Gold retreats as dollar gains upper hand

May 11 (Reuters) – Gold retreated on Thursday as rival safe-haven dollar advanced and outweighed support for bullion from lingering economic risks, while traders digested the impact of weak data on the interest rate outlook.

Spot gold was down 0.8% to USD 2,013.84 per ounce by 1:40 p.m. EDT (1740 GMT), while US gold futures settled down 0.8% to USD 2,020.50.

Gold popped up after data showed a jump in weekly jobless claims and the smallest annual increase in producer prices last month in over two years.

However, the metal soon gave up those gains as the dollar rose, making bullion more expensive for overseas buyers.

The banking situation with PacWest has prompted some safe haven demand into the US dollar, said Jim Wyckoff, senior analyst at Kitco Metals.

Investors also took stock of comments from Minneapolis Fed chief Neel Kashkari that an extended period of high rates would be necessary if inflation stayed stubbornly high.

While this weighs on sentiment for gold “to a certain extent, the precious metal remains in its uptrend channel established in November,” said Alexander Zumpfe, a precious metals dealer at Heraeus.

Gold is traditionally considered a hedge against inflation, but elevated interest rates dim appeal for zero-yield bullion.

On Wednesday, data showed the annual increase in US consumer prices slowed to below 5% in April for the first time in two years but remained well above the Fed’s 2% target.

With inflation still sticky amid a slow deterioration in the US economy, the Fed is less likely to feel the need to hike rates further, keeping gold in a sideways to higher trend, said David Meger, director of metals trading at High Ridge Futures.

Silver plunged 4.9% to USD 24.18 per ounce, platinum shed 2% to USD 1,091.86 and palladium lost 3.4% to USD 1,551.96.

(Reporting by Deep Vakil in Bengaluru; Editing by Krishna Chandra Eluri and Subhranshu Sahu)

Yields fall as producer price increases ease

NEW YORK, May 11 (Reuters) – US Treasury yields fell on Thursday after data showed that producer price increases eased in April, adding to expectations that an improving inflation picture will lead the Federal Reserve to pause its interest rate increases.

Producer prices rose at an annual rate of 2.3% last month, the smallest year-on-year rise since January 2021 and down from a 2.7% advance in March.

It comes after data on Wednesday showed consumer price gains slowing to below 5% in April for the first time in two years.

“The inflation picture is getting much better,” said Tom di Galoma, managing director and co-head of global rates trading at BTIG in New York, adding that “the Fed is probably done tightening.”

Benchmark 10-year notes were last at 3.357%, down 8 basis points on the day, while two-year yields fell 8 basis points to 3.820%. The inversion in the yield curve between two-year and 10-year yields is at minus 46 basis points.

Investors are concerned that the economy will slow and possibly tip into recession in the second half of the year as a result of higher interest rates and on tightening credit conditions, which have worsened as a result of stress on the US regional bank sector.

The Fed is viewed as almost certain to keep rates unchanged at its next meeting in June. Fed funds futures traders are also pricing in around 84 basis points of rate cuts for the second half of the year, with a rate cut fully priced in for September.

Other data on Thursday showed that the number of Americans filing new claims for jobless benefits jumped last week to the highest level since late 2021, suggesting that higher interest rates were starting to weigh on the labor market.

The Treasury will sell USD 21 billion in 30-year bonds on Thursday, the final sale of USD 96 billion in coupon-bearing supply this week. The government saw strong demand for a USD 40 billion sale of three-year notes on Tuesday and solid interest in a USD 35 billion auction of 10-year notes on Wednesday.

May 11 Thursday 9:38 AM New York / 1338 GMT

	Price	Current Yield %	Net Change (bps)
Three-month bills	5.065	5.2012	-0.031
Six-month bills	4.8775	5.0835	-0.024
Two-year note	100-26/256	3.8203	-0.081
Three-year note	100-104/256	3.4812	-0.080
Five-year note	100-242/256	3.292	-0.081
Seven-year note	101-36/256	3.3152	-0.083
10-year note	100-40/256	3.3565	-0.080
20-year bond	101-12/256	3.7989	-0.076
30-year bond	98-12/256	3.734	-0.065

DOLLAR SWAP SPREADS
	Last (bps)	Net Change (bps)
US 2-year dollar swap spread	21.75	0.25
US 3-year dollar swap spread	17.50	0.00
US 5-year dollar swap spread	9.25	0.00
US 10-year dollar swap spread	1.25	0.25
US 30-year dollar swap spread	-43.25	0.00

(Reporting by Karen Brettell; Editing by Sharon Singleton)

Oil falls 2% on weak US and Chinese economic data

NEW YORK, May 11 (Reuters) – Oil prices fell about 2% to a one-week low on Thursday as a political standoff over the US debt ceiling stoked recession jitters in the world’s biggest oil consumer while rising US jobless claims and weak Chinese economic data weighed.

Brent crude futures fell USD 1.43, or 1.9%, to settle at USD 74.98 a barrel, while West Texas Intermediate crude (WTI) fell USD 1.69, or 2.3%, to settle at USD 70.87.

Those were the lowest closes for both benchmarks since May 4.

The dollar rose to its highest since May 1 against a basket of major currencies, after recent US jobless claims data strengthened the case for the Federal Reserve to halt interest rate hikes but did not prompt expectations of year-end rate cuts.

A stronger greenback makes oil more expensive in other countries. Higher interest rates can weigh on oil demand by boosting borrowing costs, pressuring economic growth.

US Treasury Secretary Janet Yellen urged Congress to raise the USD 31.4 trillion federal debt limit and avert an unprecedented default that would trigger a global economic downturn.

“Uncertainties regarding the US debt ceiling, recent banking issues that could prompt a credit crunch across much of the oil industry and continued strong possibility of a recession remain … significant obstacles” for oil markets, analysts at energy consulting firm Ritterbusch and Associates said in a note.

Keeping pressure on oil prices, the US Dow and S&P 500 stock indexes, fell after California-based bank PacWest Bancorp’s (PACW) latest woes sparked another rout in the regional banking sector.

An extended period of high interest rates could put more stress on banks, but would be necessary if inflation stays stubbornly high, said Minneapolis Federal Reserve President Neel Kashkari.

US producer prices rose moderately last month, the smallest annual producer inflation increase in more than two years.

In other US news, President Joe Biden’s administration unveiled a sweeping plan to slash greenhouse gas emissions from the power industry, one of the biggest steps so far in its effort to decarbonize the economy to fight climate change.

New Chinese bank loans tumbled far more sharply than expected in April, adding to worries that the economy’s post-pandemic recovery is losing steam.

“Oil prices are lower after another round of Chinese data, this time money metrics, confirmed their economic reopening from COVID continues to disappoint,” said Edward Moya, senior market analyst at data and analytics firm OANDA.

The oil market largely ignored the Organization of the Petroleum Exporting Countries (OPEC) global oil demand forecast for 2023, which projected demand in China, the world’s biggest oil importer, would increase.

OPEC projected Chinese oil demand would rise by 800,000 barrels per day (bpd), up from its 760,000-bpd forecast last month.

OPEC, however, said that the increase in Chinese demand could be offset by economic risks elsewhere, including the US debt ceiling battle.

On the supply front, Iraq has sent an official request to Turkey to restart oil exports through a pipeline running from the semi-autonomous Kurdistan Region in northern Iraq to the Turkish port of Ceyhan, which could add 450,000 bpd to global crude flows.

(Additional reporting by Shadia Nasralla in London and Jeslyn Lerh in Singapore; Editing by Marguerita Choy, David Gregorio and Cynthia Osterman)

US recap: Dollar off its CPI-led lows, with haven yen the big winner

May 10 (Reuters) – The dollar dove with Treasury yields in the initial response to CPI data that dashed some expectations it would be hot enough to buttress the Fed’s stance that H2 rate cuts are unlikely, but risk-off flows and book-squaring helped it cut its early losses, except against the haven yen.

Two-year Treasury yields fell 12 basis points (bps) on the US inflation data, which was marginally weaker than expected overall on a year-on-year basis and the lowest in two years. But the main drag on yields likely derived from a modest 0.1% month-on-month rise in the Fed’s favored core services ex-housing metric versus a 0.4% rise in March.

Also weighing on risk and helping the haven dollar recover, except against the yen, was the fleeting rally in stocks in response to falling interest rates amid renewed weakness in regional bank stocks.

The haven yen was the main beneficiary of the slide in stocks, as well as falling yields in the US and elsewhere since JGB yields barely move, or trade, due to the BoJ’s yield curve control and QE.

There is widespread speculation the BoJ’s current policy review, amid well-above-target inflation, will eventually favor higher JGB yields.

A Nikkei article on Wednesday noting Japanese life insurers’ bias toward trimming Treasury holdings in favor of JGBs, partly due to the high cost of hedging FX risk, though a medium-term concern, likely provided one more reason to exit hefty spec USD/JPY longs and yen shorts in general.

USD/JPY fell 0.7% and was threatening a bearish sub-kijun close.

EUR/USD swung from earlier losses to post-CPI gains only to slip back to a modest 0.15% rise after risk-off flows helped the haven dollar bids.

Sterling’s post-CPI surge to new 1-year highs also evaporated in the derisking mist and ahead of the BoE Thursday.

(Editing by Burton Frierson; Randolph Donney is a Reuters market analyst. The views expressed are his own.)

Inflation may not be cooling fast enough to justify stock valuations

NEW YORK, May 10 (Reuters) – Some investors are growing concerned that the US economy may not be cooling fast enough to justify bets that the Federal Reserve will cut interest rates this year, threatening a view that has helped boost stocks.

Expectations of rate cuts in the second half of the year have helped a rally that has lifted the S&P 500 7% year-to-date and 15% from its October lows. Those bets, however, have run counter to the central bank’s own stance, which has been to keep rates at around current levels until year-end.

Some investors worry recent data – including Wednesday’s US consumer price report and last week’s employment numbers – offer little evidence to support the case for interest rate cuts, potentially endangering a rally that has driven up stock valuations.

“Valuations are a little bit high for the S&P 500, probably based on hopes that rates will moderate between now and year-end,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia. “Those hopes might not come to fruition, suggesting the market has some downside potential later in the year.”

The US consumer price index rose 4.9% in the 12 months through April, cooling slightly faster than economists had expected. Yet it remained far above the Fed’s 2% target, possibly undermining the view that the central bank will cut rates this year unless the economy is hit by a sudden slowdown or other type of shock.

The S&P 500 was last little changed after index futures initially rose following the CPI report. Benchmark US Treasury yields fell, with the yield on the 10-year Treasury last at 3.45%.

Bets in futures markets tied to the Fed’s policy rate on Wednesday showed investors continuing to price cuts in the second half of the year, leaving the Fed funds rate at 4.33% in December, according to Refinitiv data, compared to its current target rate of 5% to 5.25%.

“We believe the Fed will remain on hold for longer than markets are pricing,” Alexandra Wilson-Elizondo, co-head of portfolio management for Multi Asset Solutions at Goldman Sachs Asset Management, said in emailed comments. “Central bank’s reaction function has been, and likely will remain, more hawkish than markets are expecting.”

Continued Fed hawkishness could be problematic for stock prices. The S&P 500 has a forward price-to-earnings ratio of 18 times, well above the 15.6 times historic average, according to Refinitiv Datastream.

And current valuations may be incorporating overly rosy expectations for earnings, should the Fed’s rate hikes eventually cause a recession this year as many investors expect.

S&P 500 earnings are expected to rise 1.5% this year, according to Refinitiv IBES data. During recessions, however, earnings tumble at a 24% annual rate on average, according to Ned Davis Research.

Other risks also loom, including a debt-ceiling standoff in Washington that is raising investors’ concerns about a potential US default.

“The market is enjoying this window where we potentially are getting the Fed pivot,” said Matthew Miskin, co-chief investment strategist at John Hancock Investment Management. “To us, risk assets aren’t pricing in other issues that could certainly develop as the year goes on.”

Miskin is moderately underweight on stocks compared to bonds, and within equities favors quality areas like technology and defensive groups such as healthcare.

Still, many investors were encouraged by Wednesday’s CPI data, after inflation concerns battered asset prices over the past year.

The data “all but confirm” expectations that the Fed will pause rate hikes next month, and “as inflation and the economy slows further in the coming months, the Fed could justify an outright cut in rates,” Jeffrey Roach, chief economist for LPL Financial, said in emailed comments.

“Risk assets will likely become more attractive as investors digest this latest inflation report.”

(Reporting by Lewis Krauskopf; Editing by Ira Iosebashvili and Richard Chang)

Corporate bond issuance picks up after slow April

May 10 (Reuters) – Several of the world’s largest companies raised billions of dollars in new debt this week and last, in a mini-resurgence of a primary corporate bond market that had been held back by the US regional banking crisis and recession concerns.

On Monday, 11 companies led by iPhone maker Apple (AAPL), wireless carrier T-Mobile (TMUS) and drugmaker Merck (MRK), issued USD 22.55 billion in bonds. The sales followed a similar 11-deal flurry of debt sales on May 1 led by Facebook parent Meta Platforms (META) and Comcast (CMCSA).

So far in May these and other high-grade companies have raised a total of USD 57.5 billion, on pace to beat last month’s USD 65.7 billion, which was the slowest April in a decade, according to Informa Global Markets data.

“Corporate bond spreads have retraced from the widening we saw immediately post banking and initial banking failures, so companies are saying now’s a good time to come,” said Natalie Trevithick, head of investment grade credit strategy at investment management firm Payden & Rygel.

The average investment-grade bond spread on Tuesday was 149 basis points over Treasuries after reaching a high of 164 basis points on March 15, according to ICE BAML data.

“This month we have seen a wave of issuance from large companies as they have cleared earnings blackouts and are facing a reasonably steady rate backdrop,” said Blair Shwedo, head of investment grade trading at US Bank.

But spreads remained higher than a February low of 120 basis points, as uncertainty surrounds the direction of Federal Reserve monetary policy and lawmakers on Capitol Hill remain deadlocked over a bill to prevent default on trillions of dollars in US government debt.

Monday’s supply was met with strong investor demand. The bonds received USD 61.25 billion in orders, almost triple the amount sought.

On Tuesday, however, just four high-grade companies sold new debt led by BP Capital Markets America, while four others postponed plans, according to Informa data.

The companies also rushed out on Monday to get ahead of any further market volatility that could come after the release this week of the latest US inflation data, according to market participants.

But consumer price index data on Wednesday came in line with market expectations, which could lead to favorable conditions for new bond issuance.

“A worse-than-expected inflation report would complicate issuer plans to tap the market, however, that risk has gone away with this morning’s data release,” said Andrzej Skiba, head of BlueBay US fixed income at RBC GAM.

“We see well over USD 30 billion of new issue supply next week in US investment grade, with upside risk to that number if some of the M&A-related supply decides to tap the market,” he said.

(Reporting by Matt Tracy; editing by Shankar Ramakrishnan and David Gregorio)

Gold eases on profit taking after US inflation data

May 10 (Reuters) – Gold prices edged lower on Wednesday as optimism over the Federal Reserve cutting interest rates this year faded after the US inflation report, triggering profit-taking among some investors.

Spot gold was down 0.2% at USD 2,030.70 per ounce by 2:06 p.m. EDT (1806 GMT).

US gold futures settled 0.3% lower at USD 2,037.10.

“There are still risks the Fed will have to keep rates higher for longer… Gold is going to need more rate cuts to become aggressively priced in for it to continue its rally,” said Edward Moya, senior market analyst at OANDA.

Gold rose as much as 0.7% after data showed US Consumer Price Index (CPI) rose 4.9% in April from a year earlier but lower than expectations of a 5% increase, before turning negative. Month-over-month CPI in April rose 0.4% after gaining 0.1% in March.

The data disrupted the modest momentum that had been building for an 11th straight interest rate hike in June, with the bulk of futures tied to the Fed’s rate betting on a pause.

But gold may struggle in the short term with core inflation unchanged from last month and well above the Fed’s target, said Ole Hansen, head of commodity strategy at Saxo Bank.

While gold is considered a hedge against inflation, rising interest rates dull non-yielding bullion’s appeal.

Some analysts have said gold could attempt another run to record highs, given persistent economic worries, including a potential US debt ceiling default.

“Much more attention should be given to the state of the banking system and the brinkmanship in the debt ceiling talks,” said StoneX analyst Rhona O’Connell.

Markets now look forward to April’s producer price index (PPI) due at 8:30 a.m. EDT on Thursday for more cues.

Spot silver fell 1% to USD 25.35 per ounce, platinum rose 0.4% to USD 1,109.60 and palladium gained 2.1% to USD 1,602.7.

(Reporting by Deep Vakil, Arpan Varghese, and Arundhati Sarkar in Bengaluru; Editing by Shilpi Majumdar, Paul Simao, Christina Fincher, and Krishna Chandra Eluri)

Nikkei falls from 16-month peak on profit taking, US inflation print in focus

TOKYO, May 10 (Reuters) – Japan’s Nikkei share average dropped from a 16-month peak on Wednesday, as cautious investors took profits ahead of crucial US inflation data that could influence the path for the Federal Reserve’s monetary policy.

At the same time, domestic earnings continued to produce outsized winners and losers, with department store operator Marui Group 8252.T surging as much as 21%, while Mitsubishi Motors 7211.T finished down 9.83% after forecasting a drop in profit.

The Tokyo Stock Exchange’s iron and steel subindex flipped from being the best-performing sector in the morning to the worst performer, after poor results from Nippon Steel 5401.T snowballed with earlier earnings disappointment from Pacific Metals 5541.T. Stocks in both companies dropped in excess of 10% at their lowest points.

The Nikkei ended down 0.41% at 29,122.18. On Tuesday, it had surged 1% to close at its highest level since January 2022.

The broader Topix fell 0.55% to 2,085.91. It closed at its highest since September 2021 on Tuesday.

Bank of Japan Governor Kazuo Ueda’s comment to lawmakers that it was too early to discuss disposal of the central bank’s ETF holdings buoyed stocks briefly in the early afternoon before sellers came back in.

“Today, we’re seeing the retracement of some of Tuesday’s strong rise, which has created an environment that’s ripe for profit-taking,” said Maki Sawada, a strategist at Nomura Securities.

“Domestic earnings are certainly a key focus for the market this week, but so are US inflation readings.”

The reporting season reaches a crescendo this week. Close to 300 companies report earnings on Wednesday, climbing to almost 500 on Thursday, and reaching a peak at more than 1,000 companies on Friday.

Toyota Motor rose as much as 2.5% after posting favorable financial results mid-afternoon, but gains faded to just 0.78% by the close.

(Reporting by Kevin Buckland; Editing by Rashmi Aich)

Oil drops 1% after US data points to further rate hikes

BENGALURU, May 10 (Reuters) – Oil prices fell by more than a dollar a barrel on Wednesday, ending a three-day rally, as economic data suggested that the US Federal Reserve might hike interest rates further.

Brent crude dropped USD 1.03, or 1.3%, to settle at USD 76.41 a barrel while US West Texas Intermediate crude (WTI) fell USD 1.15, or 1.6%, to USD 72.56 a barrel.

US consumer prices rose in April, potentially raising the likelihood that the Fed will maintain higher interest rates. Rising global interest rates have weighed on oil prices in recent months, with traders concerned about recession.

“Oil prices have been depressed by fears about economic growth related to the banking crisis and normal seasonal weakness during the spring as energy demand moderates,” said Jay Hatfield, CEO of Infrastructure Capital Management.

US crude oil inventories rose by about 3 million barrels last week due to another release from national reserves and a drop in exports, the Energy Information Administration said.

The government report confirmed industry data released late Tuesday that had reported an unexpected build, which weighed on prices for most of Wednesday’s session.

Analysts polled by Reuters had forecast a crude drawdown of 900,000 barrels.

The surprising US crude inventory build, along with lower crude imports and April’s softer export growth in China exacerbated worries about global oil demand.

The decline in crude prices was, however, limited by a surge in US gasoline demand ahead of the summer driving season.

US gasoline inventories fell by 3.2 million barrels last week, much bigger than the 1.2-million-barrel draw forecast by analysts. Distillate stocks also declined, EIA data showed.

RBOB gasoline futures rose 0.7% to USD 2.50 per gallon, while the ULSD futures HOc1 contract was unchanged.

“We are forecasting that oil prices range from USD 75-95 during 2023 based on fundamental supply and demand and that oil will rally as we head into the summer driving season,” Hatfield said.

(Reporting by Shariq Khan; Additional reporting by Noah Browning, Stephanie Kelly, and Muyu Xu; Editing by Marguerita Choy, Kirsten Donovan, and Alexander Smith)

Wall Street closes down as focus shifts to inflation data, debt talks

NEW YORK, May 9 (Reuters) – US stock indexes closed lower on Tuesday as investors grew more cautious ahead of a US consumer price index report and a meeting between US political leaders to discuss the debt ceiling.

Investors will look for clues on whether inflation is continuing to ease following the Labor Department’s consumer price index (CPI) report on Wednesday.

Talks over the US debt ceiling are adding to caution in the market as traders were also waiting for an update on plans for the debt ceiling from a meeting between US President Joe Biden, Republican House Speaker Kevin McCarthy, and other congressional leaders at the White House.

Worries of a potential government default loom over Washington as early as June 1, if Congress does not act to resolve the deadlock.

“Overall, it’s a relatively mild day, but both the debt ceiling as well as the inflation are causing some anxiety,” said Randy Frederick, managing director of trading and derivatives at the Schwab Center for Financial Research.

The Dow Jones Industrial Average fell 56.88 points, or 0.17%, to 33,561.81, the S&P 500 lost 18.95 points, or 0.46%, to 4,119.17 and the Nasdaq Composite dropped 77.36 points, or 0.63%, to 12,179.55.

Volume on US exchanges was 9.35 billion shares, compared with the 10.68 billion average for the full session over the last 20 trading days.

Disappointing forecasts from companies such as PayPal and Apple supplier Skyworks also weighed on the mood. They were down 12.73% and 5.15%, respectively.

Shares of PayPal Holdings (PYPL) dropped and pressured the benchmark S&P 500 after the company cut its margin forecast. The stock was also among the top drags on the Nasdaq.

Skyworks Solutions Inc (SWKS) shares slid after the company forecast current-quarter revenue and earnings below estimates.

“Companies have generally been beating earnings expectations, but earnings season is always choppy, and today we have some weaker results. That’s weighing a bit on the market,” said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York.

Pacwest Bancorp (PACW) had another volatile day, leading losses in regional banks earlier in the session before closing up 2.35%.

“Any relief that we get in terms of regional banking stress is good, but it’s far too early to say that things are normalized just because a couple of very beaten-down banks are having a good day,” said Steve Sosnik, chief strategist at Interactive Brokers said.

Shares of other Apple suppliers including Qualcomm (QCOM), Broadcom (AVGO), Qorvo (QRVO), and Corning (GLW) ended lower. The Philadelphia SE Semiconductor Index closed down 1.87%.

Boeing Co (BA) rose 2.34% after budget carrier Ryanair Holdings Plc (RYA) placed a multi-billion dollar order for Boeing jets.

Novavax (NVAX) surged 27.79% as the drugmaker planned a 25% cut to its global workforce.

Under Armour Inc (UAA) fell 5.66% as the sports apparel maker forecast its annual sales and profit below street expectations.

Dialysis services provider DaVita Inc (DVA) jumped 12.90% on a rise in its annual profit forecast as demand for procedures pick up in the US.

Declining issues outnumbered advancing ones on the NYSE by a 1.59-to-1 ratio; on Nasdaq, a 1.35-to-1 ratio favored decliners.

The S&P 500 posted 14 new 52-week highs and 14 new lows; the Nasdaq Composite recorded 77 new highs and 171 new lows.

(Reporting by Shreyashi Sanyal and Shristi Achar A in Bengaluru and additional reporting by Caroline Valetkevitch in New York; Editing by Sonia Cheema, Anil D’Silva, and Deepa Babington)

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