Gold slides as robust US data drives hawkish Fed bets

May 18 (Reuters) – Gold extended declines on Thursday after more strong economic readings from the US further soured bets that the Federal Reserve may ease up on interest rates hikes, with bullion also pressured by optimism for a debt ceiling deal.

Spot gold fell 1.3% to USD 1,956.79 per ounce by 1:40 p.m. EDT (1740 GMT), after earlier touching its lowest since April 3 at USD 1,951.73.

US gold futures settled 1.3% lower at USD 1,959.80.

A lower-than-expected number of new US jobless claims last week was accompanied by a milder fall in a business index from the Philadelphia Fed.

Along with a relatively vibrant jobs market, some optimism over the debt ceiling negotiations has also strengthened the dollar and supported equities, denting safe-haven demand a bit, said David Meger, director of metals trading at High Ridge Futures.

“We’re no longer as positive on the gold market as we’ve been for really several months.”

Pressuring gold, Wall Street turned higher, and the dollar and 10-year Treasury yields climbed to multi-week peaks on the economic data.

Markets were now pricing in around a 20% chance of another rate hike in June, compared with 20% bets for a cut around a month ago.

Non-yielding bullion suffers when higher rates boost returns on competing assets like bonds.

Dallas Fed President Lorie Logan said inflation is not cooling fast enough yet to allow the Fed to pause rate hikes in June, while Fed Governor Philip Jefferson said it was too early to judge the full impact of the rapid increases so far.

Both sit on the Fed committee that sets monetary policy.

“Gold’s failure to hold technical support at the 50-day moving average will likely encourage further tests of the downside,” said independent analyst Ross Norman.

Silver dipped 1.1% to USD 23.47 per ounce, platinum was down 1.9% at USD 1,048.27 while palladium was also down 1.9% at USD 1,458.87.

(Reporting by Deep Vakil and Kavya Guduru in Bengaluru; Editing by Simon Cameron-Moore, Sharon Singleton and Shailesh Kuber)

As China’s yuan drops through 7 again, the dollar is in the driver’s seat

SHANGHAI/SINGAPORE, May 18 (Reuters) – China’s heavily managed yuan has dropped to multi-month lows and breached the closely watched 7-per-dollar level and analysts who are predicting more weakness point to the US Federal Reserve’s policy as being the bigger driver than economic weakness at home.

The yuan, also referred to as the renminbi, hit 7.0234 per dollar on Thursday, levels last seen in December before euphoria over China’s reopening after the COVID-19 pandemic lifted it for a few weeks.

As doubts grow about the strength of its economic recovery, foreign money has left China’s markets and the currency has fallen 4% against the dollar since late January.

Analysts at Nomura and Societe Generale say the yuan could soon head for 7.3, which was last plumbed in November. Kiyong Seong, lead Asia macro strategist at Societe Generale, says a wider monetary policy divergence between China and the US coupled with lackluster Chinese growth would result in a weaker yuan.

“An important part of the climb in dollar-yuan over the past month has to do with the dollar, so this is not just a renminbi story,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets in Singapore.

Reflecting that, the trade-weighted CFETS basket against which the People’s Bank of China (PBOC) manages the currency, has dropped to 99 from 100 in February.

Meanwhile, as the Fed weighs whether to pause its tightening after taking rates up 5 percentage points since March 2022, China appears set to keep monetary conditions loose amid growing signs its recovery is losing steam.

In the forwards market, the wide yield difference has the yuan trading stronger, thus disincentivizing exporters to convert their earnings. Six-month yuan is trading at 6.89.

A Shanghai-based exporter, who didn’t want to be quoted by name, said he was keeping his dollars for now, rather than swapping them for yuan.

“I know I shouldn’t be too greedy, but the yuan will weaken to 7.3. I will wait,” he said.

The PBOC has so far given little hint it is uncomfortable with the currency’s recent moves or stepped in to defend it. But the RBC’s Tan said authorities will be keen not to let the selling accelerate.

“So even if it’s weaker, they prefer that it’d be orderly. And frankly, it has been generally orderly so far,” said Tan.

The PBOC did not immediately respond to Reuters request for comments.

THE CHEAP CURRENCY

Becky Liu, head of China macro strategy at Standard Chartered Bank, expects the yuan will continue to depreciate.

“The interest rate gap remains wide, so many hedge funds continue to use yuan as a funding currency,” Liu said.

“Apart from the carry trade, the other is seasonality as the dividend payment season will start soon. So in the short term, we don’t think the yuan has huge upside room, instead we think it will face some pressure.”

Analysts at Nomura estimate mainland China firms listed and paying dividends in Hong Kong will make roughly USD 8 billion of dividend payments in each of June and July 2023.

The usual tailwinds for the yuan from capital inflows are also flagging as exporters hold back flows and foreign investors hesitate to buy into the market until they are convinced of more solid economic momentum and regulatory support.

While foreign net buying of Chinese stocks has been around 193 billion yuan (USD 27.92 billion) so far in 2023, they have sold 226.5 billion yuan worth of bonds in the first four months of this year, according to Reuters calculations based on official data.

A look at commercial banks’ foreign exchange operations shows they are selling more dollars on net. They sold USD 9.8 billion to their clients in the four months of this year, according to the State Administration of Foreign Exchange.

Yet, foreign exchange deposits grew USD 28 billion so far this year to USD 881.9 billion at the end of April, PBOC data show.

(USD 1 = 6.9121 Chinese yuan renminbi)

(Additional reporting by Jason Xue in Shanghai; Writing by Vidya Ranganathan; Editing by Kim Coghill)

BSP holds rates as expected

MANILA, May 18 (Reuters) – The Philippines central bank kept its benchmark interest rate steady at 6.25% on Thursday, pausing its 10-month tightening cycle, with inflation on track to ease back towards its 2% to 4% target range for the year.

Sixteen out of 22 economists in a Reuters poll had predicted the central bank would take a break after raising rates by a total of 425 basis points (bps) since last May, while the rest had expected a 25 bps hike.

(Reporting by Neil Jerome Morales and Enrico Dela Cruz; Editing by Martin Petty and Kim Coghill)

Factors to watch in UK stocks on May 18

May 18 (Reuters) – Britain’s FTSE 100 index is seen opening higher on Thursday, with futures up 0.5%.

* BURBERRY: British luxury fashion brand Burberry reported stronger-than-expected fourth quarter sales boosted by a rebound in its largest market China following three years of COVID-19 restrictions.

* ROYAL MAIL: Britain’s Royal Mail posted an annual adjusted operating
loss of 419 million pounds (USD 528.82 million), its parent International Distributions Services said.

* EASYJET: British airline easyJet said it was confident ahead of the summer season, when it makes all its profit, helped by strong booking levels, higher ticket prices and the growth of its holidays business.

* PREMIER FOODS: Premier Foods posted a stronger annual profit and raised its dividend payout.

* NATIONAL GRID: Energy supplier National Grid posted a 15% jump in annual operating profit.

* DE LA RUE: British banknote printer De La Rue Plc said that it appointed Clive Whiley as non-executive chairman of the board, effective immediately.

* INFORMA: British events organiser Informa said it will acquire business-to-business events, data, and media group Winsight for USD 380 million.

* BT GROUP: BT Group, Britain’s biggest broadband and mobile provider, met market expectations with a 5% rise in full-year adjusted core earnings of 7.9 billion pounds.

* BT GROUP: BT Group said it would reduce its workforce by up to 55,000 jobs by the end of the decade.

* ASTON MARTIN: Aston Martin said that Geely Automobile Holdings Ltd had committed to invest about 234 million pounds in the British luxury carmaker, making the Chinese automotive group its third-largest shareholder.

(Reporting by Muhammed Husain in Bengaluru; Editing by Dhanya Ann Thoppil)

Nikkei closes at 20-mth high spurred by chipmakers’ investment plans

May 18 (Reuters) – Japan’s Nikkei share average rallied for a sixth straight session to scale a 20-month high on Thursday, as investors cheered chipmaking investment plans and reasonable April trade data.

The gains are the second such winning streak for the Nikkei in as many months as stocks surf a wave of buybacks and enthusiasm about governance reform. It has climbed nearly 17% this year, far outshining world stocks’ 8% rise.

The Nikkei jumped 1.6% to close at 30,573.93, also posting its biggest daily gain since March 22.

The broader Topix jumped 1.14% to 2,157.85, a 33-year high.

Japan’s exports rose 2.6% in April from a year earlier, Ministry of Finance data showed – a little below expectations.

“Although exports have slowed from the previous month, this result was still relatively good compared to other Northeast Asian countries,” analysts at ING said in a note to clients.

“The April trade results further support our view that the Japanese economy will stay on a recovery path.”

Japanese Prime Minister Fumio Kishida also said he expected chipmakers to invest in Japan after a meeting with industry executives, while Micron said it plans to spend up to 500 billion yen (USD 3.7 billion) to bring the latest ultraviolet chipmaking technology to Japan.

Chipmaking-equipment maker Tokyo Electron rose 5.45% and chip-testing equipment maker Advantest jumped 7.99%, providing the biggest boost to the Nikkei.

Among other winners was Sony Group Corp, which jumped 6.4% to a 16-month high as it examines a partial spin-off of its financial division.

Power companies were among the top losers, extending falls from Wednesday as they grappled with high fuel prices squeezing profit margins.

Japan’s government on Tuesday approved electricity price rises but had taken months to do so.

Tokyo Electric Power fell about 4.75% and Kansai Electric Power lost 2.81%.

(Reporting by Tom Westbrook; Editing by Subhranshu Sahu and Janane Venkatraman)

Strong Wall Street close set to lift Europe

OPTIMISM over a possible breakthrough in US debt ceiling talks is keeping up in early European hours on Thursday following a strong close for Wall Street the day before and overnight gains across Asian markets.

Futures on the region-wide EuroSTOXX50 and London’s FTSE 100 were both up around 0.5%, while US equity futures pointed to a more subdued open following the rally the day before. MSCI’s broadest index of Asia-Pacific shares pushed 0.8% higher.

Switzerland and Scandinavian markets are closed for holiday, and that could reduce activity.

In corporate news, Deutsche Bank agreed to pay USD 75 million to settle a lawsuit by women who say they were abused by the late financier Jeffrey Epstein, and accused the German bank of facilitating his sex trafficking.

Burberry reported a 16% rise in Q4 comparable store sales, boosted by a rebound in its largest market China following three years of COVID-19 restrictions.

Royal Mail posted an annual adjusted operating loss of 419 million pounds, beating market expectations, while BT Group announced up to 55,000 jobs cuts after it met market expectations with a 5% rise in full-year adjusted core earnings.

(Danilo Masoni)

‘Big money never buys cheap’: Why investors are waiting on Japan

By Summer Zhen

HONG KONG – As Japan’s stock market roars to multi-decade highs, large investors with long memories say they are staying out, wary of sagging momentum and the prospect the central bank will unwind its massive monetary stimulus.

Riding a wave of buybacks and strong corporate earnings, and pumped up by a weak yen, the broad Topix index scaled peaks not seen since 1990 this week and the benchmark Nikkei, up more than 3% in four days, is near similar heights.

Yet for many, the lofty milestones are a reminder that Japan’s stocks have gone sideways for years, making many foreign asset allocators reluctant to venture into the market. Some say that caution is only heightened by the perilous policy path ahead.

The research arm of BlackRock, the world’s biggest asset manager, recommends an “underweight” allocation to Japan and is waiting for policy uncertainty to clear, according to Ben Powell Asia-Pacific chief investment strategist at BlackRock Investment Institute.

“I think there is a potential sea change,” he said, as some money flows in and there seems to be momentum building behind a governance push that is unlocking value from balance sheets via buybacks and other concessions to shareholders.

“But I’m old enough to remember the excitement of Abe introducing the ‘three arrows’,” he said, in reference to former Prime Minister Shinzo Abe’s economic reforms of a decade ago aimed reviving growth.

“A very significant inflow from global investors (followed),” Powell said, “but then unfortunately, a lot of the enthusiasm has dissipated.” He said more policy uncertainty would allow a better focus on domestic drivers.

For about two decades Japan has pressed deeper into uncharted territory with its monetary policy in a bid to revive growth after the 1990s asset bubble burst – taking interest rates to zero in 1999, below in 2016, and pinning down bond yields.

Now that inflation and growth have finally arrived, pressure is on the Bank of Japan’s new governor to plot a course back to normality. He is yet to reveal his hand and the uncertainty seems to be holding back the next surge for investment and the currency, and could keep stocks from further gains.

Swiss wealth manager Union Bancaire Privée is also underweight Japan, with the policy outlook presenting currency risks. UBS’ chief investment office is neutral and prefers China as a global slowdown looms.

Big money waiting

The policy and communication challenge for new BOJ governor Kazuo Ueda is a tricky one. He has begun laying the foundations for a shift by saying the bank will debate an exit strategy from its policies once inflation looks stable.

While he believes it is too early to discuss specifics, markets are already worrying about the fate of the BOJ’s vast asset holdings and expect the yen could quickly reverse last year’s precipitous decline if its loose policy settings look like they may be unwound.

“(A stronger yen) will hurt outwardly focused large conglomerates who will face an unfavorable domestic exchange rate, higher onshore borrowing costs and are also exposed to a weakening global economy,” said Aninda Mitra, head of Asia macro and investment strategy at BNY Mellon Investment Management.

To be sure, Mitra is more positive on banks and smaller companies, and plenty of investors – Warren Buffet included – believe stocks have a way to rally in Japan.

Japanese stocks are outperforming all major markets this year other than the tech-focused Nasdaq, with the Nikkei up more than 15% this year, and 11% in dollar terms, against a 7% gain for world stocks.

Buffett has also increased his stakes in Japan’s trading houses and says he is eyeing other purchases – 3.65 trillion yen (USD 27 billion) in foreign flows this year suggest other money managers are following him.

But even those flows remain below the 4.35 trillion yen of foreigners’ money that left Japan during 2022 and Morningstar data shows flows into open-ended Japan funds already turning fickle, suggesting a sustained turnaround is some time away.

“It’s going to take a good few years before we have a lot of people showing much interest,” said Simon Edelsten, manager of UK-based Artemis’ global select strategy fund.

“Big money never buys cheap, it buys momentum.”

(Reporting by Summer Zhen in Hong Kong. Additional reporting by Naomi Rovnick in London and Patturaja Murugaboopathy in Bengaluru. Writing by Tom Westbrook. Editing by Sam Holmes)

Why is the US dollar so strong again?

LONDON, May 18 (Reuters) – If investors agree on one thing this year, it’s that the dollar is going to fall. That’s made the greenback’s 2% bounce over the last month particularly confusing.

US inflation is cooling, and the Federal Reserve may pause its interest rate hikes next month. So the dollar should be on the way down, right?

Analysts say a number of factors are probably at play. One is that a range of worries – about the US debt ceiling negotiations, the health of banks, and the global economy’s outlook – are burnishing the dollar’s safe-haven credentials.

Meanwhile, there are some signs that the Fed may have to raise rates again and that more technical factors to do with investor positioning are involved.

DEBT CEILING FEARS

The dollar index – which measures the US currency against six others – has risen roughly 2% since the middle of April to around 103, although it’s still down around 10% from last September’s 20-year high of 114.78.

The go-to explanation of currency strategists right now is the debt-ceiling debacle is boosting the dollar.

Democrats and Republicans are inching closer to reaching an agreement on raising the USD 31.4 trillion borrowing limit. But the threat of a potentially catastrophic US debt default lingers, at a time when many banks look weak.

When markets are faced with worries like that, they often buy less risky assets such as bonds, gold, and dollars.

“The recent USD strength is largely driven by increased safe-haven demand in view of ‘unknown unknowns’,” said Esther Reichelt, currency strategist at Commerzbank.

“How severe are vulnerabilities in US regional banks and what might be the fallout of an escalation in the US debt ceiling conflict?”

Some worrying signs about global economic growth may also be contributing to safe-haven buying. Data from China this week showed that its economy underperformed in April.

THE FED MAY NOT BE FINISHED

Alvin Tan, head of Asia FX strategy at RBC Capital Markets, doubts the safe-haven argument.

If investors were worried, stocks would be falling, he said. In reality, the S&P 500 index has been flat since the middle of April and is up more than 8% this year.

Tan said concerns that the Fed has not yet slain inflation are part of the story. A University of Michigan survey released last week showed consumer inflation expectations rose to a five-year high of 3.2% in May, lifting bond yields and the dollar.

Traders currently expect the US central bank to cut interest rates sharply later this year as a recession takes hold, yet Tan is skeptical.

“We think there’s a chance that US interest rates could grind higher,” he said. “We remain unconvinced by the argument that the dollar is on a steady decline from here.”

NATURAL REBOUND

For other analysts, so-called technical factors are at play.

Investors have mounted big bets against the dollar. The net short bets of hedge funds and other speculators amounted to USD 14.56 billion last week, data from the Commodity Futures Trading Commission shows the biggest such position since mid-2021.

Counter-intuitively, that positioning can help drive rallies. If the dollar rises slightly, some traders may be forced to close out their short positions by buying the dollar, which then boosts its value.

“The dollar is very, very oversold,” said Chester Ntonifor, FX strategist at BCA Research.

“That’s one technical indicator. But a simple technical indicator is that it is very atypical for you to have a straight-line decline in the dollar.”

(Reporting by Harry Robertson; Editing by Paul Simao)

Oil prices settle down 1%; strong US data boosts dollar

NEW YORK, May 18 (Reuters) – Oil prices slid about 1% on Thursday after solid US economic data spurred the dollar to reach a two-month high on growing expectations the US Federal Reserve could raise interest rates again in June.

Brent futures fell USD 1.10, or 1.4%, to settle at USD 75.86 a barrel. US West Texas Intermediate (WTI) crude fell 97 cents, or 1.3%, to settle at USD 71.86.

The US dollar rose to its highest since March 17 against a basket of currencies on data showing lower-than-expected initial jobless claims and optimism about a possible debt ceiling deal.

A stronger dollar can weigh on oil demand by making the fuel more expensive for holders of other currencies.

US inflation does not seem to be cooling fast enough to allow the Federal Reserve to pause its interest-rate hike campaign, according to two Fed policymakers.

From remarks from Dallas Federal Reserve Bank President Lorie Logan and St. Louis Fed President James Bullard, it appeared that a minority hawkish view has gained ground at the Fed in the runup to the next policy meeting on June 13-14.

High interest rates boost borrowing costs, which can slow the economy and reduce oil demand.

“Good news for the economy is now bad news for the crude demand outlook as economic resilience will force the Fed to kill the economy,” said Edward Moya, senior market analyst at data and analytics firm OANDA.

The strength of April US economic data in addition to optimism about the debt ceiling negotiations have strengthened market expectations of a further hike, ANZ Research said in a note on Thursday.

President Joe Biden and top US congressional Republican Kevin McCarthy on Wednesday underscored their determination to reach a deal to raise the federal government’s USD 31.4 trillion debt ceiling. The government could run out of money to pay its bills as soon as June 1.

US Vice President Kamala Harris and Biden’s top economic adviser, Lael Brainard, said a debt default would throw the economy into a recession.

Meanwhile, European Central Bank (ECB) Vice President Luis de Guindos said the ECB will have to keep raising interest rates further to bring inflation back to its mid-term goal of 2% though most of the tightening has already been done.

Also weighing on oil prices, blue-chip stocks in China, the world’s biggest oil importer, slipped after the country’s industrial output and retail sales growth undershot forecasts, suggesting the economic recovery is losing momentum.

Another factor that could reduce oil demand was a fire in Mexico at the Salina Cruz refinery owned by Mexican state oil company Pemex. Workers were evacuated, no one was injured and the fire has been controlled, according to the local Red Cross.

On the supply side, Saudi Arabia’s crude oil exports rose about 1% to 7.52 million barrels per day (bpd) in March from the previous month, according to data from the Joint Organisations Data Initiative (JODI).

Kpler and Petro Logistics, which also monitor shipments, however, have said Saudi exports may have fallen in May as a voluntary production cut pledged by the kingdom and other Organization of the Petroleum Exporting Countries (OPEC) plus their allies, a group known as OPEC+, takes hold.

(Reporting by Shadia Nasralla in London, Stephanie Kelly in New York, and Sudarshan Varadhan in Singapore; Editing by Marguerita Choy, Kirsten Donovan, Nick Macfie, and David Gregorio)

Wall Street rallies on debt ceiling optimism, regional bank rise

NEW YORK, May 17 (Reuters) – US stocks rose sharply on Wednesday, fueled by optimism over a potential deal on the USD 31.4 trillion federal debt ceiling and as a rebound in regional bank shares eased concerns about an escalation in the sector’s troubles.

President Joe Biden and top US congressional Republican Kevin McCarthy on Wednesday reiterated their determination to strike a deal soon to raise the debt ceiling and avoid an economically catastrophic default.

If an agreement is not reached by June 1, the US Treasury has said it could begin to run out of funds to pay the government’s bills, potentially igniting a recession.

A jump in regional bank shares lifted sentiment, led by a 10.19% surge in Western Alliance Bancorp (WAL) a day after the bank said deposits grew by more than USD 2 billion in the quarter that ended May 12.

The KBW regional bank shot up 7.28% to notch its biggest one-day percentage gain since Jan. 6, 2021, to close at its highest level since May 1. The S&P 500 banks index also surged 4.46% for its biggest daily percentage gain since Nov. 10.

“It is optimism over the debt ceiling. It is continued optimism the banking crisis is in the rear-view mirror. Every day we go without a new problem, the closer we get to maybe putting it behind us,” said Rick Meckler, partner at Cherry Lane Investments in New Vernon, New Jersey.

“Definitely the catalyst is when you get both Biden and McCarthy to say that we are close the assumption is they probably will go with some kind of agreement.”

The Dow Jones Industrial Average rose 408.63 points, or 1.24%, to 33,420.77; the S&P 500 gained 48.87 points, or 1.19%, to 4,158.77; and the Nasdaq Composite added 157.51 points, or 1.28%, at 12,500.57.

The gains marked the biggest one-day percentage climb for each of the three major indexes since May 5.

Also providing support was a 4.41% advance in Tesla (TSLA) shares after its annual shareholder meeting on Tuesday.

Top boss Elon Musk downplayed market speculation he may step down as CEO of Tesla, touched upon two new mass-market models the company is developing, and reaffirmed that deliveries of its long-delayed Cybertruck pickup would start this year.

In addition, a source with direct knowledge of the matter told Reuters the electric vehicle maker has proposed setting up a factory in India for domestic sale and export.

With the rally the S&P is once again near the top of a recent trading range, at about 4,160, which has acted as a resistance point. Analysts said a major catalyst such as a debt ceiling agreement or clarity on the path of interest rate hikes from the Federal Reserve would be needed to push stocks much higher.

Recent data has indicated a slowing in the US economy following a string of Fed rate hikes to fight high inflation. That, along with recent negotiations over the US debt ceiling, has focused attention on when the central bank will pause hiking, or cut interest rates.

While the market is pricing in a rate cut by the year-end, recent comments from Fed officials suggested they are not ready to cut rates soon.

Retailers Target Corp (TGT) and TJX Companies Inc (TJX) forecast current-quarter profit below expectations despite beating estimates for the first quarter.

Shares of Target rose 2.58%, while TJX Companies closed 0.93% higher after a choppy session. The gains, along with Tesla’s rally, helped lift the consumer discretionary sector about 2%.

Volume on US exchanges was 10.35 billion shares, compared with the 10.59 billion average for the full session over the last 20 trading days.

Advancing issues outnumbered decliners on the NYSE by a 2.95-to-1 ratio; on Nasdaq, a 2.45-to-1 ratio favored advancers.

The S&P 500 posted 20 new 52-week highs and 14 new lows; the Nasdaq Composite recorded 69 new highs and 123 new lows.

(Reporting by Chuck Mikolajczak; Editing by Richard Chang)

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