Wall Street watchdog shortens time-frame for stock trades, proposes new investment adviser rules

Feb 15 (Reuters) – Wall Street’s top regulator on Wednesday adopted rules tightening the timeframe for stock trades in an effort to tamp down the kind of risk seen in 2021’s GameStop fiasco, when retail investors suffered heavy losses.

The US Securities and Exchange Commission (SEC) also proposed changing rules protecting client assets held by investment managers, a move that could hinder cryptocurrency platforms from serving a key marketplace role.

In a 3-2 vote, the SEC opted to shorten the time between when a securities order is placed and when a trade concludes -something officials say can lessen the kind of “systemic risk” spotlighted in early 2021 when the share price of the consumer electronics retailer GameStop Corp. (GME) plummeted amid intense market volatility.

Trade groups have broadly welcomed the commission’s proposal to cut the so-called settlement cycle to a single business day from two, six years after an earlier SEC rule shortened the period from three days.

But some have complained the commission isn’t leaving enough time for them to adjust before the rule takes effect in May 2024. Republican Commissioners Hester Peirce and Mark Uyeda voted against the rule for this reason.

The longer a trade remains unsettled, the more likely a buyer or seller may default — by refusing to pay or to hand over shares sold.

Clearing houses can require trading platforms to offset such risks with margin deposits, costs that can skyrocket during volatility and market stress. High margin deposits caused trading platforms such as Robinhood Markets to block purchases of GameStop’s shares in early 2021. The price then plummeted.

A shorter settlement cycle should see fewer defaults, helping cut margin costs and reducing the chances of such a scenario recurring, according to the SEC.

SEC TAKES AIM AT CRYPTO ‘CUSTODIANS’

In a 4-1 vote, the commission proposed new requirements for investment advisers, who can only maintain custody of client funds or securities if they meet requirements to protect the assets.

The SEC’s draft proposal would expand these requirements to any client assets, including real estate, loan participations and digital assets not currently deemed funds or securities.

Advisers need to hold investors’ assets with a firm deemed to be a “qualified custodian.” SEC enforcement staff have been probing registered investment advisors over whether they are meeting those existing rules when it comes to clients’ digital assets, Reuters has previously reported.

Among other things, Wednesday’s proposal would require crypto firms to guarantee in writing that client assets held on behalf of hedge funds and others will be protected against loss and bankruptcy.

“Make no mistake. Based upon how crypto platforms generally operate, investment advisers cannot rely on them as qualified custodians,” SEC chair Gary Gensler said in a statement about the proposal.

By explicitly saying the legally compliant custody of digital assets was unlikely, the proposal could hinder such investments, Republican members of the commission said.

“How could an adviser seeking to comply with this rule possibly invest client funds in crypto assets after reading this release?” Commissioner Mark Uyeda said in prepared remarks.

However, Gensler told reporters on Wednesday the solution was simply for trading platforms to observe rules that have been in effect since 2009.

“I continue to encourage the platforms to come in and properly come into compliance,” he said, noting that investors lost improperly safeguarded assets in recent crypto bankruptcies such as that of FTX, which collapsed in November.

However, Miller Whitehouse-Levine, policy director at DeFi Education Fund, described Gensler’s position as an attempt to cut off digital assets from the traditional financial system.

“This should end any doubt that ‘come in and register’ is a fig leaf for the SEC usurping Congress to block crypto in the US,” he said.

(Reporting by Douglas Gillison, Chris Prentice and Hannah Lang; Editing by Megan Davies, Bradley Perrett and Nick Zieminski)

Gold drops to over 1-month low as rate-hike bets fuel dollar

Feb 15 (Reuters) – Gold prices dropped to their lowest in over a month on Wednesday, weighed down by a stronger dollar as better-than-expected US economic data raised worries the Federal Reserve could hike interest rates further.

Spot gold fell 1% to USD 1,835.39 per ounce by 2:53 p.m. ET (1953 GMT). US gold futures settled 1.1% lower at USD 1,845.30.

US retail sales rose 3% in January over the previous month, highlighting economic resilience despite higher borrowing costs.

Higher retail sales were “another indication that if the Fed wants to cool inflation, they’re going to have to raise interest rates to choke off some of this demand,” said Jim Wyckoff, senior analyst at Kitco Metals.

This comes after data on Tuesday showed the US consumer price index had increased year-on-year by 6.4%. That was down from 6.5% in December, but above the 6.2% estimated by economists.

Following the US data, the dollar index rose to an over one-month high, making gold more expensive for buyers using other currencies.

“In case of a re-acceleration of inflation and a return to more rapid interest rate increases, gold and silver would suffer,” said Carsten Menke, head of Next Generation Research at Julius Baer.

“In contrast, gold and silver would benefit if the Fed started to reduce interest rates due to strengthening signs of recession.”

Also weighing on gold, Fed officials said earlier this week the US central bank will need to keep raising interest rates gradually.

The yellow metal is considered an inflation hedge, yet rising interest rates increase the opportunity cost of holding the non-yielding asset.

Markets are now pricing a peak above 5.2% and traders are becoming less sure that cuts are coming in 2023. Rates currently stand at 4.5% to 4.75%.

Spot silver dropped 1% to USD 21.63 per ounce, platinum was down 1.8% to USD 914.34, and palladium fell 2.1% to USD 1,465.80.

(Reporting by Seher Dareen and additional reporting by Bharat Govind Gautam in Bengaluru; Editing by Anil D’Silva and Krishna Chandra Eluri)

Oil little changed as market discounts big US crude storage build

NEW YORK, Feb 15 (Reuters) – Oil futures were flat to lower on Wednesday as the US dollar strengthened and investors worried that rising interest rates would slow the economy and cut fuel demand.

Oil’s losses were limited as the market discounted a big build in US crude stocks due to a data adjustment and as the International Energy Agency (IEA) forecast higher global oil demand growth.

Brent futures slid 20 cents, or 0.2%, to USD 85.38 a barrel, while US West Texas Intermediate (WTI) crude fell 47 cents, or 0.6%, to USD 78.59.

The US dollar rose to a near six-week high against a currency basket on strong US retail sales data last month and recent US inflation data, suggesting the Federal Reserve (Fed) will keep monetary policy tight.

“Crude prices are under pressure as the dollar rallies following impressive economic data that paves the way for more Fed tightening,” said Edward Moya, senior market analyst at data and analytics firm OANDA.

A stronger dollar can cut oil demand, making crude more expensive for holders of other currencies.

Federal Reserve officials said the US central bank will need to maintain gradual interest rate increases to fight inflation. Investors worry higher rates could slow the economy.

US crude stockpiles jumped by 16.3 million barrels last week to 471.4 million barrels, their highest since June 2021, the US Energy Information Administration (EIA) said.

That was much bigger than the 1.2-million-barrel increase analysts forecast in a Reuters poll. But analysts said an unusually large crude oil supply adjustment contributed to the outsized build.

“Once everyone realized the adjustment threw off the EIA data, scepticism about the big (crude storage) build crept into the market,” said John Kilduff, a partner at investment advisory Again Capital LLC in New York. “It’s a one-off.”

The IEA raised its forecast for 2023 oil demand growth and said there could be a supply deficit in the second half due to restrained production from OPEC+, the Organization of the Petroleum Exporting Countries (OPEC) and other oil suppliers including Russia.

The IEA said China will make up nearly half of this year’s oil demand growth after it relaxed its COVID-19 curbs, and said about 1 million bpd of production from Russia will be shut in by the end of the first quarter, citing a European ban on seaborne imports and a Group of Seven (G7) price cap.

The G7 group of wealthy countries includes Canada, France, Germany, Italy, Japan, Britain, and the United States.

On Tuesday, OPEC also raised its projection for global oil demand growth and pointed to a tighter market in 2023.

(Additional reporting by Alex Lawler in London, Laila Kearney in New York and Muyu Xu in Singapore; Editing by Marguerita Choy, Mike Harrison and David Gregorio)

Sticky inflation, weak earnings could hobble US stock surge

NEW YORK, Feb 14 (Reuters) – A rally that has lifted stocks in the early weeks of 2023 may struggle to find its next leg higher as investors face more expensive valuations, a weak earnings outlook, and an uncertain economic backdrop.

Tuesday’s closely watched inflation report on US consumer prices showed the smallest annual price increase since late 2021. But the data did little to dispel expectations that the Federal Reserve will have to continue raising rates higher and keep them elevated for longer to drive inflation lower.

Meanwhile, companies in recent weeks have reported tepid fourth-quarter earnings and analysts’ profit outlooks have grown more pessimistic, while stock valuations are at their highest level in about six months.

“What this means is that we are probably going to be a little bit more choppy at this level,” said Shawn Cruz, head trading strategist at TD Ameritrade in Chicago, Illinois. “I don’t see this being the kind of report that we can get a strong rally off of.”

After initially rising on Tuesday, the S&P 500 was last down 0.5% on the day. Through Monday, the benchmark index had climbed 7.8% in 2023, after last year posting its biggest annual percentage drop since 2008.

The CPI data continues the trend of moderating annual inflation rates that have helped propel this year’s rally in risk assets. However, a stunningly strong jobs report earlier this month has fueled expectations that the Fed will need to raise interest rates higher than expected to rein in inflation in a still-humming economy.

The latest inflation number did not alter that outlook. Futures markets on Tuesday afternoon were pricing in rates rising to a peak of 5.3% in July and inching lower to 5% in December, a steeper trajectory than traders had projected at the beginning of the year. Both rates were slightly above where they stood prior to the CPI report.

The Fed has raised its policy rate by 450 basis points since last March from near zero to a 4.50%-4.75% range.

Treasury yields, which move inversely to prices, were higher after the data, with the yield on the 10-year US Treasury note last at 3.78%, continuing a move that has seen them rebound after falling to start the year. Higher yields on Treasuries, which are seen as among the market’s safest investments, can make stocks less appealing while also reducing the allure of equities in certain valuation models.

The market “continues to be incredibly sensitive to any data that will suggest that the Fed will have to either raise rates more or keep them higher for longer,” said Michael Arone, chief investment strategist at State Street Global Advisors.

At the same time, the S&P 500’s forward price-to-earnings ratio has climbed to 18.3 times, from about 17 times to start the year, according to Refinitiv Datastream. With fourth-quarter 2022 earnings estimated to have fallen from a year ago, analysts now forecast S&P 500 earnings falling 3.7% year-over-year in the first quarter of 2023 and 3.1% in the second quarter.

“I don’t see how you can get inflation back to target without a recession, and that means equities will be disappointed either on inflation or on earnings,” said Tim Drayson, head of economics at Legal & General Investment Management.

Some have also expressed concern about investor positioning, which has grown stretched in recent weeks as market participants piled into the stock rally.

One measure of equity positioning tracked by Deutsche Bank has bounced back to its highest point in about a year, from historically low levels in 2022.

“With investor positioning now more balanced, markets are more likely to be impacted by any bad economic news,” UBS Global Wealth Management said in a note on Tuesday.

Still, not all signs were negative for stocks. Fund managers’ cash levels remained above 5%, according to BofA Global Research’s monthly survey released Tuesday. Those levels have edged lower but remain near historic highs, an indicator the bank’s strategists say is positive for stocks.

Some investors are also becoming more optimistic that the economy can avoid a recession. Goldman Sachs economists last week lowered their probability of a recession over the next twelve months from 35% to 25% following strong economic data.

Michael Farr, of Farr, Miller and Washington, said he would be a buyer of individual stocks if they met his criteria, “but certainly wouldn’t be a buyer of the stock market.”

“The risk is higher and the potential reward is much lower right now,” Farr said.

(Reporting by Lewis Krauskopf; Additional reporting by Naomi Rovnick in London; Editing by Ira Iosebashvili and Nick Zieminski)

Gold cedes gains on hawkish Fed; palladium sinks to near 4-year low

Feb 14 (Reuters) – Gold prices gave up gains accrued due to dollar weakness on Tuesday to end the session nearly unchanged as US Federal Reserve officials remained hawkish on rate hikes, while demand concerns sent auto-catalyst palladium sliding to its weakest since August 2019.

Spot gold was nearly flat at USD 1,852.94 per ounce by 2:33 p.m. ET (1933 GMT). US gold futures gained 0.1% to settle at USD 1,851.80.

Data showed US CPI rose 6.4% in the 12 months through January – the smallest gain since October 2021. Last month, CPI increased 0.5%, also in line with expectations.

Gold rose by as much as 0.8% on Tuesday after the dollar fell to a near two-week low, but the currency recovered, making gold more expensive for overseas buyers.

It is still a concern the Fed might feel the need to be more aggressive in hiking rates and fighting inflationary pressures, which will weigh on gold, said David Meger, director of metals trading at High Ridge Futures.

After the CPI data, Richmond Fed President Thomas Barkin and Dallas Federal Reserve President Lorie Logan both said the central bank would need to focus on bringing inflation down to the 2% target.

The Fed is expected to raise its policy rate at least twice more to the 5%-5.25% range, with financial markets retaining about even odds for a further quarter-point hike in the summer.

Bullion is highly sensitive to rising US interest rates, which increase the opportunity cost of holding the zero-yield asset.

Benchmark 10-year Treasury yields rose, weighing on gold.

Palladium dropped 4.2% to USD 1,500.18 per ounce, after earlier touching USD 1,468.94, its lowest since late-August 2019.

“As palladium is being increasingly substituted by platinum and the number of electric cars is growing, less palladium is likely to be needed to produce the new vehicles,” Commerzbank analysts wrote in a note.

Spot silver fell 0.6% to USD 21.84, and platinum slipped 2.3% to USD 931.61.

(Reporting by Seher Dareen and additonal reporting by Bharat Govind Gautam in Bengaluru; Editing by Barbara Lewis and Krishna Chandra Eluri)

Asia hedge funds post strongest month in January since 2016 – Goldman

HONG KONG, Feb 14 (Reuters) – After seeing record outflows in 2022, Asia-focused hedge funds posted a 5.3% gain in a January rally to mark their best monthly performance in years, bolstered mainly by a rebound in Chinese share prices, Goldman Sachs said in a note.

The funds’ performance in January, the strongest in Goldman Sachs records going back to 2016, comes as China’s economy reopens after years of COVID-19 curbs and US interest rates appear to be close to a peak.

MSCI’s Asia Pacific stocks index soared 7.8% last month, outperforming the rest of the world.

For hedge funds, the best gains in January had come from a strategy of taking long and short positions in Chinese shares based on company fundamentals, Goldman Sachs said. The strategy returned 7.7% in January. Taking the same approach to Japanese shares yielded 2.6%.

A separate gauge by Eurekahedge also showed Asian hedge funds rallied for the third consecutive month in January, with a 4.8% rise.

Asia-focused hedge funds dropped an average 8% last year, with a net outflow of USD 7.7 billion from Asia ex-Japan funds, according to Eurekahedge data from With Intelligence. Including Japan, the outflow was USD 8.5 billion.

Don Steinbrugge, founder and chief executive of Agecroft Partners, a hedge fund consulting firm based in New York, said Asia-focused hedge funds were significantly under-represented in most global investors’ portfolios. The under exposure had increased over the past years as investors had shifted assets out of Asia and into North America and Europe, Steinbrugge said.

Investors’ interest in Asia and China this year should increase due to a weakening of the US dollar and more attractive valuations of regional stocks relative to the US markets, he said.

“European and US investors view China’s change in COVID policy as positive,” he said, referring to the abandonment of pandemic controls in late 2022. But “some investors want to wait and see a stabilization of the real estate market.”

The Asia macro strategy – betting on macroeconomic and political trends – returned 6%, while Asia equity long/short gained 5% and Asia credit long/short gained 4%. The Asia multi-strategy lost 1% in January, Feb. 14 Eurekahedge data shows.

Steinbrugge expects macro strategies that have a lower correlation to market, to continue to gain momentum based on their strong performance last year, while a significant amount of assets in the equity long/short strategies could move to Asia or China.

(Reporting by Summer Zhen; Editing by Vidya Ranganathan and Bradley Perrett)

Oil settles down 1%, then drops more on hint of big US crude build

BENGALURU, Feb 14 (Reuters) – Oil prices settled 1% lower on Tuesday as traders worried about mounting supplies, and prices extended losses in post-settlement trading after sources said data from the American Petroleum Institute showed a large build in US crude oil and distillate inventories.

Sources said the industry group reported a crude oil build of 10.5 million barrels in the week ended Feb. 10.

The US Department of Energy (DOE) said on Monday that it would sell 26 million barrels of oil from the SPR, which is already at its lowest level since 1983.

Brent futures for April delivery fell USD 1.03, or 1.2%, to USD 85.58 a barrel by 1:05 p.m. EST (1805 GMT). US West Texas Intermediate crude futures for March fell by USD 1.08, or 1.4%, to USD 79.06 a barrel.

WTI futures slid by another 22 cents to USD 78.84 a barrel in post-settlement trading. Brent futures fell by 32 cents to USD 85.26 a barrel.

Official inventory figures from the Energy Information Administration are due on Wednesday. If the data shows a build in crude oil inventories, it will be the eighth straight week of rising US stocks.

Both benchmarks had sunk more than USD 2 during the session, but pared losses after data showed the slowest pace of acceleration in the U.S consumer price index since late 2021. Analysts said the data would likely keep the Federal Reserve on a moderate interest rate hiking path.

“Interest rates are now at a point where every 25 basis points matter and could be the difference between a soft landing and a recession,” OANDA analyst Craig Erlam said in a note.

Oil prices also pared losses after the Organization of the Petroleum Exporting Countries raised its 2023 oil demand forecast by 100,000 barrels per day in a monthly report, citing the reopening of the Chinese economy after COVID restrictions.

“OPEC’s monthly oil market report yielded some cautious optimism,” said Kpler analyst Matt Smith. He added that oil prices remained lower as the markets entered a risk-off sentiment

(Reporting by Shariq Khan; Additional reporting by Shadia Nasralla and Sudarshan Varadhan
Editing by Marguerita Choy, David Goodman and David Gregorio)

US backs Philippines in laser dispute with China

Feb 13 (Reuters) – The United States on Monday said it stood with the Philippines after Manila accused China’s coast guard of using a laser to try to disrupt a resupply mission to troops in the South China Sea.

“The United States stands with our Philippine allies in the face of the People’s Republic of China (PRC) Coast Guard’s reported use of laser devices against the crew of a Philippine Coast Guard ship on February 6 in the South China Sea,” State Department spokesperson Ned Price said in a statement.

China’s foreign ministry said its coast guard conducted actions according to the law.

(Reporting by Costas Pitas in Los Angeles; Editing by Sandra Maler)

China, US to participate in first meeting of new debt roundtable on Feb. 17

WASHINGTON, Feb 13 (Reuters) – Officials from China, India, Saudi Arabia and Group of Seven nations will participate in a first virtual meeting of a new sovereign debt roundtable on Friday, the International Monetary Fund said on Monday, confirming an earlier Reuters report.

The roundtable will also include officials from countries that have requested debt treatments under the Group of 20 common framework – Ethiopia, Zambia and Ghana – as well as middle-income countries such as Sri Lanka, Suriname and Ecuador, which have faced their own debt crises, three sources had earlier said.

The meeting will be co-chaired by the IMF, the World Bank and India, the current leader of the Group of 20, and comes a week before G20 finance officials are due to gather in Bengaluru, India, from Feb. 23-25. An in-person meeting of the roundtable expected on Feb. 25 and a formal launch is planned at the IMF-World Bank spring meetings in April.

Brazil, which will lead the G20 next year, is also taking part, one of the sources said.

An IMF spokesperson confirmed the first roundtable meeting would take place on Friday, and said more details would be released in the near future.

“The objective is to bring together key stakeholders involved in sovereign debt restructuring, from traditional creditors from advanced economies, to new creditors like China, Saudi Arabia, India, as well as the private sector and debt countries to address the current shortcomings,” they said.

The roundtable will include the Paris Club of official creditors and private sector participants – the Institute of International Finance (IIF), the International Capital Markets Association and two private-sector financial institutions that have asked not to be identified, one of the sources said.

Creation of the body comes amid growing frustration about the slow pace of discussions on debt relief for Zambia, which first requested help two years ago. Organizers say the roundtable could help resolve issues in principle and will not focus on Zambia or other individual cases.

Officials hope to resolve China’s concerns about cutoff dates to protect new financing from debt restructuring by the end of the year, one of the sources said.

G7, International Monetary Fund and World Bank officials have long pushed for faster and broader efforts to deliver debt relief to heavily indebted nations to avoid cuts in social services that they fear could tip off social unrest.

U.S. Treasury Secretary Janet Yellen and other G7 officials see China, now the world’s largest sovereign creditor, as the main stumbling block for quicker work on debt treatments. They are also pushing for agreement by G20 members on expanding the common framework to include middle-income countries.

Eric LeCompte, executive director of the Jubilee USA Network, a coalition of religious, development and advocacy groups, said support for the matter was growing among other countries. But China’s opposition – and that of Russia – remained significant a “stumbling block,” he said.

“The majority of countries support expanding these policies to middle-income countries, but China is the biggest challenge,” LeCompte said, adding that Europe had gone through a similar period of reluctance on debt relief in the 1990s, but eventually came around.

Also on the agenda will be China’s repeated calls for World Bank and other multilateral development banks to participate in debt reductions – a proposal firmly rejected by U.S. officials, who argue that those lenders already offer highly concessional loans and grants to countries in crisis.

(Reporting by Andrea Shalal in Washington; editing by Karin Strohecker, Chizu Nomiyama, Leslie Adler and Lincoln Feast.)

Gold prices slip as US inflation test looms

Feb 13 (Reuters) – Gold prices dipped on Monday as investors braced for much awaited US January consumer price index data that could steer the Federal Reserve’s rate-hike strategy.

Spot gold fell 0.5% to USD 1,854.79 per ounce by 1:42 p.m. ET (1842 GMT), while US gold futures settled 0.6% lower at USD 1,863.50.

Gold was “a little lower heading into tomorrow morning’s (CPI) number,” said Bob Haberkorn, senior market strategist at RJO Futures.

All eyes are on US CPI data due at 8:30 a.m. ET on Tuesday, expected to have climbed 0.4% in January. Revisions to the previous data showed consumer prices rose in December instead of falling as previously estimated.

Inflation numbers could come in a little less than what’s expected, if not in line with them, while a miss in expectations could lead to a buying opportunity for gold, highlighted Haberkron.

Markets have raised the profile for future tightening by the Fed, with rates seen peaking at around 5.15% and with cuts coming later and slower.

Fed Governor Michelle Bowman said the Fed will need to continue to raise interest rates in order to get them to a level high enough to bring inflation back down.

Gold is highly sensitive to rising US interest rates, as they increase the opportunity cost of holding non-yielding bullion.

However, the dollar index was 0.3% lower, while benchmark 10-year Treasury yields were down after they hit their highest level since early January earlier in the session, reducing the pressure on gold prices.

Spot silver fell 0.4% to USD 21.91 per ounce, platinum gained 1% to USD 954.32.

Palladium rose 1.8% to USD 1,569.53 after falling to a near three-year low earlier in the session.

“Given the downside risk to autocatalyst demand from potential recessions, the palladium price could continue lower,” said Heraeus analysts in a note.

(Reporting by Seher Dareen and additional reporting by Bharat Govind Gautam in Bengaluru; Editing by David Holmes and Shailesh Kuber)

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