Data lifts yields as 2-yr hits highest since 2007

NEW YORK, July 6 (Reuters) – US Treasury yields climbed on Thursday after data on the labor market further fueled expectations the Federal Reserve will be aggressive in raising interest rates as it tries to rein in persistently high inflation down towards its 2% target rate.

Private payrolls jumped by 497,000 jobs last month, the ADP National Employment report showed, well above the 228,000 forecast and indicating the labor market remains resilient despite the Fed’s efforts to slow the economy.

Other labor market data showed initial jobless claims increased slightly for the week ended July 1 to 248,000, just above the 245,000 estimate, but still below the 280,000 economists believe would indicate a significant slowing in job growth. In addition, a report from Challenger, Gray & Christmas announced the lowest number of layoffs by US-based employers since October 2022.

“This data has been unbelievable strong, especially the jobs data just for some reason continues to surprise to the upside,” said Tom di Galoma, co-head of global rates trading at BTIG in New York.

“I’m not sure where it is all coming from. I think we are headed into a slowdown but businesses are still looking for employees.”

The data comes ahead of Friday’s key payrolls report from the Labor Department, although the ADP report and the government’s jobs data have not historically been very tightly correlated.

The yield on 10-year Treasury notes was up 9.4 basis points to 4.039% after hitting 4.083%, its highest since March 2. The 10-year yield is on track for its third straight session of gains.

Interest rate futures were pricing in a 92.4% chance of a 25-basis-point rate hike at the Fed’s July 25-26 meeting, up from 90.5% a day prior, with expectations for a second hike at the November meeting also increasing.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was up 5.1 basis points at 5.002% after rising to 5.120%, the highest since June 2007.

Federal Reserve Bank of Dallas President Lorie Logan said Thursday that there was a case for a rate rise at the June policy meeting, when the central bank paused after 10 straight increases, and said more rate hikes are needed. Recent comments from other Fed officials, including Chair Jerome Powell, have supported additional hikes this year.

The yield on the 30-year Treasury bond was up 5.9 basis points to 4.003%. Analysts at Citi have pointed to 4% as the main resistance level, as yields “came off aggressively” in three prior instances. Citi would target 4.34% should the 30-year close above 4%.

Other data showed the services sector remains strong, growing faster than expected in June, although a measure of prices paid fell to its lowest in more than three years, hinting at further cooling of services inflation.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a negative 96.5 basis points after seeing its deepest inversion since 1981 on Monday.

The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.243%, after closing at 2.233% on Wednesday.

The 10-year TIPS breakeven rate was last at 2.272%, indicating the market sees inflation averaging 2.3% a year for the next decade.

(Reporting by Chuck Mikolajczak, additional reporting by Karen Brettell; Editing by Mark Potter and Nick Zieminski)

Retail traders pile into US stocks; focus shifts to EVs from AI

July 6 (Reuters) – Retail traders raised their exposure to US stocks in June encouraged by healthy returns, with their focus shifting to electric-vehicle firms from artificial intelligence stocks earlier in the year.

They poured in USD 1.4 billion per day on average in US equities in the month, closing in the all-time record of USD 1.5 billion a day in March, Vanda Research said.

Broadly US stocks in June enjoyed their strongest monthly performance in eight months, as signs of cooling inflation fueled bets the Federal Reserve could be near the end of its rate-hiking cycle.

“While it may be difficult to see a further increase in the pace of cash equity purchases from these levels, there is still room for more speculative buying in the options space,” said Marco Iachini, senior vice president at Vanda Research which tracks retail flows.

Retail trading activity as a percentage of total market volume jumped to 21.9% as of July 5, the highest since Jan. 24, and up sharply from 14% on May 31, according to J.P.Morgan data.

Record vehicle deliveries by Tesla (TSLA), consistently a favorite among the retail crowd, have helped spark small-time investors’ interest in EV stocks, including Rivian (RIVN), Iachini said.

EVs have garnered increased demand on incentives under the Inflation Reduction Act and a competitive pricing environment.

In contrast, demand for AI stocks, including C3.ai, from retail investors has somewhat slowed from earlier this year after they rallied for weeks, Iachini added.

Meanwhile, Joby Aviation’s (JOBY) 67% surge since last week was driven by strong retail buying after a green light from US aviation regulator for flight testing of its electric air taxi.

About 11.61% of Joby shares are under short position and there could be more short covering if the stock price continues to climb, said Peter Hillerberg, co-founder at analytics firm Ortex.

(Reporting by Medha Singh in Bengaluru; Editing by Shinjini Ganguli and David Gregorio)

Venture capital funding plunges globally in first half despite AI frenzy

July 6 (Reuters) – Venture capital funding globally almost halved in the first six months of 2023, data from research firm PitchBook showed, highlighting a lack of enthusiasm on the part of investors as well as less demand amid sharply higher interest rates.

The 48% decline in investment to USD 173.9 billion and the 19% drop-off in deal numbers come despite huge interest in artificial intelligence startups sparked by the success of OpenAI’s ChatGPT.

Investors poured more than USD 40 billion into AI startups in the past six months, the data showed. That includes a USD 10 billion investment by Microsoft MSFT.O in OpenAI and USD 1.3 billion in funding for rival Inflection AI.

By region, Latin America had the biggest drop with an 86% slump while the US and Europe fell 65% and 69% respectively.

Investors say that not only have higher interest rates caused a rethink of valuations, the current IPO drought and lack of other exit opportunities have made them more selective.

“I haven’t written any checks in the past 18 months,” said Kevin Colleran, a co-founder at early-stage firm Slow Ventures. “I have 30 portfolio companies that I need to help figure out how to survive. There is no point for me to add to the misery.”

PitchBook said large investors weren’t actively participating in venture funding and outsized deals that had pushed deal values to records were no longer happening. Venture capital funding globally hit an annual record of USD 745.1 billion in 2021.

Funding activity has fallen across all stages, with the first seed round logging the biggest drop with a 44% decline in the number of deals in the US

Many firms that secured funds in 2021 are still sitting on a considerable amount of money and feel little need to come back to a market that expects much lower valuations, investors said. But they added that a moderate pickup in demand could emerge in the second half.

“More companies will have run low on cash and will need to come to market to fully finance their plans,” said Mary D’Onofrio, a partner at Bessemer Venture Partners.

(Reporting by Krystal Hu in New York; Editing by Edwina Gibbs)

Oil dips as China demand fears offset tighter supply outlook

SINGAPORE – Oil prices slipped in Asian trade on Thursday as fears of a sluggish demand recovery in the world’s top crude importer China offset the prospect of tighter supply, with top exporters Saudi Arabia and Russia cutting output.

Brent crude futures LCOc1 dipped 21 cents, or 0.3%, to USD 76.44 a barrel at 0650 GMT, after settling higher 0.5% the previous day.

US West Texas Intermediate crude CLc1 fell 4 cents to USD 71.75 a barrel, after closing 2.9% higher in post-holiday trade on Wednesday to catch up with Brent’s gains earlier in the week.

“Despite calls for supply cuts over past months, oil prices have largely remained locked within a ranging pattern as lingering caution around the demand outlook continues to put a cap on the upside,” said Yeap Jun Rong, market strategist at IG.

“Near-term, a move above the key USD 80.00 level may be needed to provide some conviction for the bulls,” Yeap added.

Demand concerns lingered over China’s slow economic recovery after the lifting of pandemic restrictions, on top of global macroeconomic headwinds and interest rate hikes by central banks.

Weighing on the demand outlook, China’s services activity expanded at the slowest pace in five months in June, a private-sector survey showed on Wednesday, as weakening demand weighed on post-pandemic recovery momentum.

“The upside looks to be limited due to uncertainty over the pace of China’s economic growth and fuel demand recovery,” said Tatsufumi Okoshi, senior economist at Nomura Securities, predicting WTI would remain in a range of USD 65 to USD 75 a barrel going forward.

But Saudi Arabia’s supply curb announcement on Monday and expectations for a possible further reduction, along with a bigger-than-expected drop in U.S. crude stocks, provided some support to sentiment, Okoshi said.

US crude stocks fell by about 4.4 million barrels in the week ended June 30, while gasoline and distillate inventories rose, according to market sources citing American Petroleum Institute figures. Analysts had expected a drop in crude inventories of about 1 million barrels in a Reuters poll.

Government data on US inventories is due at 11:00 a.m. EDT (1500 GMT) on Thursday.

On Wednesday, Saudi energy minister Prince Abdulaziz bin Salman said that Russia-Saudi oil cooperation is still going strong as part of the OPEC+ alliance, which will do “whatever necessary” to support the market.

(Reporting by Yuka Obayashi in Tokyo and Jeslyn Lerh in Singapore; Editing by Sonali Paul)

Oil near flat as tighter supplies offset US rate hike risk

NEW YORK, July 6 (Reuters) – Oil prices were near flat on Thursday as the market weighed tighter US crude supplies with the higher likelihood of a US interest rate hike that could dent energy demand.

Brent crude futures settled 13 cents lower at USD 76.52 a barrel, after a 0.5% gain the previous day.

US West Texas Intermediate crude gained 1 cent to USD 71.80 a barrel, after rising 2.9% in post-holiday trade on Wednesday to catch up with Brent’s gains earlier in the week.

The market has been expecting interest rates in the US and Europe to rise further to tame stubborn inflation. Fears of a global recession mounted after recent surveys showed slower factory and services activity in China and Europe.

Minutes released on Wednesday showed that a united US central bank agreed to hold rates steady at its June meeting to buy time and assess the need for further hikes, though most attendees expected they would eventually need to tighten further.

US interest rate futures on Thursday increased the probability of another US rate rise after news private payrolls surged last month.

“We know the Federal Reserve wants to see the labor market cool off,” said Phil Flynn, an analyst at Price Futures group. “The market is concerned that the Fed has to take the punch bowl away.”

Supporting prices were data from the Energy Information Administration that showed US crude stockpiles fell by more than expected last week.

Crude inventories fell by 1.5 million barrels in the last week to 452.2 million barrels, compared with analysts’ expectations in a Reuters poll for a 1 million-barrel drop. US gasoline and distillate inventories also dropped.

“While the inventories are supportive for oil prices today, the oil market is being dominated by fears of further rate increases,” said Andrew Lipow, president at Lipow Oil Associates in Houston. “This is coming at a time when OPEC+, especially Saudi Arabia and Russia, are reiterating their commitment to rein in production and exports, respectively.”

Top oil exporters Saudi Arabia and Russia announced a fresh round of output cuts for August. The total cuts now stand at more than five million barrels per day (bpd), equating to 5% of global oil output.

The cuts, along with a bigger-than-expected drop in US crude stocks, provided some support for prices.

OPEC is likely to maintain an upbeat view on oil demand growth for next year when it publishes its first outlook for 2024 this month, predicting a slowdown from this year but still an above-average increase, sources close to OPEC told Reuters.

OPEC ministers and executives from oil companies told a two-day conference in Vienna that governments needed to turn their attention from supply to demand.

Rather than pressuring oil producers to curb supply, which heads of global energy companies say serves only to increase prices, governments should shift the focus to limiting oil demand to reduce emissions, they said.

(Reporting by Stephanie Kelly in New York; additional reporting by Natalie Grover in London, Yuka Obayashi in Tokyo, and Jeslyn Lerh in Singapore; Editing by Mark Potter, David Holmes, David Gregorio, and Conor Humphries)

Dollar to stay firm on expectations of resilient US economy

BENGALURU, July 6 (Reuters) – The US dollar will hold its ground against most major currencies for the rest of the year despite expectations of narrowing interest rate differentials as the US economy stays resilient, according to FX strategists polled by Reuters.

Although the greenback is still down around 0.5% against major currencies this year, it has gained nearly 1.3% over just the past week thanks to receding calls for a federal funds rate cut and wilting expectations for a US recession this year.

Several US Federal Reserve officials, including Chair Jerome Powell, have argued in favor of at least two more rate hikes, against market expectations of one more, which also helped underpin the currency.

The dollar will not give up those recent gains anytime soon, according to the June 30-July 5 poll of 80 FX strategists despite some major central banks, like the European Central Bank and Bank of England, set to keep raising rates for longer.

“The tightness of the US labor market may help the economy and the dollar in the very short term,” said Kit Juckes, chief FX strategist at Societe Generale. “Even if we see (interest) rate convergence, it seems unlikely a new major euro uptrend will start without stronger growth.”

Indeed, a majority of common contributors showed the dollar view against most major currencies for the coming six months has been either upgraded or kept unchanged from a month ago.

Meanwhile, net USD short positions have eased since hitting a two-year high in May, according to data from the Commodity Futures Trading Commission.

Recent data showed the world’s largest economy has remained stronger than expected and has fared better than the euro zone, which slid into a recession earlier this year.

“We see room for a dollar rebound in the near term. The US economy looks in better shape than Europe and Asia, which suggests ‘higher for longer’ is somewhat more credible coming from the Fed than most others,” said Jonas Goltermann, deputy chief markets economist at Capital Economics.

After rising over 2% in June, the euro, currently at USD 1.09, was expected to gain a little less than 1% and trade at USD 1.10 in six months.

Sterling, one of the best-performing G10 currencies this year, was forecast to change hands at USD 1.26, slightly lower than the current level of USD 1.27.

A double whammy of high interest rates and sticky inflation has already dragged on economic activity in Britain.

When asked how the dollar would perform against major currencies over the next three months, 45% of strategists, 27 of 60, said it would remain rangebound and 19 said it would strengthen. Only 14 said it would weaken.

“The dollar is getting a tailwind from the Fed … the current strength is on a repricing of the Fed (rate) higher,” said John Hardy, head of FX strategy at Saxo Bank.

“But at the same time, we have extremely strong global risk sentiment and liquidity and financial conditions are very easy. That normally associates with the dollar weakness. Those two things are balancing each other out.”

(Reporting by Indradip Ghosh and Shaloo Srivastava in Bengaluru; Polling by Sarupya Ganguly, Anitta Sunil, and Veronica Khongwir; Editing by Hari Kishan, Ross Finley, and Matthew Lewis)

Wall Street posts modest loss after Fed minutes

July 5 (Reuters) – Wall Street’s main indexes ended with modest declines on Wednesday as investors digested minutes from the US Federal Reserve’s latest meeting and braced for significant economic data in the days to come.

Minutes showed a united Fed agreed to hold interest rates steady at the June meeting as a way to buy time and assess whether further rate hikes would be needed.

Following the release of the anticipated minutes, investors still largely expected the central bank to raise rates at its next meeting later this month. Key economic data is due before the meeting, including the monthly US jobs report on Friday.

“The markets are in a wait-and-see for the economic data,” said Paul Nolte, senior wealth advisor and market strategist at Murphy & Sylvest Wealth Management. “Since the Fed is data dependent, so is the market.”

The Dow Jones Industrial Average fell 129.83 points, or 0.38%, to 34,288.64, the S&P 500 lost 8.77 points, or 0.20%, to 4,446.82 and the Nasdaq Composite dropped 25.12 points, or 0.18%, to 13,791.65.

Materials fell most among S&P 500 sectors, shedding 2.5%.

In data out on Wednesday, new orders for US-made goods increased less than expected in May, fanning fears of an economic slowdown. Meanwhile, China’s services activity expanded at the slowest pace in five months in June, according to a private-sector survey.

Chip stocks fell after China said it would control exports of some metals widely used in the semiconductor industry as tensions between Beijing and Washington rise over access to high-tech microchips.

The Philadelphia SE Semiconductor Index dropped 2.2%, while Intel INTC.O shares sank 3.3% and Texas Instruments (TXN) declined 1.8%.

Shares of Meta Platforms (META) rose 2.9% ahead of the expected release of the company’s Twitter-rival app, Threads, on Thursday.

Megacap stocks such as Meta have led the gains so far this year for major equity indexes, including the biggest first-half increase for the Nasdaq Composite in 40 years.

“We could see the largest stocks pull back, but the average stock catch up,” said Jack Ablin, chief investment officer at Cresset Capital. “We are looking for somewhat of a convergence.”

Shares of United Parcel Service (UPS) fell 2.1% after the Teamsters Union said UPS “walked away” from negotiations over a new contract, a claim the shipping giant denied.

Declining issues outnumbered advancing ones on the NYSE by a 2.29-to-1 ratio; on Nasdaq, a 1.84-to-1 ratio favored decliners.

The S&P 500 posted 18 new 52-week highs and one new low; the Nasdaq Composite recorded 55 new highs and 65 new lows.

About 10.3 billion shares changed hands in US exchanges, compared with the 11.1 billion daily average over the last 20 sessions.

(Reporting by Lewis Krauskopf and Sinead Carew in New York, Bansari Mayur Kamdar and Johann M Cherian in Bengaluru; Editing by Marguerita Choy and Vinay Dwivedi)

US yields higher after data, Fed minutes

NEW YORK, July 5 (Reuters) – US Treasury yields were mostly higher on Wednesday after a softer-than-expected reading on US-made goods and the minutes from the Federal Reserve’s June policy meeting did little to alter expectations on the path of rate hikes.

Almost all Fed officials agreed to hold interest rates steady at the June meeting, the first pause after hikes at 10-straight meetings prior, according to the minutes, but most believed more rate hikes would be needed.

Expectations for a 25-basis-point hike from the Fed at its meeting on July 25-26 are at 88.7%, according to CME’s FedWatch Tool, up from 81.8% a week ago.

The yield on 10-year Treasury notes was up 7.9 basis points to 3.938%.

“The longer-term yields are mostly just catching up with the move higher that we’ve seen in the short end, but investors are still trying to digest what the Fed’s next move is,” said Jim Barnes, director of fixed income at Bryn Mawr Trust in Berwyn, Pennsylvania.

“The Fed all seems to be on the same team in terms of we are getting two more rate hikes this year, and so the market is kind of buying into that a little bit.”

Yield slowly advanced throughout the session after factory orders rose 0.3% in May, shy of the estimate of economists polled by Reuters for a 0.8% increase and matching the revised 0.3% rise in the prior month. The manufacturing sector has struggled under the Fed’s rapid rate hike cycle.

Investors will also gauge a flurry of data on the labor market over the next two days, which will help shape the Fed’s aggressiveness in tightening monetary policy.

The yield on the 30-year Treasury bond was up 6.5 basis points to 3.942%.

Federal Reserve Bank of New York President John Williams will speak later today in a moderated discussion at a Central Bank Research Association meeting.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a negative 100.7 basis points after experiencing its deepest inversion in more than 40 years on Monday.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was up 0.2 basis point at 4.942%.

The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.24%, after closing at 2.247% on Monday, near its highest close in two months.

The 10-year TIPS breakeven rate was last at 2.258%, indicating the market sees inflation averaging 2.26% a year for the next decade.

(Reporting by Chuck Mikolajczak; Editing by Will Dunham and Nick Zieminski)

Gold slips as US dollar, yields rise after Fed minutes

July 5 (Reuters) – Gold prices fell on Wednesday, weighed down by an uptick in the dollar and US Treasury yields after minutes from the Federal Reserve’s June policy meeting cemented expectations that rates will stay higher for longer.

Spot gold was down 0.5% at USD 1,916.49 per ounce by 02:32 p.m. EDT (1832 GMT). US gold futures settled 0.1% lower at USD 1,927.10.

“Gold slumps to day’s lows after Fed minutes showed that the ‘pause’ in June was simply the path of least dissent and almost the entire committee expected ultimately higher rates,” said Tai Wong, a New York-based independent metals trader.

“The upcoming JOLTS report and payrolls data will have a much greater impact, especially if they are weaker than expected.”

A united Fed agreed to hold interest rates steady at the June meeting, according to meeting minutes released on Wednesday, even as the vast bulk expected they would eventually need to tighten policy further.

Benchmark US 10-year Treasury yields jumped to a near four-month peak after the release, while the dollar rose 0.3% against its rivals.

Traders are pricing in an 89% chance of a 25-basis-point hike from the Fed in the July meeting after last month’s pause, per CME’s Fedwatch tool.

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

Investors’ focus now shifts to the US Labor Department’s Job Openings and Labor Turnover Survey, or JOLTS, and ADP, jobless claims on Thursday before Friday’s non-farm payrolls report.

Traders also kept a close watch on updates about China’s export controls on semiconductor metals as it ramps up a tech fight with the United States ahead of US Treasury Secretary Janet Yellen Beijing visit.

Spot silver rose 0.8% to USD 23.12 per ounce, platinum eased 0.1% to USD 914.11 while palladium climbed 1% to USD 1,255.78.

(Reporting by Brijesh Patel in Bengaluru; Editing by Christina Fincher and Shailesh Kuber)

Chinese companies rush for hedging as market volatilities spike

SHANGHAI, July 5 (Reuters) – Chinese listed firms are embracing hedging at a record pace, according to consultancy data, as market volatility rises and China grows its derivative market.

During the April-June period, more than 120 China-listed companies in non-financial sectors unveiled plans for the first time to hedge risk using tools such as options and futures, the most for any quarter.

That brings the number of listed firms that announced hedging arrangements in the first half to more than 1,000, almost matching last year’s total of 1,133, according to risk-management consultancy D-Union.

“The popularity of hedging is due to rising uncertainties including foreign exchange risks,” said D-Union CEO Ma Weifeng.

He added that China’s more stringent disclosure rules around hedging could also contribute to the record quarterly number.

Forex hedging is popular among Chinese companies, according to D-Union, as regulators allow market forces to play a bigger role in deciding the yuan’s value.

The yuan broke the psychologically important 7-per-dollar level in May, then slumped more than 5% against the greenback in the second quarter amid China’s flagging post-COVID recovery.

Companies including Semiconductor Manufacturing Electronics (Shaoxing) Corp 688469.SS and liquor giant Luzhou Laojiao Co Ltd announced plans in the second quarter to hedge against forex risks.

Measures to develop China’s derivative market also boosted interest in hedging, Ma said.

China’s Futures and Derivatives Law took effect last August, while Shanghai and Shenzhen stock exchanges have also published new rules that set higher standards for hedging activity disclosures.

Electronics, basic chemicals, and electrical equipment were among the sectors that were most active in hedging during the second quarter, according to D-Union data.

For example, Sieyuan Electric Co Ltd, a manufacturer of power transmission equipment, said in June that it planned to use tools to hedge against volatility in the price of copper – a key ingredient of production.

(Reporting by Li Gu and Samuel Shen in Shanghai and Tom Westbrook in Singapore. Editing by Gerry Doyle)

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