Dollar bulls at big risk vs yen as Fed-BoJ policy divergence peaks

April 25 (Reuters) – Flight-to-safety flows may have cushioned USD/JPY’s fall on Tuesday, but the expected reversal of the Fed’s rate hike cycle this year points to a further slide, particularly with no scope for further BoJ easing.

Two-year Treasury-JGB yield spreads fell 13bp on Tuesday and 25bp from last week’s high, as the market prices in a final 25bp Fed hike at next week’s meeting, followed by a series of rate cuts from Q3 onward.

A close below the daily tenkan at 133.58 would favor a drop toward 132.00 and where USD/JPY was the last time yield spreads were this low.

Disappointing Philly Fed and consumer confidence data, plus lingering banking concerns following First Republic Bank’s Q1 report on Monday are weighing on Treasury yields.

The recovery from March’s banking crisis slide has crested and 2022’s extraordinarily overbought surge to 20-year highs weighs medium-term.

USD/JPY’s recovery from the March’s acute phase of the US banking crisis will be replaced by a chronic phase, with credit getting tighter faster and triggering eventual rate cuts.

BoJ’s policies are so easy there’s no room for loosening. If anything, its yield curve control policy and massive QE need rethinking.

(Randolph Donney is a Reuters market analyst. The views expressed are his own.)

Gold gains as traders hunker down for economic cues

April 25 (Reuters) – Gold prices rose on Tuesday as steeply lower Treasury yields countered pressure from a stronger dollar, while investors awaited a slew of US economic data due later this week that could sway the Federal Reserve’s interest rate-hike stance.

Spot gold was up 0.7% to USD 2,002.32 per ounce by 2:17 p.m. EDT (1817 GMT), while US gold futures settled 0.3% higher at USD 2,004.50.

The rival safe-haven dollar rose 0.5%, making bullion more expensive for buyers holding other currencies, while benchmark 10-year Treasury yields fell by their largest amount since March.

A weak US consumer confidence report and lacklustre manufacturing data fanned fears of economic slowdown, lowering the bets for a rate hike next week.

Markets now see a 73% chance of a 25-basis-point rate hike at the Fed’s May 2-3 meeting.

Next on the radar is the quarterly gross domestic product data scheduled for Thursday followed by the reading on the core personal consumption expenditures (PCE) index, the Fed’s favored inflation gauge, on Friday.

“The Fed would do its best to try and hold rates higher in order to quell inflation but that likely means that it might be a constraint on the economy growing as quickly,” said Everett Millman, chief market analyst at Gainesville Coins.

“No matter what decision they have to make, it’s probably going to result in some type of stress, and that looming uncertainty is certainly what gold is going to be sensitive to.”

While gold is considered a safe haven during economic uncertainties, higher interest rates dull appeal for zero-yield bullion.

Traders also took stock of US Treasury Secretary Janet Yellen’s warning that failure by Congress to raise the government’s debt ceiling would trigger an “economic catastrophe” that would send interest rates higher for years to come.

Silver shed 0.5% to USD 25.04 per ounce, platinum rose 0.8% to USD 1,090.73 and palladium lost 3.1% to USD 1,487.66.

(Reporting by Deep Vakil and Ashitha Shivaprasad in Bengaluru; Editing by Subhranshu Sahu, Shailesh Kuber and Maju Samuel)

Spanish stocks clock worst day in a month as Santander leads bank slide

April 25 (Reuters) – Spanish stocks clocked their worst session in a month on Tuesday as heavyweight Santander led a slide among banks amid a disappointing round of earnings for the sector, while an encouraging outlook from Novartis kept healthcare shares afloat.

Spain’s lender-heavy IBEX index fell 1.2%, its worst one-day percentage fall since March 24, while the STOXX 600 index dropped 0.4%.

Santander (SAN) slid 6.0% after weaker trade in Brazil and the US overshadowed a rise in first-quarter net profit on a strong performance in Europe.

The European banking index lost 2.2%, as more bleak earnings from the sector rolled in.

UBS Group AG (UBSG) shed 2.2% after the bank set aside more money to draw a line under its involvement in toxic mortgages, as it girds itself for the “hard” task of swallowing fallen rival Credit Suisse (CSGN).

“We’re seeing widespread weakness in banking shares after Santander warned of a slowdown in the mortgage market,” said Michael Hewson, chief market analyst at CMC Markets.

“While rising rates helped to boost its net interest margin, the flip side of that is the potential for higher borrower distress.”

Hewson also noted the risk of higher impairments for the likes of HSBC (HSBA), Lloyds (LLOY), and NatWest Group (NWG), all of which are due to report in the coming weeks.

First quarter earnings for STOXX 600 companies are expected to fall 2.6%, compared to a decrease of 2.5% from a week earlier, according to Refinitiv data.

The STOXX 600 index is still tracking monthly gains of over 2%.

The European basic resources index slumped 3.0%, extending falls to the fifth straight day and touching its lowest level since late October.

Swedish copper miner Boliden (BOL) tumbled 7.1% after posting first-quarter adjusted operating profit below market estimates.

The European Central Bank’s (ECB) Chief Economist Philip Lane was reported saying interest rates will need to be raised again at the central bank’s policy meeting next week, echoing a chorus of policymakers that have recently sounded hawkish.

Money markets are pricing in a 25-bp rate hike by the ECB on May 4.

In a bright spot, Novartis AG (NOVN) gained 4.0% as it raised its full-year earnings outlook following cost cuts and a breast cancer drug trial success, lifting healthcare stocks by 0.6%.

ABB (ABBN) climbed 3.5% as the engineering and technology group raised its full-year outlook for sales and profit while reporting first-quarter results.

The broader Swiss Market index gained 0.4%, an outlier among European gauges on the day.

(Reporting by Shreyashi Sanyal in Bengaluru; Aditional reporting by Shubham Batra; Editing by Savio D’Souza, Varun H K, and Josie Kao)

Central banks signal end of bank turmoil with cut in dollar funding line

FRANKFURT/LONDON/TOKYO, April 25 (Reuters) – The world’s top central banks are cutting the frequency of their dollar liquidity operations with the US Federal Reserve from May, sending the clearest signal yet that last month’s financial market volatility is essentially over.

The Fed started offering dollars in daily tenders from late March after the failure of Silicon Valley Bank and the sale of Credit Suisse sent jitters across financial markets and raised the risk of liquidity shortages that could have morphed into a broader financial crisis.

But the central banks of the euro zone, Japan, Britain and Switzerland will now revert to their usual weekly tenders, indicating that the extraordinary backstop is no longer needed as markets are functioning as intended.

While there was some take-up in the daily tenders in the early days, especially from Switzerland, the daily facility was barely used and there was little to no interest on most days.

“These central banks stand ready to re-adjust the provision of US dollar liquidity as warranted by market conditions,” the ECB said in a statement.

Swap lines are liquidity backstops to ease strains in global funding markets and they have been a permanent feature of the cooperation between top central banks for more than a decade.

Central banks’ local currency liquidity operations have also been little used in the past month, suggesting that copious excess liquidity, part of the banking system for the past decade, continues to keep the bank sector well oiled.

Still, some policymakers have warned that the volatility is likely to leave a more permanent mark by making banks more cautious in how they lend, pushing up borrowing costs and tightening lending standards.

This could then reduce the need for central banks to raise interest rates in their fight against sky high inflation as commercial banks do their work for them.

The extent of such a tightening is far from clear, however, and it could still take weeks if not months for policymakers to assess the longer term impact.

Big central banks with the notable exception of the Bank of Japan have been raising rates at a brisk pace with the Fed and ECB both expected to move again next week.

Japan’s yen could drop to a record low this year

April 25 (Reuters) – During March’s turmoil, Japan’s yen barely rose and the failure to do so suggests the only remaining currency undermined by a negative interest rate will drop, and that fall could see yen reach a record low this year.

The perception USD/JPY gave when falling from 137.90 on March 8 to 129.65 during the time of the collapse of Silicon Valley Bank was misleading, with yen’s trade-weighted value rising just 0.38% in March as a whole.

Bets on yen falling have continued and most of these are likely carry trades and therefore yen sales to fund investments in higher yielding currencies, unaffected by the brief USD/JPY drop.

Since then, Bank of Japan policymakers have stated an intention to pursue super easy policy, maintaining yield curve control. With equities soaring, volatility sinking and USD/JPY rebounding – perhaps a short squeeze of those who bet it would fall due to the old correlation with yen as safe asset – there is cause to think yen could fall much further.

The next long term target for yen – which hit a more than 5 decade low before intervention last year – suggests a 10 percent decline to a record low.

(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)

European shares fall as investors weigh key earnings

April 25 (Reuters) – European shares dropped on Tuesday as investors scrutinised more corporate earnings and weighed comments by European Central Bank policymakers on the outlook for interest rates.

The pan-European STOXX 600 index was down 0.4% by 0718 GMT, with mining and banking shares shedding 1.8% and 1.5%, respectively, while the food and beverages index rose 0.2%.

Banking sector jitters came back to the fore after US lender First Republic Bank said its deposits tumbled more than $100 billion last quarter and that it was exploring options such as restructuring its balance sheet.

UBS Group UBSG.S lost 2.8% after the bank set aside more money to draw a line under its involvement in toxic mortgages, dealing a heavy blow to its first-quarter profit.

ECB’s Philip Lane told a French paper that the central bank will need to raise interest rates again at its policy meeting next week, while board member Isabel Schnabel told Politico that a 50 basis points rate hike is not off the table.

Nestle rose 1.6% after it reported better-than-expected first-quarter sales.

US heavyweights Microsoft Corp and Google-owner Alphabet Inc will report results later in the day.

(Reporting by Shubham Batra in Bengaluru; Editing by Savio D’Souza)

Sluggish China steel demand drags iron ore to over four-month lows

April 25 (Reuters) – Dalian and Singapore iron ore futures fell to a more than four-month low on Tuesday as sluggish steel demand in China prompted mills to curb output, raising the possibility of an oversupply of the steelmaking raw material.

The most-traded September iron ore on China’s Dalian Commodity Exchange fell as much as 1.5% to 713.50 yuan (USD 103.31), its weakest since Dec. 21. It was down 0.8% at 719 yuan by 0606 GMT.

Iron ore’s benchmark May contract on the Singapore Exchange, also dropped by up to 1.5% to hit USD 102.35 a tonne, its lowest since early December.

Some mills in top steel producer China now hurting from lacklustre steel demand and a slump in prices “have started to actively limit production”, Sinosteel Futures analysts said in a note.

According to industry consultancy and data provider Mysteel, some 52 of 126 blast furnaces in Tangshan, China’s top steelmaking city, have gone into maintenance.

Spot 62%-grade iron ore for delivery to China dropped to USD 110 a tonne on Monday, the lowest since early December and down nearly 9% this week, according to SteelHome consultancy.

While China’s infrastructure investment rose 8.8% year-on-year in the first quarter, property investment fell 5.8%.

China’s infrastructure sector may continue to benefit this year from the projects initiated at the end of 2022, although growth may weaken in 2024 if no large-scale projects begin this year, the World Steel Association said in a quarterly report last week.

The country’s manufacturing sector is expected to show only a moderate recovery in 2023-2024, with slowing exports, the Brussels-based group said.

Rebar on the Shanghai Futures Exchange fell 1.2%, hot-rolled coil shed 1.1%, while wire rod climbed 2.7% and stainless steel gained 0.4%.

Coking coal and coke on the Dalian exchange declined 0.6% and 1.7%, respectively.

(Reporting by Enrico Dela Cruz in Manila; editing by Eileen Soreng)

Thailand cuts GDP growth outlook as exports weaken

BANGKOK, April 25 (Reuters) – Thailand’s finance ministry has lowered its 2023 economic growth outlook to 3.6% from 3.8% projected earlier, on expectations of a fall in exports as global demand weakens, officials said on Tuesday.

Exports, a key driver of Thai growth, are expected to drop 0.5% this year, compared with a previous forecast for a 0.4% rise, Pornchai Thiraveja, head of the ministry’s fiscal policy office, told a briefing.

“A global slowdown is a drag on Thailand’s economic growth… and exports might not increase as thought,” he said.

Public consumption is expected to fall 2.1% this year due to an expected delay in Thailand’s 2024 fiscal budget as the country holds an election on May 14, Pornchai said.

However, growth in Southeast Asia’s second-largest economy, is expected to be propped up by tourism and domestic consumption, he said.

The economy expanded 2.6% last year and the recovery has lagged that of other Southeast Asian nations, with tourism just starting to rebound last year with 11.15 million foreign arrivals.

Thailand is expected to receive 29.5 million foreign tourist arrivals this year, with the return of Chinese visitors, versus 27.5 million projected earlier, Pornchai said.

Pre-pandemic 2019 saw a record of nearly 40 million foreign tourists, who spent 1.91 trillion baht (USD 55.62 billion). Tourism accounted for about 12% of gross domestic product (GDP).

The baht is expected to average 33.17 per dollar this year versus a previous forecast of 32.5, with the dollar supported by US rate hikes, fiscal policy advisor Wuttipong Jittungsakul said.

The ministry predicted average headline inflation at 2.6% this year, down from 2.8% projected earlier, and against a 24-year high of 6.08% last year.

(Reporting by Orathai Sriring, Kitiphong Thaichareon and Satawasin Staporncharnchai; Editing by Kanupriya Kapoor and Sam Holmes)

Oil prices stable as investors ponder China demand, rate hikes

SINGAPORE, April 25 (Reuters) – Oil prices held steady on Tuesday as investors weighed strong holiday travel in China that could boost fuel demand against the prospect of rising interest rates elsewhere, slowing economic growth.

Brent crude fell 3 cents to USD 82.70 a barrel at 0620 GMT, while US West Texas Intermediate crude also eased 3 cents to USD 78.73 a barrel.

Oil futures had risen more than 1% on Monday on optimism that holiday travel in China would increase fuel demand in the world’s second-biggest economy.

Bookings in China for trips abroad during the upcoming May Day holiday point to a continued recovery in travel to Asian countries. Still, the numbers remain far off pre-COVID levels, with long-haul airfares soaring and not enough flights available.

“Investors expressed optimism that Chinese holiday travel would boost fuel demand in the world’s largest oil importer,” said Leon Li, an analyst at CMC Markets.

“In addition, expectations for a slowdown in US gross domestic product growth in the first quarter prompted a pullback in the US dollar index yesterday, supporting gains in oil prices.”

A weaker US dollar can help global demand for oil by making it cheaper for holders of foreign currencies in other countries.

However, investors remain wary about central banks in the United States, Britain and the European Union potentially raising interest rates further to curb inflation, which could slow economic growth and dent energy demand.

The US Federal Reserve, the Bank of England and the European Central Bank are all expected to raise rates when they meet in the first week of May.

“(There is a) still hawkish Federal Reserve, recession predictions in the West in the second half of the year, potential for lower than expected oil demand recovery in China and still robust Russian oil exports despite the official guidance of a 500,000 barrels per day (bpd) cut,” said Suvro Sarkar, energy sector team lead at DBS Bank.

“However, we believe oil prices will bounce back to USD 85 per barrel levels and above again in coming months as the OPEC+ cut kicks in and more evidence of oil demand growth from China comes in.”

Russia’s Deputy Prime Minister Alexander Novak said in February the country would reduce production by 500,000 bpd in March, then in early April promised to extend cuts until the end of the year.

Trading and shipping sources however say that oil loadings from Russia’s western ports in April will rise to the highest since 2019, above 2.4 million bpd, despite Moscow’s pledge to cut output.

Meanwhile, investors on Tuesday awaited industry data on US oil stockpiles. Analysts polled by Reuters expected the data to show US crude inventories fell by about 1.7 million barrels in the week to April 21.

US government data on inventories is due on Wednesday.

(Reporting by Stephanie Kelly and Emily Chow in Singapore; Editing by Sonali Paul, Kenneth Maxwell and Lincoln Feast.)

Oil dips 2% on economic woes and stronger dollar

HOUSTON, April 25 (Reuters) – Oil dropped 2% to its lowest this month on Tuesday after two sessions of gains, as deepening concerns of an economic slowdown and a stronger dollar outweighed hopes of higher Chinese demand.

Brent crude fell by USD 1.96, or 2.4%, to settle at USD 80.77 a barrel, its lowest close since March 31, before OPEC announced plans to cut production.

US West Texas Intermediate crude dropped USD 1.69, or 2.2%, to close at USD 77.07, also its lowest this month.

On Monday, both contracts rose by more than 1%.

US consumer confidence dropped to a nine-month low in April, feeding worries about a recession the day after regional lender First Republic (FRC) reported a flight in deposits of more than USD 100 billion, stoking fears of a potential banking crisis.

“Oil prices looked as if they were going to mount a rally before old banking worries re-emerged,” said Phil Flynn, an analyst at Price Futures Group.

The dollar rose on deepening worries about corporate earnings and the global economy. A stronger dollar pressures oil demand by making the commodity more expensive for buyers holding other currencies.

Gold prices also were flat as the dollar strengthened, while US stocks fell as weak earnings fanned economic fears.

Investors remained wary that possible interest rate hikes by inflation-fighting central banks could slow economic growth and dent energy demand in the United States, Britain, and the European Union.

The US Federal Reserve, the Bank of England, and the European Central Bank are all expected to raise rates at their coming meetings. The Fed meets May 2-3.

Oil traders also worried that weak refining margins globally could force refiners to curb oil buying.

“The near-term pressure has been from rising interest rates and refinery run rate margins contracting, which could be a sign demand is slipping,” said Dennis Kissler, senior vice president of trading at BOK Financial

Early in the session, oil prices rose, supported by optimism that holiday travel in China would boost fuel demand and by expectations of a drop in US crude inventories.

US crude oil stocks fell by about 6.1 million barrels in the week ended April 21, according to market sources citing American Petroleum Institute figures on Tuesday. Analysts had expected crude inventories to fall by about 1.5 million barrels.

Gasoline inventories also fell last week, while distillate inventories rose, the sources added. Official stockpiles data from the US government is due Wednesday.

Involuntary and planned supply cuts also lent support. Iraq’s northern oil exports have shown little sign of an imminent restart after a month-long standstill, while members of the OPEC+ producer group prepared for the start of voluntary output cuts in May.

(Reporting by Arathy Somasekhar; Additional reporting by Alex Lawler, Stephanie Kelly, and Emily Chow; Editing by Christina Fincher, Barbara Lewis, David Goodman, David Gregorio, and Sonali Paul)

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