Gold rebounds after US services slowdown boosts Fed pause bets

June 5 (Reuters) – Gold rebounded on Monday after weaker US services sector growth reinforced bets for the Federal Reserve to stand pat on interest rates next week.

Spot gold gained 0.6% to USD 1,958.89 per ounce by 1:40 p.m. EDT (1740 GMT), erasing losses from earlier in the session, when it touched its lowest since May 30.

US gold futures settled up 0.2% at USD 1,974.30.

The US services sector barely grew in May as new orders slowed, with the Institute for Supply Management’s non-manufacturing index falling to 50.3 last month from 51.9 in April and missing expectations for an uptick to 52.2.

“The market is really taking it in as a reason to pencil out some rate hikes here … It’s certainly something that the Fed is pleased to see with respect to its fight against inflation,” said Daniel Ghali, commodity strategist at TD Securities.

The index is seen by some economists as an indicator of the Fed’s favored inflation gauge, as services prices tend to be stickier and less responsive to rate hikes.

The dollar index slipped after the data, making greenback-priced bullion more affordable for overseas buyers, while 10-year Treasury yields retreated.

Traders pegged the chances of the Fed pausing its interest rate hikes at its June 13-14 meeting at 78%, according to the CME FedWatch Tool.

Non-interest-bearing bullion becomes less attractive for investors in a high-interest rate environment.

However, “gold may be looking overpriced despite a recent decline owing to sticky inflation and the likelihood that the Fed will not meaningfully cut interest rates in 2023,” Heraeus Precious Metals said in a note.

Gold dropped over 1% on Friday after data showed the US economy added 339,000 jobs last month, above estimates of 190,000.

Silver dipped 0.2% to USD 23.54, platinum rose 2.6% to USD 1,029.92, while palladium fell 0.4% to USD 1,414.21.

(Reporting by Deep Vakil in Bengaluru; editing by David Evans, Marguerita Choy and Shilpi Majumdar)

Global equity funds suffer seventh straight week of outflows

June 5 (Reuters) – Global equity funds saw a seventh straight week of outflows in the seven days to May 31 on global economic slowdown concerns after weaker readings from China and major European countries.

Investors disposed of a net USD 4.55 billion of global equity funds during the week, Refinitiv Lipper data showed, compared with a weekly withdrawal of about USD 3.54 billion a week ago.

Data showing a recession in Germany in the first quarter and contracting factory activity in China in May hit appetite for risk assets. European shares were hit hard as the pan-European STOXX 600 index dropped to a two-month low last week.

European equity funds saw USD 3.4 billion worth of net selling, while Asian funds had withdrawals of USD 820 million with China losing a net USD 425 million in a third straight week of outflows.

Meanwhile, US equity drew USD 1.22 billion in net purchases, marking their first weekly inflow in 10 weeks.

By sector, investors sold global consumer discretionary, healthcare and financial sector funds of USD 727 million, USD 451 million and USD 418 million respectively. Technology had inflows of USD 1.08 billion in a fourth straight week of net buying.

Meanwhile, government bond funds and money market funds received USD 2.37 billion and USD 16.61 billion worth of inflows respectively, amid the risk-averse tone in the markets.

During the week, combined inflows into global bond funds were a net USD 4.04 billion in an eleventh straight week of net purchases.

Among commodity funds, energy funds received USD 143 million in their first weekly inflow in three weeks, but precious metal funds saw USD 226 million worth of outflows during the week.

Data for 23,954 emerging market funds showed investors sold a net USD 454 million worth of equity funds, while withdrawing USD 355 million from bond funds in a sixth successive week of net selling.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Alexander Smith)

JPMorgan flags some signs of emerging de-dollarisation

LONDON, June 5 (Reuters) – Signs of de-dollarisation are unfolding in the global economy, strategists at the biggest US bank JPMorgan said on Monday, although the currency should maintain its long-held dominance for the foreseeable future.

The strains of steep US interest rate rises and sanctions that have frozen Russia out of the global banking system have seen a fresh push by the “BRICS” nations, Brazil, Russia, India, China, and South Africa, to challenge the dollar’s hegemony.

JPMorgan strategists Meera Chandan and Octavia Popescu said that while overall dollar usage is within its historical range and the greenback remains at the top of the pack, a closer look shows a more bifurcated picture.

Their assessment on the dollar is the most high profile by any large US bank so far, although heavyweight money managers such as Goldman Sachs Asset Management have aired similar views.

While the greenback’s share of FX trading volumes remains just shy of record highs at 88% and its use in trade invoicing has not changed much over the last couple of decades, other areas have seen an erosion.

In the FX reserves held by central banks around the world, for example, its share has declined to a record low of 58%.

Although that is still by far the largest share of any global currency, it drops further when accounting for gold, which now comprises 15% of reserves versus 11% five years ago.

“Some signs of de-dollarization are emerging,” JPMorgan’s analysts said, adding the trend was likely to persist even as the dollar maintains its “large footprint”.

Efforts by BRICS countries and other major commodity exporters to loosen the dollar’s stranglehold on global commerce have ramped up since the start of the war in Ukraine, which saw the US freeze a large chunk of Russia’s foreign reserves.

Since then, Saudi Arabia and China have begun talks to settle Chinese oil sales with the yuan, Brazil and China have announced the phase-in of a yuan clearing arrangement for some trade between the two countries while China and Russia are also now doing a significant portion of their trade in yuan.

China’s yuan now accounts for a record but still, small 7% of FX trading volume, while the euro’s slice has shrunk 8 percentage points over the last decade of ultra-low interest rates to 31%.

Trade invoicing has not seen much change, with the dollar and euro maintaining a steady 40-50% share over recent decades, although the US share of global exports is now estimated at a record low 9% compared to a record high 13% for China.

Progress in internationalizing the yuan has been limited, meanwhile, JPMorgan added and is unlikely to change much given the country’s capital controls.

The “CNY” is 2.3% of SWIFT payments, JPMorgan’s analysts said, versus 43% for the dollar and 32% for the euro.

(Reporting by Amanda Cooper; Editing by Karin Strohecker, Ed Osmond and Alexander Smith)

Shares stroll higher on June hike hiatus hopes

SYDNEY/LONDON (Reuters) – Shares rose and the dollar firmed on Monday as investors bet the Federal Reserve would pause its rate hikes this month after a mostly encouraging US jobs report, while oil prices jumped after Saudi Arabia pledged big output cuts.

The benchmark European STOXX index climbed 0.18% in early trading, led by gains in the oil & gas sector index and echoing a 0.2% gain in MSCI’s broadest index of Asia-Pacific shares outside Japan.

Japan’s Nikkei surged 2.1% to stand above 32,000 for the first time since July 1990.

The dollar also firmed against major peers after data on Friday showed payrolls in the public and private sector far outstripping forecasts, while wage pressures eased and the unemployment rate climbed off a 53-year low.

That in turn stoked hopes the Fed could pause its program of rate hikes at the June 13-14 meeting, albeit likely resuming in July.

On Monday, oil prices, which have recently come under pressure amid heightened concerns about China’s slowing economy, rose after Saudi Arabia announced it would cut its output to 9 million barrels per day in July, from around 10 million bpd in May, the biggest reduction in years.

Brent oil rose 2% to USD 77.81 a barrel by 0815 GMT, giving up some of its earlier gains to as high as USD 78.73, while US crude climbed 2.36% to USD 73.4 a barrel, after hitting a session high of USD 75.06.

“With Saudi Arabia protecting oil prices from sliding too low … we think oil markets are now more prone to a shortfall later this year,” said Vivek Dhar, a mining and energy commodities strategist at Commonwealth Bank of Australia.

“We think Brent futures will rise to USD 85 by Q4 2023 even with a tepid demand recovery in China factored in.”

US economy

Data on Friday showed the US economy added 339,000 jobs last month, higher than most estimates, but moderating wage growth and a rising jobless rate led markets to continue to bet on no change in Fed rates this month, with a 75% chance priced in for that, according to CME FedWatch tool.

However, there is about a 70% probability that Fed funds rates would reach 5.25-5.5% or beyond at the policy meeting in July, if U.S. inflation remains elevated. Conversely, markets now see little chance of a rate cut by the end of this year.

Treasury yields continued to climb on Monday. Yields on US two-year Treasuries rose 3 basis points to 4.5389%, on top of a surge of 16.2 bp on Friday, and 10-year yields also climbed 4 bps to 3.7351%, after a rise of 8 bps on Friday.

Fitch Ratings said the United States’ “AAA” credit rating would remain on negative watch, despite the debt agreement.

The US dollar was at 104.2 against its major peers on Monday, after gaining 0.5% on Friday on the jobs report. The greenback also rose 0.1% on the Japanese yen to 140.03 while the euro eased 0.1% to USD 0.1070.

Central banks from Australia and Canada will meet this week. Markets see a sizeable chance – about 40% – that the RBA could surprise with a quarter-point hike on Tuesday, after a minimum wage hike that economists feared could further stoke inflationary pressures.

The Bank of Canada will meet on Wednesday. A majority of economists polled by Reuters expect the BOC to keep interest rates on hold at 4.5% for the rest of the year although the risk of one more rate rise remains high.

(Editing by Himani Sarkar, Sam Holmes, Kim Coghill and Ed Osmond)

Gold slips as firmer dollar offsets bets on Fed pause

REUTERS – Gold prices slipped on Monday as the dollar firmed after a strong US payrolls report, overshadowing support from prospects that the Federal Reserve would pause its rate hikes this month.

Spot gold was down 0.4% at USD 1,939.19 per ounce, as of 0803 GMT, hovering near its lowest levels since May 30. US gold futures shed 0.8% to USD 1,954.40.

Gold prices dropped more than 1% on Friday after data showed US nonfarm payrolls rose by 339,000 jobs last month, exceeding a 190,000 forecast by economists polled by Reuters. But the unemployment rate surged to a seven-month high of 3.7% from a 53-year low of 3.4% in April.

The higher unemployment reading prompted markets to price in a 79.3% chance of the Fed leaving interest rates unchanged at its June 13-14 meeting, according to the CME FedWatch Tool.

“Money markets continue to favour a pause (as did comments from Fed vice chair nominee Philip Jefferson), so it may limit the downside for gold even if it has lost some safe-haven flows from debt-ceiling concerns… The question now is whether (gold) will break support at USD 1,934 to bring USD 1,900 into focus,” City Index senior market analyst Matt Simpson said.

Non-interest-bearing bullion tends to become less attractive in a high-interest rate environment.

The U.S. House of Representatives last week passed a bill to suspend the USD 31.4 trillion debt ceiling and averted a first-ever default.

The dollar index rose 0.2%, making greenback-priced bullion less affordable for overseas buyers.

Most Asian stock markets extended a global rally on Monday, while oil prices jumped after Saudi Arabia pledged big output cuts.

According to Reuters technical analyst Wang Tao, gold might revisit its May 30 low of USD 1,931.76.

Spot silver lost 0.8% at USD 23.40 per ounce, platinum edged up 0.1% to USD 1,004.66 per ounce and palladium gained 1% to USD 1,434.61.

(Reporting by Kavya Guduru in Bengaluru; Editing by Sherry Jacob-Phillips, Rashmi Aich and Sohini Goswami)

Oil jumps 2% on Saudi plan to deepen output cuts from July

REUTERS–Oil prices jumped more than USD 1 a barrel on Monday after the world’s top exporter Saudi Arabia pledged to cut production by another 1 million barrels per day from July, counteracting macroeconomic headwinds that have depressed markets.

Brent crude futures LCOc1 were at USD 77.64 a barrel, up USD 1.51, or 2%, at 0014 GMT after earlier hitting a session-high of USD 78.73 a barrel.

US West Texas Intermediate crude climbed USD 1.41, or 2%, to USD 73.15 a barrel, after touching an intraday high of USD 75.06 a barrel.

Both contracts extended gains after rising more than 2% on Friday as the Saudi energy ministry said on Sunday its output would drop to 9 million barrels per day (bpd) in July from around 10 million bpd in May, the kingdom’s biggest reduction in years.

The voluntary cut pledged by Saudi is on top of a broader deal by the Organization of the Petroleum Exporting Countries and their allies including Russia to limit supply into 2024 as the group seeks to boost flagging oil prices.

The group, known as OPEC+, pumps around 40% of the world’s crude and has in place cuts of 3.66 million bpd, amounting to 3.6% of global demand.

“The move by Saudi Arabia is likely to come as a surprise, considering the most recent change to quotas had only been in effect for a month,” ANZ analysts said in a note.

“The oil market now looks like it will be even tighter in the second half of the year.”

Consultancy Rystad Energy said the additional cut by Saudi is likely to deepen the market deficit to more than 3 million bpd in July, which could push prices higher in the coming weeks.

Goldman Sachs analysts said the meeting was “moderately bullish” for oil markets and could boost December 2023 Brent prices by USD 1-6 a barrel depending on how long Saudi Arabia maintains output at 9 million bpd over the next six months.

However many of these reductions will have little real impact as the group lowered the targets for Russia, Nigeria and Angola to bring them into line with their actual production levels.

By contrast, the United Arab Emirates was allowed to raise output targets by around 200,000 bpd to 3.22 million bpd.

“UAE has been allowed to expand output, at the expense of African nations, which had their unused quotas lowered under the new agreement,” ANZ said.

In the United States, the number of operating oil rigs slumped by 15 to 555 last week, their lowest since April 2022, Baker Hughes Co said in its weekly report on Friday.

Drilling has slowed since December due to weaker prices, higher costs and as companies divert spending to repaying shareholders.

(Reporting by Florence Tan; editing by Diane Craft and Sonali Paul)

Oil rises on Saudi plan to deepen output cuts from July

NEW YORK, June 5 (Reuters) – Oil prices rose on Monday after the world’s top exporter Saudi Arabia pledged to cut production by a further 1 million barrels per day (bpd) from July to counter macroeconomic headwinds that have depressed markets.

Brent crude futures settled up 58 cents at USD 76.71 a barrel, after touching a session high of USD 78.73.

US West Texas Intermediate crude gained by 41 cents to USD 72.15 after hitting an intraday high of USD 75.06.

Both contracts extended gains of more than 2% on Friday.

The Saudi energy ministry said the kingdom’s output would drop to 9 million bpd in July from about 10 million bpd in May. The voluntary cut, Saudi Arabia’s biggest in years, is on top of a broader deal by the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia to limit supply into 2024 as OPEC+ seeks to boost flagging oil prices.

Fatih Birol, head of the International Energy Agency (IEA), said that the chance of higher oil prices had increased sharply after the new OPEC+ deal.

OPEC+ pumps about 40% of the world’s crude and has cut its output target by a total of 3.66 million bpd, amounting to 3.6% of global demand.

“The market is still trying to assess the impact of what the Saudi production cut actually means,” said Phil Flynn, an analyst at Price Futures Group. “Oil seems to be taking the news as very bullish, and it is.”

SEB analyst Bjarne Schieldrop said the market reaction on Monday was relatively muted after the previous cut by OPEC+ failed to prop up prices for long.

Consultancy Rystad Energy said the additional Saudi cut is likely to deepen the market deficit to more than 3 million bpd in July, which could push prices higher in the coming weeks.

Goldman Sachs analysts said the output deal was “moderately bullish” for oil markets and could boost December 2023 Brent prices by between USD 1 and USD 6 a barrel depending on how long Saudi Arabia maintains output at 9 million bpd.

“The immediate market impact of this Saudi cut is likely lower, as drawing inventories takes time, and the market likely already put some meaningful probability on a cut today,” the bank’s analysts added.

Saudi Arabia raised prices of its flagship crude Arab Light to Asian buyers in July to a six-month high, following its output cut pledge.

Many of the OPEC+ reductions will have little real impact as lower targets for Russia, Nigeria, and Angola bring them into line with their actual production levels. In contrast, the United Arab Emirates (UAE) was allowed to raise output targets by 200,000 bpd to 3.22 million bpd to reflect its larger production capacity.

(Reporting by Stephanie Kelly; additional reporting by Noah Browning, Florence Tan, and Emily Chow; Editing by David Goodman, Will Dunham, Alexander Smith, and David Gregorio)

Asian shares extend global rally; oil prices jump on Saudi cuts

REUTERS — Asian shares extended a global rally on Monday on optimism the Federal Reserve would pause its rate hikes this month after a mixed US jobs report, while oil jumped as Saudi Arabia pledged big output cuts in July.

Brent oil jumped USD 1.82, or 2.4%, to USD 77.95 a barrel, while US crude climbed USD 1.77, or 2.4%, to USD 73.51. Oil prices have recently come under pressure amid heightened concerns about China’s slowing economic recovery.

Oil rose as Saudi Arabia announced it would cut its output to 9 million barrels per day in July, from around 10 million bpd in May, the biggest reduction in years, while a broader OPEC+ deal to limit supply into 2024 also underpinned futures.

“We think Brent futures will rise to USD US85/bbl by Q4 2023 even with a tepid demand recovery in China factored in.”

On Monday, Japan’s Nikkei surged 1% to a 33-year high, Australia’s resources-heavy shares gained 1% and South Korea’s KOSPI rose 0.5%.

S&P 500 futures dipped 0.1% and Nasdaq futures dropped 0.3% in Asian hours, after a strong rally on Friday, driven by a mixed US jobs report, a resolution to the debt-ceiling issue and the prospect of a US rate pause this month.

The tech-heavy Nasdaq rose 1% on Friday and posted its sixth-straight week of gains that marked its best winning streak since January 2020, while the Dow Jones gained 2%, and the S&P 500 added 1.45%.

Data on Friday showed US economy added 339,000 jobs last month, higher than most estimates, bolstering expectations of Fed hikes in July, with markets tipping a 50% chance for that.

However, moderating wage growth and rising jobless rate in Friday’s jobs report argued for a case of pause in June.

Markets are still leaning towards a rate pause from the Fed at the next policy meeting, but have priced out almost any chance of a rate cut by the end of this year.

Yields on US two-year Treasuries surged 16.2 basis points on Friday to 4.503% and ten-years rose 8 bps to 3.6903%, in part driven by Fitch Ratings saying the US’ “AAA” credit rating would remain on negative watch, despite the debt agreement.

That in turn helped the dollar gain 0.5% on Friday and stay elevated at 104.16 against its peers early on Monday. The greenback jumped 0.8% on Japanese yen to 139.94 while the euro eased 0.5% to USD 1.0706.

The Australian dollar was an outperformer against a strong greenback, up 0.5% to USD 0.6605, on bets that the Reserve Bank of Australia will have to raise rates higher and for longer on domestic wage pressures.

The RBA will hold a policy meeting on Tuesday. In the wake of a strong increase in the minimum wages for the next financial year, markets are now split on whether it would hold rates steady or hike it further to 4.1%.

The Bank of Canada will meet on Wednesday. A majority of economists polled by Reuters expect the BOC to keep interest rates on hold at 4.5% for the rest of the year but the risk of one more rate hike was high.

(Editing by Himani Sarkar)

Asia security summit kicks off amid US-China tensions

SINGAPORE, June 2 (Reuters) – Asia’s top security meeting opened on Friday, with intensifying competition between the United States and China expected to dominate a weekend of high-level speeches, backroom military dealings and delicate diplomacy.

The Shangri-La Dialogue, which attracts senior military officers, diplomats, weapons makers and security analysts from around the globe, is taking place June 2-4 in Singapore.

Australian Prime Minister Anthony Albanese will deliver the keynote address on Friday evening, before US Defence Secretary Lloyd Austin and China’s new Defence Minister Li Shangfu are expected to trade barbs in speeches over the weekend.

The relationship between the US and China is at its lowest point in decades, as the two superpowers remain deeply divided over everything from the sovereignty of Taiwan to cyber espionage and territorial disputes in the South China Sea.

Hopes that the summit in Singapore could be a chance to mend ties between Washington and Beijing were dealt a blow last week when Li declined an offer to meet with Austin.

Li, who was named China’s new defence minister in March, was sanctioned by the US in 2018 over weapons purchases from Russia.

Albanese’s speech comes as Australia tries to strike a delicate balance between its strong ties to the US and its often tense relationship with China, which buys the bulk of its valuable iron ore and is its biggest trading partner.

A deal announced in March to buy US nuclear-powered submarines threatens to strain Australia’s fragile ties with Beijing, which has been critical of the plan.

Australia is due to spend AUD 368 billion (USD 250 billion) over three decades on the submarine programme, part of a broader security pact with the US and Britain known as AUKUS.

Australia is also part of the Five Eyes intelligence collection and sharing network, along with the US, Britain, Canada and New Zealand – a grouping that Chinese officials say is part of the West’s lingering “cold war mentality” and an attempt to contain its rise.

Since being elected in May 2022, the Albanese Labor government has sought closer ties with ASEAN countries. Australia’s defence chief has said that as great power competition in the region persists, his country is focused on deterring conflict and deepening engagement with partners, including Pacific island and South East Asian nations.

(Reporting by Joe Brock. Additional reporting by Kirsty Needham. Editing by Gerry Doyle)

Oil prices rise after US debt deal, all eyes on OPEC meeting

LONDON, June 2 (Reuters) – Oil prices rose on Friday after a US debt ceiling deal averted a default in the world’s biggest oil consumer, while attention turned to a meeting of OPEC ministers and their allies at the weekend.

Brent crude futures LCOc1 rose 77 cents, or 1% to USD 75.05 a barrel by 0806 GMT, while US West Texas Intermediate crude (WTI) CLc1 was up 69 cents, or 1%, at USD 70.79. Both contracts were headed for their first weekly loss in three weeks.

Markets were reassured by a bipartisan deal to suspend the limit on the US government’s USD 31.4 billion debt ceiling, which staved off a sovereign default that would have rocked global financial markets.

Earlier signals of a potential pause in rate hikes by the Federal Reserve also provided support to oil prices, not least by weighing on the US dollar, making oil cheaper for holders of other currencies.

Investor attention is now fixed on the June 4 meeting of the Organization of the Petroleum Exporting Countries and allies including Russia, collectively called OPEC+.

OPEC+ in April announced a surprise cut of 1.16 million barrels per day in April, but the gains from that move have since been retraced and prices are below pre-cut levels.

But signals on any fresh cut have been varied, with Reuters reporting and bank analysts indicating that further output cuts are unlikely.

On the demand side, the US Institute for Supply Management (ISM) said its manufacturing PMI fell to 46.9 last month, the seventh-straight month that the PMI stayed below 50, indicating a contraction in activity.

Manufacturing data out of China painted a mixed picture. Thursday’s better-than-expected Caixin/S&P Global China manufacturing PMI contrasted with the previous day’s official government data that reported factory activity in May had contracted to the lowest level in five months.

(Reporting by Shadia Nasralla; Additional reporting by Andrew Hayley; Editing by Susan Fenton)

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