Markets upbeat, China cheer at last

July 12 (Reuters) – The mood across Asia at the midpoint of the week is increasingly upbeat, as a growing consensus that the US central bank is near the end of its policy tightening cycle continues to weigh on the dollar, improve sentiment, and lift asset prices.

The Reserve Bank of New Zealand’s latest interest rate decision and Indian inflation figures are the main local set-piece events on Wednesday, while US inflation later in the day will go a long way to setting the tone for the rest of the month.

There also finally appears to be some good news from China. Figures on Tuesday showed surprisingly strong bank lending in June, helped by central bank efforts to support an economy that has struggled to rebound from pandemic restrictions as expected.

Chinese regulators this week extended some policies in a rescue package introduced in November to shore up liquidity in the real estate sector.

Global hedge funds added more Chinese stocks to their portfolios than they sold in recent days for the first time in seven weeks, Goldman Sachs said in a report.

Chinese stocks on Tuesday registered their best day in over a week, while the MSCI Asia ex-Japan index jumped 1.5% – its biggest rise in over a month and sixth biggest this year.

On a micro level in Asia, shares of Taiwanese chipmaker Foxconn and Indian metals-to-oil conglomerate Vedanta could be under the spotlight again after Foxconn pulled the plug on a USD 19.5 billion joint venture. Trading volume in Vedanta shares on Tuesday was the highest in seven weeks.

On a macro level, the US dollar’s weakness continues to help fuel optimism across Asian markets. The dollar’s broad value has now fallen four days in a row, the longest losing streak since March.

New Zealand’s central bank is expected to keep its cash rate – already at a 14-year high and the highest in the developed world – at 5.50% on Wednesday and leave it there for the rest of the year.

It would be the first time the RBNZ has not raised rates at a policy meeting in nearly two years, and the pause would come a month after it was confirmed that the economy is in recession. But with inflation running well above target, rates markets are leaning toward one more 25 basis point hike by year-end.

Indian consumer price inflation, meanwhile, is expected to tick up to 4.58% in June from 4.25% in May, the lowest in more than two years.

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

– New Zealand interest rate decision

– India inflation (June)

– US inflation (June)

(By Jamie McGeever; Editing by Deepa Babington)

Wall Street ends up ahead of CPI; JPMorgan, financial shares gain

NEW YORK, July 11 (Reuters) – US stocks rose on Tuesday, helped by optimism ahead of key inflation reports and as JPMorgan and other financial shares gained before earnings later this week.

Investors are looking for further clues on whether price pressures are abating and if the Federal Reserve is nearing the end of its interest rate hiking cycle.

US consumer price data is due on Wednesday, while a producer prices report is due on Thursday. Several Fed officials said this week the central bank would likely need to raise rates further to curb inflation but that the end of its tightening cycle was getting close.

JPMorgan Chase & Co (JPM) shares advanced 1.6% after Jefferies upgraded the stock to a “buy” ahead of the bank’s quarterly results due on Friday.

Reports from JPMorgan and other big banks later this week are expected to unofficially kick off the start of the second-quarter reporting period. The S&P banking index rose 1.5%.

Energy shares also jumped along with sharply higher oil prices.

“It’s nice to see the market broadening out here ahead of earnings,” said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York.

“We’ve got a lot of data that’s going to be coming in here … and expectations for the third quarter are also a concern in terms of any guidance companies might be giving on earnings calls.”

The S&P 500 is up 15.6% for the year so far, with technology up 40% in that period.

The Dow Jones Industrial Average rose 317.02 points, or 0.93%, to 34,261.42, the S&P 500 gained 29.73 points, or 0.67%, to 4,439.26 and the Nasdaq Composite added 75.22 points, or 0.55%, to 13,760.70.

Wall Street banks are expected to report higher profits for the second quarter as rising interest payments offset a reduction in deal-making.

Among the S&P 500’s biggest gainers on the day, shares of videogame maker Activision Blizzard (ATVI) jumped 10% after a US judge ruled that Microsoft (MSFT) may proceed with its planned acquisition of the “Call of Duty” game maker.

Salesforce (CRM) shares rose 3.9% after the cloud services firm said it would increase the prices of some of its cloud and marketing tools, a first in seven years.

Also, Amazon.com (AMZN) shares edged up 1.3% with its “Prime Day” 48-hour discount shopping event going on this week.

Volume on US exchanges was 9.97 billion shares, compared with the 11.1 billion average for the full session over the last 20 trading days.

Advancing issues outnumbered declining ones on the NYSE by a 3.65-to-1 ratio; on Nasdaq, a 1.82-to-1 ratio favored advancers.

The S&P 500 posted 51 new 52-week highs and 1 new low; the Nasdaq Composite recorded 91 new highs and 40 new lows.

(Reporting by Caroline Valetkevitch in New York; Additional reporting by Johann M Cherian and Bansari Mayur Kamdar in Bengaluru; Editing by Maju Samuel and Matthew Lewis)

Longer-dated yields fall, curve inversion deepens, before CPI

NEW YORK, July 11 (Reuters) – Longer-dated US Treasury yields fell on Tuesday and an inversion in a key part of the yield curve deepened as investors awaited inflation data on Wednesday for further clues on whether price pressures are abating.

Federal Reserve officials have indicated they expect to hike interest rates by at least another 50 basis points as they tackle persistent price pressures, but traders are only pricing in approximately 35 basis points of further tightening.

Investors are watching to see whether the 10-year Treasury yield moves definitively above the 4% level, which may occur if it appears that inflation pressures will continue.

“We’re trying to make the decision here – 4% take it or leave it … but right here people are not willing to risk too much in front of the CPI,” said Lou Brien, market strategist at DRW Trading in Chicago.

Tighter monetary policy would eventually lead longer-dated yields lower as investors worry about the impact on growth, Brien said, “but right in here the market doesn’t really know exactly when that time is going to be.”

Wednesday’s consumer price data is expected to show that headline and core inflation rose by 0.3% each in June, for an annual gain of 3.1% and 5.0%, respectively.

Benchmark 10-year yields fell two basis points to 3.986%, down from an eight-month high of 4.094% hit on Friday.

Interest rate sensitive two-year yields rose four basis points to 4.898%, after reaching 5.12% on Thursday, the highest since June 2007.

The inversion in the yield curve between two-year and 10-year notes deepened to minus 92 basis points, from minus 87 basis points on Monday.

New York Fed President John Williams said the central bank is not done raising its short-term rate target, in an interview with the Financial Times published on Tuesday.

The Treasury Department saw solid demand for a USD 40 billion sale of three-year notes on Tuesday, the first auction of USD 90 billion in coupon-bearing supply this week.

The notes sold at a high yield of 4.534%. Demand was 2.88 times the amount of notes on offer, the highest since May.

The Treasury will sell USD 32 billion in 10-year notes on Wednesday and USD 18 billion in 30-year bonds on Thursday.

July 11 Tuesday 3:05 PM New York / 1905 GMT

	Price	Current Yield %	Net Change (bps)
Three-month bills US3MT=RR	5.2525	5.4127	0.023
Six-month bills US6MT=RR	5.28	5.5152	0.002
Two-year note US2YT=RR	99-126/256	4.898	0.036
Three-year note US3YT=RR	98-208/256	4.562	0.009
Five-year note US5YT=RR	98-234/256	4.2445	-0.001
Seven-year note US7YT=RR	97-188/256	4.1273	-0.013
10-year note US10YT=RR	95-16/256	3.986	-0.020
20-year bond US20YT=RR	95-84/256	4.2248	-0.023
30-year bond US30YT=RR	93-28/256	4.0234	-0.019

DOLLAR SWAP SPREADS
	Last (bps)	Net Change (bps)
US 2-year dollar swap spread	20.75	-0.75
US 3-year dollar swap spread	14.75	0.25
US 5-year dollar swap spread	6.25	-0.75
US 10-year dollar swap spread	2.50	-0.75
US 30-year dollar swap spread	-39.00	-1.00

(Reporting by Karen Brettell, editing by Christina Fincher and Jonathan Oatis)

What is Nasdaq’s special rebalancing and its impact?

July 11 (Reuters) – A “special rebalance” of the Nasdaq 100 index will take place later this month as exchange operator Nasdaq (NDAQ) looks to reduce the concentration of heavyweight companies that account for nearly half of the index’s weight.

A blistering rally in growth and technology stocks has lifted the Nasdaq 100 index by 37.5% this year. That compares with a 14.8% gain for the benchmark S&P 500.

Microsoft (MSFT), Apple (AAPL), Nvidia (NVDA), Amazon.com (AMZN), and Tesla (TSLA) combined account for 43.8% weight in the index, according to Refinitiv data as of Monday’s close. As part of the rebalance that will come down to 38.5%.

“There is some concern that this handful of names is distorting the health of the overall stock market, which is likely what’s spurring the special rebalancing,” said Art Hogan, chief market strategist at B Riley Wealth.

The adjustment will be based on shares outstanding as of July 3, with changes set to be announced on July 14 and taking effect before the market opens on July 24.

WHAT IS A SPECIAL REBALANCING?

A special rebalancing, which is part of Nasdaq 100’s methodology to maintain compliance with a US Securities and Exchange Commission rule on fund diversification, has taken place twice before, in 2011 and 1998, said Cameron Lilja, global head of index product and operations at Nasdaq.

The special rebalancing may be conducted at any time if the aggregate weight of companies, each having more than 4.5% weight in the index, tops 48%, according to Nasdaq. During the rebalancing, it is capped at 40%.

Microsoft has the largest weight at 12.91%, followed by Apple at 12.47%, Nvidia 7.04%, Amazon 6.89%, and Tesla 4.50%, according to Refinitiv data.

A recent rally in Tesla’s shares pushed the aggregate weight above 48%, triggering the rebalance, Wells Fargo strategists said in a client note.

COULD THE S&P 500 FOLLOW SUIT?

Rebalancing of weights in the S&P 500 takes place when the aggregate of companies, with each having a weight greater than 4.8%, exceeds 50% of the total index, according to S&P Dow Jones Indices.

Apple and Microsoft are the only two firms with weight over 4.5% in the S&P 500. The top five firms, with the most influence in the S&P 500 that also include Amazon, Nvidia, and Tesla, make up 22.2% of the index’s total market value.

An S&P spokesperson said that they “do not typically comment on other index providers’ actions and potential changes to our indices”.

WHICH STOCKS COULD SEE A BUMP IN WEIGHT?

Wells Fargo index strategists estimate Starbucks (SBUX), Mondelez (MDLZ), Booking Holdings (BKNG), Gilead Sciences (GILD), Intuitive Surgical (ISRG), Analog Devices (ADI) and Automatic Data Processing (ADP) will see their weight increase in the Nasdaq 100 index.

Meanwhile Microsoft, Apple, Nvidia, Amazon, Tesla, Meta Platforms, and Alphabet’s influence in the index could reduce, according to the strategists.

“The smaller companies will end up representing a greater percentage of the entire index,” said Sam Stovall, chief investment strategist at CFRA Research.

“It will require portfolio managers to add to their positions in these companies, which will boost their share prices.”

PUTTING BRAKES ON MEGACAP RALLY

Apple, which touched USD 3 trillion in market capitalization late last month, fell 1% on Monday following the news. Other megacap stocks including Microsoft, Alphabet, and Amazon fell between 0.7% and 2.5%.

Changes to the index will force investment funds that track it to adjust their portfolios and sell shares of companies that have their weight in the index reduced.

A host of funds that track the Nasdaq 100, including popular exchange-traded fund, the USD 200 billion Invesco QQQ ETF, are expected to be impacted by the rebalancing.

(Reporting by Sruthi Shankar, Medha Singh, and Bansari Mayur Kamdar in Bengaluru; Additional reporting by David Randall in New York; Editing by Shounak Dasgupta)

Euro zone bonds hold steady as traders await U.S. inflation data

By Harry Robertson

LONDON, July 11 (Reuters) – Euro zone government bond yields were little changed on Tuesday, hovering at elevated levels after a sharp rise last week, as investors waited for Wednesday’s U.S. inflation data.

The yield on Germany’s 10-year bond DE10YT=RR, the euro zone’s benchmark, was last down 2 bps to 2.608%.

It rose 24 bps last week and hit a four-month high of 2.679% on Monday in a sign that investors are increasingly believing central bankers when they say interest rates are going to remain high for some time.

There was little in the way of economic data driving euro zone yields on Tuesday, analysts said. A closely watched investor sentiment survey from Germany is due later in the European morning session.

The key event this week is the release of June’s U.S. consumer price inflation (CPI) numbers tomorrow, which is likely to influence the Federal Reserve’s interest rate decision this month.

“The CPI tomorrow, probably everyone’s waiting for that, that is the key piece for the puzzle this week,” said Lyn Graham-Taylor, senior rates strategist at Rabobank.

Traders broadly expect the Fed to raise interest rates by another 25 bps to a range of between 5.25% and 5.5% on July 26.

The market thinks the European Central Bank has further to go to quell euro zone inflation. Rates are currently at 3.5% in the bloc but pricing in derivatives markets shows traders expect them to rise to a peak of 4% or more by early next year.

Expectations for higher interest rates have pushed up bond yields in recent weeks. Yields move inversely to prices.

Germany’s 2-year yield DE2YT=RR, which is highly sensitive to interest rate expectations, hit a 15-year high of 3.393% last week, rising back above where they stood before yields plunged in response to the banking crisis in mid-March.

The two-year yield was up 1 bp at 3.338% on Tuesday.

Meanwhile, Italy’s 10-year yield IT10YT=RR was unchanged at 4.364%. Investors see the bond as the benchmark for the euro zone’s more indebted countries.

The closely watched gap between Italy and Germany’s 10-year yields DE10IT10=RR widened slightly to 174 bps.

Longer-dated yields rose more than those on shorter-dated bonds last week after a long period when the opposite dynamic dominated.

Graham-Taylor said one driver of this could be “a bit of uncertainty premium because people don’t know what’s going on, so people are demanding a bit more yield on these long dates”.

Data on Tuesday showed that British wages rose at the joint highest rate on record in the three months to May, keeping the pressure on the Bank of England.

(Reporting by Harry Robertson; Editing by Christina Fincher)

((harry.robertson@thomsonreuters.com;))

Gold struggles for momentum as traders await US inflation data

July 11 (Reuters) – Gold gained on a weaker dollar on Tuesday but struggled for momentum, as investors were wary of placing big bets ahead of US inflation data that could influence the Federal Reserve’s policy trajectory.

Spot gold rose 0.3% to USD 1,931.62 per ounce by 0717 GMT. US gold futures were also up 0.3% to USD 1,937.10.

A weaker dollar is supporting bullion as the Fed seems to imply that it is at the end of its monetary tightening cycle, “but gold bugs appear hesitant to overcommit ahead of Wednesday’s US inflation report”, said Matt Simpson, senior market analyst, City Index.

The dollar index was near a two-month low. A weaker dollar makes gold cheaper for holders of other currencies.

Several Fed officials said the Fed would likely need to raise interest rates to bring down inflation, but it was close to the end of its tightening cycle.

Investors see a 92% chance that the Fed would raise rates in its July meeting into the 5.25%-5.5% range, and then holding them until 2024, as per CME’s Fedwatch tool.

Higher rates dampen non-yielding bullion’s appeal.

The focus this week will be on the US Consumer Price Index (CPI) data due on Wednesday, with core CPI inflation in June expected to have risen 0.3% month-on-month, according to a Reuters poll.

“Any disappointment (on CPI data) could lead to hawkish repricing and that would dim gold’s appeal,” said OCBC Executive Director and FX Strategist Christopher Wong.

European Central Bank (ECB) member Francois Villeroy de Galhau said the ECB was close to its rates’ peak and would need to keep them steady to bring inflation down to the ECB’s 2% target.

Spot silver rose 0.7% to USD 23.27 per ounce, platinum was up 0.4% to USD 930.48, while palladium gained 0.5% to USD 1,246.34.

(Reporting by Seher Dareen in Bengaluru; Editing by Sherry Jacob-Phillips and Rashmi Aich)

Global hedge funds shine in June, driven by AI – HFR

NEW YORK, July 10 (Reuters) – Global hedge funds posted gains of 2.2% in June, as artificial intelligence-related stocks surged and the banking crisis eased, data provider HFR said on Monday.

In the first half of the year, hedge funds added 3.45% to their investors.

“Hedge funds surged in June, led by growth equity exposures and, specifically, artificial intelligence. While gains were driven by these dynamic exposures, industry performance was strong across-the-board,” said Kenneth J. Heinz, president of HFR.

Equity hedge funds, which bet stocks will fall or rise, posted the best performance among all four categories tracked by HFR, both in June and in the year, with gains of 2.94% and 5.55%, respectively.

Still, equity hedge funds lagged the S&P 500 index, which soared 16.9% in the first half of 2023.

Macro hedge funds ended June down 0.47% in the year, as they were able to erase some losses earlier in the year last month, up 1.47%. Hedge funds that bet on economic trends had a challenging beginning of the year as they were hard hit by the banking crisis in March.

Event-driven hedge funds, which include shareholder activism and those betting on M&As, rose 2.99% in the first half of the year and 2.78% in June.

Relative value strategies, which trade asset price dispersion, ended June up 2.66% in the year and 0.9% in the month.

(Reporting by Carolina Mandl in New York; Editing by Chris Reese and Stephen Coates).

Gold steady as traders await US inflation data, palladium slides

July 10 (Reuters) – Gold was little changed on Monday as investors awaited US inflation data that could influence the Federal Reserve’s policy stance, while palladium prices dropped below the USD 1,200-per-ounce level for the first time since December 2018.

Spot gold was steady at USD 1,925.30 per ounce by 01:49 p.m. EDT (1749 GMT). US gold futures settled 0.1% lower at USD 1,931.

“Gold has got some strong chart support at USD 1,900. If inflation remains hot, that might push gold below that level and prices might quickly drop to USD 1,848 level,” said Jim Wyckoff, senior analyst at Kitco.

The focus this week will be on US CPI (Consumer Price Index) data due on Wednesday after last week’s Fed minutes showed a vast majority of the policymakers expected further policy tightening.

Higher interest rates dull the appeal of gold, which pays no interest.

Bullion prices have dropped more than 7% since reaching near-record levels in early May as investors scaled back expectations of an end to the Fed’s rate-hiking cycle.

“Technical posture remains bearish for the gold market. I think it is going to take a geopolitical spark to push prices significantly higher,” said Wyckoff.

The Labor Department’s employment report on Friday showed the US economy added the fewest jobs in 2-1/2 years in June, but persistently strong wage growth pointed to still-tight labor market conditions.

Meanwhile, palladium dropped 0.2% to USD 1,241.41 per ounce after hitting a session low of USD 1,190.65.

Palladium has lost nearly 31% so far this year as the rapid rise of electric vehicles threatens to hammer demand for the autocatalyst metal amid broader economic weakness.

“If interest rates continue to rise, as futures markets are predicting, they will likely find US consumers’ pain point and sales should slow, dragging on palladium demand over the next 12 months,” Heraeus analysts wrote in a note.

Silver gained 0.4% at USD 23.14, while platinum rose 2% to USD 926.55.

(Reporting by Ashitha Shivaprasad and Brijesh Patel in Bengaluru; Editing by Nick Macfie and Shweta Agarwal)

European futures tick lower as China data dents sentiment

Futures on the Euro STOXX 50 are down 0.6%, while those on the FTSE 100 and DAX are down 0.3%.

Traders are mulling more how likely China’s policymakers are to use more stimulus to boost waning demand, after the latest figures showed China’s factory-gate prices fell at the fastest pace in seven-and-a-half years in June, while consumer inflation was at its slowest since 2021.

Looking ahead, the week will see data on US consumer prices with inflation thought to be seen slowing, potentially lowering the chances that the Fed will hike rates again in September. Some big US banks are also due to report results on Friday, including JPMorgan, Wells Fargo and Citigroup.

In the UK, a survey of recruiters published on Monday showed wage growth in Britain’s labour market cooled further in June, which could help ease some of the Bank of England’s (BoE) concerns about inflation pressure.

Market watchers will be keeping an eye on Britain’s BT shares at the open after the company said on Monday it had started the hunt for a new chief executive after Philip Jansen told the board he planned to step down at “an appropriate moment” within the next year.

Japan’s Nikkei falls for fifth straight day as yen, Wall Street weigh

TOKYO, July 10 (Reuters) – Japan’s Nikkei share average slumped to a fifth straight losing session on Monday – its longest streak this year – weighed down by a stronger yen and weakness on Wall Street last week.

The Nikkei slid 0.61% to close at 32,189.73, in a volatile session that saw the index rise as much as 0.53% in the morning and then drop 1% in the afternoon.

The index has retreated 4.63% since closing at a 33-year peak of 33,753.33 a week earlier.

Of the Nikkei’s 225 components, 150 fell, while 73 advanced and two were flat.

Energy was the only sector that rose, following crude oil’s USD 2 surge to a nine-week high on Friday, while the basic materials sector recovered early declines to end flat. Healthcare stocks paced decliners, falling 1.34%.

The broader Topix skidded 0.51% to 2,243.33.

The Nikkei rallied 27% since mid-March to hit last week’s high. It dropped below the closely watched 25-day moving average on Thursday for the first time in three months.

“Whether or not the Nikkei can recover above the 25-day moving average in a short time is a focal point for the market,” said Nomura Securities strategist Maki Sawada.

US stock futures were a key trading cue for Japanese traders on the day, she added.

S&P 500 E-mini futures pointed to a 0.48% lower restart, after the index declined 0.29% on Friday.

The Nikkei’s worst-performing stock was Yaskawa Electric, which dived 3.44% after reporting disappointing financial results as the Japanese earnings season gets underway.

Automakers also underperformed after Japan’s currency strengthened about 2 yen against the dollar on Friday, lowering the value of overseas revenue.

Nissan lost 2.55%, while Honda declined 1.72%.

Chip-related shares also fell, with Tokyo Electron off 1.5% and Advantest tumbling 2.5%.

(Reporting by Kevin Buckland; Editing by Savio D’Souza and Sohini Goswami)

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