What Powell giveth, Yellen taketh

March 23 (Reuters) – The Asian open on Thursday may hinge on which of the conflicting narratives thrown up by late US trading on Wednesday investors choose to run with: the Fed’s ‘dovish hike’, or Treasury Secretary Janet Yellen’s remarks on the banking system.

Implied US rates and Treasury bond yields fell sharply after the Fed raised rates by a quarter point and Chair Jerome Powell said policymakers had considered a pause in light of the recent turmoil in the domestic banking system.

But Wall Street ultimately took its cue from Yellen, who said the government “is not considering insuring all uninsured bank deposits”, something many analysts say would go a long way to preventing further crises.

The three main US indices, which had rallied during Powell’s press conference, reversed course and closed down 1.6%.

Powell, of course, banged the anti-inflation drum and said the central bank’s base case is for no rate cuts this year. Stocks didn’t like that much, but it was Yellen’s comments that slammed financials and ultimately the broader indices – US financial stocks fell 3.7% and regional banks slumped 5.3%.

Powell’s press conference suggested the Fed is in a ‘wait and see mode’ regarding the impact from the anticipated tightening of credit standards on the economy and inflation. He said more than once that policymakers simply don’t know how the next few months will pan out.

That helps explain the dollar’s lurch lower in tandem with US yields on Wednesday. But policymakers in Asia will remain vigilant and may continue to lean toward tightening rather than pausing.

The central banks of the Philippines and Taiwan announce policy decisions on Thursday – the Philippine central bank is seen raising rates by 25 bps to 6.25%, and Taiwan’s is expected to keep its key rate on hold at 1.75%.

Inflation data from Singapore and Hong Kong are also on tap Thursday, while the Bank of England is set to follow the Fed and raise rates by a quarter point, to 4.25%.

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

– Japan Tankan survey (March)

– Bank of England policy decision

– Euro zone flash consumer confidence (March)

(By Jamie McGeever; editing by Aurora Ellis)

Market nerves tie US rate-setters’ hands

CHICAGO, March 22 (Reuters Breakingviews) – Federal Reserve Chair Jay Powell is well outside of his comfort zone. On Wednesday the central bank raised interest rates a quarter point. Yet two weeks ago, before a confidence crisis hit US banks, he was intimating he would jack them up even higher. As his attention bends in new ways, so must his principles.

The failure of Silicon Valley Bank nearly two weeks ago upended the US financial system, and the Fed and other agencies have had to provide a steadying hand. Prognosticators including Goldman Sachs last week changed their projections for rates because of the upheaval, expecting Powell would hold them steady. But by Wednesday morning, just before the central bank’s decision, the futures market was mostly pricing in a 25-basis point hike.

So, Powell and his rate-setting peers did what was expected. Which makes sense because any surprise would have threatened an already fragile system. Treasury yield volatility hit the highest level since 2009 last week and has only slightly eased, according to the ICE BofAML MOVE Index. Futures contracts tracking the central bank’s benchmark rate have also been shaky.

The complexity comes from the Fed’s divided mission. While the bank often talks about its “dual mandate” to stabilize prices and employment, there’s a third mandate that is often forgotten in peace times. Wall Street reforms passed in 2010 crystallized the central bank’s duty to foster a stable financial system.

Powell’s only tools are rates, and confidence. This crisis uniquely depends on the latter, and Powell tried to restore it on Wednesday by saying all deposits were safe, something he can’t actually guarantee. But his other, and blunter tool, is getting a workout too. While the Fed chair said in February that policymakers focus not on short-term market moves but “sustained changes” to financial conditions, several former Fed officials have hinted that in a crisis, following the market is the best course of action.

Rising rates played a major role in the collapse of Silicon Valley Bank two weeks ago, and the latest hike – even though it’s a small one – puts even more pressure on lenders. But with investors’ jitters at decade highs, it’s better Powell gives markets the devil they know than the devil they don’t.

CONTEXT NEWS

The US Federal Reserve raised interest rates by 25 basis points to a range of 4.75% to 5% on March 22. Investors had largely priced in such a hike, according to futures contract pricing tracked by the CME FedWatch tool.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 gave the Fed new responsibilities for maintaining stability in the US financial system, including promoting consumer protection measures and fostering safety in payment systems. Those duties joined its long-standing dual mandate of 2% annual inflation and full employment.

(Editing by Lauren Silva Laughlin and Amanda Gomez)

US recap: Dollar dumped as Fed hike seen as segue to cuts in H2

March 22 (Reuters) – The dollar tumbled on Wednesday after the Fed raised rates by 25bp as expected and toned down the certainty of its language on future tightening, while Chair Jerome Powell highlighted data dependence and downward economic risks, which should weigh on the US currency.

The first dovish shift came with the policy statement erasing its previous reference to “ongoing increases” in rates, replacing it with “some additional policy firming may be appropriate.”

That sent Treasury yields lower, in turn creating a heavy weight on the dollar.

Policymakers left their rate projections — the median dot plots — unchanged for end-2023 at 5.1% but downgraded growth even while they projected lower unemployment and less progress on inflation than in December.

That’s not surprising given recent data and banking sector distress.

The stable dot plot suggests the Fed sees banking sector and credit risk offsetting the hot US data in recent months.

Powell remained focused on taming inflation even as almost all on the FOMC see risks to growth as weighted to the downside, with further policy adjustments data dependent.

He said the fast intervention to support depositors and banks’ use of collateral was needed to contain the fallout from bank failures.

Treasury Secretary Yellen saying that the FDIC was not considering “blanket insurance” of bank deposits also weighed risk and the dollar.

EUR/USD gained more than 1% by late trade, with smaller dollar losses versus the JPY and sterling, all reflecting tumbling Treasury yields. Two-year yields fell more than 25bp at one stage after having been up earlier in the day when risk-off trades were still being squared up ahead of the Fed.

The market is now split on whether there will be one more 25-bp Fed rate hike before rate cuts begin in earnest from H2 onward.

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

Gold jumps after US Fed signals rate-hike pause imminent

March 22 (Reuters) – Gold prices climbed on Wednesday after the US Federal Reserve toned down its aggressive approach to reining in inflation in a widely anticipated policy statement and indicated that an end to interest rate hikes was on the horizon.

Spot gold was up 1.7% at USD 1,973.52 per ounce by 3:56 p.m. EDT (1956 GMT), after advancing as much as 2%. US gold futures settled 0.4% higher at USD 1,949.60 before the Fed announcement.

The Fed raised interest rates by a quarter of a percentage point, but indicated it was on the verge of pausing further increases in borrowing costs amid recent turmoil in financial markets.

But in the press conference that followed, Fed Chair Jerome Powell said the central bank was not expecting to cut rates in 2023.

“The Fed is having to balance inflation risks and economic stability, both are factors that could drive further safe-haven demand for gold,” Standard Chartered analyst Suki Cooper said.

Gold has climbed over 7% so far this month, closing in on record highs above USD 2,000 hit in March 2020, on concerns surrounding the banking and financial industry, mainly triggered by higher rates.

“While off its intraday highs, gold is ‘sticking a fork’ in the Fed’s turkey and rallying strongly, betting that this rate-hike cycle is done,” said Tai Wong, an independent metals trader based in New York.

“The hurdle for another hike is substantial with the Fed explicitly watching the tightening of financial conditions and the question though is whether gold can break above last week’s highs with short-term rates at 5%.”

Gold is often sought as a safe store of value during financial instability, and benefits from lower rates as it yields no interest.

US Treasury yields dropped, and the dollar touched its lowest in nearly seven weeks, making precious metals more attractive.

Silver gained 2.6% at USD 22.97 per ounce, platinum added 1.5% at USD 982.86 and palladium advanced 3.6% to USD 1,438.45.

(Reporting by Seher Dareen and Bharat Govind Gautam in Bengaluru; Editing by Shilpi Majumdar)

Sterling rises as inflation data turns heat up on BoE

LONDON, March 22 (Reuters) – Sterling jumped on Wednesday after data showed UK price pressures picked up a lot more than expected in February, including inflation that excludes food and energy, raising the chances of another rate rise this week from the Bank of England.

British consumer price inflation (CPI) unexpectedly rose to 10.4% in February from January’s 10.1%, figures from the Office for National Statistics showed on Wednesday.

Economists polled by Reuters had forecast the annual CPI rate would drop to 9.9% in February.

The pound was last up 0.3% against the dollar at USD 1.225, from a 0.1% gain prior to the data. The euro fell 0.3% against the pound to 87.86 pence, from 88.00 pence earlier.

“Big unexpected jump in UK inflation this morning, breaking a three-month stretch of prior declines. This is a real problem for the Bank of England, which will need to stay the course on further rate rises, increasing the probability of recession later in the year,” John Leiper, chief investment officer at Titan Asset Management, said.

Money markets show a 61.6% chance the Bank of England (BoE) will raise rates by a quarter point when it meets on Thursday, up from around 57% on Tuesday.

The core CPI, which excludes energy, food, alcohol and tobacco and is watched closed by the BoE, rose to 6.2% from 5.8% in January, versus a forecast decline to 5.7%.

The annual inflation rate in the services sector, which most policymakers consider a good measure of underlying price pressures, rose to 6.6% from 6.0% in January.

The pound has risen by 2% against the dollar so far in March, partly reversing some of February’s 2.43% drop. But it’s struggling to make much headway, given traders widely expect the BoE to make this week’s rate decision the last hike for now.

At over 10%, the rate of inflation is more than five times the BoE’s target rate of 2% and the highest among the Group of Seven richest nations.

“One other thing that we also know about inflation in the UK is that it goes up quickly and comes down slowly, and with wage inflation also rising it is likely to remain sticky,” CMC Markets strategist Michael Hewson said.

(Reporting by Amanda Cooper; Editing by Joice Alves and Mark Potter)

Euro zone short-dated yields jump as fears of banking crisis fade

March 22 (Reuters) – Euro zone government bond yields rose on Wednesday as fears of a banking crisis receded and ECB hawks called for more rate hikes.

Markets are awaiting the outcome of the Federal Reserve’s Federal Open Market Committee (FOMC) at 1800 GMT.

Eurozone policy-setters must be “stubborn” and continue increasing borrowing costs to battle inflation, Bundesbank chief Joachim Nagel said.

US Treasury Secretary Janet Yellen told bankers on Tuesday that she is prepared to intervene to protect depositors in smaller U.S. banks suffering deposit runs.

Germany’s 2-year government bond yield, the most sensitive to changes in expectations for interest rates, rose as much as 13.1 bps and was last up 12 basis points (bps) at 2.7%.

(Reporting by Stefano Rebaudo; Editing by Amanda Cooper)

Jittery markets attempt risk-on rally while waiting for Powell

With about 12 hours still to go before the Fed announces its policy decision, investors are attempting a bit of a risk-on rally.

Comments from US Treasury Secretary Janet Yellen, who told bankers that she was prepared to intervene to protect depositors in smaller banks, have helped calm some of the market’s nerves, even as a scramble by embattled US lender First Republic Bank to secure a capital infusion kept worries about the sector alive.

The collapse of Silicon Valley Bank, which sank under the weight of bond-related losses due to surging interest rates, kicked off a tumultuous 10 days for banks, with fears of a global meltdown rattling investors.

And that brings us to the main event of the day: the Fed’s policy meeting, which concludes on Wednesday with the 2 p.m. EDT (1800 GMT) release of a policy statement followed half an hour later by a news conference by Chair Jerome Powell.

Traders are pricing in an 85% chance of a 25 basis-point interest rate hike by the Fed and a 15% chance of no increase. Just a month earlier, the market was pricing in a 24% chance of a 50 basis-point hike.

The past two weeks have upended expectations, with market funding conditions tightening sharply since the collapse of Silicon Valley Bank and a rout in Credit Suisse shares that led to a shotgun takeover on Sunday by Swiss rival UBS.

Whether that’s enough for central banks to stop hiking remains to be seen.

The MSCI ex-Japan index rose 1.3%, while the dollar and gold traded in narrow ranges. Futures indicated European stocks would likely join in on the rally.

In the corporate world, GameStop posted a surprise profit for the fourth quarter, its first since early 2021, sending the “meme stock” nearly 50% higher. Shares of another meme stock, Bed Bath & Beyond, fell below USD 1, leaving the retailer at risk of losing additional funding from hedge fund Hudson Bay Capital Management. The retailer reached an amended agreement with Hudson last week to temporarily lower the stock price threshold to USD 1 until April 3.

(Ankur Banerjee)

Oil up 2% as dollar weakens on small US Fed rate hike

NEW YORK, March 22 (Reuters) – Oil prices rose about 2% to a one-week high on Wednesday as the dollar slid to a six-week low after the US Federal Reserve delivered an expected small rate hike while hinting that it was on the verge of pausing future increases.

Brent crude futures rose USD 1.37, or 1.8%, to settle at USD 76.69 a barrel, while US West Texas Intermediate crude (WTI) ended USD 1.23, or 1.8%, higher at USD 70.90.

That was the highest closes for both crude benchmarks since March 14.

The Fed raised interest rates by a quarter of a percentage point, but indicated it was on the verge of pausing further increases in borrowing costs amid recent turmoil in financial markets spurred by the collapse of two US banks.

“Today’s 25-point rate hike by the Fed provided no surprises but the accompanying language prompted some increase in risk appetite that easily spilled into the oil space,” analysts at energy consulting firm Ritterbusch and Associates told customers in a note.

The US dollar fell to its lowest level since Feb. 2 against a basket of other currencies, supporting oil demand by making crude cheaper for buyers using other currencies.

The oil markets shrugged off the US Energy Information Administration’s (EIA) weekly data that showed crude stockpiles rose 1.1 million barrels last week to a 22-month high.

Analysts in a Reuters poll had forecast a 1.6-million-barrel withdrawal. But the official EIA data showed a smaller build than the 3.3-million-barrel increase reported on Tuesday by the American Petroleum Institute (API), an industry group.

“We just have a lot of crude oil in storage and it’s not going to go away anytime soon,” said Bob Yawger at Mizuho.

US crude stockpiles have grown since December, boosting inventories to their highest since May 2021. Gasoline and distillate inventories, meanwhile, fell last week by more than analysts expected.

WTI and Brent prices last week fell to their lowest since 2021 on concern that banking sector turmoil could trigger a global recession and cut oil demand. An emergency rescue of Credit Suisse Group AG (CSGN) over the weekend helped revive oil prices.

The Organization of the Petroleum Exporting Countries and its allies like Russia, a group known as OPEC+, is likely to stick to its deal on output cuts of 2 million barrels per day (bpd) until the end of the year, despite the plunge in crude prices, three delegates from the producer group told Reuters.

(Additional reporting by Rowena Edwards in London, Shariq Khan in Bengaluru, Sudarshan Varadhan in Singapore and Andrew Hayley in Beijing; Editing by Marguerita Choy and David Gregorio)

Financials lift Australian shares ahead of Fed rate decision

March 22 (Reuters) – Australian shares jumped 1% on Wednesday led by banking stocks, as investors awaited the US Federal Reserve’s interest rate hike decision.

The S&P/ASX 200 index climbed 1.1% to 7,028.50 by 2329 GMT. The benchmark ended 0.8% higher on Tuesday.

Investors would be keenly awaiting the outcome of the Fed’s monetary policy meeting due later in the day, where economists are widely expecting a 25-basis point interest rate hike, according to a Reuters Poll.

In Australia, minutes of the central bank’s last policy meeting on Tuesday suggested it was considering a rate pause in April, if the upcoming retail trade and inflation data provided evidence of cooling demand.

Financials jumped 2%, posting their biggest intraday gain since Jan. 4, with the ‘big four’ lenders rising between 1.7% and 1.8%.

Miners added 0.3%, with heavyweights BHP Group (BHP), Rio Tinto (RIO) and Fortescue Metals Group (FMG) advancing between 0.3% and 1.6%.

Energy stocks tracked oil prices higher to climb 3.4%, their biggest intraday jump since Oct. 20.

Shares of Santos (STO) and Woodside Energy (WDS) jumped 1.8% and 3.2%, respectively.

Tech stocks tracked their Wall Street peers higher to add 0.5%.

ASX-listed shares of Square Inc (SQ2) and Xero Ltd (XRO) jumped 4% and 1%, respectively.

Bucking the trend, local gold stocks plunged 4% and were headed for their worst day since Nov. 3, as bullion prices dropped.

Shares of Newcrest Mining (NCM) and Northern Star Resources (NST) slumped 3.3% and 5.2%, respectively.

Star Entertainment (SGR)fell 0.9%. The casino operator said David Foster would become chairman to replace Ben Heap who is being sued by the country’s corporate regulator, when he retires from the role on March 31.

The New Zealand benchmark S&P/NZX 50 index jumped 0.5% to 11,586.54.

(Reporting by Echha Jain in Bengaluru; Editing by Rashmi Aich)

Gold dips 2% as banking fears recede in run-up to Fed decision

March 21 (Reuters) – Gold dropped about 2% on Tuesday as Treasury yields jumped and easing worries over a banking crisis prompted some investors to cautiously return to riskier assets, while markets await the US Federal Reserve’s next interest rate decision.

Spot gold dipped 2.1% to USD 1,938.19 per ounce by 1:31 p.m. EDT (1731 GMT). US gold futures, too, fell 2.1% to settle at USD 1,941.10. The precious metal hit USD 2,009.59 on Monday, its highest since March 2022, but has since retreated.

“We’re seeing a little bit less risk aversion in the marketplace today… but mainly it’s just heavy profit-taking by the shorter-term futures traders after gold prices hit 12-month highs yesterday,” said Jim Wyckoff, senior analyst at Kitco Metals.

Risk assets, including equities and oil prices, rebounded after the rescue of Credit Suisse calmed nerves about a bigger banking crisis. That made gold, traditionally used a safe asset during financial instability, less attractive.

All eyes are on the Fed policy decision on Wednesday, with some top central bank watchers saying it could pause further rate hikes.

“The surprise to the marketplace would be if the Fed did nothing and that would be probably significantly bullish for the metals markets,” Wyckoff said.

Markets are pricing in an 13.6% chance the Fed will stand pat and an 86.4% likelihood of a 25-basis-point hike, according to the CME FedWatch tool. Higher rates reduce the appeal of non-yielding gold.

“We could see some marginal selling activity below the USD 1,950/oz mark but expect that the combination of strong physical demand and resurgent investor flows should keep (gold) prices from tumbling,” TD Securities said in a note.

Holdings of the largest gold-backed exchange traded fund New York’s SPDR Gold Trust have registered consecutive inflows.

In other metals, spot silver fell 1.2% to USD 22.25 per ounce, platinum dropped 2% to USD 968.73 and palladium slid 1.7% to USD 1,391.14.

(Reporting by Seher Dareen, Swati Verma and Bharat Govind Gautam in Bengaluru; Editing by Tomasz Janowski and Shilpi Majumdar)

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