Over to you, Bank of Japan

NEW YORK, July 28 (Reuters) – Could this be a landmark day for the Bank of Japan?

Asian markets are likely to come under pressure on Friday, backing down from five-month highs as the Bank of Japan opens the door to allow long-term interest rates to rise beyond the 0.5% cap as it discusses potential amendments to its yield curve control (YCC) program.

A Nikkei report on Thursday pointing in that direction coincided with a downturn for US stocks, a fall that snapped the Dow Jones Industrial Average’s 13-day winning streak, its longest since 1987.

The news was “the biggest driver of today’s performance,” according to Michael Green, portfolio manager and chief investment strategist at Simplify Asset Management.

It also prompted the dollar to fall against the yen.

The BoJ’s tentative step away from its ultra-loose monetary policy inches it closer in line with its global peers, which have tightened their monetary policies to combat inflation.

On Wednesday, the US Federal Reserve implemented another 25-basis-point interest rate hike as widely expected, and the European Central Bank followed suit on Thursday, even as central banks around the world have assumed a more cautious posture amid signs that inflation is in a cooling pattern.

Earlier in the day, US stocks were buoyed and fears of a global economic slowdown were abated by upbeat earnings reports and a raft of better-than-expected US economic data.

Topping that list was the US Commerce Department’s robust initial take on second-quarter GDP – coming in at 2.4%, blasting past the 1.8% consensus – supporting US Federal Reserve Chairman Jerome Powell’s view that the economy can achieve a so-called “soft landing.”

The Commerce Department is due to release its broad-ranging and hotly anticipated Personal Consumption Expenditures (PCE) report on Friday, which will cover income, spending, and crucially, inflation.

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

– Japan is scheduled to issue its Tokyo CPI report

– Australia expected to post June retail sales, Q2 PPI

– South Korea is due to release industrial output and retail sales for June

(Reporting by Stephen Culp; Additional reporting by Carolina Mandl; Editing by Marguerita Choy)

Global equities fall, dollar rises after strong US data, rate hikes

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)

Gold hits 2-week low as upbeat US data lifts dollar, yields

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)

Nasdaq futures rise after Meta results, Fed optimism

July 27 (Reuters) – Nasdaq futures rose on Thursday, supported by a surge in Meta Platforms after its strong third-quarter revenue forecast lifted megacap growth and technology stocks, and hopes that the US Federal Reserve’s July rate hike was the last this year.

Meta Platforms gained 7.6% in premarket trading after it also reported a jump in advertising revenue, topping Wall Street financial targets for the second quarter. The stock is set to add about USD 60 billion to its market value.

The Facebook parent’s results followed a strong performance by Alphabet earlier this week, which show that consumers, and advertisers eager to reach them, are spending despite broad economic concerns.

The US Federal Reserve on Wednesday raised interest rates by 25 basis points as expected.

Fed Chair Jerome Powell said the economy still needed to slow and the labor market to weaken for inflation to “credibly” return to the US central bank’s 2% target.

“We continue to expect that today’s hike will be the last of the cycle. Powell said that the FOMC will be particularly focused on the inflation data, and we expect the next few CPI reports to be soft,” said David Mericle, chief U.S. economist at Goldman Sachs, in a note.

“As a result, we expect that the FOMC will skip September in order to slow the pace and will then conclude in November that inflation has slowed enough to make a final hike unnecessary.”

Traders expect only a slim 20% chance that the US central bank could surprise with a quarter-point increase in September.

On tap on the economic front, the Commerce Department is set to report that the US gross domestic product increased at a 1.8% annualized rate last quarter, in its advance estimate of second-quarter GDP growth.

At 04:42 a.m. ET, Dow e-minis were up 45 points, or 0.13%, S&P 500 e-minis were up 23.75 points, or 0.52%, and Nasdaq 100 e-minis were up 172.5 points, or 1.11%.

While Nasdaq has led the charge on Wall Street so far this year supported by outsized gains in megacap growth stocks, Dow is catching up as investors bet on sectors beyond technology.

The blue-chips Dow is on track for its 14th straight day of gains after a scorching rally that saw it log its longest winning streak since 1987 in the previous session.

Netflix climbed 1.0% after report that it was restructuring its advertising partnership with Microsoft for its lower-priced ad-supported subscription plan and also cutting ad prices.

EBay forecast third-quarter profit below market expectations as the e-commerce platform spent more to bolster categories such as auto parts, refurbished goods and collectibles, sending its shares down 5.3%.

Intel McDonald’s Corp, Mastercard, Ford Motor, and T-Mobile US are among some of the companies expected to report their quarterly results during the day.

(Reporting by Bansari Mayur Kamdar in Bengaluru; Editing by Shinjini Ganguli)

Oil climbs close to April peak on tighter supply

LONDON, July 27 (Reuters) – Oil climbed almost 1% on Thursday, recouping losses from the previous session, supported by supply tightness owing to OPEC+ production cuts and renewed optimism 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 advanced 64 cents, or 0.8%, to USD 83.56 a barrel by 0820 GMT while US. West Texas Intermediate (WTI) crude rose 74 cents, or 0.9%, to USD 79.52. Intra-day peaks for both contracts were near their highest since April 19.

“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 85–90 over the coming months.”

Oil prices dropped on Wednesday after data showed US crude inventories fell less than expected and the US Federal Reserve raised interest rates by a quarter of a percentage point, leaving the door open to another increase.

Still, Asian shares jumped to five-month highs on Thursday on hopes that the US tightening cycle was over and the economy was heading for a soft landing, boosting the outlook for global growth and risk appetite.

The European Central Bank, also viewed as approaching the end of its tightening campaign, is expected to raise interest rates for the ninth time in a row on Thursday.

A pledge on Monday from China to boost policy support for the economy is continuing to underpin sentiment.

“The Chinese authorities have signaled to step up support measures to revive the ailing Chinese economy, which in turn has spurred hopes of oil demand regeneration from the world’s largest importer of crude oil,” Phillip Nova analyst Priyanka Sachdeva said in a note.

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

(Reporting by Alex Lawler. Additional reporting by Katya Golubkova in Tokyo and Muyu Xu in Singapore. Editing by David Goodman)

Oil settles above April peak on tighter supply

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.

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)

US bond investors brace for shift in market as rate peak elusive

NEW YORK, July 27 (Reuters) – US bond investors were gauging how to navigate a prolonged period of higher interest rates that some expect to weigh on US growth after the Federal Reserve on Wednesday left open the possibility of more rate increases and excluded easing financial conditions anytime soon.

With its latest 25 basis point interest rate increase now in the books, the Fed has raised the benchmark overnight interest rate by 525 basis points since March 2022 to a level last seen before the 2007 housing market crash in a fight to bring down inflation.

Cooling consumer prices and a resilient economy have sparked rallies in stocks this year and Fed Chairman Jerome Powell on Wednesday said a recession is unlikely – a sharp reversal from the mood earlier this year, when both the Fed and investors believed a downturn was all but unavoidable.

Still, some fixed-income investors have remained on edge over how long the Fed can keep interest rates at restrictive levels without sparking an economic downturn. Timing such a shift is important in part because a weaker economy would, in theory, cause the Fed to cut rates, weigh on the high yields many have enjoyed this year and spark a rally in bond prices.

“Investors remain divided on whether this marks the last increase in the current tightening campaign,” said Gurpreet Gill, global fixed income macro strategist at Goldman Sachs Asset Management. “Given the uncertainty around when the Fed’s hiking cycle will conclude, we have limited exposure to US rates.”

Goldman Sachs recently put the probability of a recession in the next 12 months at 20%, below previous estimates. Barclays has pushed back to next year the mild recession it had forecast for the last quarter of this year.

Powell, meanwhile, said the central bank’s staff no longer forecasts a US recession, and “we do have a shot” for inflation to return to target without high levels of job losses.

Nevertheless, some of the world’s biggest bond managers aren’t taking chances.

BlackRock, the world’s largest asset manager, is among those advising investors to lock in elevated yields now, in case the Fed may have to cut borrowing costs next year if an economic downturn hits.

Kristy Akullian, a senior strategist with the firm’s iShares Investment Strategy team, said it was time to extend duration – or the sensitivity of an investment portfolio to interest rates – even though additional rate hikes remained possible.

“It’s too soon to declare victory on inflation, and I think there are still questions around the health of the economy,” she said. “I think it pays to be a little early for this trade rather than a little bit late.”

HEDGING BETS

The S&P 500 on Wednesday ended little changed following the latest Fed hike. The index is up 19% year-to-date.

Treasury yields, which move inversely to prices, slid on Wednesday. Meanwhile, Fed funds futures traders saw an increased probability of another interest rate increase in September.

Adam Hetts, global head of multi-asset at Janus Henderson Investors, is turning more defensive in his portfolios by focusing on high-quality equities and core bonds in anticipation of a shallow recession he believes will hit in the next year.

“They may be done turning the vise but we have to realize that the vise will remain tight for some time,” he said.

Mike Sanders, head of fixed income at Madison Investments, said he preferred short-term bonds because he expected interest rates to remain higher for longer than market expectations, but he was also adding exposure to longer-term paper to hedge his position.

“We have begun to layer in some long-term bonds in portfolios to hedge against an unexpected economic slowdown while locking in higher rates relative to history,” he said. Long-term bonds tend to perform well during economic slowdowns because when central banks ease rates to stimulate demand existing fixed-rate securities are worth more.

To be sure, investors had badly overestimated the chances for a recession at the beginning of this year and could be wrong again. Over the past year, the unemployment rate has remained stubbornly low, and growth has run consistently above trend.

Others, however, have pointed to signs such as the inversion of the Treasury yield curve, which has historically been a reliable indicator of a coming downturn.

“The Fed does keep stressing that they’re willing to risk a little bit of economic activity in order to make sure they’ve got inflation on a strong footing again,” said Blair Shwedo, head of investment grade trading at US Bank. “I think the market has had a lot of trouble discounting those statements.”

(Reporting by Davide Barbuscia and David Randall; Editing by Ira Iosebashvili and Muralikumar Anantharaman)

China realism returns, Powell has spoken

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)

Global shares flat, US yields fall after Fed delivers rate hike

NEW YORK, July 26 (Reuters) – Global shares were mostly flat while US yields fell on Wednesday after the Federal Reserve delivered its 11th consecutive hike in interest rates aimed at reining in rising consumer prices.

The rate hike, which was in line with market expectations, took the benchmark overnight interest rate to between 5.25% and 5.50% – the highest level since around the global financial crisis in 2007-2009.

The Fed also left open the door for more rate hikes, stating that it would keep studying economic data as it determines “the extent of additional policy firming that may be appropriate” to reach its 2% inflation target.

During his press conference, Fed Chair Jerome Powell said central bank staff are no longer forecasting a US recession, and “we do have a shot” for inflation to return to target without high levels of job losses.

“It was exactly what the market was anticipating, almost like a non-event with markets dead flat,” said Lamar Villere, portfolio manager at Villere & Co in New Orleans.

“It’s our sense that the way inflation data has been coming in and the way the Fed has been slowing the pace of hikes, that they’re looking to stop,” Villere added

The MSCI world equity index, which tracks shares in nearly 50 countries, rebounded shortly after the Fed announcement and was up 0.03%. In Europe, stocks fell 0.53%, snapping a six-day winning run, with equities in Germany and France shedding 0.49% and 1.35%, respectively.

On Wall Street, the benchmark S&P 500 lost steam and finished flat while the tech-heavy Nasdaq closed lower, dragged down by mostly technology stocks.

The Dow Jones Industrial Average rose 0.23% to 35,520.12, the S&P 500 lost 0.02% to 4,566.75 and the Nasdaq Composite dropped 0.12% to 14,127.28.

“Powell and the committee are taking a very data-dependent approach to future rate hikes,” said Angelo Kourkafas, investment strategist at Edward Jones. “He kept very close to the script. It didn’t sound as hawkish as some had feared and wasn’t a strong message to push expectations one way or the other.”

US Treasury yields slipped in choppy trading after the Fed’s rate decision. The yield on 10-year Treasury notes was down at 3.865%, while the two-year yield, which typically reflects interest rate expectations, fell to 4.8433%.

The dollar edged lower against major currencies. The dollar index fell 0.316%, with the euro up 0.33% to USD 1.109.

Oil prices settled lower as data showed US crude inventories fell less than expected. Brent crude futures settled down 0.92% to USD 82.92 a barrel, while US West Texas Intermediate (WTI) crude dropped 1.1% to USD 78.78.

Gold prices gained buoyed by a pullback in the dollar and bond yields. Spot gold added 0.5% to USD 1,973.53 an ounce, while US gold futures gained 0.50% to USD 1,968.90 an ounce.

(Reporting by Chibuike Oguh in New York; Additional reporting by Sinead Carew; Editing by Chizu Nomiyama and Jonathan Oatis)

US rate futures see slightly higher chance of Sept hike after Powell’s comments

NEW YORK, July 26 (Reuters) – US interest rate futures on Wednesday saw an increased probability of another interest rate increase by the Federal Reserve this year in September after Chair Jerome Powell said the Fed has not ruled out raising rates in consecutive meetings.

The Fed raised rates by 25 basis points (bps) on Wednesday, as was widely expected, citing still-elevated inflation. The rate hike, the Fed’s 11th in its last 12 meetings, set the benchmark overnight interest rate in the 5.25% to 5.50% range,

“It is certainly possible we would raise the funds rate at the September meeting if the data warranted, and I would also say it’s possible that we would choose to hold steady at that meeting” if that’s what the data called for, Powell said, after the Fed decision.

He noted the US central bank will be making decisions on monetary policy on a meeting-by-meeting basis.

In afternoon trading, the benchmark fed funds futures factored in a 22% chance of a hike in September, compared with 21% late on Tuesday, and just 13.7% a week ago, according to the CME’s FedWatch.

For the November policy meeting, rate futures traders have priced in a 32% chance of a 25-bps hike, down moderately from 34.1% late Tuesday.

(Reporting by Gertrude Chavez-Dreyfuss; editing by Jonathan Oatis)

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