Nervous eyes on China trade

June 7 (Reuters) – Chinese trade figures for May top the Asia-Pacific economic data and events calendar on Wednesday with investors keen to see whether April’s shock slump in imports is repeated, which will offer clues on the health – or otherwise – of domestic demand.

Markets may get a tailwind from Tuesday’s global session – Wall Street ended higher and volatility fell to a pre-pandemic low, although the crypto world was rocked after the US Securities and Exchange Commission filed a second major lawsuit in as many days against industry giants.

First-quarter GDP growth figures from Australia are also due on Wednesday, potentially giving the Aussie dollar and other local assets a nudge after the surprise interest rate hike from the country’s central bank on Tuesday.

Analysts polled by Reuters reckon the economy grew by 0.3% from the previous quarter, and by 2.4% compared with the same period a year ago. Both would mark a slower pace of growth from the fourth quarter of last year.

The Australian dollar could be in for a bout of profit-taking on Wednesday after rallying strongly on Tuesday, a fourth straight rise, following the RBA’s rate hike and signaling more to come.

That’s the Aussie’s longest winning streak in a month, and the currency is up almost 1% this week. It has not appreciated two weeks in a row since January.

Chinese trade data for May will be the main focus, especially imports, which have been sluggish for over a year. The scrapping of pandemic-era restrictions and lockdowns earlier this year was supposed to spur a surge in domestic demand, but that hasn’t happened.

The surprise 7.9% slump in imports in April was a major red flag that the economic re-opening was not going according to plan. It was one of the main catalysts for investors turning bearish on Chinese assets and the economy in recent weeks.

Economists polled by Reuters predict an 8.0% fall in imports for May and a 0.4% decline in exports.

The Chinese yuan slid to a new low for the year through 7.10 per dollar on Tuesday. Further signs of a struggling economy will likely keep the yuan on the defensive, even if the overall trade surplus is relatively large.

Overall, markets go into Wednesday in pretty fine fettle. The CBOE volatility index – the so-called Wall Street fear index – closed below 14.0 for the first time since February 2020.

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

– China trade balance (May)

– Australia GDP (Q1)

– FX reserves – China, Japan, Indonesia

(By Jamie McGeever)

US stocks end up as Fed, CPI loom large next week

June 6 (Reuters) – US stocks closed up on Tuesday, helped by some advances in economically sensitive sectors, as investors awaited inflation data and the Federal Reserve’s policy meeting next week.

Inflation data is expected to show consumer prices cooled slightly on a month-over-month basis in May but core prices are likely to have remained elevated, and the Fed is widely expected to hold interest rates.

Major indexes wavered as investors took a breather after pushing the S&P 500 up almost 20% from its October 2022 lows, boosted by gains in megacap stocks, a stronger-than-expected earnings season, and hopes that the US central bank is nearing the end of its interest rate-hike cycle.

The Dow Jones Industrial Average rose 10.42 points, or 0.03%, to 33,573.28, the S&P 500 gained 10.06 points, or 0.24%, to 4,283.85 and the Nasdaq Composite added 46.99 points, or 0.36%, to 13,276.42.

“It looks like investors are gaining a little optimism,” said Cresset Capital CIO Jack Ablin.

“The narrowness in the market where everyone was focused on the top seven names or so is starting to dissipate a little bit and that’s good news.”

Financials rose 1.33% to lead gains among the 11 major S&P 500 sectors, while the KBW regional banking index jumped 5.41%. The Russell 2000 index of small-cap companies added 2.69%.

Recent economic data and dovish remarks from Fed officials have raised the odds of the Fed holding interest rates at its June 13-14 meeting.

Fed fund futures indicate traders have priced in a near 80% chance that the central bank will hold interest rates in the 5%-5.25% range, according to CMEGroup’s Fedwatch tool. However, they see 50% odds of another 25-basis-point rate hike in July.

Coinbase Global (COIN) plunged 12.09% after the US Securities and Exchange Commission sued the crypto exchange, accusing it of illegally operating without having first registered with the regulator.

Apple Inc (AAPL) extended losses to slip 0.21%, a day after the iPhone maker unveiled a costly augmented-reality headset called the Vision Pro, barging into a market dominated by Meta (META).

Advanced Micro Devices (AMD) rose 5.34% after Piper Sandler raised the price target on the stock to USD 150, the second highest on Wall Street, as per Refinitiv data.

Advancing issues outnumbered declining ones on the NYSE by a 3.47-to-1 ratio; on Nasdaq, a 2.59-to-1 ratio favored advancers.

The S&P 500 posted 17 new 52-week highs and 5 new lows; the Nasdaq Composite recorded 98 new highs and 69 new lows.

(Reporting by Sruthi Shankar and Shristi Achar A in Bengaluru; Editing by Vinay Dwivedi and Deepa Babington)

Gold in wait-and-see mode as Fed rate path stays cloudy

June 6 (Reuters) – Gold prices traded in a tight range on Tuesday, as investors awaited more cues to assess the Federal Reserve’s interest rate path ahead of its policy meet next week.

Spot gold was up 0.1% at USD 1,964.27 per ounce by 1:49 EDT (1749 GMT).

US gold futures settled up 0.4% at USD 1,981.50.

The dollar index and benchmark 10-year Treasury yields ticked up, making dollar-priced, zero-yielding bullion less attractive.

“There’s nothing out there on the surface that says, gold should be positive … It’s a wait-and-see type of moment,” said Phillip Streible, chief market strategist at Blue Line Futures, in Chicago.

Investors now expect a 79% chance that the US central bank will hold interest rates at its June 13-14 policy meet, according to CME Group’s FedWatch tool, following 10 straight rate increases.

World shares edged higher as investors mulled whether a recent rally in stocks has legs to run further.

Gold was stabilizing in light of the jobs report on Friday and with an eye on the Fed policy-setting meeting next week, said Craig Erlam, senior market analyst at OANDA, adding that there was still uncertainty on the rate-hike path as the ISM data showed weakness across the board.

Traders will closely watch the Consumer Price Index data due on June 13, before the Fed’s rate decision.

“Next week is jam-packed with a ton of market-moving data … I am taking a more calculated risk approach,” Streible added.

The World Bank raised its 2023 global growth forecast as the US and other major economies have proven more resilient than forecast but said higher interest rates would cause a larger-than-expected drag next year.

In other metals, spot silver was little changed at USD 23.57 per ounce, platinum gained 0.2% to USD 1,032.80, while palladium eased 0.1% to USD 1,412.81.

(Reporting by Ashitha Shivaprasad and Deep Vakil in Bengaluru; Editing by Vinay Dwivedi, Aurora Ellis, and Shilpi Majumdar)

US interest rate swap market embraces new rate as LIBOR deadline nears

LONDON, June 6 (Reuters) – New trades in the enormous US dollar interest rate swap market have almost entirely stopped using the London Interbank Offered Rate (LIBOR) as the deadline for its demise approaches.

A record 91% of new dollar swaps executed in May used the Secured Overnight Financing Rate (SOFR), the newly accepted US benchmark, as their reference rate.

Just 5% of new swaps used LIBOR, down from 91% two years earlier, according to data from post-trade services provider OSTTRA, which has figures on around 85% of dollar trades.

Investors and companies use interest rate swaps to hedge against risks and to bet on the direction of rates. The Bank for International Settlements estimated that turnover in the US market was about USD 2 trillion a day in 2022.

LIBOR will cease to exist in the coming months after a years-long push by regulators to move away from a rate that bank traders were caught manipulating. It was once used in pricing everything from derivatives to student loans.

Dollar LIBOR quotes will end on June 30, although regulators have said a “synthetic” rate will continue for a period.

SOFR is calculated by the Federal Reserve and is based on the cost of borrowing cash overnight in US repurchase markets.

It was used as the benchmark rate for 53% of the notional amount of US dollar interest rate swaps traded in May, OSTTRA’s data showed.

LIBOR had a 4% share, down from 67% two years earlier, while the Fed funds rate had a 43% share.

The two main derivatives clearing houses, the CME Group and LCH, have been converting US dollar LIBOR swaps into cleared SOFR swaps this year, with the process due to finish in July.

Many existing issues across financial markets are still linked to LIBOR, however. In February, around 80% of institutional loans and collateralized debt obligations were still tied to the tarnished rate, according to private equity firm KKR.

(Reporting by Harry Robertson; Editing by Christina Fincher)

Oil prices ease as economic fears overshadow Saudi output cut

NEW YORK, June 6 (Reuters) – Oil prices eased about 1% on Tuesday as worries that sluggish global economic growth could reduce energy demand outweighed Saudi Arabia’s pledge to deepen output cuts.

Brent futures fell 42 cents, or 0.6%, to settle at USD 76.29 a barrel, while US West Texas Intermediate (WTI) crude fell 41 cents, or 0.6%, to settle at USD 71.74.

Prices rose on Monday after Saudi Arabia said over the weekend it would cut output to around 9 million barrels per day (bpd) in July from about 10 million bpd in May.

Saudi Arabia, the world’s top oil exporter, also unexpectedly increased the official selling price
of its crude to Asian buyers.

However, the Saudi supply cut is unlikely to achieve a “sustainable price increase” into the high USD 80s and low USD 90s due to weaker demand, stronger non-OPEC supply, slower economic growth in China, and potential recessions in the US and Europe, Citi analysts said in a note.

The US dollar rose to its highest level against a basket of currencies since hitting a 10-week high on May 31 as investors waited on fresh signals on whether the US Federal Reserve will raise or hold interest rates in June.

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

One of those signals came from the US services sector, which barely grew in May as new orders slowed.

“Crude prices are heavy as global growth concerns continue to suggest a much weaker crude demand outlook,” said Edward Moya, senior market analyst at data and analytics firm OANDA.

The mood was further dented by data showing German industrial orders fell unexpectedly in April.

The World Bank, however, raised its 2023 global growth outlook as the US, China, and other major economies have proven more resilient than forecast, but said higher interest rates and tighter credit will take a bigger toll on next year’s results.

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

The market is awaiting data from the US and China that could provide fresh demand indications in the world’s two biggest oil consumers.

China, the second-biggest oil consumer, will release its May trade data on Wednesday.

The Energy Information Administration (EIA) projected US crude output will rise from 11.9 million bpd in 2022 to 12.6 million bpd in 2023 and 12.8 million bpd in 2024, That compares with a record 12.3 million bpd in 2019.

EIA also projected US petroleum demand would rise from 20.3 million bpd in 2022 to 20.4 million bpd in 2023 and 20.7 million bpd in 2024. That compares with a record 20.8 million bpd in 2005, according to EIA data going back to 1973.

The market is also waiting for US oil inventory data from the American Petroleum Institute (API), an industry group, at 4:30 p.m. EDT on Tuesday and the EIA at 10:30 a.m. EDT on Wednesday.

Analysts forecast US energy firms added about 1.0 million barrels of crude into storage during the week ended June 2, according to a Reuters poll.

That would be the second weekly increase in crude stocks in a row and compares with a rise of 2.0 million barrels in the same week last year and a five-year (2018-2022) average increase of 2.3 million barrels.

(Reporting by Scott DiSavino in New York; Additional reporting by Rowena Edwards in London, Arathy Somasekhar in Houston, and Trixie Yap in Singapore; Editing by David Goodman, Matthew Lewis, Chizu Nomiyama and Richard Chang)

Gold trades in narrow range as markets hunt for rate cues

June 6 (Reuters) – Gold prices traded in a narrow range on Tuesday as investors sought more clarity around the US Federal Reserve’s policy outlook, while a softer dollar kept a floor under prices.

Spot gold held steady at USD 1,960.39 per ounce by 0639 GMT, while US gold futures rose 0.1% to USD 1,976.10.

The dollar index eased 0.2%, making bullion less expensive for investors holding other currencies.

“The Fed’s data-dependent stance will mean that rate expectations may continue to see huge swings due to its higher sensitivity to incoming economic data, with a key look-ahead being the US May CPI report next week,” IG market analyst Yeap Jun Rong said.

A survey from the Institute for Supply Management showed the US services sector barely grew in May as new orders slowed, pushing a measure of prices paid by businesses for inputs to a three-year low, which could aid the Fed’s fight against inflation.

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

“(But) the constantly-shifting narrative around how high the terminal rate will have to be and the timeline for rate cuts could challenge gold prices’ upside for now, until greater clarity is being presented on that front,” Jun Rong said.

Traders have priced in a 74.2% chance that the Fed will hold interest rates at its June 13-14 policy meeting, according to CME Group’s FedWatch tool.

Reuters technical analyst Wang Tao said spot gold may retest a support at USD 1,938 per ounce, as the bounce triggered by this level seems to be ending around a resistance at USD 1,964.

Spot silver fell 0.1% to USD 23.556 per ounce, platinum was flat at USD 1,029.88. Palladium rose 0.4% to USD 1,418.9.

Sentiment among gold investors in the short term is negative, said Michael Langford, director at corporate advisory firm AirGuide.

(Reporting by Arundhati Sarkar in Bengaluru; Editing by Rashmi Aich and Sherry Jacob-Phillips)

US recap: EUR/USD recovers some payrolls losses on weak ISM services

June 5 (Reuters) – The dollar index fell 0.1%, shedding early follow-on gains from Friday’s robust payrolls report after ISM services data showed roughly 80% of the US economy struggled to avoid outright contraction, with the manufacturing sector already repeatedly signaling recession.

Treasury yields and the dollar traded earlier gains for losses as traders took note of the ISM’s employment index slide to 49.2 from 50.8, new orders retreat to 52.9 from 56.1 and prices paid at 56.2 from 59.6 and its lowest since May 2020.

The bigger concern is that the overall index at 50.3 leaves almost no margin of error before seconding the recessionary message from seven straight months of well below 50 manufacturing index readings, the worst streak since the global financial crisis.

Monday’s disinflationary data lent credence to Fed guidance last week that the board might skip a rate hike this month, at least interrupting the series of tightening moves since last March.

Friday’s payrolls beat, by 242k net of revisions, had made a skip seem somewhat premature, as did the surge in April job openings. But the unexpected 0.3% rise in May’s jobless rate, 310k rise in unemployment in the household survey and dips in average hourly earnings and hours worked kept the market pricing in a June skip, followed by most of a 25bp hike in July before rate cuts set in.

Those expectations haven’t changed much since the ISM services missed, but there’s now less willingness to forge ahead with new Q3 Treasury yield and dollar highs before next week’s CPI and Fed events.

EUR/USD finishing about flat, despite the ECB saying more hikes are coming.

Sterling recovered from 1.2370 to 1.2443 on the ISM news, losing 0.18%.

USD/JPY lost 0.25%, well off its 140.45 high and shy of 2023’s 140.93 peak.

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

Gold rebounds after US services slowdown boosts Fed pause bets

June 5 (Reuters) – Gold rebounded on Monday after weaker US services sector growth reinforced bets for the Federal Reserve to stand pat on interest rates next week.

Spot gold gained 0.6% to USD 1,958.89 per ounce by 1:40 p.m. EDT (1740 GMT), erasing losses from earlier in the session, when it touched its lowest since May 30.

US gold futures settled up 0.2% at USD 1,974.30.

The US services sector barely grew in May as new orders slowed, with the Institute for Supply Management’s non-manufacturing index falling to 50.3 last month from 51.9 in April and missing expectations for an uptick to 52.2.

“The market is really taking it in as a reason to pencil out some rate hikes here … It’s certainly something that the Fed is pleased to see with respect to its fight against inflation,” said Daniel Ghali, commodity strategist at TD Securities.

The index is seen by some economists as an indicator of the Fed’s favored inflation gauge, as services prices tend to be stickier and less responsive to rate hikes.

The dollar index slipped after the data, making greenback-priced bullion more affordable for overseas buyers, while 10-year Treasury yields retreated.

Traders pegged the chances of the Fed pausing its interest rate hikes at its June 13-14 meeting at 78%, according to the CME FedWatch Tool.

Non-interest-bearing bullion becomes less attractive for investors in a high-interest rate environment.

However, “gold may be looking overpriced despite a recent decline owing to sticky inflation and the likelihood that the Fed will not meaningfully cut interest rates in 2023,” Heraeus Precious Metals said in a note.

Gold dropped over 1% on Friday after data showed the US economy added 339,000 jobs last month, above estimates of 190,000.

Silver dipped 0.2% to USD 23.54, platinum rose 2.6% to USD 1,029.92, while palladium fell 0.4% to USD 1,414.21.

(Reporting by Deep Vakil in Bengaluru; editing by David Evans, Marguerita Choy and Shilpi Majumdar)

Global equity funds suffer seventh straight week of outflows

June 5 (Reuters) – Global equity funds saw a seventh straight week of outflows in the seven days to May 31 on global economic slowdown concerns after weaker readings from China and major European countries.

Investors disposed of a net USD 4.55 billion of global equity funds during the week, Refinitiv Lipper data showed, compared with a weekly withdrawal of about USD 3.54 billion a week ago.

Data showing a recession in Germany in the first quarter and contracting factory activity in China in May hit appetite for risk assets. European shares were hit hard as the pan-European STOXX 600 index dropped to a two-month low last week.

European equity funds saw USD 3.4 billion worth of net selling, while Asian funds had withdrawals of USD 820 million with China losing a net USD 425 million in a third straight week of outflows.

Meanwhile, US equity drew USD 1.22 billion in net purchases, marking their first weekly inflow in 10 weeks.

By sector, investors sold global consumer discretionary, healthcare and financial sector funds of USD 727 million, USD 451 million and USD 418 million respectively. Technology had inflows of USD 1.08 billion in a fourth straight week of net buying.

Meanwhile, government bond funds and money market funds received USD 2.37 billion and USD 16.61 billion worth of inflows respectively, amid the risk-averse tone in the markets.

During the week, combined inflows into global bond funds were a net USD 4.04 billion in an eleventh straight week of net purchases.

Among commodity funds, energy funds received USD 143 million in their first weekly inflow in three weeks, but precious metal funds saw USD 226 million worth of outflows during the week.

Data for 23,954 emerging market funds showed investors sold a net USD 454 million worth of equity funds, while withdrawing USD 355 million from bond funds in a sixth successive week of net selling.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Alexander Smith)

JPMorgan flags some signs of emerging de-dollarisation

LONDON, June 5 (Reuters) – Signs of de-dollarisation are unfolding in the global economy, strategists at the biggest US bank JPMorgan said on Monday, although the currency should maintain its long-held dominance for the foreseeable future.

The strains of steep US interest rate rises and sanctions that have frozen Russia out of the global banking system have seen a fresh push by the “BRICS” nations, Brazil, Russia, India, China, and South Africa, to challenge the dollar’s hegemony.

JPMorgan strategists Meera Chandan and Octavia Popescu said that while overall dollar usage is within its historical range and the greenback remains at the top of the pack, a closer look shows a more bifurcated picture.

Their assessment on the dollar is the most high profile by any large US bank so far, although heavyweight money managers such as Goldman Sachs Asset Management have aired similar views.

While the greenback’s share of FX trading volumes remains just shy of record highs at 88% and its use in trade invoicing has not changed much over the last couple of decades, other areas have seen an erosion.

In the FX reserves held by central banks around the world, for example, its share has declined to a record low of 58%.

Although that is still by far the largest share of any global currency, it drops further when accounting for gold, which now comprises 15% of reserves versus 11% five years ago.

“Some signs of de-dollarization are emerging,” JPMorgan’s analysts said, adding the trend was likely to persist even as the dollar maintains its “large footprint”.

Efforts by BRICS countries and other major commodity exporters to loosen the dollar’s stranglehold on global commerce have ramped up since the start of the war in Ukraine, which saw the US freeze a large chunk of Russia’s foreign reserves.

Since then, Saudi Arabia and China have begun talks to settle Chinese oil sales with the yuan, Brazil and China have announced the phase-in of a yuan clearing arrangement for some trade between the two countries while China and Russia are also now doing a significant portion of their trade in yuan.

China’s yuan now accounts for a record but still, small 7% of FX trading volume, while the euro’s slice has shrunk 8 percentage points over the last decade of ultra-low interest rates to 31%.

Trade invoicing has not seen much change, with the dollar and euro maintaining a steady 40-50% share over recent decades, although the US share of global exports is now estimated at a record low 9% compared to a record high 13% for China.

Progress in internationalizing the yuan has been limited, meanwhile, JPMorgan added and is unlikely to change much given the country’s capital controls.

The “CNY” is 2.3% of SWIFT payments, JPMorgan’s analysts said, versus 43% for the dollar and 32% for the euro.

(Reporting by Amanda Cooper; Editing by Karin Strohecker, Ed Osmond and Alexander Smith)

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