US yields fall on Fed fallout, economic data

NEW YORK, June 15 (Reuters) – US Treasury yields were lower on Thursday as investors parsed a slew of economic data and assessed the ramifications from the latest policy statement released on Wednesday by the Federal Reserve.

Economic data showed US retail sales rose 0.3% in May, above expectations for a 0.1% decline while weekly initial jobless claims were unchanged from the prior week at 262,000 and above the estimate for 249,000. That suggested the labor market may be showing signs of finally loosening, although recent reports have also been affected by policy changes in Minnesota, holidays, and other unusual discrepancies.

The Fed on Wednesday held rates steady, as was widely expected, but signaled in its new projections that two more small hikes to increase borrowing costs by as much as 50 basis points (bps) may be needed due to a resilient economy and a slower-than-expected decline in inflation.

“Today is primarily due to the data, but there is an echo of the comments that Chair (Jerome) Powell made yesterday, and repeatedly throughout the press conference he referred to variations of the words of ‘softer labor market,'” said Amar Reganti, a Boston-based fixed income strategist at Hartford Funds.

“Powell mentioned how the market is reactive to Fed communications, and what he said was there is probably going to be additional tightening at some point this year, depending on the data, but as of right now the majority of the committee believes there needs to be, and the markets kind of met him halfway.”

The yield on 10-year Treasury notes was down 7.4 basis points to 3.724%, on track for its biggest one-day drop since May 30.

Expectations for a hike of 25 bps by the Fed at the central bank’s July meeting have moved up to 67% from 62.3% a day prior and 50.9% a week ago, according to CME’s FedWatch Tool.

In contrast to the Fed, the European Central Bank (ECB) raised borrowing costs to their highest level in 22 years on Thursday and left the door open to more hikes in the latest sign global central banks are no longer acting as closely in concert as they have been in recent years. The Bank of Japan is scheduled to issue a policy statement on Friday.

The yield on the 30-year Treasury bond was down 3.4 basis points to 3.847%.

In addition to the retail sales and claims data, import prices fell in May and the annual decrease was the sharpest in three years and gauges of manufacturing from the Federal Reserve banks of Philadelphia and New York hinted at an improving business outlook.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a negative 91.6 basis points after inverting by as much as a negative 95.53 on Wednesday, its deepest inversion in 3 months.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was down 6.9 basis points at 4.638%.

The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.203%, after closing at 2.190% on Wednesday.

The 10-year TIPS breakeven rate was last at 2.221%, indicating the market sees inflation averaging 2.2% a year for the next decade.

(Reporting by Chuck Mikolajczak; editing by Jonathan Oatis)

Dollar slides to crucial support, with 2023’s double-bottom below

The USD index tumbled to the 61.8% Fibo of its post-banking crisis recovery at 102.28 and mid-April highs at 128.23 after Wednesday’s Fed and Thursday’s ECB meetings underscored the impression that the US rate hike cycle would finish soon while Europe and the UK carry on tightening.

A close below the 102.23/28 supports would raise the risk of testing the 100-week moving average, at 101.42, and 2023’s 100.80/78 double-bottom. Otherwise, a rebound toward last week’s lows and weekly kijun at 103.29/33 would be an attractive fade point.

Thursday’s US claims, retail sales, and industrial production failed to reinforce the Fed’s raised median dot plot that suggested two more 25bp rate hikes, with markets reluctant to price in even one more before cuts next year.

Thursday’s ECB rate hike came with guidance toward further tightening, given how much higher euro zone inflation is compared to the ECB’s 2% target and US inflation. That’s allowed the market to price in most of two more ECB rate hikes with a far more gradual reduction next year than implied for the Fed.

The BoE is seen hiking at least another 125bp after this week’s inflationary UK labor data and UK inflation at 8.7%.

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

Gold survives Fed scare to move up on dollar, yields weakness

June 15 (Reuters) – Gold bounced back from a three-month low on Thursday as the dollar and bond yields moved lower after US economic data, offering investors respite from a “hawkish pause” on interest rates by the Federal Reserve.

Spot gold gained 0.8% to USD 1,957.73 per ounce by 01:41 p.m. EDT (17:41 GMT) after having hit its lowest since March 17. US gold futures settled 0.1% higher at USD 1,970.7.

US initial jobless claims were unchanged at 262,000 for last week, while separate data showed industrial output dropped 0.2% in May, missing expectations for a 0.1% increase.

“That data is prompting some corrective price action from yesterday’s strong price moves in the dollar index and in treasury yields and also some short covering,” said Jim Wyckoff, senior analyst at Kitco, who saw gold prices trending sideways to lower in the near-term.

The dollar index slid 0.8% to a one-month low, while 10-year Treasury yields slipped, supporting demand for buck-priced, zero-interest-bearing bullion.

“But today’s data is going to be overshadowed by the still long shadow of the FOMC meeting yesterday,” Wyckoff said, adding that the three-month low hit overnight also put some technical selling pressure on gold.

The central bank’s Federal Open Market Committee (FOMC) left interest rates unchanged on Wednesday but signaled that borrowing costs may still need to rise by as much as half of a percentage point by the end of this year.

Markets now see 2-in-3 odds of the Fed hiking rates in July, according to the CME Fedwatch tool.

“Physical markets showing some signs of life into this current price weakness but the major driver here, once again, is the outlook for the Fed’s hiking cycle,” said StoneX analyst Rhona O’Connell.

Spot silver fell 0.4% to USD 23.84 per ounce, platinum rose 1.2% to USD 986.57, while palladium was up 0.7% at USD 1,395.70.

(Reporting by Deep Vakil and Seher Dareen in Bengaluru; Editing by Maju Samuel)

Oil futures up 3% on strong China refinery data, weaker US dollar

NEW YORK, June 15 (Reuters) – Oil prices gained about 3% to a one-week high on Thursday on a weaker US dollar and a jump in refinery runs in top crude importer China.

Brent futures rose USD 2.47, or 3.4%, to settle at USD 75.67 a barrel, while US West Texas Intermediate (WTI) crude rose USD 2.35, or 3.4%, to settle at USD 70.62.

Those were the highest closes for Brent and WTI since June 8.

In the United States, the gasoline crack spread, a measure of refining profit margins, to its highest since July 2022. US diesel futures, meanwhile, rose about 5% to their highest since late April.

The oil market drew support from US reports showing retail sales unexpectedly rose in May and higher-than-expected jobless claims last week cut the dollar, to a five-week low versus a basket of other currencies.

A weaker dollar makes crude cheaper for holders of other currencies, which could boost oil demand.

Data on Thursday also showed China’s oil refinery throughput rose 15.4% in May from a year earlier, hitting its second-highest total on record.

Chinese demand for oil is expected to keep climbing at an assured rate during the second half of the year, said Kuwait Petroleum Corp’s chief executive.

“The Chinese refinery numbers started the oil price rally. Then, of course, you have the macro situation with the (US) dollar being down in part because of the US Federal Reserve pause in raising the interest rate, while in Europe they are still hiking rates,” said Phil Flynn, an analyst at Price Futures Group.

The European Central Bank (ECB) raised interest rates to a 22-year high as expected on Thursday. It signaled further policy tightening, as it battles high inflation.

“The outlook for economic growth and inflation remains highly uncertain,” said ECB President Christine Lagarde.

On Wednesday, the Fed kept interest rates unchanged but signaled at least a half of a percentage point increase by year-end.

Higher interest rates ultimately increase borrowing costs for consumers, which could slow economic growth and reduce oil demand.

On the supply side, analysts expect voluntary crude output cuts implemented in May by OPEC+, the Organization of the Petroleum Exporting Countries (OPEC) and allies, and by Saudi Arabia in July, to support prices at a time of strong demand.

UBS expects a supply deficit of around 1.5 million barrels per day (bpd) in June and more than 2 million bpd in July.

“Once these deficits become visible in on-land oil inventories, we expect oil prices to trend higher,” the bank said in a note.

In Iraq, a Turkish energy delegation will meet Iraqi oil officials in Baghdad on June 19 to discuss the resumption of Iraq’s northern oil exports, Iraqi deputy oil minister for upstream affairs, Basim Mohammed, told Reuters.

Turkey halted Iraq’s 450,000 bpd of northern exports through the Iraq-Turkey pipeline on March 25 after an arbitration ruling by the International Chamber of Commerce (ICC).

(Additional reporting by Rowena Edwards in London, Jeslyn Lerh in Singapore, and Arathy Somasekhar in Houston; editing by David Gregorio, Kirsten Donovan, and Jonathan Oatis)

Gold slips to three-month low as Fed rate cues lift dollar

June 15 (Reuters) – Gold slipped to a near three-month low on Thursday as the dollar and Treasury yields advanced after the U.S. Federal Reserve signaled more interest rate hikes this year.

Spot gold fell 0.7% to USD 1,929.99 per ounce by 0710 GMT, hitting its lowest since March 17. US gold futures dropped 1.4% to USD 1,941.50.

The Fed, in new economic projections, signaled that a stronger-than-expected economy and a slower decline in inflation will result in a likely rise in borrowing costs by another half percentage point by the end of this year.

“Where gold goes from here may depend on how long the hawkish remarks from the Fed Chairman continue to prop up US yields,” Tim Waterer, chief market analyst at KCM Trade said.

Traders are now pricing in a roughly 72% chance of a Fed rate hike in July, according to the CME Fedwatch tool.

“(The) Fed has more or less given the market a direction,” said Brian Lan, of Singapore dealer GoldSilver Central.

The US dollar index climbed, making bullion more expensive for those holding other currencies.

Markets will now look ahead to a host of US economic data expected later, including the weekly jobless claims.

“We are also entering a seasonally slow period for physical demand, suggesting gold prices are more likely to drift lower in coming sessions barring a sharp slowdown in U.S. economic data which could spur interest in the gold market,” Standard Chartered analyst Suki Cooper said.

The focus is also on the European Central Bank meeting, where it is expected to raise borrowing costs to their highest level in 22 years on Thursday and leave the door open to more hikes, even as the eurozone economy flags.

Spot silver fell 2.8% to USD 23.2636 per ounce, platinum dropped 1.2% to USD 963.72, and palladium lost 1.4% to USD 1,366.44.

(Reporting by Arundhati Sarkar in Bengaluru; Editing by Sherry Jacob-Phillips and Alexander Smith)

Can risk appetite resist Fed’s hawkish skip?

June 14 (Reuters) – A raft of economic data and a likely medium-term policy easing from China will give Asian markets direction on Thursday, but the main steer will probably come from investors’ reaction to the Federal Reserve’s ‘hawkish skip’ on interest rates.

The Fed paused its policy tightening cycle on Wednesday for the first time but signaled in new economic projections that rates will likely rise by another half of a percentage point by the end of this year as it continues to try to get inflation down.

Short-dated Treasury yields jumped, the US yield curve inversion deepened, and the dollar fell. But Wall Street put up a better fight – although the Dow had its worst day in two weeks, the Nasdaq rebounded and closed up for a fifth day at a new 14-month high, and the S&P 500 basically ended flat.

Will Asian markets show similar resilience, or will the prospect of another 50 bps of Fed tightening this year – plus the lagged impact of the previous 500 bps – weigh on investors and prompt a profit-taking reversal?

Japanese stocks could be the most vulnerable to a correction. The benchmark Nikkei on Wednesday rallied another 1.4% to a fresh 33-year peak above 33,500 points, its 20th rise in the last 25 trading sessions.

Markets have the latest trade and machinery orders data from Japan to digest on Thursday. Trade activity in May is expected to have slumped – economists are forecasting a 10% year-on-year slump in imports and a 0.8% fall in exports.

China’s central bank, meanwhile, is expected to cut the borrowing cost of medium-term policy loans for the first time in 10 months on Thursday, after it lowered two key short-term policy rates earlier this week.

An outlier among its global peers, the People’s Bank of China is battling disinflation – perhaps even deflation soon – and an under-performing economy that has significantly soured investors’ outlook on the country’s financial assets.

Further easing may help shore up confidence in the economy, but will widen the yield gap with overseas assets, put the yuan under further pressure, and risk even greater capital outflows – the Institute of International Finance said on Wednesday net inbound foreign direct investment to China in 2023 will be the lowest in 18 years.

Beijing also releases a batch of top-tier economic indicators for May on Thursday – urban investment, industrial production, house prices, retail sales, and unemployment – which are broadly expected to reflect a weak growth environment.

The annual rate of growth in investment is seen slowing to 4.4% from 4.7%, industrial production to 3.6% from 5.6%, and retail sales to 13.6% from 18.4%.

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

– China investment, industrial production, house prices, retail sales, unemployment (May)

– China medium-term lending facility loan rate

– Australia unemployment (May)

(By Jamie McGeever)

US yields lower after Fed holds rates in check

NEW YORK, June 14 (Reuters) – US Treasury yields were lower on Wednesday in choppy trading after the Federal Reserve left interest rates unchanged, as widely expected, but forecast another 50 basis points in hikes by the end of the year.

The central bank kept rates at the 5.00%-5.25% range but in its new summary of economic projections (SEP) indicated a stronger-than-expected economy and a slower decline in inflation will result in a likely rise in borrowing costs by 50 basis points (bps) by the end of this year.

“They finally lowered their unemployment rate a little bit, they raised their GDP a little bit and they raised their inflation, so they are really catching up with what the data is already telling us,” said Ellen Hazen, chief market strategist at F.L. Putnam Investment Management in Wellesley, Massachusetts.

“The biggest surprise for me, the federal funds rate December projection all the way up to 5.6%, so a whole 50 basis point increase, I think the market was expecting 25 bps.”

Yields pared earlier declines after the announcement but reversed course and moved lower once again as Chair Jerome Powell spoke after the statement and said that July’s meeting would be “live” after the decision to hold rates steady today.

“Powell is doing an excellent job walking the monetary tightrope, staying close to the center, and being balanced. He’s acknowledged that inflation is edging lower and said the skip was ‘prudent,'” said Quincy Krosby, chief global strategist at LPL Financial in Charlotte, North Carolina.

The yield on 10-year Treasury notes was down 4.5 basis points at 3.794% after hitting a low of 3.771% on the day. The 10-year yield was on track to snap a three-session streak of gains.

Investors will now gauge comments from Fed Chair Jerome Powell for signals on the central’s bank monetary policy path.

Yields had earlier moved lower after a reading of producer inflation fell more than expected in May, coming on the heels of Tuesday’s data which showed a slowing increase in consumer prices.

The yield on the 30-year Treasury bond was down 6.5 basis points at 3.876%.

Policy announcements from the European Central Bank (ECB) and Bank of Japan are expected on Thursday and Friday, respectively.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a negative 90.7 basis points after inverting by as much as 95.53 basis points on the session.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was up 0.3 basis point at 4.699% after hitting a fresh three-month high of 4.803%.

The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.189%, after closing at 2.157% on Wednesday.

The 10-year TIPS breakeven rate was last at 2.217%, indicating the market sees inflation averaging 2.2% a year for the next decade.

(Reporting by Chuck Mikolajczak, additional reporting by Sinéad Carew; Editing by Jonathan Oatis, Kirsten Donovan and Lisa Shumaker)

Gold trims gains after US Fed signals more rate hikes

June 14 (Reuters) – Gold prices pared gains on Wednesday after the US Federal Reserve kept interest rates unchanged, as widely expected, but pointed to more rate hikes down the year.

Spot gold was up 0.3% at USD 1,949.89 per ounce by 03:03 p.m. EDT (1903 GMT). US gold futures settled 0.5% up at USD 1,968.9.

“Two more hikes in the dot plot for this year was a hawkish surprise…. Gold eased but continues to hold the key technical level at USD 1,940,” said Tai Wong, a New York-based independent metals trader.

“If it (gold) can survive this hawkish surprise, that will give a boost for gold bulls.”

Gold prices are highly sensitive to rising US interest rates, as that increases the opportunity cost of holding non-yielding bullion.

Traders added to bets the Fed will soon be back to raising US interest rates. Traders are now pricing in a 70% chance of Fed rate hike in July, up from 60% earlier, according to the CME Fedwatch tool.

Meanwhile, Fed Chair Jerome Powell said it is too soon to say inflation will continue to retreat even as officials expect price pressure to stay on a cooling trend.

Earlier on Wednesday, data showed US producer prices fell more than expected in May, signaling inflation was cooling. Data on Tuesday showed consumer prices moderated last month.

“Fed members expect additional rate hikes this year as a result we see yields and dollar rise, which applies pressure to bullion,” said David Meger, director of metals trading, High Ridge Futures.

Silver rose 1.2% to USD 23.97 per ounce, platinum was steady at USD 976.19 and palladium jumped 1.8% to USD 1,385.77.

(Reporting by Ashitha Shivaprasad and Brijesh Patel in Bengaluru; Editing by Paul Simao, Maju Samuel, and Krishna Chandra Eluri)

Chinese stocks wobble ahead of activity data, investors await stimulus

June 14 (Reuters) – Chinese stocks erased gains and ended flat to lower, while Hong Kong shares dipped on Wednesday, as investors booked profit ahead of the release of May activity data and awaited more stimulus measures to support the country’s economic recovery.

** China’s blue-chip CSI 300 Index was flat, while the Shanghai Composite Index slid 0.14%.

** Hong Kong’s Hang Seng Index went down 0.58%, while the Hang Seng China Enterprises Index declined 0.62%.

** Meanwhile, Asian shares struggled for traction and the dollar was subdued as the market focuses on the probability of a less aggressive US Federal Reserve at its policy meeting which concludes on Wednesday.

** China is set to announce key May economic data, including retail sales and industrial production, on Thursday.

** China’s new bank lending rose to 1.36 trillion yuan (USD 189.83 billion) in May, data from the People’s Bank of China (PBOC) showed on Tuesday, up from April but missed analysts’ estimates.

** To restore market confidence, China’s central bank lowered a short-term lending rate for the first time in 10 months.

** The market expects that the next adjustment to rates could come as soon as Thursday, when the central bank is due to roll over 200 billion yuan in medium-term lending facility (MLF) loans.

** “We expect the PBOC to cut 1-year MLF rate by 10 basis points (bps) on June 15, followed by 10 bps cut in 1-year LPR and larger cuts of 15-20 bps in 5-year LPR on June 20,” Jian Chang, chief China economist at Barclays Asia Pacific, said in a note.

** Redmond Wong, Greater China market strategist at Saxo Markets, said the sentiment has been improving following the rate cut but remains fragile.

** “The question about if the improved sentiment can sustain, or turn even more positive, depends on whether a package of stimulus measures will be released in the coming days,” he said.

** Banks dropped 1.6%, while new energy sector dipped 1.2% to lead declines.

** Hong Kong-listed tech giants edged up 0.4%.

** On the geopolitical front, China’s foreign minister Qin Gang urged the United States to stop meddling in its affairs and harming its security in a phone call with his U.S. counterpart on Wednesday, a tense preview to Antony Blinken’s visit to Beijing expected in coming days.

(Reporting by Summer Zhen; Editing by Nivedita Bhattacharjee and Varun H K)

Oil drops 1.5% as Fed projects more rate hikes this year

HOUSTON, June 14 (Reuters) – Oil prices fell 1.5% on Wednesday after the US Federal Reserve projected more interest rate hikes this year, worrying markets about demand just hours after government data showed an unexpected, large build in US crude oil stocks.

Brent crude futures settled USD 1.09, or 1.5%, lower at USD 73.20 a barrel, while US West Texas Intermediate (WTI) crude closed USD 1.15, or 1.7%, lower at USD 68.27.

Both benchmarks had climbed more than 1.5% earlier in the session. They rose more than 3% the previous day on expectations of rising fuel demand after China’s central bank lowered a short-term lending rate.

The Federal Reserve left interest rates unchanged but signaled in new economic projections that borrowing costs will likely rise by another half percentage point by the end of this year as it reacts to a stronger-than-expected economy and a slower decline in inflation.

“Markets fear that a higher interest rate environment is going to lower oil demand. The knee-jerk reaction is pushing oil down,” said Price Group analyst Phil Flynn.

Higher interest rates strengthen the dollar, making commodities denominated in the US currency more expensive for holders of other currencies.

Wall Street stocks fell, while gold prices pared gains after the Fed’s decision and comments.

US crude oil stocks rose by about 8 million barrels in the week ended June 9, according to data from the Energy Information Administration. Analysts had estimated a 500,000-barrel decline.

Gasoline and diesel stocks also rose more than expected.

The IEA, meanwhile, increased its oil demand growth forecast for this year by 200,000 barrels per day (bpd) to 2.4 million bpd, lifting the projected total to 102.3 million bpd.

However, the agency expects economic headwinds to reduce growth to 860,000 bpd next year and increasing use of electric vehicles to help to reduce that to 400,000 bpd in 2028 for overall demand of 105.7 million bpd.

The IEA’s 2023 oil demand growth figure is slightly above that of the Organization of the Petroleum Exporting Countries (OPEC).

JPMorgan downgraded its forecast for this year’s average Brent crude price by USD 9 to USD 81 a barrel.

(Reporting by Arathy Somasekhar in Houston, Ahmad Ghaddar in London; Additional reporting by Andrew Hayley in Beijing; Editing by Elaine Hardcastle, Kirsten Donovan)

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