Gold set for first weekly rise in five on dollar weakness

March 3 (Reuters) – Gold prices climbed to a two-week high on Friday and were heading for their first weekly rise in five as a pullback in the US dollar and Treasury yields offered some respite from prospects of more rate hikes from the Federal Reserve.

Spot gold was up 0.8% at USD 1,850 per ounce by 02:28 p.m. ET (1928 GMT), its highest since Feb. 15. Prices have risen about 2.2% so far this week.

US gold futures settled 0.8% higher at USD 1,854.60.

Until a new catalyst is found, such as next week’s jobs or consumer prices data, gold is likely to remain range-bound between the USD 1,830-USD 1,850 levels, Bart Melek, head of commodity markets strategy at TD Securities, said.

With China recovering, there may be continued robustness in gold consumption, with people also buying the metal to hedge against inflation, Melek added.

The US dollar index was headed for its first weekly loss in five, making bullion more attractive for other currency holders, while benchmark US 10-year yields crept lower from near a four-month peak.

While Fed Governor Christopher Waller said strong economic data could see rates above the 5.1%-5.4% range, Atlanta Fed President Raphael Bostic said he favoured a “slow and steady” increase moving forward and a pause by mid or late summer.

Traders are now pricing in at least three more 25 basis point rate hikes this year, with rates peaking at 5.43% by September.

Despite gold being often seen as an inflation hedge, rising interest rates increase the opportunity cost of holding zero-yielding bullion.

Should support for gold at USD 1,780-USD 1,800 break over the next few weeks, it could be due to a more hawkish shift in US monetary policy, Craig Erlam, senior market analyst at OANDA, wrote in a note.

Spot silver gained 1.3% to USD 21.15 per ounce and was set for its biggest weekly increase since January. Platinum jumped 1.6% to USD 976.98, while palladium rose 0.2% to USD 1,452.20.

(Reporting by Seher Dareen in Bengaluru; Editing by Jan Harvey and Krishna Chandra Eluri)

Sharp drop in equity premium may mark return of 60/40 portfolio

March 3 (Reuters) – The reward for holding US stocks over Treasury bonds has not been this unattractive since 2004, possibly setting the stage for the sought-after 60/40 portfolio diversification to make a comeback after one of its worst years on record.

A 60/40 portfolio, which typically has 60% of its holdings in stocks and the remaining 40% in fixed income, counts on moves in the two asset classes to offset one another, with stocks strengthening amid economic optimism and bonds rising during turbulent times.

The strategy took a backseat in 2022 as the Federal Reserve raised interest rates aggressively to rein in inflation. However, signals from the stock and bond markets this year are pointing to a return of the popular asset allocation strategy.

At the end of February, the S&P 500 returned 5.41% in earnings yield, the reciprocal of price-to-earnings ratio, while the yield on the benchmark US 10-year bond surged to 3.94%, according to data from Refinitiv. The 1.47 percentage-point difference is the lowest upside stocks have held over bonds in nearly two decades.

Earnings yield here refers to the S&P 500 earnings per share estimate for the next 12 moths divided by the index price.

“The relative shine of equities is definitely dulled by rising yields across the Treasury curve,” said Eric Leve, chief investment officer of wealth and investment management firm Bailard.

With estimates for earnings in 2023 implying essentially no growth over 2022, rates above 5% on short-term bonds and 10-year yields on the verge of 4% represent credible alternatives to stocks, according to Leve.

The thinning spread between returns from stocks and bonds is set to bring the 60/40 portfolio strategy back in favor.

“This strategy does provide excellent hedging in current environment,” said Glenn Yin, Head of Research and Analysis at AETOS Capital Group.

The 60/40 portfolio has already had the best start to the year since 1991, according to Bank of America.

The Fed’s move to tighten monetary policy at the fastest pace in decades pumped up bond yields after nearly two years of near-zero interest rates.

But a rise in yields poses headwinds for equities, especially growth stocks, and by extension, a large index like the S&P 500. Apple (AAPL), Alphabet (GOOGL) and Amazon.com Inc (AMZN) are among the tech heavyweights that make up nearly a fifth of the index and bore the brunt of a sell-off last year.

“Equity yields will continue to struggle this year as both prices and earnings decline” amid an economic slowdown, said Lance Roberts, Chief Investment Strategist at RIA Advisors.

On the other hand, “during a recession, yields will fall and Treasury bond prices will rise,” said Roberts. He prefers bonds over stocks today, he added.

Recent results and guidance from companies have bolstered the case for investors who believe the stock market’s early-year rally is unlikely to last.

As of Feb. 24, results from 465 of the S&P 500 companies showed fourth-quarter earnings are estimated to have fallen 3.2% from the year-ago quarter while Wall Street’s expectation for S&P earnings growth for 2023 fell to 1.7% from an expected 4.4% on Jan. 1, according to Refinitiv.

Expectations for US earnings to decline in the first two quarters if the year come amid weaker-than-expected fourth-quarter results for 2022, which Credit Suisse estimates will be the worst earnings season outside of a recession in 24 years.

Investors are hoping that in case of a severe recession, the Fed would be forced to slash interest rates. While the economic downturn would hit stock returns, drop in bond yields should provide some relief in such a scenario, according to analysts.

“For me, the best risk-reward portfolio in this environment for now is long duration Treasury bonds, and deep value, dividend equities,” Roberts said. Deep value refers to stocks that are trading at a huge discount to their intrinsic values.

“When the recession arrives, and the Fed cuts rates to zero, I will sell my bond portfolio to lock in the capital appreciation and buy distressed equities with high yields and companies with strong balance sheets and earnings growth,” he added.

(Reporting by Mehnaz Yasmin in Bengaluru; Editing by Alden Bentley and Saumyadeb Chakrabarty)

Japan’s 10-year bond yield crosses BOJ policy cap

TOKYO, March 3 (Reuters) – Japan’s 10-year government bond yield breached the Bank of Japan’s (BOJ) policy ceiling for the first time in a week on Friday in the run-up to the central bank’s policy meeting next week.

The 10-year government bond yield rose 0.5 basis points (bps) to 0.505%, crossing the BOJ’s policy ceiling for the first time since February 22. It last traded at 0.500%.

“Investors wanted to reduce their positions in 10-year bonds as they are cautious about a surprise tweak in the BOJ policy at the meeting,” said Ataru Okumura, strategist at SMBC Nikko Securities.

The BOJ will hold its two-day policy meeting starting Thursday, which will be the last one for BOJ Governor Haruhiko Kuroda whose second five-year term ends in April.

In the previous session, investors sold more than 1.7 trillion yen (USD 12.46 billion) worth of 10-year bonds at the BOJ’s daily operation of fixed-rate, unlimited amounts of bond buying. On the same day, the finance ministry held an auction for 10-year bonds.

“Some bought 10-year bonds at the auction and sold them to BOJ immediately,” said Okumura.

Elevated US yields added pressure to Japanese peers.

Overnight US Treasury yields continued to climb after strong labor data reinforced concerns that the US Federal Reserve will need to raise interest rates further to cool the economy.

Benchmark 10-year JGB futures rose 0.26 yen to 146.89, as current futures contract matures on March 13.

The two-year JGB yield fell 0.5 bp to -0.045%, while the five-year yield was flat at 0.195%.

Yields on super-long notes rose after hitting multi-months low this week, with the 20-year JGB yield rising 1.5 bps to 1.225% and the 30-year JGB yield rising 2.5 bps to 1.410%.

The 40-year JGB yield rose 4.5 bps to 1.605%.

(Reporting by Junko Fujita; Editing by Nivedita Bhattacharjee)

Nikkei ends at nearly 3-mth high after Wall Street gains; Fast Retailing shines

TOKYO, March 3 (Reuters) – Japan’s Nikkei index closed at a nearly three-month high on Friday after Wall Street finished higher overnight, with Fast Retailing providing the biggest boost on robust monthly same-store sales at its Uniqlo brand.

The Nikkei rose 1.56% to close at 27,927.47, its highest level since December 15, and marked the sharpest daily gain since January 18. The index rose 1.73% in the week.

The broader Topix rose 1.25% to 2,019.52, adding 1.57% in the week.

“Gains in Japanese shares are justified because they benefit from a recovery in China’s economy. Chinese tourists to Japan would be a support for Japan’s economy as well,” said Jun Morita, general manager of the research department at Chibagin Asset Management.

“But today’s rise might be too much. And also, Wall Street was too strong overnight. Investors might have been too optimistic about the outlook for US interest rates.”

US stocks rallied on Thursday, as Treasury yields pulled back from earlier highs following comments from Atlanta Federal Reserve President Raphael Bostic about his favored “slow and steady” path of interest rate hikes for the central bank.

The benchmark US 10-year yields were above 4% overnight, with Japan’s 10-year government bond yield crossing the Bank of Japan’s policy band earlier in the session.

Fast Retailing lifted the Nikkei by 107.83 points with a 3.87% jump after the company posted a 21% jump in February same-store sales at its Uniqlo brand compared with a year earlier.

Drugmaker Daiichi Sankyo rose 5.13% and silicon wafer maker Shin-Etsu Chemical gained 3.01%.

All but three of the 33 industry sub-indexes on the Tokyo Stock Exchange advanced, with precision instruments leading gains with a 2.55% rise.

The wholesales index jumped 2.4%, with Mitsui & Co and Mitsubishi Corp rising 4.13% and 2.38%, respectively.

Drug maker Otsuka Holdings lost 4.25% to become the worst performer on the Nikkei while the insurance sector lost 0.32% and was the worst performer among the industry groups.

(Reporting by Junko Fujita; Editing by Subhranshu Sahu and Janane Venkatraman)

Dollar set for first weekly loss since January as Fed path eyed; crypto slides

TOKYO, March 3 (Reuters) – The US dollar eased from a 2-1/2-month high versus the yen on Friday and looked set for its first weekly loss since January against major peers as traders tried to gauge the path for Federal Reserve policy.

The yen, though, which is particularly sensitive to US-Japanese long-term interest rate differentials, threatened to extend its recent losing streak to seven weeks, even as it gained strength on Friday with 10-year US yields retreating from a nearly four-month high close to 4.1%.

Cryptocurrencies took a beating as the crisis engulfing Silvergate worsened, with industry heavyweights including Coinbase Global and Galaxy Digital dropping the lender as their banking partner.

The dollar index, which measures the currency against the yen, euro, and four other major peers, eased 0.17% to 104.78, from as high as 105.36 at the start of the week, which was its strongest level since January 6. Since last Friday, the index has slipped 0.43%.

Taking some steam out of the dollar and the breathless advance in US yields were comments from Atlanta Fed President Raphael Bostic overnight that “slow and steady is going to be the appropriate course of action,” despite new labor figures adding to the run of strong data of late.

“For this year, the outlook for USD will continue to depend critically on whether bonds and equities can rally together (as appeared to be happening in January) or whether we remain in the bearish/bearish environment that dominated 2022,” RBC strategists wrote in a client note.

“In turn, this will depend on incoming US data, particularly inflation data.”

Analysts polled by Reuters said recent dollar strength is temporary, and the currency will weaken over the course of the year amid an improving global economy and expectations the Fed will stop hiking interest rates well ahead of the European Central Bank.

The Bank of Japan (BOJ) is also expected to start to dismantle extraordinary stimulus measures some time after Governor Haruhiko Kuroda retires next month.

Tokyo inflation data for February exceeded the BOJ’s target for a ninth month, but the core measure did decelerate from a 42-year high.

The dollar eased 0.24% to 136.445 yen, after climbing to 137.10 overnight, the highest since December 20. For the week, the dollar is just slightly above flat, but any gain would preserve its win streak since mid-January.

JPMorgan expects no change in the BOJ’s stance or policy signals at Kuroda’s final meeting next Friday, the same day as the release of the US non-farm payrolls report.

“If the result is stronger, as in the previous month, USD may extend its rally” to as high as 150 yen per dollar, Tohru Sasaki, a strategist at the bank, wrote in a research note.

Under such a scenario, “JPY is back to being the weakest currency among majors,” he wrote.

The euro rose 0.18% to USD 1.0616, after climbing off a nearly two-month low of USD 1.0533 at the start of the week. Since last Friday, it is up 0.62%.

Sterling added 0.16% to USD 1.19665, on track for a 0.3% weekly rise.

The Aussie strengthened 0.28% to USD 0.6749, putting it up 0.36% for the week.

Bitcoin slid 4.65% to 22,376, and earlier touched a 2 1/2-week low at USD 22,000. Ether declined 4.82% to USD 1,568.50 after touching USD 1,543.60, also a first since mid-February.

(Reporting by Kevin Buckland; Editing by Christopher Cushing and Kim Coghill)

UPDATE 9-Oil settles up on China demand hopes, posts weekly gain

Oil benchmarks settle at highest level in 3 weeks

Report that UAE may exit OPEC ‘far from the truth,’ sources say

Chinese data, record U.S. exports support oil prices

Dollar falls; analysts see more weakness in next 12 months

Updates with closing prices, analyst comment

By Shariq Khan

BENGALURU, March 3 (Reuters) – Oil prices recovered from a brief sell-off to gain by more $1 per barrel on Friday and ended the week higher, driven by renewed optimism around demand from top oil importer China.

Brent crude futures LCOc1 rose $1.08, or 1.3%, to settle at $85.83 a barrel. U.S. West Texas Intermediate (WTI) crude CLc1 futures settled at $79.68 a barrel, up by $1.52, or 1.9%. Both benchmarks posted their highest closing levels since Feb. 13.

Prices dropped early by more than $2 per barrel after a media report said the UAE had held internal debates on leaving OPEC and pumping more oil. Prices rebounded when two sources with direct knowledge told Reuters the report was “far from the truth”.

Brent and WTI notched their third biggest weekly percentage gains this year as strong Chinese economic data fed hopes for oil demand growth.

“Crude has been on a rollercoaster today, charging lower on rumors of UAE leaving OPEC+ before reversing sharply and rocketing higher as this rumor was disputed, and crude hopped on board the risk-on rally instead,” said Kpler analyst Matt Smith.

China‘s service sector activity in February expanded at the fastest pace in six months, and manufacturing activity there also grew. China’s seaborne imports of Russian oil are set to hit a record high this month.

China, the world’s top oil importer, is getting more ambitious with its 2023 growth target, aiming as high as 6%, sources told Reuters.

The oil market broadly shrugged off a 10th consecutive week of U.S. crude stock builds USOILC=ECI, and record exports of U.S. crude lent more support to prices, UBS analyst Giovanni Staunovo said.

The dollar weakened, and analysts polled by Reuters expect the greenback to be under pressure over the next 12 months, which would make dollar-denominated oil cheaper for holders of other currencies. .DXY, =USD

The European Central Bank was still sending hawkish signals, with ECB Governing Council member Pierre Wunsch saying its key interest rate could climb as high as 4% if inflation remains high.

(Reporting by Shariq Khan
Additional reporting by Shadia Nasralla, Sudarshan Varadhan and Muyu Xu;
Editing Kirsten Donovan, David Goodman, Louise Heavens, Paul Simao and David Gregorio)

((Shariq.khan@thomsonreuters.com; Twitter: @shariqrtrs))

Dollar gains on low claims but may need ISM beat for new 2023 highs

March 2 (Reuters) – The dollar index rose 0.5% on Thursday after US jobless claims were slightly below forecast and the euro failed to benefit from a fresh record high in euro zone core CPI, but to clear resistance by 2023’s highs the US currency may need Friday’s ISM report to further lift lofty Fed hike expectations.

While further USD/JPY gains, the second largest component of the index, look more likely due to the limited BoJ tightening expectations, the ECB has more than enough cause to continue hiking rates in 50-bp increments.

Core euro zone inflation hit 5.6% year-on-year in February from January’s 5.3%, bolstering market expectations of ECB rates peaking near 4%, as futures currently project.

With EUR 5-year-5-year inflation linkers soaring to new post-GFC highs at 2.56% on Thursday from 2.24% January lows, the market looks less sure the ECB will tame inflation with the current pace of tightening.

US linkers are at 2.47%, but well below 2022’s high just above 2.7%. That suggests EUR/USD may rise from ECB rate hike pricing outpacing Fed hikes, unless US data, such as Friday’s ISM non-manufacturing and next Friday’s payrolls, beat forecast.

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

US yields march higher as tight labor data fuels inflation scare

NEW YORK, March 2 (Reuters) – US Treasury yields continued to climb on Thursday after strong labor data reinforced concerns that the US Federal Reserve will need to raise interest rates more to cool the economy.

Data from Europe had already pushed US government bond yields higher as stickier-than expected euro zone inflation numbers supported expectations that interest rates would go higher and stay there for longer.

Strong jobless claims data in the US, where the number of Americans filing new claims for unemployment benefits fell again last week, reinforced that narrative on Thursday, as well as data showing that US labor costs grew faster than initially thought in the fourth quarter.

Yields, which move inversely to bond prices, had already touched new highs on Wednesday and they climbed further on Thursday.

“The march higher has been relentless, and each incremental data point is just helping the momentum continue,” said Matthew Miskin, co-chief investment strategist at John Hancock Investment Management.

“In addition to the very tight labor data … we also have unit labor costs coming in hotter than expected, so if wage inflation is also ticking back up, combined with broader inflation ticking back up, that is in essence spooking the bond market that inflation is getting more entrenched,” he said.

Benchmark 10-year yields were trading above 4% on Thursday and were last seen at 4.057%, their highest since November. Two-year yields, which are more closely linked to monetary policy expectations, were last seen at 4.928% – an over 15-year high.

On the long end, 30-year bond yields also broke above 4% for the first time since mid-November last year and were last seen at 4.009%.

Expectations that the US central bank may need to raise rates by 50 basis points at its next meeting this month increased marginally on Thursday, according to CME Group data, though the consensus remained for a 25-bp hike.

The probability that the Fed’s policy rate, currently set in the 4.5% to 4.75% range, could go up to a 5%-5.25% range this month stood at about 34%, up from about 30% on Wednesday.

“The economy is still looking robust and that should keep the Fed’s hawkish speak going. Rates will undoubtedly be higher for longer, but the risks of larger than quarter-point rises may be back on the table,” Edward Moya, senior market analyst at OANDA, said in a note.

(Reporting by Davide Barbuscia; Editing by Andrea Ricci)

Gold eases as stronger US dollar, yields dent appeal

March 2 (Reuters) – Gold prices edged lower on Thursday as the U.S. weekly jobs data hinted at a tight labor market that could keep the Federal Reserve on its rate-hiking cycle, underpinning the dollar and Treasury yields.

Spot gold was down 0.1% at $1,835.03 per ounce by 01:48 p.m. ET (1848 GMT), after rising in the previous three sessions.

U.S. gold futures settled 0.3% lower at $1,840.50.

Data earlier showed the number of Americans filing new claims for unemployment fell again last week.

With a tight labor market largely priced in, the higher dollar and yields were weighing on gold, said Phillip Streible, chief market strategist at Blue Line Futures in Chicago.

The dollar index gained 0.6%, making gold more expensive for holders of other currency buyers.

Benchmark U.S. 10-year Treasury yields hovered near their highest level since early November 2022, weighing on the bullion since it yields no interest.

The consumer price data next week could offer investors more clues on the path of rates heading into the Fed’s March 21-22 meeting, where it is expected to raise rates by 25 basis points.

“I think the market will have a relief rally after that – every time we get another interest rate behind us, we’re close to the end (of rate hikes),” Streible said.

U.S. central bank officials are divided over whether more restrictive interest rates are needed or just maintain a tight monetary policy for a longer period to tame inflation that was much higher than the Fed’s 2% target.

Elsewhere, data from Spain, France, and Germany earlier in the week indicated that inflation remained sticky, with the European Central Bank leaning towards remaining hawkish.

Spot silver fell 0.8% to $20.83 per ounce, platinum was up 0.7% at $961.43, while palladium edged 0.1% higher to $1,442.05.

(Reporting by Seher Dareen in Bengaluru; Editing by Shilpi Majumdar and Krishna Chandra Eluri)

European shares rise but stubborn inflation data caps gains

March 2 (Reuters) – European shares rose on Thursday boosted by consumer staples and energy stocks, but data suggesting euro zone inflation remained stubbornly high bolstered fears of more European Central Bank rate rises.

The continent-wide STOXX 600 reversed early losses and closed 0.5% higher.

Energy stocks rose 1.4% supported by firm crude prices on signs of a strong economic rebound in top crude importer China.

A sharp weakness in sterling lifted UK’s exporter-heavy FTSE 100 index up 0.4%.

London’s internationally focussed consumer staples stocks such as Diageo (DGE) and Unilever (ULVR) rose over 1% each, while the European food and beverage index added 1.8%.

“There’s certainly the assumption that there is still mileage in the tank when it comes to price increases, that margins can be protected, the consumer is going to be resilient to a degree and these companies are still going be able to make money,” said Danni Hewson, financial analyst at AJ Bell.

Meanwhile, consumer price inflation in the 20 countries sharing the euro currency rose 8.5% in February, compared with an increase of 8.6% a month earlier on lower energy prices, but the reading was still above 8.2% projected in a Reuters poll of economists.

While inflation was also lower than a double-digit peak hit in October, fears lingered that the earlier surge in energy prices has seeped into the economy via so-called second-round effects, making price growth even more difficult to root out.

“High inflation means more aggressive ECB rates, which means less conducive business conditions for European companies,” said Giles Coghlan, chief market analyst at HYCM.

Earlier in the week, data from Spain, France and Germany indicated that inflation remained sticky and fed into fears that the ECB would remain hawkish for longer.

ECB Chief Christine Lagarde said price declines have not been stable and that rates will have to rise higher and stay higher for some time.

European markets ended the first two months of this year in gains — a first in four years — with banks adding 18% as lenders benefit from higher net interest income, a consequence of elevated borrowing costs.

Still, the global equity market momentum has stalled of late as investors price in steep prices and higher rates.

Irish stocks led gains among regional peers, up 2.1% after CRH (CRH) surged 7.9% on posting better-than-expected results.

Europe’s biggest lender, HSBC Holdings Plc (HSBA) slid 3.3% as it traded without the entitlement of a dividend. The bank sector index fell by 0.8%.

Credit Suisse (CSGN) tumbled 7.0% and hit a fresh record low following reports this week about talent leaving the beleaguered Swiss bank.

Flutter’s (FLTRF) 0.9% fell as it reported full-year core profit at the lower end of its guidance range.

(Reporting by Johann M Cherian and Shreyashi Sanyal in Bengaluru; editing by Eileen Soreng, Uttaresh Venkateshwaran, William Maclean)

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