Stocks stuck, Aussie dlr surges after RBA surprise

SINGAPORE, May 2 (Reuters) – Asian shares wobbled in cautious trade on Tuesday as investors kept their focus on US banks and a series of data releases and central bank meetings this week, which began with a surprise rate hike in Australia.

The Aussie dollar AUD=D3 shot more than 1% higher against its US counterpart and the New Zealand dollar rose 0.5% in sympathy after the Reserve Bank of Australia delivered a 25 basis point hike, defying expectations it would stay on hold.

Three-year Aussie government bond yields also jumped, while Australian stocks slipped 0.9% and investors’ attention turned on what it may signal for the United States.

“One of the things that sticks out to me is that they’re still saying they might need to increase interest rates,” said Commonwealth Bank of Australia strategist Joe Capurso.

“So as well as the increase today, that’s supporting the Aussie dollar,” he said. That could unwind, he said, as there’s a “reasonable chance” the Federal Reserve takes a similar approach at its meeting on Wednesday.

Elsewhere there were jitters at short tenors in the US Treasury market as the government’s borrowing ceiling looms, and MSCI’s broadest index of Asia-Pacific shares outside Japan was flat as concern swirls around US banks.

Mainland China markets were closed. Japan’s Nikkei hit a 16-month high, before backing off slightly, with the bank sector a drag.

The sale of First Republic Bank’s assets to JPMorgan Chase resolved the third US bank failure in two months, but leaves markets anxious about the next shoes to drop, even if the initial response has been reasonably positive.

JPMorgan shares rose 2.1% overnight and chief executive Jamie Dimon told analysts: “This part of the crisis is over.”

Debt ceiling

Much of Europe returns from May Day holidays on Tuesday, with final activity surveys due, preliminary inflation figures and a survey of European bank lending that will be closely watched given recent stresses in the sector.

European futures rose 0.2% in Asia, while S&P 500 futures were flat. Rate hikes also loom, with interest-rate futures fully pricing a 25 bp rate rise in Europe on Thursday, with a chance of a larger rise, and pricing a 95% chance for a 25 bp hike from the Federal Reserve on Wednesday.

The contrast with Japan, where on Friday the central bank left settings ultra-easy, has had the yen under heavy pressure for days and though it relented it did not abate on Tuesday.

The yen hit an almost two-month low on the dollar at 138.78 and made a 14-1/2 year low at 151.42 per euro. It’s trading at its lowest level on the Swiss franc in Refinitiv data stretching back four decades, and dropped about 1% on the surging Aussie on Tuesday.

The euro EUR=EBS held at USD 1.0987.

US credit default swaps – which reflect insurance against a default – are illiquid but hitting records as brinkmanship pushes the US government near its borrowing limit.

Overnight, Treasury Secretary Janet Yellen said the Treasury might run out of money to cover obligations as soon as June 1.

One-month Treasury bill yields jumped about 16 bps in Asia and bid-offer spreads were wide.

“The next few weeks are going to be unpredictable,” Goldman Sachs analysts said in a note,” with uncertainty over the precise deadline not helping to focus lawmakers’ minds.

“That could raise the risk that Congress does not lift the debt limit in time, which could result in missed payments but could also result in a short-term extension, in which case the exercise would repeat a few weeks or a few months later.”

(Editing by Shri Navaratnam and Sonali Paul)

Wall Street near flat after First Republic news, awaiting Fed

NEW YORK, May 1 (Reuters) – US stocks ended little changed on Monday as investors took in the weekend auction of First Republic Bank (FRC) and braced for this week’s expected interest rate hike from the Federal Reserve.

The KBW regional banking index dropped 2.7%, while shares of JPMorgan Chase & Co (JPM), which won the auction of failed lender First Republic, rose 2.1%.

JPMorgan will pay the US Federal Deposit Insurance Corp USD 10.6 billion to take control of most of the regional bank’s assets.

Investors have been on edge about the banking system’s health following the collapse of two other regional banks in March.

“Hopefully this is sort of the last of the banking crisis, but something else might surface at some point,” said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York.

Market watchers also digested the latest economic news, which suggested to some that the Fed may need to stick to its tightening cycle for the near term. The Institute for Supply Management (ISM) said on Monday its manufacturing PMI rose last month from March.

The Fed, which has been raising rates to cool inflation, is expected to hike rates an additional 25 basis points on Wednesday.

The Dow Jones Industrial Average fell 46.46 points, or 0.14%, to 34,051.7; the S&P 500 lost 1.61 points, or 0.04%, at 4,167.87; and the Nasdaq Composite dropped 13.99 points, or 0.11%, to 12,212.60.

Energy was down the most of the major S&P 500 sectors, falling 1.3% as crude oil prices declined.

Recent earnings, however, provided some lingering optimism for investors, Ghriskey said. First-quarter results from S&P 500 companies have mostly beaten expectations, easing economic concerns.

“We’ve had good earnings relative to expectations. Analysts for now have backed off of lowering estimates,” he said. “If we could have rates at this level … and corporate America continue to deliver, it’s very positive.”

Recent upbeat earnings from Alphabet Inc (GOOGL), Microsoft Corp (MSFT) and Meta Platforms Inc (META) helped the benchmark S&P 500 notch its second consecutive month of gains on Friday.

The S&P 500 technology index climbed 0.2% on Monday, offsetting some of the day’s weakness.

Volume on US exchanges was 10.24 billion shares, compared with the 10.37 billion average for the full session over the last 20 trading days.

Declining issues outnumbered advancers on the NYSE by a 1.36-to-1 ratio; on Nasdaq, a 1.17-to-1 ratio favored decliners.

The S&P 500 posted 35 new 52-week highs and one new low; the Nasdaq Composite recorded 88 new highs and 188 new lows.

(Additional reporting by Ankika Biswas and Sruthi Shankar in Bengaluru; Editing by Saumyadeb Chakrabarty, Shounak Dasgupta and Richard Chang)

Funds go record short 5-year Treasuries, eye steeper US curve

ORLANDO, Florida, May 1 (Reuters) – Hedge funds are doubling down on their wager that the US yield curve will steepen and have extended their short positions in 5-year and 10-year Treasuries futures to historic levels.

The ‘bear steepener’ trade – where heavy selling of longer-dated bonds widens the yield gap over shorter-dated maturities – is one speculator in US futures have had on since the turn of the year.

But apart from a dramatic spike in March triggered by the US banking shock that month, yield curves have flattened as the broader market continues to bet that a looming recession will force the Fed to cut rates this year and next.

It has been a money-losing bet.

Commodity Futures Trading Commission (CFTC) data for the week ending April 25 show that speculators increased their net short position in 5-year Treasuries by almost 115,000 contracts to a record 869,288 contracts.

That was the biggest weekly increase in bearish bets this year.

Funds also increased their net short position in 10-year bonds for a fourth straight week, by just over 60,000 contracts to 740,261. That’s the biggest aggregate bearish bet in five years and just 16,000 away from a new record.

At the same time, funds trimmed their net short position in two-year Treasuries futures by 28,607 contracts, the biggest reduction in a month.

A short position is essentially a wager that an asset’s price will fall, and a long position is a bet it will rise. In bonds, yields rise when prices fall, and move lower when prices increase.

Hedge funds take positions in bonds futures for hedging purposes and relative value trades, so the CFTC data is not always a reflection of purely directional bets.

The cumulative CFTC positioning data this year, however, show that hedge funds’ collective ‘curve steepener’ bet has been significant.

They have increased their net short position in the five-year space by more than 200,000 contracts, and by almost 400,000 contracts in the 10-year space. Meanwhile, they have trimmed their two-year bond net short position by a negligible 4,338 contracts.

These figures show speculators are betting heavily on five- and 10-year yields rising relative to the two-year yield. But so far this year the 2s/5s curve has moved to -55 basis points from -45 bps, and the 2s/10s curve has gone to -61 bps from -55 bps.

This has contributed to the poor performance of macro hedge fund strategies this year. HFR’s Macro (Total) Index fell 2.95% in the first quarter, its worst quarter in eight years and the seventh worse since the index was launched in 1990.

Macro systematic funds, which place their bets based on algorithmic and technical models, fell 6.7% in March, its worst month in over five years, Bank of America said. HFR’s Macro Systematic Diversified Index fell 4.53% in Q1, on the back of a 5.72% fall in the October-December period last year.

(Reporting by Jamie McGeever; editing by Josie Kao)

Fed: Refinements to its new standard for officials, staff trading coming

May 1 (Reuters) – The Federal Reserve is planning new steps to ensure officials and top staff are complying with financial trading and ethics rules put in place last year, it said in a report on Monday.

The report, released Monday by the central bank’s in-house watchdog, the Office of the Inspector General, or OIG, argued that more central bank staff should be covered by the rules.

More work can be done on the process of filing disclosure reports and verifying their accuracy while clarifying how those who violate the rules will be held accountable, it said.

The Fed’s Board of Governors concurred with much of the IG report findings and offered timelines and processes for meeting the recommendations. A Fed spokesperson declined to comment beyond the Board’s formal responses in the report.

“We take seriously the need to ensure the effectiveness of the [Federal Open Market Committee’s] Trading and Investment Policy, and we look forward to addressing the OIG’s recommendations,” Fed Chairman Powell said in the IG’s report.

The watchdog’s report is the latest development in a long-running effort by the central bank to impose limits on officials’ and staff’s financial activities.

In 2021, the leaders of the Dallas and Boston regional Fed banks retired early after their financial disclosure statements showed they’d actively traded in financial markets while setting monetary policy, even as that trading was consistent with rules then in place.

Other Fed officials have also faced heat for their trading activities, including Powell and former Vice-Chairman Richard Clarida. Meanwhile, last year Atlanta Fed leader Raphael Bostic acknowledged some of his investment activity inadvertently happened at forbidden periods.

The IG is still looking into the trading of regional Fed officials.

The Fed formalized new rules that sharply restricted what Fed officials and senior staff can trade and when they can do it, and required pre-approval for trades as well in February of last year. The new rules were aimed at ensuring central bankers are setting monetary policy for the good of the nation and not their own personal financial positions.

The Fed said in response to the IG recommendations that by the second quarter of next year, it plans to have a system to verify that information disclosed by officials and staff is accurate. But according to the report, some at the central bank viewed the process as burdensome and possibly even unnecessary.

“A Board official stated that requiring brokerage statements from covered individuals would be a significant resource requirement and may not be worth the burden or cost,” the report said, adding “another Board official stated the Board does not have a problem that necessitates reviewing brokerage statements and that requiring them would be excessive.”

The Fed also said in the report that by the end of this year, it would offer a formal draft on how violations of the trading policy would be enforced, and who would be responsible for imposing any sanctions.

(Reporting by Michael S. Derby; Editing by Mark Porter and Conor Humphries)

Gold retreats as robust US data lifts dollar; focus on Fed

May 1 (Reuters) – Gold prices edged lower on Monday as the dollar rose after better-than-expected US manufacturing data, while markets await the Federal Reserve’s interest rate hike decision this week.

Spot gold was down 0.4% at USD 1,982.20 per ounce by 1:55 p.m. ET (1755 GMT), reversing nearly 1% gains made earlier in the session.

US gold futures settled down 0.3% at USD 1,992.20.

US manufacturing pulled off a three-year low in April as new orders improved slightly and employment rebounded, while construction spending increased more than expected in March, boosted by investments in nonresidential structures.

The stronger-than-expected data knocked down the metals market and boosted the dollar a little bit, said Jim Wyckoff, senior analyst at Kitco Metals.

The dollar index gained 0.5%, making greenback-priced bullion less attractive for overseas buyers.

In early US trading hours, gold prices rebounded to touch USD 2,005 as traders took stock of news that JPMorgan Chase & Co (JPM) would buy most of First Republic Bank’s (FRC) assets after regulators seized the troubled lender over the weekend.

“The move was definitely premature … we used some of that opportunity to try and capitalize on taking some positions off on that move upwards,” said Phillip Streible, chief market strategist at Blue Line Futures, in Chicago.

The Federal Open Market Committee (FOMC) will meet on May 2-3, and markets largely expect a 25-basis point interest rate hike.

Investors will also focus on Fed Chair Jerome Powell’s press conference to assess if the central bank commentary pushes back market expectations of rate cuts before the year-end amid the recent banking turmoil and threats of an imminent recession.

While gold is known as an inflation hedge, rising rates tend to lower demand for zero-yielding bullion.

Spot silver fell 0.2% to about USD 25 per ounce, platinum lost 2.2% to USD 1,050.83, while palladium shed 3.2% to USD 1,452.57.

(Reporting by Deep Vakil in Bengaluru; Editing by Shilpi Majumdar and Shounak Dasgupta)

Bond investors fearing recession, boost safety bets ahead of FOMC

NEW YORK, May 1 (Reuters) – Bond investors, fearing a recession is around the corner and preparing for an end of the Federal Reserve’s tightening cycle, have embraced the safety of US Treasuries and shed risky exposures in investment grade and high yield credit.

The collapse in March of Silicon Valley Bank and Signature Bank, and the current turmoil at First Republic Bank (FRC), have further pressured market players to take a defensive stance to protect their portfolios.

The Fed is widely expected to raise interest rates by 25 basis points (bps) at its meeting this week to a range of 5.0%-5.25%. The betting is that it will pause after that and possibly start lowering rates in the fall, although the debt ceiling saga has complicated the thinking on that scenario.

Since last March, the Fed has raised interest rates by 500 bps in one of most aggressive tightening cycles over a similar time span since the late 1970s.

“Tight monetary policy, whose impact has not fully emerged yet but it’s going to over the next six months, combined with tighter lending conditions in the banking system, will result in growth continuing to slow as we move through 2023,” said Chip Hughey, managing director, fixed income, at Truist Advisory Services.

It remains a nerve-wracking environment and fund managers have remained either neutral on their risk stance, stuck to Treasuries and high-quality investment grade corporate bonds, or extended duration, which measures the bond’s sensitivity to interest rate changes, in their portfolios.

Going long duration reflects expectations US yields will fall because the Fed will be forced to cut rates. As the economy slows down, longer duration in fixed income tends to perform well.

That is the opposite though of what tends to happen in a tightening cycle. During the Fed’s aggressive rate-hike phase last year, investors shortened their duration exposure.

Lon Erickson, managing director and portfolio manager at Thornburg Investment Management said any recession and rate cuts “should reverberate throughout the curve into the five-year, 10-year, and 30-year part.”

“You want to have more duration on because that means you will get more bang for your buck for that interest rate move.”

In the credit sector, Thornburg has gravitated toward businesses such as health care and utilities, viewed as resilient in a downturn.

Data showed US government bond funds secured USD 2.22 billion worth of inflows, in the week ended April 26, compared with net selling of USD 2.14 billion in the previous week. Treasury ETFs saw inflows, as well, during the week totaling USD 634 million.

In terms of price action, US 5-year yields dropped 67 bps since March, suggesting increased demand from investors. US 10-year yields likewise showed the same pattern, dropping 47 bps.

Chris Diaz, portfolio manager and co-head of global taxable fixed income at Brown Advisory, said long duration in the firm’s bond portfolio is concentrated in the two- to the seven-year part of the curve, with the firm holding low levels of credit risk.

“We are pretty significant underweight investment grade corporate bonds and no high yield.”

STAYING NEUTRAL

Some investors though have opted to stay “neutral duration” on their strategies, citing outsized moves in Treasuries that saw a big rally, combined with the uncertainty surrounding the debt ceiling.

US Treasuries rallied in March, pushing yields lower, as the market sought safety during the banking crisis. US two-year yields, which reflect rate expectations, fell nearly 60 bps in March, the largest monthly fall since December 2007.

“The market has already raced ahead — you have a 2-year (yield) right now of 4.03% and that is 100 basis points (below) what it was a month ago,” said Todd Thompson, managing director and portfolio co-manager at Reams Asset Management.

“You don’t want to lean against that too much because we have the debt ceiling debate…sometime in the summer.”

The US Senate showed no sign of moving to avoid a looming crisis on Thursday, as Republicans rejected calls to raise the USD 31.4 trillion limit without conditions and Democrats dismissed the idea of talks.

Investors feared that a debt impasse could damage the economy and cause market chaos, forcing the Fed to cut rates earlier than it should.

“There’s so much in flux here and abroad impacting the rate environment,” said Thornburg’s Erickson. “We are going to stick to individual bonds like Treasuries where it makes sense.”

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Alden Bentley)

Oil drops 1% as economic growth concerns offset OPEC+ cuts

BENGALURU, May 1 (Reuters) – Oil prices dropped by a dollar a barrel on Monday after weak economic data from China and expectations of another US interest rate hike outweighed support from OPEC+ supply cuts that take effect this month.

Brent crude fell USD 1.02, or 1.3%, to settle at USD 78.45 a barrel, while US West Texas Intermediate (WTI) crude slid USD 1.12, or 1.5%, to settle at USD 75.66.

China’s manufacturing activity unexpectedly fell in April, official data showed on Sunday, the first contraction since December in the manufacturing purchasing managers’ index.

“The market is highly dependent on what happens to China, and the most real-time news from the manufacturing sector was a disappointment,” said Third Bridge analyst Peter McNally.

China is expected to be the biggest factor driving oil demand growth this year, he added.

The US Federal Reserve, which meets on May 2-3, is expected to increase interest rates by another 25 basis points. The US dollar rose against a basket of currencies, making oil more expensive for other currency holders.

“We continue to be at the mercy of sentiment surrounding a Chinese recovery or the lack thereof, while the backdrop in the US of ongoing monetary tightening leaves us in the ‘bad is good’ realm when it comes to economic data or newsflow,” said Kpler analyst Matt Smith.

Banking fears have weighed on oil in recent weeks and in what is the third major US institution to fail in two months, US regulators seized First Republic Bank over the weekend ahead of a deal in which JPMorgan bought most of its assets.

Voluntary output cuts of around 1.16 million barrels per day by members of the Organization of the Petroleum Exporting Countries and allies including Russia, a group known as OPEC+, take effect from May.

Oil prices drew some support from US manufacturing activity pulling off a three-year low in April, as new orders improved slightly and employment rebounded.

“Crude prices are paring losses on optimism the economy can strengthen now that banking drama is behind us and on signs factory activity is improving,” said OANDA analyst Edward Moya.

(Reporting by Shariq Khan; Additional reporting by Katya Golubkova and Alex Lawler; Editing by Alexander Smith and Cynthia Osterman)

As US megacaps soar, some investors are wary of rising valuations

NEW YORK, April 27 (Reuters) – Some market participants are warning that the US market’s biggest tech and growth stocks may be getting too expensive, even as better-than-expected earnings reports stand to further boost their appeal.

The Nasdaq 100 has rallied 19% this year, while four stocks that alone have a 40% weight in the index – Apple (AAPL), Microsoft (MSFT), Google parent Alphabet (GOOGL) and Amazon (AMZN) – have posted an average gain of about 27%. That compares to a roughly 7% rise for the S&P 500.

Those gains have ramped up valuations: the price-to-earnings gap between the Nasdaq 100 and the S&P 500 recently hit its widest since early 2022, with the Nasdaq 100 trading at a P/E of 24.5 times versus 18.4 times for the S&P 500.

Valuations look even more expensive relative to history, given that interest rates were at rock-bottom levels during most of the past decade but soared last year as the Federal Reserve hiked rates to fight inflation. Tech and other high-growth companies generally are expected to bring in bigger profits in the future, but those projected cash flows are worth less in current dollars when interest rates rise.

“I am not sure that from a long-term perspective (buying tech stocks) is the appropriate decision,” said Paul Nolte, senior wealth advisor and market strategist at Murphy & Sylvest Wealth Management.

Nolte is underweight the tech sector, partially due to concerns about valuations and the expectation that the Fed will keep rates high to fight inflation.

Microsoft, Alphabet and Facebook parent Meta Platforms (META) have reported better-than-expected earnings this week. Amazon will report after the close on Thursday, while Apple is due next week.

The better-than-expected financial numbers have helped justify the sharp rebound in megacap shares this year after a rough 2022. The rally has been driven in part by investors betting the companies’ strong business models would see them through an increasingly shaky economic environment.

Others, however, are more skeptical.

“It is an interesting market when a USD 2.2 trillion company with low to mid-single digit growth is awarded a multiple in excess of 30x earnings,” wrote Michael O’Rourke of Jones Trading on Wednesday’s rally in Microsoft shares, which rose 7.2% after their results beating revenue and profit estimates.

Michael Landsberg, chief investment officer at Landsberg Bennett Private Wealth Management, noted Meta Platforms saw “significant year-over-year declines in earnings per share.”

Shares of Meta were up 15% on Thursday and have roughly doubled year-to-date.

“It’s tough to be impressed by companies exceeding already beaten down earnings estimates,” he wrote. “We would not be buyers of big tech stocks, which are extremely overvalued.”

Analysts at UBS Global Wealth Management, meanwhile, said gains in megacap stocks – which are heavily weighted in the S&P 500 – are unlikely to continue sustaining the broader index, noting that the current valuation for the S&P 500 has historically been maintained when earnings expectations were rosier and bond yields were lower.

Of course, concerns regarding tech stocks have been prevalent for months, yet have not stopped investors from piling into what fund managers in a BofA survey named as the markets most crowded trade.

King Lip, chief strategist at BakerAvenue Wealth Management, believes the stocks can rally further, if concerns over economic growth intensify in coming months.

“I do think even in a challenging environment, which likely we are going to be going into, that people are going to look at the megacaps as a place … to play defense,” he said.

(Reporting by Lewis Krauskopf; Editing by Ira Iosebashvili and Nick Zieminski)

Oil steadies after Russia says global oil markets in balance

NEW YORK, April 27 (Reuters) – Oil prices steadied on Thursday, paring losses from the previous session, after a top Russian official said global oil markets were balanced.

Russian Deputy Prime Minister Alexander Novak said OPEC+ does not see the need for further oil output cuts but is always able to adjust its policy. Russia is part of the OPEC+ group of oil producers that this month announced a combined reduction of around 1.16 million barrels per day, a surprise decision the US described as unwise and which sent oil prices higher.

Brent crude futures settled up 68 cents at USD 78.37 a barrel, while West Texas Intermediate crude CLc1 settled up 46 cents at USD 74.76 a barrel.

“The small increase in crude oil prices has been caused by short-covering from the sell-off over the last several days,” said Andrew Lipow, president of Lipow Oil Associates in Houston.

On Wednesday, the benchmarks dropped almost 4% as jitters about a US economic downturn overshadowed a larger-than-expected fall in US crude inventories.

Investors are watching economic data for any directional cues on energy demand.

US economic growth slowed by more than expected in the first quarter, although jobless claims fell in the week ending April 22, data showed.

“It’s kind of a mixed bag on interest rates, and oil doesn’t know how to take that right now,” said Phil Flynn, an analyst at Price Futures Group.

On Wednesday, US data showed capital goods spending fell more than expected. Oil prices were also pressured as weak risk sentiment spread from the banking sector due to First Republic Bank’s continued slump.

Analysts see weak refinery margins as a major drag on oil prices, with oil broker PVM’s Tamas Varga pointing to heating oil and gas oil as “the main possible culprit for the outsized weakness”.

“Inventories in this product are somewhat reluctant to deplete, possibly due to resilient Russian exports,” Varga said.

Russia has increased exports of refined products despite an EU embargo and oil price cap, sources told Reuters.

Falling refinery profit margins could lead to cuts in runs and a further reduction in crude demand, said Ole Hansen, head of commodity strategy at Saxo Bank.

Backwardation in the Brent futures curve has eased to just about USD 2.20 per barrel, having touched USD 4 a barrel on April 12.

Backwardation, when prices for the front-month contract are higher than contracts for later months, typically indicates tight supply.

Markets will look for direction from the first quarterly print of eurozone gross domestic product growth, due on Friday. The data could affect monetary policy decisions by the European Central Bank when it meets on May 4.

(Reporting by Stephanie Kelly in New York; Additional reporting by Rowena Edwards in London, Sudarshan Varadhan in Singapore, and Katya Golubkova in Tokyo; Editing by Marguerita Choy and David Gregorio)

Gold dips as rate hike bets hold despite weak data, dollar gains

April 27 (Reuters) – Gold reversed course and dropped on Thursday, as the dollar gained after weaker US economic readings failed to upend expectations of another interest rate hike by the Federal Reserve next week amid stubborn inflation.

Spot gold was down 0.1% at USD 1,988.08 per ounce by 2:16 p.m. EDT (1816 GMT), while US gold futures settled up 0.2% at USD 1,999.

Data showed the US gross domestic product grew slower-than-expected last quarter, but markets focused on the above-forecast inflation number.

That drove investors to the dollar, making gold more expensive for those holding other currencies. USD/

Although gold is a customary safe haven during economic uncertainties, stubborn inflation could prolong the Fed’s monetary tightening, dimming appeal for zero-yield bullion.

Markets saw an 87% chance of the US Fed raising rates by 25 basis points on May 2-3. Investors now await the core Personal Consumption Expenditures (PCE) index data for March due on Friday.

“If we do get a hotter number on that PCE tomorrow, that’s going to be bearish for gold from a perspective of global demand for the metals markets”, given prospects of further rate hikes, said Jim Wyckoff, senior analyst at Kitco Metals.

Earlier in the day and in previous sessions, gold found support from concerns about the US banking sector, with US government officials so far unwilling to intervene in the First Republic Bank (FRC) rescue process.

Also on the radar were deliberations surrounding the US debt ceiling, lifting Treasury yields.

Although higher interest rates work against gold as it does not provide any yield, they can work in bullion’s favor because they raise the chance of another banking crisis, said independent analyst Ross Norman.

Bullion had scaled more than a year’s peak at USD 2,048.71 in mid-April as the banking crisis unfolded.

Silver rose 0.1% to USD 24.91 an ounce, platinum shed 0.9% to USD 1,079.52 and palladium was down 1.2% at USD 1,494.07.

(Reporting by Deep Vakil and Ashitha Shivaprasad in Bengaluru; Editing by David Goodman, Sohini Goswami, Alexander Smith and Shilpi Majumdar)

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