Gold eases in tight range as traders gauge firm dollar, Fed rate pause

March 24 (Reuters) – Gold prices edged lower but traded in a relatively tight range on Friday as the dollar steadied, while investors assessed the US central bank’s hints at a potential pause in its rate-hike trajectory.

Spot gold was down 0.1% at USD 1,991.03 per ounce, as of 0558 GMT, after two sessions of sharp gains. US gold futures also dipped 0.1% to USD 1,993.80.

Non-yielding bullion, which becomes more attractive in a low-interest-rate environment, gained 2% after the Federal Reserve signaled it might pause further rate increases after the recent collapse of two US banks, and pointed to just one more rate hike this year.

“However, the Fed also mentioned it would not look to cut interest rates this year,” said Brian Lan, managing director at Singapore-based dealer GoldSilver Central.

Lan noted some profit-taking at play, and added, “gold prices would look to consolidate, unless there’s any big news.”

The dollar index steadied off seven-week lows, making bullion expensive for overseas buyers.

The Bank of England on Thursday raised interest rates for the 11th time in a row. The Swiss National Bank raised rates by 50 basis points and said UBS’s takeover of Credit Suisse had averted a financial disaster.

“The key focus is still on the banking crisis in the U.S., they’re looking at whether there’s further contagion to that effect,” GoldSilver’s Lan said.

Gold shot over the USD 2,000-level to a one-year peak earlier this week on safe-haven demand, but has since pulled back from those levels, although financial system uncertainties remain.

US Treasury Secretary Janet Yellen on Thursday sought to reassure jittery investors that American bank deposits were safe and promised policymakers had more firepower to battle any crisis.

“An increase in net long positions by speculators has been driven by both new longs and short covering. The inflows into gold-backed ETFs have risen sharply in recent weeks,” ANZ said in a note.

Spot silver was flat at USD 23.12 per ounce and platinum was also listless at USD 984.35, while palladium fell 0.4% to USD 1,425.25.

(Reporting by Kavya Guduru in Bengaluru; Editing by Subhranshu Sahu and Sherry Jacob-Phillips)

Philippines, China to use diplomacy to address maritime issues

MANILA, March 24 (Reuters) – Maritime issues between the Philippines and China remain a “serious concern”, a Philippine official said on Friday, as the countries pledged to use diplomacy to resolve differences peacefully during high-level talks.

The Philippines hosted this week the first in-person meeting between diplomats from the countries since before the pandemic, amid a flare-up in tensions over what Manila described as China’s “aggressive activities” in the South China Sea.

“Both our countries’ leaders agreed that maritime issues should be addressed through diplomacy and dialogue and never through coercion and intimidation,” Philippine foreign ministry undersecretary Theresa Lazaro said at the opening of bilateral talks on the South China Sea.

The discussions come two months after President Ferdinand Marcos Jr’s state visit to China, where President Xi Jinping said he was ready to manage maritime issues “cordially” with Manila.

“Maritime issues are an important part of China-Philippines relations that should not be ignored,” China’s Vice Foreign Minister Sun Weidong said.

Beijing, which claims large parts of the South China Sea, including some areas in Philippine waters, has expressed concern over an increasing US military presence in its neighbour, accusing Washington of increasing regional tensions.

“The two sides agreed to manage and control differences and properly handle emergencies at sea through friendly consultations,” the Chinese foreign ministry said in a statement after Sun’s visit.

Last month, Marcos granted the United States expanded access to military bases, amid China’s growing assertiveness in the South China Sea and towards self-ruled Taiwan.

The agreement has been seen as a sign of a rekindling of ties between Manila and its former colonial master, which soured under his predecessor, Rodrigo Duterte.

Last month, the Philippines accused China’s coast guard of using a laser against one of its vessels supporting a resupply mission for troops in the disputed Spratly islands. Marcos later summoned the Chinese ambassador to relay his concern over the intensity and frequency of China’s activities in the area.

(Reporting by Karen Lema and Neil Jerome Morales; Additional reporting by Ryan Woo in Beijing; Editing by Ed Davies and Jonathan Oatis)

Japan CPI a distraction amid thickening global fog

March 24 (Reuters) – Asian markets round off the week with Japanese inflation and PMI data likely to be the main local drivers on Friday, offering direction that is unlikely to come from yet another choppy day in US markets on Thursday.

Wall Street rose – although ended up off its highs – but bank stocks slumped to the lowest since 2020; key parts of the US yield curve steepened, but the three month/10-year segment is its flattest and most inverted since 1981; market-based inflation expectations fell, but so did Fed rate expectations.

Rates markets are now pricing in around 100 basis points of Fed easing this year, something Fed Chair Jerome Powell said on Wednesday is definitely not the central bank’s base case scenario.

The uncertainty is rooted in what impact the banking crisis will have on US credit conditions in the coming months, and by extension on economic activity and inflation. As Powell stated baldly on Wednesday: “We simply don’t know.”

Treasury Secretary Janet Yellen did know that she had a second chance on Thursday to soothe concerns among investors and the wider public about whether authorities will move towards guaranteeing all bank deposits.

She told a House committee she is prepared to take further actions to ensure bank deposits are safe, a day after telling a Senate committee blanket insurance was not on the agenda. It might not be on a par with Powell’s assurances – bank stocks still fell – but perhaps sentiment will improve on Friday.

So Asia opens on Friday to firmer world stocks, lower yields, mix US yield curves, higher global rates after the UK and Swiss hikes – but a growing sense that the world policy peak is in sight – a rising dollar, and a notably stronger yen.

Japanese annual core inflation in February is expected to have fallen sharply to 3.1% from a 41-year high of 4.2% the month before, thanks to government subsidies for gas and electricity bills to cushion rising living costs.

But many economists say broader price pressures remain strong throughout the economy, which could force the Bank of Japan to phase out or scrap its yield curve control policy soon.

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

– Japan consumer price inflation (February)

– Japan flash PMIs (March)

– Australia flash PMIs (March)

(By Jamie McGeever)

US recap: EUR/USD hit third highest 2023 peak as Fed pricing adjusted

March 23 (Reuters) – The dollar index was modestly lower in late trade on Thursday after recovering from earlier post-Fed losses that had pushed EUR/USD to its 1.0930 high on EBS near this year’s 1.1034 peak.

The Fed’s dovish 25bp rate hike Wednesday in contrast to the ECB’s bolder 50bp increase on March 16, amid banking sector stress spurred on by US failures, sent 2-year bund-Treasury yield spreads to their highest in over a year before a 9bp pullback on Thursday tugged EUR/USD well off its highs.

Wednesday’s Fed hike was overshadowed by concerns that banks would tighten credit to safeguard liquidity and reduce risk.

That could amplify the impact of aggressive tightening delivered over the last year, the true economic impact of which may yet to be realized.

The market now prices at most one more 25bp Fed hike in May before steady cuts into 2024. The spreads between the current Fed funds rate and 2-year Treasury yields surged above 1%, the level that forced the Fed to begin reversing rate hiking cycles during the global financial crisis and dot-com collapses.

Sterling rose 0.2%, unable to make a new high following the BoE’s dovish 25bp rate hike, as 2-year gilts-Treasury yield spreads fell 12bp and European bank stocks fell faster than US banks.

The bigger issue for sterling is the sense the BoE is averse to much more than another 25bp hike, despite UK inflation remaining at double-digit levels as US inflation has retreated from 9.1% last June to 6% in February.

USD/JPY fell 0.64% as 2-year Treasury-JGB yields spreads dove and the haven yen attracted broader bids with risk-off flows rebounding. Prices were caught by this year’s uptrend off January and February lows, but daily and weekly charts point to this year’s lows being at risk.

(Editing by Burton Frierson; Randolph Donney is a Reuters market analyst. The views expressed are his own.)

Gold climbs as Fed hints at rate-hike pause

March 23 (Reuters) – Gold prices extended gains to a second straight session on Thursday, boosted by a slide in Treasury yields after the US Federal Reserve signaled an end to its monetary tightening cycle might be on the cards.

Spot gold rose 1.2% to USD 1,993.09 per ounce by 2:59 p.m. ET (1859 GMT), while US gold futures jumped 2.4% to settle at USD 1,995.90.

The Fed raised rates by a quarter of a percentage point on Wednesday but highlighted that it was on the verge of pausing.

If they truly do pause, that’s a green light for the gold market, with it being a quintessential hedge against inflation, said David Meger, director of metals trading at High Ridge Futures, adding that “it’s likely that inflation would remain elevated if they’re unable to raise rates any further”.

Gold hit a one-year high on Monday, breaching the key USD 2,000 level on safe-haven demand. However, it later ceded some ground as banking sector jitters subsided following the rescue of Credit Suisse.

The outlook still remains positive if the Fed pauses or the banking crisis carries on, analysts say.

Wall Street bank Goldman Sachs hiked its 12-month gold price target to USD 2,050 an ounce from USD 1,950, describing it as the best hedge against financial risks.

“A combination of inflation still being at lofty levels, safe haven alternative investment demand, and the weaker dollar – all of these are significant driving factors behind gold’s recent move,” Meger added.

The dollar spent much of the session near early-February lows, making gold cheaper for holders of other currencies. Benchmark US government bond yields eased and improved zero-yield bullion’s allure.

In other metals, spot silver dipped 0.3% to USD 22.95 per ounce and platinum was up 0.3% at USD 980.67, while palladium fell 1.6% to USD 1,427.17.

(Reporting by Seher Dareen in Bengaluru; Additional reporting by Bharat Govind Gautam; Editing by Christina Fincher and Shounak Dasgupta)

Banks drag European shares down as c.banks join Fed in raising rates

March 23 (Reuters) – European equities inched down on Thursday with banks leading declines after the Bank of England followed the US Federal Reserve and the Swiss National Bank in hiking rates amid worries of a banking contagion.

The continent-wide STOXX 600 index slipped 0.2% after closing at its highest level in more than a week on Wednesday.

US stock indexes rallied following a turbulent session on Wall Street where the Fed lifted its interest rate by a widely expected 25 basis points and signaled that they are unlikely to climb much higher.

“The market is still pricing more than two rate cuts by year-end. We doubt this pricing can really stand against sticky inflation, growth in the US, but also in Europe and China actually reaccelerating,” said Max Kettner, chief multi-asset strategist at HSBC Global Research.

The Swiss National Bank raised its benchmark interest rate by 50 basis points and Norway’s central bank hiked by 25 basis points, both in line with market expectations.

The Bank of England, meanwhile, raised interest rates by a further quarter of a percentage point and said it expected the surge in British inflation to cool faster than before.

UK’s exporter-heavy FTSE 100 index slid 0.9% as pound rallied against the dollar after the BoE decision.

Further weighing on the mood, US Treasury Secretary Janet Yellen told lawmakers that she had not considered or discussed “blanket insurance” to banking deposits after the failure of two US mid-sized lenders earlier this month.

European banks fell 2.4% after a tentative rebound earlier this week when UBS Group (UBSG) agreed to buy embattled Swiss lender Credit Suisse (CSGN) in a USD 3 billion rescue deal.

The index is down about 15% so far in March and set for its worst monthly showing in three years when the onset of COVID-19 pandemic fueled a sharp global selloff.

Citigroup downgraded the sector, warning the rapid pace of interest rate hikes would further weigh on economic activity and lenders’ profits.

“We’ve got a market that’s been chopping around a fair bit,” said Gerry Fowler, head of European equity strategy at UBS.

“There are definitely investors who have lingering concerns that rate hikes that are supporting the profit recovery for banks may be curtailed by the tightening in financial conditions, that their profitability is going to be a little more impaired because they have to pay higher deposit rates to maintain their deposit bases.”

Among single stocks, Sanofi (SASY) rose 5.5% after the French drugmaker said its asthma and eczema drug Dupixent, jointly developed with Regeneron (REGN), met all targets in a trial to treat “smoker’s lung”.

Dutch tech investor Prosus (PRX) climbed 6.4% after Chinese video-game company Tencent said it would restrict its focus to its core business, while maintaining cost-cutting and improving efficiencies.

The broader technology index gained 2.2%, limiting losses on the broader index.

Sweden-based bank Svenska Handelsbanken AB fell 11.1% on trading ex-dividend.

(Reporting by Sruthi Shankar and Bansari Mayur Kamdar in Bengaluru; Editing by Subhranshu Sahu, Vinay Dwivedi and Angus MacSwan)

Rupee rallies along with Asian FX as markets sense Fed pause

MUMBAI, March 23 (Reuters) – The Indian rupee strengthened to over a one-week high against the US dollar on Thursday, as markets anticipated that the Federal Reserve was near the end of its rate hiking cycle.

The rupee was trading at 82.1650 per dollar by 11:15 a.m. IST, compared to its close of 82.6550 on Tuesday.

Indian foreign exchange markets were shut on Wednesday for a public holiday.

Asian currencies were buoyant as the dollar index languished at seven-week lows after the Fed hiked rates by 25 basis points (bps) and mellowed its hawkish stance by hinting it was on the verge of pausing after the recent collapse of two US banks.

Although the Fed seemed to indicate another hike was possible and no rates would be cut this year, money markets showed a 60% probability of a pause as soon as the May meeting and 70 bps worth of rate cuts in 2023.

The rupee is seeing strength as traders need to offload dollars before liquidity issues worsen during the fiscal year-end period so they maybe capitalising on good trading volumes today, said a state-run bank trader.

Central banks in Europe and England would need to hike rates further to tame inflation, which means the dollar will stay on the backfoot for sometime, HDFC economists said in a note.

“We could see gains across most Asian emerging market currencies as well, and the USD/INR is expected to trade between 81.80-82.50 in the near-term.”

Bank of England meets later in the day and is expected to raise rates for the 11th time in a row after inflation shocked on the upside.

Meanwhile, gains in equities were capped by Fed Chair Jerome Powell reiterating the need to fight inflation and that the banking industry stress could trigger a credit crunch with “significant” implications for the US economy.

(Reporting by Anushka Trivedi; Editing by Sonia Cheema)

JGB yields dip after Fed; effect muted as fiscal year-end caps buying

TOKYO, March 23 (Reuters) – Japanese government bond yields edged lower on Thursday tracking US yields after the Federal Reserve hinted it was on the verge of pausing its rate tightening cycle in view of the current turmoil in the banking sector.

However, yields on the longest tenors bounced in afternoon trading as some investors opted to close positions ahead of Japan’s fiscal year-end at the end of this month.

The 10-year JGB yield declined 2 basis points (bps) to 0.305% as of 0500 GMT, while benchmark 10-year futures added 0.22 bp to 148.50.

The equivalent US Treasury yield sank as much as 18 bps to 3.43% overnight and remained depressed in Tokyo, trading around 3.45%.

The Fed raised rates by a widely expected 25 bps, but projected only one more quarter-point hike by year-end in a dovish shift.

“The decline in Treasury yields overnight is the main reason we saw JGB yields decline in the morning, but JGB yields had already gone down a lot” due to pressure from earlier fiscal year-end buying, said Naomi Muguruma, senior market economist at Mitsubishi UFJ Morgan Stanley Securities.

“A lot of investors decided to just lock in profits,” she said.

The 40-year JGB yield was 0.5 bp lower at 1.525%, while the 30-year yield was 1 bp higher at 1.31%, reversing an earlier 2 bps decline. The 20-year yield was flat at 1.065% after starting the day down 4 bps. Yields on all three tenors reached at least six-month lows on Tuesday last week.

The two-year and five-year notes have yet to trade and last yielded -0.06% and 0.095%, respectively.

(Reporting by Kevin Buckland; Editing by Sonia Cheema)

Australian shares close lower as Fed throws weight behind inflation combat

March 23 (Reuters) – Australian shares closed lower on Thursday as investors gauged another quarter-point rate hike by the U.S. Federal Reserve and its reiteration to remain tough on sticky inflation, putting the local central bank’s monetary stance under heightened focus.

The S&P/ASX 200 index ended 0.7% down at 6,968.60 points, led by losses in miners. The benchmark closed nearly 1% higher on Wednesday.

The Fed pencilled in a widely expected increase in borrowing costs, but recast its outlook to a more cautious stance following banking upheaval on both sides of the Atlantic, suggesting it was on the verge of pausing rate hikes.

However, Fed Chair Jerome Powell also hinted at one more rate increase in 2023, saying the central bank would do “enough” to tame inflation.

All eyes are now on the Reserve Bank of Australia’s policy meeting due in April, where a rate pause is said to be on the cards. Traders have priced out further hikes in the cash rate, and even a slim chance of a cut, but many analysts expect at least one more rate increase this year.

“The RBA seems to be mindful of its mandate and try to limit pain to one particular borrower,” said Henry Jennings, analyst and portfolio manager at Marcus Today.

“I think we could see them (RBA) pause in April ahead of the budget.”

US Treasury Secretary Janet Yellen told lawmakers that she had not considered “blanket insurance” for US banking deposits, further damaging sentiment.

Back home, miners hit their lowest since November 28 with a 1.2% drop, as a fall in iron prices dragged sector majors Rio Tinto and BHP Group lower.

Australian banking stocks shed 0.8%, with the “Big Four” lenders trading in the red.

Gold stocks rose 1.1% as bullion prices jumped after the US Fed signalled a rate pause. Gold is traditionally considered a hedge against inflation, and a low interest-rate environment makes non-yielding bullion a more attractive bet.

Tech stocks tracked their Wall Street peers lower, falling 1.1%.

New Zealand’s benchmark S&P/NZX 50 index finished up 0.1% at 11,594.94.

(Reporting by Mehr Bedi in Bengaluru; Editing by Sherry Jacob-Phillips)

Oil drops 1% as US in no rush to refill strategic reserve

BENGALURU, March 23 (Reuters) – Oil prices settled 1% lower on Thursday, reversing early gains after US Energy Secretary Jennifer Granholm told lawmakers that refilling the country’s Strategic Petroleum Reserve (SPR) may take several years.

Granholm’s comments fed worries about potential oversupply, especially as the Energy Department plans to proceed with an additional release of 26 million barrel as part of its congressional mandate, UBS analyst Giovanni Staunovo said.

Brent crude futures fell by 78 cents, or 1%, to settle at USD 75.91 a barrel. US West Texas Intermediate crude futures slid by 94 cents, or 1.3%, to end the session at USD 69.96 a barrel.

Oil benchmarks had pushed about 1% higher before Granholm’s comments, underpinned by a lower dollar and higher gasoline prices.

The dollar index traded at its lowest since Feb. 3, a day after the Federal Reserve hinted it was nearing a pause in interest rate hikes. A weaker greenback makes dollar-denominated oil more attractive to holders of foreign currencies.

Federal Reserve policymakers believe beating back inflation may require just one more interest-rate hike this year but less easing next year than most had expected just three months ago.

Also supporting crude prices, RBOB gasoline futures hit a 10-day high after the US Energy Information Administration said stockpiles of the product fell last week by the most since September 2021. EIA/S

Higher gasoline demand will encourage refiners to use more crude oil to make fuel, Mizuho analyst Robert Yawger said.

“That large draw of 6 million barrels in EIA’s report has left a big impact on the market as the gasoline situation is looking a bit tight here,” Yawger said.

Also supportive, Goldman Sachs said commodities demand was surging in China, the world’s biggest oil importer, with oil demand topping 16 million barrels per day.

The bank forecast Brent would reach USD 97 a barrel in the second quarter of 2024.

(Reporting by Shariq Khan, additional reporting by Shadia Nasralla, Jeslyn Lerh; Editing by Mark Potter, David Gregorio and Mark Porter)

2024 Mid-Year Economic Briefing: Navigating the Easing Cycle

Investing with Love: A Mother’s Guide to Putting Money to Work

Investor Series: An Introduction to Estate Planning

Inflation Update: Prices rise even slower in May

Monthly Recap: BSP to outpace the Fed in rate cuts