Gold set for biggest weekly gain since April

Gold prices were set on Friday for their biggest weekly gain in nearly two months, as a softer dollar and hopes for a pause in the Federal Reserve’s tightening campaign bolstered bullion’s appeal.

Spot gold was little changed at USD 1,977.31 per ounce by 0726 GMT. US gold futures GCcv1 steadied at USD 1,994.50.

Bullion has gained 1.6% so far this week, heading for its best week since the week ended April 7.

Current gold market sentiment remains constructive, and prices could move a little higher from here as the Fed is expected to stay on hold in June, said Edward Meir, a metals analyst at Marex.

Philadelphia Fed President Patrick Harker said on Thursday US central bankers should not raise interest rates at their next meeting, even though high inflation is coming down at a “disappointingly slow” pace.

Markets now see a 71.5% chance of rates remaining unchanged in June. Gold, which does not yield any interest of its own, loses appeal when interest rates rise.

The dollar index dipped to a one-week low, making gold less expensive for buyers holding other currencies.

Meanwhile, the US Senate passed bipartisan legislation backed by President Joe Biden that lifts the government’s USD 31.4 trillion debt ceiling, averting what would have been a historic, first-ever default.

On the data front, investors will keep a tab on the US Labor Department’s non-farm payrolls (NFP) report due at 1230 GMT.

The figures could again sway “market opinion with regards to what the FOMC does next week”, said Tim Waterer, chief market analyst at KCM Trade.

A strong labor market print could see a bounce-back in the dollar, which would not help gold, Waterer added.

Spot silver ticked down 0.1% to USD 23.8783 per ounce, but headed for a weekly gain.

Platinum rose 0.8% to USD 1,013.90, and palladium advanced 0.3% to USD 1,398.30 – both set for weekly losses.

(Reporting by Arundhati Sarkar in Bengaluru; Editing by Subhranshu Sahu and Susan Fenton)

Finishing the week with a flurry

June 2 (Reuters) – Asian markets are looking for a positive end to the week on Friday following a solid rally on Wall Street the day before, as the US debt ceiling vote passed its first congressional hurdle and hopes rose that the US economy will achieve a ‘soft landing’.

South Korean inflation for May is the main regional economic indicator on the calendar, and the won could also get a jolt from revised first-quarter GDP growth figures. Otherwise, Friday’s impetus looks set to come from Thursday’s ‘Goldilocks’ trading on US markets.

A batch of indicators suggested US inflationary pressures are cooling, which could allow the Fed to pause its rate-hiking cycle later this month, while other data showed the labor market remains strong.

A win-win for risky assets.

A weaker dollar and lower Treasury yields also helped fuel the surge in US stocks, with the Nasdaq and tech sector once again the highest fliers. The Nasdaq is on track for a sixth straight weekly gain, which would be its best run since 2019.

Contrast that with China, where purchasing managers’ index reports for May were mixed, broader economic data is weak, the central bank is expected to ease policy soon, and investors are pulling their money out of the country.

Little wonder the yuan is sliding further below 7.00 per dollar to fresh 2023 lows on a near daily basis.

The dollar’s strength against the yuan on Thursday is telling because it was not replicated across Asia. The Indian rupee registered its biggest rise in three months after PMI data showed factory activity in India grew last month at the fastest pace in two and a half years.

This follows Wednesday’s surprisingly strong GDP data.

The Australian dollar had its best day in six weeks, and the Japanese yen rose for a fourth consecutive session – its longest winning streak since November.

Global markets on Friday will take their cue from the US employment report for May but its release comes after Asian markets close, leaving Korean CPI and revised GDP as potentially the main market-moving economic indicators.

Annual inflation is expected to ease to 3.30% from 3.70% in April, which would be the lowest since October 2021.

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

– South Korea CPI inflation (May)

– South Korea GDP (Q1, revised)

– Japan monetary base (May)

(By Jamie McGeever)

Gold climbs as rate hike bets ebb after weaker US data

June 1 (Reuters) – Gold hit a more than one-week peak on Thursday, as the dollar tumbled after weaker US economic data on expectations of the Federal Reserve skipping an interest rate hike at its June policy meeting.

Spot gold was up 0.7% at USD 1,976.81 per ounce by 1:45 p.m. EDT (1745 GMT), after rising 1.1% to its highest since May 24. US gold futures settled 0.7% higher at USD 1,995.50.

US manufacturing contracted for a seventh straight month in May as new orders continued to plummet, while the number of new US jobless claims increased modestly last week.

The dollar slipped, making bullion cheaper for holders of other currencies, while 10-year Treasury yields hit a two-week low.

“The Fed wouldn’t want to put in this much work and then just basically talk rates back down from where they are. I think they want to keep them elevated,” said Daniel Pavilonis, senior market strategist, RJO Futures.

Philadelphia Fed chief Patrick Harker said barring any surprise in the economic data, he preferred holding rates steady in June. Other Fed officials, including the vice chair-designate, also pointed towards a rate hike “skip”.

Markets saw a 75% chance of rates remaining unchanged in June.

Gold, which does not yield any interest of its own, loses appeal when interest rates rise.

“There’s some kind of safe-haven demand supporting gold because of uncertainty regarding the debt ceiling bill,” said Commerzbank analyst Carsten Fritsch.

The US Senate will stay in session until it passes the bill, Democratic Majority Leader Chuck Schumer said, with just four days left to pass the measure and avert a catastrophic default.

Spot silver rose 1.7% to a two-week high at USD 23.88 per ounce, while palladium was 2% higher at USD 1,389.78.

Platinum gained 1.2% to USD 1,004.93, after hitting a seven-week low.

(Reporting by Deep Vakil and Seher Dareen in Bengaluru; Editing by Susan Fenton, Rashmi Aich and Shilpi Majumdar)

Dollar smile may widen if Fed plays rate hopscotch

June 1 (Reuters) – The US dollar might strengthen further if the Federal Reserve shifts to a hopscotch-style interest rate policy, especially if it includes more than one hike in addition to “skips”, or unchanged rate decisions.

The probability of a “skip” on June 14 rose on the back of Wednesday’s comments from Fed officials including vice chair nominee Philip Jefferson.

Jefferson said any decision to hold rates steady this month should not be viewed as the end of the tightening cycle.

Philadelphia Fed President Patrick Harker is also inclined towards a “skip” as opposed to a “pause”, stating that “a pause says that you are going to hold there for a while”.

Money markets currently see a 65% chance of the Fed keeping rates at 5.00-5.25% this month following 10 consecutive hikes, and a 79% chance of a 25-basis-point increase in July.

(Robert Howard is a Reuters market analyst. The views expressed are his own.)

Oil rises 3% on US debt ceiling progress, traders on alert for OPEC+ meeting

BENGALURU, June 1 (Reuters) – Oil prices rose on Thursday by the most in two weeks ahead of an OPEC+ meeting on Sunday, while House of Representatives passage of a bill to suspend the US debt ceiling helped to offset the impact of rising inventories in the country.

US West Texas Intermediate crude (WTI) rose USD 2.01, or 3%, to settle at USD 70.10 a barrel, recording its biggest daily gains since May 5.

Brent crude futures settled at USD 74.28 a barrel, up by USD 1.68, or 2.3%, to USD 74.65 a barrel, their biggest daily gains since May 17.

Both benchmarks recovered from two-straight sessions of losses after the House passed a bill late on Wednesday to suspend the US government’s debt ceiling and improve chances of averting a default. The legislation now moves to the Senate.

“The successful debt ceiling negotiations clear that minefield, but the overall demand outlook is still murky – the trucking space is doing poorly, for example,” CFRA Research analyst Stewart Glickman said.

The market’s focus has also shifted to a June 4 meeting of the Organization of the Petroleum Exporting Countries and allies including Russia, collectively called OPEC+.

“The OPEC+ meeting this weekend may be leading to a little caution around those (low price) levels, particularly in light of the ‘watch out’ warning from the Saudi energy minister,” OANDA analyst Craig Erlam said.

Four sources from OPEC+ told Reuters that the alliance is unlikely to deepen supply cuts at the Sunday meeting, but some analysts maintain that it is a possibility as demand indicators from China and the US have been disappointing in recent weeks.

US crude oil stockpiles rose unexpectedly last week, as imports jumped and strategic reserves dropped to their lowest since Sept. 1983, according to data from the Energy Information Administration.

“Third Bridge experts would not rule out more aggressive actions from OPEC+, but the tug-of-war right now in the market is the seasonal versus the cyclical,” Third Bridge analyst Peter McNally said.

“We are watching to see how strong the developed world’s summer demand uptick will be relative to the struggles of China’s cyclical recovery. This will determine how effective OPEC+ will be,” McNally added.

(Reporting by Shariq Khan; Additional reporting by Alex Lawler, Rowena Edwards, Arathy Somasekhar, and Andrew Hayley; Editing by David Goodman, Kirsten Donovan, Will Dunham, David Gregorio, and Jane Merriman)

US corporate debt binge could be hard to sustain

NEW YORK, June 1 (Reuters) – Large US companies have been on a bond issuance binge but this rapid pace in supply may be hard to sustain ahead of expected volatility related to extending the US debt ceiling and another possible move higher in interest rates.

Investment-grade rated companies issued USD 152 billion in May, making it the busiest May since 2020 when the pandemic crisis prompted record debt issuance volumes, according to data from Informa Global Markets. Junk-rated companies meanwhile raised USD 22.1 billion, for the busiest May since 2021 when 73 companies raised USD 49.1 billion.

“I believe we have seen an acceleration of issuance into May,” said Richard Wolff, head of US bond syndicate at SG CIB, saying this was a result of debt issuance being pulled forward.

“So the ensuing months should see a slight moderation of supply,” Wolff added.

This debt issuance spree is on the back of strong demand for what were relatively higher-yielding corporate bonds after Treasury yields rose in May from levels touched in late April.

New investment-grade bonds in May received orders that were three to four times the offering size on average, according to IGM data.

Junk bonds also got decent demand as yields at just under 9% were “historically really attractive levels we haven’t seen for years outside of the pandemic or the energy crisis before that,” said Manuel Hayes, senior portfolio manager at London-based asset manager Insight Investment.

“It’s an attractive income source considering bonds are being issued primarily by companies rated in the upper bands of junk so had a lower probability of default,” he added.

CHANGING TIDE

The debt binge, however, gave a broad hint that the largest companies in the world are not optimistic about borrowing conditions later in the year.

Near-term funding costs are likely to spike due to a drain on liquidity – the Treasury is expected to issue nearly USD 1.1 trillion in new Treasury bills (T-bills) over the next seven months, according to recent JPMorgan estimates, to replenish its coffers.

Spreads charged on corporate bonds as a premium over Treasuries or credit spreads, which have been stable so far are expected to widen, adding to funding costs for prospective borrowers.

“It’s more likely credit spreads widen from here given the macro concerns of the debt ceiling and resultant near-term large T-bill issuance, Fed tightening to dampen inflation and geopolitical risks,” said Jessica Lehmann, head of investment-grade and emerging markets syndicate at HSBC.

Fed funds futures traders now see the Fed as more likely to hike interest rates this month than leave them unchanged, as economic data beat expectations and lawmakers appear to have reached a deal to raise the debt ceiling.

“I could foresee liquidity becoming an issue even if the debt ceiling negotiations come to a resolution, particularly if ratings agencies continue to sour on how the situations and negotiations were handled,” said Blair Shwedo, head of investment-grade trading at US Bank.

Despite what appears to be a strong new issue backdrop, “there is credit sensitivity and a higher bar for less familiar, less liquid issuers,” said Jiyann Daemi, director, US IG syndicate at TD Securities. He added that this bar “might continue to move higher, should there be further market dislocation.”

(Reporting by Shankar Ramakrishnan, Matt Tracy, and Laura Matthews in New York; Editing by Megan Davies and Matthew Lewis)

June starts on a nervous note

June 1 (Reuters) – A batch of purchasing managers index reports from across the Asia-Pacific region will offer local markets direction on Thursday, with investors likely to be in a cautious mood following Wednesday’s global market moves.

If the PMI data on Thursday from Japan, Australia, India, South Korea, and others are as gloomy as China’s official PMI figures were on Wednesday, markets are in for a torrid start to the new month.

Official data showed factory activity in China shrank faster than expected in May, at its fastest rate in five months, while service sector activity expanded at the slowest pace in four months.

The Caixin manufacturing PMI report on Thursday is also expected to show manufacturing activity shrank in May, but at the same pace as in April. Barring a huge upside surprise, China’s economy appears to be sputtering and the pressure on local assets is growing.

The dollar edged up to a fresh six-month high against the yuan on Wednesday, with speculation mounting that locals are joining overseas investors in seeking to get their money out of Chinese markets.

Other Asian markets also start the new month on the defensive – the MSCI Asia ex-Japan index slumped 1.2% on Wednesday for its biggest daily loss in over a month, while the Japanese Nikkei’s 1.4% fall was its steepest in almost two months.

Back in China, Tesla and Twitter chief Elon Musk continues his visit, and is expected to travel to the Tesla plant in Shanghai to meet with staff, sources say.

Meanwhile, economic weakness in China is weighing on oil prices. Remarkably, Brent crude oil is now more than 40% cheaper today than it was a year ago, adding to the downward pressure on global inflation.

Figures this week show that eurozone inflation pressures are easing, but this ‘good news’ is struggling to support risk appetite – until the US debt ceiling deal is approved by both Houses of Congress, nervousness will linger, while worries over the economic impact of the Fed’s rate hiking campaign are never too far from the surface.

Dovish remarks from Fed Governor Philip Jefferson and Philadelphia Fed President Patrick Harker on Wednesday helped lower US bond yields and implied rate expectations. But it is the May employment report on Friday that will be pivotal to whether the Fed raises rates another 25 basis points, as traders mostly expect, or not.

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

– PMI data – China, Japan, Australia, India (May)

– South Korea trade (May, prelim)

– Eurozone inflation (May, flash estimate)

(By Jamie McGeever)

Gold firms set for monthly loss on dollar strength, Fed’s rate hike bets

May 31 (Reuters) – Gold firmed on Wednesday supported by lower Treasury yields but the dollar’s strength, with more interest rate hikes in the offing and optimism about a US debt deal, kept bullion on course for its first monthly dip in three.

Spot gold was up 0.4% at USD 1,966.89 per ounce by 1418 EDT (1818 GMT) on weaker-than-expected Chicago Purchasing Managers’ Index (PMI) data, before paring some gains on stronger US jobs data.

It has lost nearly 1.1% this month and over USD 100 from near-record highs scaled earlier in May.

US gold futures settled 0.3% higher at USD 1,982.10.

“We’ve had kind of a push-pull effect,” amid support from lower yields and pressure from the dollar, said David Meger, director of metals trading, High Ridge Futures.

“With the job’s data relatively strong, concerns about the possibility of further rate hikes would obviously have a tendency to pressure gold… and yet on the other side, we have the PMI data pulling in the opposite direction.”

The dollar index headed for a monthly gain, making bullion less attractive to overseas buyers.

Any decision by the Fed to hold its benchmark overnight interest rate steady should not be taken to mean the US central bank is done tightening monetary policy, Fed Governor Philip Jefferson said.

High interest rates dim the appeal for zero-yield gold.

But key support around USD 1,950 could fuel momentum trade to push gold back to USD 2,000, said Edward Moya, senior market analyst at OANDA.

Traders also focused on developments around the US debt ceiling, with the US House of Representatives due to vote on a bill to lift the limit.

Silver rose 1.5% to USD 23.56 per ounce, platinum fell 1.6% to USD 998.31, while palladium slipped 2.5% to USD 1,366.29. All three were set for a monthly drop.

Russia’s Nornickel saw the global palladium market swinging to a surplus in 2024 from a deficit in 2023 as recycling outpaces a demand recovery.

(Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Rashmi Aich, Aurora Ellis and Shilpi Majumdar)

Dollar uptrend against yen revived by JOLTS, but 141 key on close

May 31 (Reuters) – USD/JPY rallied on Wednesday away from support with the help of an unexpected surge in April US job openings that sent Treasury yields higher, but key resistance by 141 looms ahead of Friday’s key payrolls report.

If the May employment report shows demand for labor remaining strong and the Fed likely to hike rates in June, USD/JPY could make a run for Nov. 21 and 22 highs at 142.25 by the 61.8% Fibo of the dive from 2022’s 32-year peak to this year’s lows at 142.50.

Some caution is warranted about overly bullish expectations because prices and spec long positioning are both a bit overstretched. And 2-year Treasury-JGB yield spreads are 60bp lower than they were when USD/JPY hit its March pre-bank crisis highs, while the recent rebound in Fed rate pricing and Treasury yields look limited by expectations of deep rate cuts into 2024.

The May Chicago PMI index dive to 40.4 versus 47.0 forecast and April’s 48.6 and other weak manufacturing reports leave it to the service sector for growth. Also, excess pandemic savings are less than a quarter of their peak and financial conditions are tightening.

Yen weakness may also trigger renewed Japanese intervention.

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

Back to data watching, with US debt bill on track

With the U.S. debt ceiling bill clearing an important procedural hurdle en route to a vote in the House of Representatives on Wednesday, markets are back in data-watching mode for now.

Unfortunately, there’s little respite on that front given disappointing economic activity and persistently elevated inflation data out of Asia.

China’s official PMIs indicated a faster-than-expected contraction in manufacturing activity and slower growth in services in May. That followed consistently weak economic releases for April, suggesting the post-COVID reopening bounce has run out of steam.

Forecast-beating Australian consumer prices, released at exactly the same time, appeared to back up Reserve Bank of Australia Governor Philip Lowe’s earlier warning that risks to inflation are on the upside, keeping rate hike bets alive.

The Aussie dollar’s volatile reaction sums up the mood – the risk-sensitive currency bounced initially on the CPI release before more than reversing its gains due to the bleak Chinese data.

********

Asian stock markets fell and even U.S. equity futures turned negative despite the debt ceiling reprieve, while China’s yuan promptly skidded to fresh six-month lows, giving the U.S. dollar a broad boost.

News of a North Korean satellite launch and intensifying fighting in Ukraine only added to the grim backdrop.

Europe’s calendar is likely to be dominated by national CPI releases from France, Germany, and Italy for May ahead of Thursday’s flash euro zone inflation number. Italy’s first-quarter GDP and the European Central Bank’s biannual Financial Stability Review are also due.

In the U.S., the Federal Reserve’s Beige Book will be of interest and a number of Fed officials are also scheduled to speak. But much of the focus will, of course, be on the House debate over the debt ceiling bill.

(Sonali Desai)

*****

European Futures fall as China’s factories falter

European futures are in negative territory as China’s weak factory activity figures offered the latest evidence that recovery in the world’s second-biggest economy is faltering.

Data showed China’s manufacturing activity PMI fell to 48.2 for May, contracting even faster than expected.

On a brighter note, there are signs inflation is easing in Germany. Data from the country’s most populous state, North Rhine-Westphalia, showed inflation cooled in May. Nationwide inflation data is due at 1200 GMT.

Also on focus today, legislation brokered by President Joe Biden and House Speaker Kevin McCarthy to lift the USD 31.4 trillion U.S. debt ceiling and achieve new federal spending cuts passed an important hurdle late on Tuesday, advancing to the full House of Representatives for debate and an expected vote on passage on Wednesday. The House Rules Committee voted 7-6 to approve the rules allowing debate by the full chamber.]

(Joice Alves)

*****

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