deficit as a key factor in its decision.

The US Consumer Price Index climbed 3% in the year through June, according to the Bureau of Labor Statistics, down from the 9% inflation rate seen in June 2022.

(Editing by Peter Thal Larsen and Sharon Lam)

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