Japan’s Nikkei falls as investors lock in profits, Fast Retailing drags

TOKYO, July 5 (Reuters) – Japan’s Nikkei share average fell on Wednesday as investors booked profits after a recent rally and due to a decline in Fast Retailing’s shares after the Uniqlo brand owner posted a drop in monthly sales.

The Nikkei index .N225 pared early losses to trade 0.36% lower at 33,303.00 by the midday break. The index fell as much as 1% earlier in the session.

The broader Topix .TOPX edged down 0.08% to 2,304.59.

“Investors tried to lock in profits after a sharp rally,” said Ikuo Mitsui, fund manager at Aizawa Securities.

“Recently, the Nikkei has tended to pare losses because there are still many investors who want to increase their positions in Japanese stocks and they buy shares on dips, which cuts some losses or even helps the index reverse course.”

Fast Retailing 9983.T fell 2.98%, the most on the Nikkei, after it reported a 3.4% decline in same-store sales for June.

Chip-making equipment maker Tokyo Electron 8035.T fell 0.44% and medical equipment maker Terumo 4543.T lost 1.26%.

Shipping firm Kawasaki Kisen Kaisha 9107.T surged 5.61% to the top of the Nikkei. The shipping sector’s .ISHIP.T 3% gain was the most among the 33 industry sub-indexes on the Tokyo Stock Exchange.

Daiichi Sankyo 4568.T rose 5.31% after tanking nearly 15% in the previous session. The pharmaceutical sector .IPHAM.T rose 1.5%, with Sumitomo Pharma 4506.T jumping 3.06%.

Of the Nikkei’s components, 93 stocks rose and 131 declined, with one being flat.

(Reporting by Junko Fujita; Editing by Savio D’Souza)

((junko.fujita@thomsonreuters.com;))

Dollar steady before Fed minutes; yen hovers below intervention zone

TOKYO, July 5 (Reuters) – The dollar drifted near the middle of its range of the past three weeks against major peers on Wednesday, as traders looked ahead to the release of minutes from the Federal Reserve’s latest meeting for clues about the path for monetary policy.

The dollar index – which measures the currency against a basket of six major peers, including the euro and yen – was little changed at 103.02, after tracking between 103.75 and 102.75 since early June.

Europe’s shared currency edged 0.1% higher to USD 1.0886, recouping some of its 0.34% overnight decline.

The dollar hovered about half a yen below the 145 level that spurred intervention by Japanese authorities last autumn, after last week briefly popping as high as 145.07 for the first time since November.

Moves in the dollar-yen rate have broadly tracked the U.S. 10-year Treasury yield, which dipped as low as 3.841% in Tokyo after resuming trade following the July 4th Independence Day holiday.

“Obviously at this level, the market is paying attention to the potential risk of intervention, but as a medium-term trend, the market is looking for further downside for the yen,” said Shusuke Yamada, chief forex and rates strategist at Bank of America in Tokyo.

“We don’t see a very high probability that the Ministry of Finance will intervene at the same level as last year – and if the move is not rapid, below 150 we might not see intervention at all.”

Australia’s dollar was flat at USD 0.6690, holding on to the previous day’s 0.32% advance.

On Tuesday, the Aussie had initially dipped after the Reserve Bank of Australia left interest rates unchanged, but soon flipped to gains, as traders bet the tightening cycle will resume again with one or even two more hikes on the cards.

A stronger Chinese yuan, which buoyed bets for stimulus from Beijing to bolster a shaky economic recovery in Australia’s key trading partner, also underpinned the Antipodean currency.

The yuan was little changed at 7.231 per dollar in offshore trading, following a 0.3% rise on Tuesday as it continued its rebound from last week’s eight-month low of 7.2857.

(Reporting by Kevin Buckland; Editing by Shri Navaratnam)

Stocks drift as investors balance peak rate hopes with oil price rise

LONDON/HONG KONG – Global stocks held steady on Tuesday, as investors balanced the inflationary force of rising oil prices with hopes that central banks would not over-tighten monetary policy into a potential recession.

MSCI’s broadest index of world stocks, which rose almost 6% last month as the US Federal Reserve paused its cycle of aggressive rate hikes, was flat in light trading, with Wall Street closed for the July 4 holiday.

Europe’s Stoxx 600 share index added 0.2%.

Earlier in the session, Australia’s central bank held interest rates steady at 4.1%, saying it needed time to assess the economic impact of its rate hikes so far.

Complicating the outlook for inflation, oil prices rose on Tuesday as markets weighed supply cuts for August by top producers Saudi Arabia and Russia.

Brent crude futures climbed 0.9% to USD 75.35 a barrel, with West Texas Intermediate crude up 1% at USD 70.46.

Data on Monday from the Institute of Supply Management showed US manufacturing activity slumped in June to levels last seen during the initial wave of the COVID-19 pandemic in May 2020. Purchasing managers surveys showed a similar factory downturn in the euro zone.

“At least the improved supply-demand imbalance seems to be having an effect on price pressures,” Capital Economics global economist Ariane Curtis said.

Despite evidence that goods inflation was easing off, Curtis cautioned that central bankers might keep policy tight to battle service-sector inflation “which has proven stickier”.

In the US Barclays analysts said in a note to clients, “rising real incomes, thanks to a strong labor market, will continue to support consumption,” despite the recessionary signals from the weak ISM data.

Mixed bag of data

Investors are watching out for a mixed bag of economic data ahead of second-quarter earnings while uncertainty remains over the outlook for Fed monetary policy, said Manishi Raychaudhuri, head of Asia Pacific equity research at BNP Paribas.

The minutes from the central bank’s last meeting are due later this week and could provide additional clues on policy direction, but also inject some volatility, he said.

“If the Fed overtightens and decides to do more rate hikes than twice, as the market widely expected, then there’s a concern that the recession may turn out to be deeper than what is being factored in,” Raychaudhuri said.

Geopolitical tensions also persist, he noted, with China’s export controls on minerals adding more uncertainty around global trade relations.

In the currency market, the dollar index, which tracks the greenback against six major peers, was flat. The euro EUR dipped 0.1% lower against the dollar to USD 1.0898.

Euro zone government debt was steady, with Germany’s two-year Schatz yield, which tracks interest rate expectations, drifting around the 3.32% level, around its highest since early March, right before a U.S. regional banking crisis drove a flight into safe havens. Bond yields rise as prices fall.

The Treasury market was shut on Tuesday for Independence Day. On Monday, a widely watched section of the US Treasury yield curve hit its deepest inversion since the high inflation era of Fed Chairman Paul Volcker in the early 1980s, reflecting financial markets’ concerns that an extended hiking cycle may tip the US into recession.

Gold was slightly higher, with spot gold up 0.4% at USD 1929.45 per ounce.

(additional reporting by Ankur Banerjee in Singapore, Editing by Sam Holmes, Himani Sarkar, Alex Richardson and Christina Fincher)

Gold firms as traders hunker down for Fed cues

Reuters – Gold firmed on Tuesday as some traders bet that recent weak US economic data may prompt the Federal Reserve to rethink its rate hike trajectory, while also positioning for further cues from the minutes of the central bank’s last meeting.

Spot gold rose 0.4% to USD 1,929.54 per ounce by 0954 GMT, with trading volume likely thinned by a US holiday.

US gold futures GCcv1 gained 0.4% to USD 1,937.20.

“Weaker than expected US economic data released on Monday, including PMIs, have supported gold. Market participants will closely track upcoming US job market data, watching if previous U.S. interest rate hikes will slow down the US economy,” UBS analyst Giovanni Staunovo said.

But the minutes of the Fed’s June meeting on Wednesday could “sound hawkish in line with the recent testimony of Jerome Powell,” Staunovo added.

Investors see a nearly 90% chance of a 25-basis-point hike in July, according to CME’s Fedwatch tool. High rates discourage investment in zero-yield gold.

Focus this week will also be on non-farm payrolls data, after US manufacturing slumped in June.

“Right now, headwinds for gold are expectations of a further 50 bps tightening, more liquidity withdrawal and rates remaining relatively elevated for some time,” said Nicholas Frappell, global head of institutional markets, ABC Refinery.

Also on the radar were fresh developments in the US-China trade war, with Beijing restricting exports of some metals used in semiconductors, electric vehicles and high-tech industries.

Previous flare-ups also benefited the US dollar, reducing demand for gold.

Spot silver rose 0.6% to USD 23.0094 per ounce, and palladium jumped 1.5% to USD 1,247.14. Platinum climbed 1.5% to USD 919.79, set for a third consecutive session of rise if gains hold.

“The white metals remain linked to the performance of gold. That said, economic growth concerns have a bigger impact as those metals (which) have a higher industrial usage than gold,” Staunovo said.

(Reporting by Arundhati Sarkar and Seher Dareen in Bengaluru; Editing by Alexander Smith and Louise Heavens)

Gold edges higher on weaker U.S. economic cues

July 3 (Reuters) – Gold prices edged up on Monday, as the US dollar and Treasury yields retreated on weaker economic readings, casting doubts over whether the Federal Reserve may stick to its hawkish policy outlook.

Spot gold was up 0.1% at USD 1,920.49 per ounce by 1:54 p.m. EDT (1754 GMT), while US gold futures settled little changed at USD 1,929.50.

Bullion lost 2.5% in the April to June quarter.

“Gold has probably found a home around 1900,” said Edward Moya, senior market analyst at OANDA.

“There’s some positioning happening here … the market last week seemed to be slowly pricing in more Fed rate hikes, but data going forward might suggest that might not be happening, we could get really get one more rate hike.”

Also propping up safe-haven gold, the spread between the 2-year and 10-year US Treasury note yields hit the widest since 1981, reflecting concerns that an extended Fed rate hiking cycle will tip the United States into recession. US/

Futures markets had reflected rate cuts at the Fed’s September meeting as recently as May, and are now projecting that the first cuts will come in January.

Lower interest rates tend to lift gold as it reduces the opportunity cost of holding the non-yielding asset.

Gold also garnered support from a pullback in the dollar after data showed US manufacturing slumped further in June.

Carlo Alberto De Casa, external analyst at Kinesis Money, said that considering gold prices could trade in the USD 1,900-USD 1,930 range before the release of the minutes of the Fed’s June 13-14 meeting that could contain further clues on policy.

Among other precious metals, spot silver gained 0.6% to USD 22.88 per ounce, while platinum rose 0.7% to USD 907.54. Palladium climbed 0.7% to USD 1,235.48.

(Reporting by Arpan Varghese and Arundhati Sarkar in Bengaluru; Editing by Susan Fenton, Jan Harvey and Maju Samuel)

Apple’s growing stock market heft poses dilemma for fund managers

NEW YORK, July 3 (Reuters) – The massive rally in Apple’s shares is forcing some fund managers to revisit a thorny dilemma: they may not own enough of the stock.

Apple’s share price has soared 49% so far this year, ballooning its weight in stock indexes to record levels and pushing its market capitalization over USD 3 trillion. The company’s weighting in the S&P 500 has swelled to 7.6%, the biggest of any one stock in the history of the benchmark index, according to S&P Dow Jones Indices.

That hefty weighting means moves in Apple’s shares have an outsized influence on index performance. Yet many investors hold allocations of Apple that are smaller than its relative weighting in indexes, whether it’s due to the desire for portfolio flexibility, worries over owning too much of any one position and limitations imposed by the rules of their own funds.

If shares of Apple keep rallying, that could hurt the results of active fund managers, who strive to beat indexes such as the S&P 500 or Russell 1000.

The issue has taken on additional urgency this year, as the market’s gains are being led primarily by a handful of megacap companies such as Apple, Microsoft (MSFT), and Nvidia (NVDA), whose shares have outperformed.

“If you’re an active manager, one of the issues is it’s hard to own that much of one name. You are taking on more and more risk,” said Todd Sohn, technical strategist at Strategas.

“Because they are such heavy weights within the benchmarks, it becomes really challenging to outperform.”

UNDERALLOCATED

Of 418 US broad market funds tracked by Morningstar, only 26 held a greater weight in Apple than the stock’s weight in the S&P 500, according to their most recent regulatory filings.

The lower allocations to Apple and other stock market winners may be hurting their performance. Only 20% of actively managed mutual funds with broad US market exposure have outperformed the S&P 500 year-to-date as of June 28, according to Robby Greengold, strategist at Morningstar.

Only 6% of active large-growth funds around in 2013 outperformed the category benchmark through 2022, the firm’s data showed.

Greenwood Capital, which has USD 1.4 billion in assets under management, counts Apple as one of its top five holdings, said chief investment officer Walter Todd. But risk management rules at the South Carolina firm prohibit putting more than 5% into any one stock; that means the firm is underweight Apple compared to the S&P 500, to which Greenwood funds benchmark their performance.

The firm likes Apple’s stock fundamentals, so “it’s not that we are rooting for it to go down,” Todd said. “We just think there are other names that have the opportunity to do better.”

The cost of limiting Apple shares may be particularly high for fund managers this year, given the stock’s swelling weight in indexes.

Apple’s weighting in the S&P 500, for example, is bigger than the entire 37-stock consumer staples sector, which was last at a weight of 6.7%.

In the MSCI All-Country index, a widely used benchmark for stocks globally, Apple’s 4.7% weight is greater than that of all United Kingdom stocks combined, which account for 3.6%, according to DataTrek Research.

Some investors are happy to hold hefty positions in the stock.

Alex Morris, chief investment officer of F/m Investments, said its F/m Investments Large Cap Focused Fund holds a 13% weight in Apple, slightly above the weight in the Russell 1000 growth index, which is the fund’s benchmark.

“Fund managers at their own peril don’t hold Apple and a handful of stocks just like it at index weight or about index weight,” Morris said.

Whether Apple can maintain its outperformance remains to be seen.

Apple’s forward price-to-earnings ratio at 29.5 times, is about twice its median P/E over the past decade, according to Refinitiv Datastream. Analysts’ median price target for Apple shares is USD 190, according to Refinitiv data, 2% below the stock’s closing price of USD 193.97 on Friday.

Peter Tuz, president of Chase Investment Counsel, which has about USD 340 million under management, said his firm sold about one-third of its shares this year over concerns about its valuation. The stock is still his firm’s fourth-largest holding, even though at 4% of the portfolio, it puts it underweight Apple versus the S&P 500.

“If you don’t own any and the stock does well, indeed as it has this year, you run the risk of lagging,” Tuz said.

(Reporting by Lewis Krauskopf; Editing by Ira Iosebashvili and Anna Driver)

Japan’s Nikkei ends at 33-year high as BOJ’s tankan survey signals recovery

TOKYO – Japan’s Nikkei share average closed at its highest level in 33 years on Monday, led by machinery makers, as a quarterly survey by the central bank signalled a recovery in corporate activities.

The Nikkei index ended 1.7% higher at 33,753.33, its highest close since March 1990. The broader Topix rose 1.41% to 2,320.81.

“US stock market was strong on Friday after investor confirmed a slowdown of Personal Consumption Expenditures (PCE) index, while the BOJ’s “tankan” showed an increase in capital expenditure,” said Shuji Hosoi, senior strategist at Daiwa Securities.

“Pension funds finished their sell-off of stocks associated with rebalancing their portfolios, and new money has been injected in the market, which is also a positive cue.”

Wall Street’s three major indexes advanced solidly on Friday, with the tech-heavy Nasdaq boasting its biggest first-half gain in 40 years as inflation showed signs of cooling.

The Bank of Japan’s (BOJ) quarterly “tankan” survey showed Japanese business sentiment improved in the second quarter, as companies expected to increase capital expenditure and projected inflation to stay above the Bank of Japan’s 2% target five years ahead.

Machinery makers jumped 3.23% to become the top performer among the 33 industry sub-indexes on the Tokyo Stock Exchange.

Heavyweight air-conditioning maker Daikin Industries surged 6.75% and Komatsu, the world’s second-largest construction machinery maker, rose 2.01%.

Chip-related shares also rose, with chip-making equipment maker Tokyo Electron jumping 3.94% and chip-testing equipment maker Advantest jumping 5.93%.

Z Holdings, which runs internet firm Yahoo Japan, jumped 5.25%.

Meanwhile, department store operator Takashimaya lost 1.34% to become the worst performer on the Nikkei. Peer J.Front Retailing slipped 0.76%.

(Reporting by Junko Fujita; Editing by Varun H K and Rashmi Aich)

Oil prices ease on fears of weaker demand

SINGAPORE – Oil prices fell on Monday as concerns about a global economic slowdown and possible further interest rate hikes from the USFederal Reserve weighed on prices, offsetting forecasts of tighter supplies amid OPEC+ cuts.

Brent crude futures were last down 0.4%, or 27 cents, to USD 75.14 a barrel by 0630 GMT after settling up 0.8% on Friday. US West Texas Intermediate crude CLc1 was at USD 70.36 a barrel, down 0.4% or 28 cents, after closing 1.1% higher in the previous session.

Brent fell for the fourth straight quarter by the end of June while WTI notched a second quarterly drop as the world’s top two economies, the US and China, lost speed in the second quarter.

Fears of a further slowdown hurting fuel demand grew after data on Friday showed US inflation still outpacing the central bank’s 2% target and stoked expectations it would hike interest rates again.

“Hawkish commentary on rates continues to raise concerns of the demand outlook weighing on prices,” National Australia Bank analysts said in a note.

Higher interest rates could strengthen the greenback, making commodities more expensive for holders of other currencies, and also dampen oil demand.

Economists and analysts have lowered their Brent price forecasts to average at USD 83.03 a barrel in 2023, in the June Reuters oil poll.

Factory activity growth in China, the world’s largest crude importer, also slowed in June as sentiment and recruitment cooled on the back of sluggish market conditions, according to the Caixin/S&P Global private sector survey.

Still, some analysts expect supplies to tighten and push prices higher in the second half after top exporter Saudi Arabia pledged an extra 1 million barrels per day output cut in July, while the US is gradually replenishing its Strategic Petroleum Reserve.

“OPEC+’s multi-output-cuts have kept oil prices above key levels, which may see a further production reduction by the cartel to keep the crude market’s stability,” said Tina Teng, an analyst at CMC Markets.

However, the latest Reuters survey showed OPEC oil output has fallen only slightly in June as increases in Iraq and Nigeria limited the impact of cutbacks by others.

Investors are looking ahead to a conference later this week hosted by the Organization of the Petroleum Exporting Countries (OPEC) for supply cues.

US oil rigs fell by one to 545 last week, their lowest level since April 2022, while gas rigs fell six to 124, their lowest since February 2022, Baker Hughes data showed.

US crude output fell in April to 12.615 million barrels per day (bpd), its lowest since February, the US Energy Information Administration said on Friday.

(Reporting by Florence Tan and Emily Chow; Editing by Sonali Paul)

Oil settles lower as economic jitters outweigh supply cuts

July 3 (Reuters) – Oil prices settled down 1% on Monday as worries about a slowing global economy and possible US interest-rate hikes outweighed supply cuts announced for August by top exporters Saudi Arabia and Russia.

Brent crude futures settled down 1%, or 76 cents, at USD 74.65 a barrel while US West Texas Intermediate crude settled down 1.2%, or 85 cents, to USD 69.79.

Saudi Arabia on Monday said it would extend its voluntary cut of one million barrels per day (bpd) for another month to include August, the state news agency said.

But prices moved lower after business surveys showed global factory activity slumped in June as sluggish demand in China and in Europe clouded the outlook for exporters.

Fears of a further economic slowdown denting fuel demand grew on Friday as US inflation continued to outpace the central bank’s 2% target, stoking fears of more rate hikes.

Higher US interest rates could strengthen the dollar, making oil more expensive for buyers holding other currencies.

“Oil is facing serious economic headwinds and the market is trying to make sense of what additional crude cuts mean in that context,” said John Kilduff, partner at Again Capital LLC in New York.

Russia, seeking to tighten global crude supplies and boost prices in concert with Saudi Arabia, will reduce oil exports by 500,000 bpd in August, Deputy Prime Minister Alexander Novak said.

The cuts amount to 1.5% of global supply and bring the total pledged by OPEC+ oil producers to 5.16 million bpd.

Riyadh and Moscow have been trying to prop up prices. Brent has dropped from USD 113 a barrel a year ago, hit by concerns of an economic slowdown and ample supplies.

“Investors are turning upbeat as the second half of the year kicks off. They expect tighter oil balance and buoyant equities also suggest that recession will be avoided, albeit probably narrowly,” said PVM analyst Tamas Varga.

(Additional reporting by Alex Lawler and Natalie Grover in London, Florence Tan, and Emily Chow in Singapore; Editing by Jason Neely, David Goodman and David Gregorio)

Next week looks crucial for the dollar’s Fed-led recovery

The dollar index’s recovery from 2023’s double-bottom and its 2021 pandemic lows could hang in the balance with next week’s pivotal US data perhaps determining whether bearish, dwindling Fed rate hike expectations will persist.

The dollar’s recovery from March’s 100.78 banking crisis lows by February’s 100.80 lows was led by 2-year Treasury yields rebounding toward March’s 5.08% peak and highest since 2007. But the dollar has fallen from September’s 114.78 highs, despite 2-year yields making new highs in March and as yields approach those highs currently.

The Fed, by not hiking rates in June, despite indicating there could be two additional hikes, left the dollar in the lurch heading into next week’s June ISMs and employment report.

If the data fail to push 2-year yields, which encompass most Fed policy expectations, past March’s highs, the dollar’s downtrend could resume, putting in play this year’s lows. The index’s May 31 recovery high was rejected by weekly chart resistance that persists.

Next week’s data would have to drive 2-year yields to new highs to make retesting May’s 104.70 highs plausible. But as the market has demonstrated, the dollar upside from higher yields is waning, so a rally could be a chance to get short at better levels.

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

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