Dollar finds its footing near seven-month low, all eyes on yen

SINGAPORE/LONDON, Jan 16 (Reuters) – The dollar started the week on the back foot, hitting a seven-month low against a basket of major peers in Asian trade before steadying, with the yen in particular focus due to traders’ bets the Bank of Japan will tweak its yield control policy further.

The euro hit a fresh nine-month top of USD 1.0874 in early trade before retreating to last stand 0.16% lower at USD 1.0816, while the Australian dollar breached the key USD 0.7000 level for the first time since August, before dipping back to USD 0.6962.

Thanks also to early strength from sterling and the Japanese yen, the dollar index, which tracks the greenback against a basket of currencies, slumped to a seven-month trough of 101.77, extending its selloff from last week after data showed that U.S consumer prices fell for the first time in more than 2-1/2 years in December.

With decades-high inflation in the world’s largest economy showing signs of cooling, investors are now growing increasingly confident that the Fed is nearing the end of its rate-hike cycle, and that rates will not go as high as previously feared.

The Fed’s aggressive rate increases were a main driver of the dollar index’s 8% surge last year, before signs that inflation was peaking brought it back down.

The dollar has largely traded steady against most currencies since last week’s data.

“It’s too soon to imagine a significant dollar downtrend, we’ve had some dollar repricing certainly, but for broad-based dollar weakness you’ll need to really see Fed expectations roll over materially and the Fed potentially cutting rates at some point, and we are not at this point,” said Samy Chaar, chief economist at Lombard Odier.

Markets are now pricing in a 91% chance of a 25-basis-point increase when the Fed announces its policy decision in February, with a 9% chance of a 50-bp hike.

The dollar steadied in European trading, regaining ground against the pound GBP=D3 which was last down 0.3% at USD 1.2195.

MARKETS CHALLENGE BOJ

A particular focus for currency markets this week is the Japanese yen, due to speculation that the Bank of Japan will make further tweaks to, or fully abandon, its yield control policy at a meeting scheduled to conclude Wednesday.

The dollar slipped to a more than seven-month low on the yen in early trading, before recovering and was last at 128.4 yen, up 0.4%.

“I think the whole world will be focused on Wednesday … and probably the week in G10 (currencies) will be defined by what happens to the yen and yen crosses, out of that,” said Ray Attrill, head of FX strategy at National Australia Bank (NAB).

“I don’t think (the BOJ) has the luxury of time to say that they’re going to assess and wait until Q2 or Kuroda to see out his term without making any further changes.”

BOJ Governor Haruhiko Kuroda will step down in April.

Investors have been pressing for the BOJ to shift away from its ultra-easy monetary policy, which caused the yield on Japan’s benchmark 10-year government bonds to breach the central bank’s new ceiling for two sessions.

US markets are closed on Monday for a holiday, making for thin trading.

(Reporting by Rae Wee in Singapore and Alun John in London; Editing by Emelia Sithole-Matarise, Kirsten Donovan)

Philippines’ emergency onion imports unlikely to tackle soaring prices – officials

MANILA, Jan 16 (Reuters) – Philippine onion importers have applied for permits for just a quarter of the approved emergency purchase of up to 21,060 tons, which agriculture officials said may not bring down exorbitant prices that have added to soaring inflation.

The cost of onions, widely used in many local dishes, more than quadrupled in four months to hit as high as 700 pesos (USD 12.83) per kilogram in Manila markets in December, among the highest in the world and contributing to double-digit food inflation.

Food prices helped push the consumer price index last month up 8.1% from a year earlier, a 14-year high, with the central bank warning of continued pressure and signaling further interest rate hikes in the first half of 2023.

The Bureau of Plant Industry has cleared the importation of about 25% of the approved volume, which must be shipped in not later than Jan. 27, agriculture officials told a Senate hearing on Monday.

“Even if we import the entire approved volume, even that will not have a substantial impact on prices,” said Mercedita Sombilla, agriculture undersecretary for planning.

The Philippines had been hit by onion production shortfalls in recent months, as farmers were discouraged to boost planting due to competition with imported supply, according to farmers’ groups.

Government data showed prices have eased over the past two weeks, with the most widely consumed red onion selling at 350-550 pesos per kg as of Friday, still much higher than the 2022 low of 70 pesos in April.

President Ferdinand Marcos Jr, speaking to reporters on Sunday en route to Davos for the World Economic Forum, said the country was forced to import onions amid a wide gap between supply and demand.

He blamed the country’s long-running reliance on food importation, which discouraged local farmers, for the chronic domestic shortfalls involving many commodities, including the staple rice.

(Reporting by Enrico Dela Cruz; Editing by Martin Petty)

China, HK stocks rise on strong foreign inflows amid signs COVID peaked

Jan 16 (Reuters) – China stocks jumped to a four-month high on Monday, aided by strong foreign inflows, while Hong Kong shares edged up as investors doubled down their bets on economic recovery after Chinese health officials said COVID-19 infections in the country had peaked.

** China’s blue-chip CSI300 Index ended the session up 1.6%, while the Shanghai Composite Index climbed 1%. Hong Kong’s Hang Seng Index HSI was 0.04% higher.

** Net foreign buying of China-listed stocks via Stock Connect hit a two-month high of 15.4 billion yuan (USD 2.29 billion) on Monday. Net buying so far this year has exceeded USD 9 billion as foreign funds snap up Chinese financials and consumer stocks, according to Goldman Sachs.

** Beijing said on Saturday nearly 60,000 people with COVID-19 had died in hospital since it abandoned its zero-COVID policy last month. But on the bright side, Chinese health officials said the number of patients visiting fever clinics and needing emergency treatment was steadily falling, and the number of severe cases had also peaked.

** “Overall, the latest data confirmed that the worst of China’s exit wave is behind us,” OCBC Bank wrote in a note on Monday.

** China also reported a sharp rise in travel ahead of the Lunar New Year holiday，while the Chinese gambling hub of Macau expected a Spring Festival boom in tourism.

** “Stars are aligning for a China/HK rebound in 2023 after a torrid 2022,” DBS wrote. “It won’t be a smooth ride. But 4Q22-1Q23 is likely the cyclical trough, in our view.”

** Chinese shares rose across the board.

** China’s food and beverage stocks jumped .CSI000815 on bets excessive savings during the pandemic will be unlocked.

** Chinese infrastructure stocks also rose sharply as local governments announced new spending plans for big projects and set bullish growth target for this year.

(USD 1 = 6.7290 Chinese yuan renminbi)

(Reporting by the Shanghai Newsroom; Editing by Nivedita Bhattacharjee)

Japanese yields top policy cap for 2nd day, defying massive BOJ buying

TOKYO, Jan 16 (Reuters) – Japan’s 10-year government bond yield topped the Bank of Japan’s policy ceiling for a second straight trading session on Monday, despite a new wave of emergency bond-buying operations by the central bank.

The 10-year JGB yield jumped 1 basis point to 0.510% at the start of the session, exceeding the BOJ’s 0.5% cap.

The announcement of unlimited fixed-rate purchase operations in maturities up to 10 years and another 1.4 billion yen (USD 11 million) of unscheduled buying across the curve was slow to take effect on the yield, but by 0536 GMT had brought it back to 0.5%.

The BOJ will begin a two-day meeting on Tuesday, and speculators continue to pile on bets that Governor Haruhiko Kuroda and his team could be forced to tweak policy again. In December, the BOJ surprised markets by doubling the margin of tolerance for 10-year yields to 50 basis points either side of its 0% target.

While another widening of that band is seen as the most likely option should the BOJ move again, more extreme options include scrapping yield curve control (YCC) altogether, or even raising the negative overnight interest rate.

“The market is pricing in a chance of a hike in the short-term rate – not necessarily at this meeting, but in the next few meetings – and that’s the source of the yield spike,” said Naka Matsuzawa, chief Japan macro strategist at Nomura.

“That’s what the BOJ wants to fight against most. The BOJ is firmly against the notion of raising the short-term policy rate.”

Matsuzawa also highlighted the conundrum for speculators if the BOJ forgoes a change on Wednesday: with the next meeting not until March – the last of Kuroda’s career – can they continue to short the 10-year bond for so long when it has been the focus of the BOJ’s buying operations?

Monday’s rise in yields was dwarfed by the spike on Friday, when they hit the highest since mid-2105 at 0.545%, before being calmed by a record 5 trillion yen of buying by the BOJ.

Central bank policy makers have not spoken out about the market ructions because they in a blackout period before this week’s meeting. But Kuroda has insisted that the widening of the yield band was to correct market distortions, not the start of a stimulus exit.

Market participants say that functioning has actually deteriorated since then.

That puts BOJ officials in a predicament, because further tweaks could again backfire by stoking already red-hot speculation about a capitulation on decades-old ultra-easy policy.

Masayuki Kichikawa, chief macro strategist at Sumitomo Mitsui Asset Management, takes the contrarian view that a bold doubling again of the yield ceiling to 1% could actually lessen the pressure on the bond market.

“If the BOJ completely discards yield curve control, many people estimate JGB yields should stay around 0.9% to 1%,” he said.

“Of course, speculation would continue for a complete discarding of YCC, but the momentum of speculation would gradually become moderate,” he added. “The attack on the BOJ could become a little bit more moderate as time goes by.”

(USD 1 = 127.71 yen)

(Reporting by Kevin Buckland and Junko Fujita; Editing by Bradley Perrett)

Oil dips as China COVID case surge clouds fuel demand prospects

SINGAPORE, Jan 16 (Reuters) – Oil prices eased on Monday, though held near 2023 highs, as rising numbers of COVID-19 cases in China clouded prospects for higher demand in at the world’s top crude importer as it reopens after ending strict anti-virus curbs.

Brent crude fell 62 cents, or 0.7%, to USD 84.66 a barrel by 0745 GMT, while US West Texas Intermediate crude was down 51 cents, or 0.6%, at USD 79.35 a barrel, amid thin trade during a US public holiday.

“Both benchmarks WTI and Brent eased on Monday morning as investors gauge that the rising number of COVID-infections (in China) might create hurdles in ways of returning to normalcy,” said Priyanka Sachdeva, market analyst at Phillip Nova.

“Caution definitely prevails in oil markets amid ambiguity of the rate hikes cycle by (the) Federal Reserve, surprise build-up in US crude oil inventories and whether the IEA (International Energy Agency) revises its outlook on oil prices and demand for the year,” Sachdeva said.

Both contracts rose more than 8% last week, the biggest weekly gains since October and that may have spurred some short-term selling to lock in the profits from the move higher.

“After the scale of the move last week, we could be seeing some profit taking,” said Warren Patterson, ING’s Head of Commodities Strategy, adding that thinner trading volumes would make any selling appear to be more pronounced.

While prices retreated after last week’s surge, they continued to hover near 2023 highs on Monday.

China’s crude imports rose 4% year-on-year in December, while an expected resurgence in travel for the Lunar New Year holiday at the end of the week is brightening the outlook for transportation fuels.

Traffic levels in China are continuing to rebound from record lows following the easing of COVID-19 restrictions, resulting in stronger demand for crude and oil products, ANZ analysts said in a note.

The rebound in domestic demand is expected to lead to a 40% drop in China’s exports of refined oil products in January from December’s figure, led by gasoline, trading sources and analysts said.

Meanwhile, the Organization of the Petroleum Exporting Countries and the International Energy Agency will release their monthly reports this week, closely watched by investors for global demand and supply outlooks.

Investors will also be watching for a key Bank of Japan (BOJ) meeting this week to determine if it would defend its super-sized stimulus policy.

(Reporting by Florence Tan and Jeslyn Lerh; Editing by Christian Schmollinger)

Oil holds in sight of recent highs on Chinese demand recovery hopes

Jan 16 (Reuters) – Oil prices slipped on Monday but were holding near their highest levels this month as easing COVID restrictions in China raised hopes of a demand recovery in the world’s top crude importer.

Brent crude fell USD 1.08, or 1.3%, to USD 84.20 a barrel by 2041 GMT.

US West Texas Intermediate crude was down USD 1.01, or 1.3%, at USD 78.85 in thin trade on a US public holiday.

Both contracts rose more than 8% last week for the biggest weekly gains since October after China abandoned what remained of its zero-COVID policy by reopening its borders on Jan. 8.

China’s crude imports rose 4% year-on-year in December, and an expected resurgence in travel for the Lunar New Year holiday at the end of the week raised the outlook for demand for transportation fuels.

“The narrative that Chinese growth is going to add to demand is playing a very large part here. There could be as much as a million barrels per day of demand returning,” said Bart Melek, head of commodity market strategy at TD Securities.

Traffic levels in China are rebounding from record lows after the easing of COVID-19 restrictions, resulting in stronger demand for crude and oil products, ANZ analysts said in a note.

But reports over the weekend highlighting an increase in COVID-19 deaths tempered sentiment.

The United Arab Emirates’ energy minister, Suhail al-Mazrouei, said on Monday that oil markets were balanced.

“Brent may now be stabilizing in the USD 85-USD 90 range, with WTI just a little lower around USD 80-USD 85,” said Craig Erlam, a senior market analyst at OANDA.

The Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency will release their monthly reports this week, watched closely for indications on the outlook for global demand and supply.

Investors will also keep an eye on the World Economic Forum in Davos, which opened on Monday, and a Bank of Japan meeting this week to determine if it will defend its super-sized stimulus policy.

(Reporting by Rowena Edwards in London and Nia Williams in British Columbia; Additional reporting by Florence Tan and Jeslyn Lerh in Singapore; Editing by Edmund Blair, David Goodman, Richard Chang and Leslie Adler)

US investors hunt for gains in foreign stocks

NEW YORK, Jan 13 (Reuters) – Some US investors are looking abroad to capture better stock returns in the coming months, betting European and other international stocks hold more enticing valuations after a long period of US dominance.

US stocks have rebounded to start the year after a rough 2022, but still have lagged their international counterparts. Europe’s STOXX 600 index has gained some 17% since the end of the third quarter, versus 11% for the US benchmark S&P 500. MSCI’s gauge of global stocks excluding the US has risen more than 20% over that time.

European stocks have benefited as a mild winter has so far helped the region avert a feared energy crisis, investors said. Moderating commodity prices have helped, as has the re-opening of China’s economy and a weaker dollar; some expect the strength to continue.

“Relatively speaking, we have got more money now chasing better opportunities outside the US, which was not the case the last several years,” said Martin Schulz, head of the international equity group at Federated Hermes.

Federated Hermes said this week it is shifting from a “modestly bearish” view on stocks to a “modestly positive” one, entirely by adding to international markets.

US stocks have long held sway over international peers. The S&P 500 rose over 460% from lows during the great financial crisis in March 2009 through last year, compared with a 170% gain for Europe’s STOXX over that time.

That period largely coincided with rock-bottom interest rates, a backdrop that favored US stock indexes which are far more heavily weighted in technology shares than stock gauges in Europe. The tech sector amounts to 26% of the S&P 500. The group is only about 7% in the STOXX 600, which is far more heavily geared toward financial and industrial shares.

But the playing field leveled dramatically over the last year, as central banks globally raised interest rates to fight inflation. Higher rates tend to particularly pressure the valuations of tech and other high growth stocks while potentially benefiting banks and other value shares heavily weighted in Europe.

“One of the secular elements that has helped US equities was unconventional monetary policies, and those have come to an end,” said Alessio de Longis, senior portfolio manager for Invesco Investment Solutions in New York.

The firm last month rotated more into international equities as it increased its overall stock exposure, de Longis said.

International stocks were recently touted by investor Jeffrey Gundlach of DoubleLine Capital and BofA Global Research, which projected global stocks would “crush” their U.S peers in 2023.

Even with their recent strength, Europe’s STOXX still trades at a hefty discount, with a forward price-to-earnings ratio of 12 against a P/E of about 17 for the S&P 500, according to Refinitiv Datastream. That valuation gap is close to its widest ever and is over twice its historic average.

“Every single metric that you can follow from a valuation perspective shows that international stocks are historically cheap versus the US,” said Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management Company.

Another lift for international stocks has come from the recent weakness in the dollar, which is down some 9% since the end of the third quarter after a huge run. The weaker greenback benefits US investors when they convert foreign profits back into their home currency, and some investors believe the dollar could keep sliding if it appears the Fed is growing closer to pausing its rate increases.

Some investors think US stocks will soon resume their dominance over equities linked to other regions. Since 2012, the United States has tended to outperform rest-of-world equities, with an average difference of 1.7 percentage points over a typical 50-day window, according to Nicholas Colas, co-founder of DataTrek Research.

“As much we can see the merits of lower valuation non-US equity markets, their recent outperformance says investors should be cautious in chasing the recent rally,” Colas said in a note this week.

A widely expected global recession could be one factor that sends investors back into US stocks, which many see as a relative haven during times of economic uncertainty, investors said.

Buying international stocks could be a “complement” to the opportunity domestically, said Mona Mahajan, senior investment strategist at Edward Jones.

“The US markets haven’t yet rebounded as much and so I think there is still a fundamental opportunity in the US to play some catch up there,” Mahajan said.

(Reporting by Lewis Krauskopf; Editing by Ira Iosebashvili and David Gregorio)

Yen jumps on BOJ policy speculation, dollar edges off 7-month low

NEW YORK, Jan 13 (Reuters) – The yen surged on Friday, adding to earlier gains on speculation the Bank of Japan (BOJ) will revise its ultra-loose monetary policy, while the dollar edged up against most other major currencies, rising off a seven-month low.

The yen was up 1.06% against the greenback at 127.92 yen at 3:00 p.m. EST (2000 GMT). The move added to a 2.4% gain on Thursday after the Yomiuri newspaper said BOJ officials would review the side effects of the central bank’s yield curve control, or YCC, policy at their meeting next week.

The BOJ is an outlier in clinging to stimulus while most central banks globally are deep into rate-hiking campaigns. But signs of stickier inflation and a possible rise in Japan’s mostly stagnant wages have convinced some investors that YCC could be revised, or even abandoned, as early as next week, opening the door to a stronger yen.

“While a hike next week seems unlikely, it’s possible that the BOJ abandons YCC then in order to set up liftoff at the March or April meetings,” said Win Thin, head of global head of currency strategy at Brown Brothers Harriman. “This is the basic roadmap for tightening that’s been well-established by the Fed.”

The yield on Japan’s benchmark 10-year government bonds breached the central bank’s new ceiling on Friday, adding to pressure for the yield control policy to be scrapped or revised.

The central bank said on Friday it would conduct additional outright bond purchases on Monday, ahead of its Jan. 17-18 rate setting meeting.

“Our estimated impact of further BoJ policy adjustment points to potential JPY appreciation of up to 2.7%, but we believe the risk is for a larger reaction – potentially double in size,” Barclays foreign exchange analysts said in a note to clients.

Elsewhere, better-than-expected economic data out of Germany and Britain suggested both countries could escape a recession — at least for now — but the news failed to provide a lasting boost to either the euro or sterling.

The euro was last down 0.2% against the dollar at USD 1.0828, easing off a fresh nine-month high earlier in the session. Sterling rose 0.12% to USD 1.22275.

The dollar index, which measures the greenback against a basket of currencies, including the euro and yen, edged up 0.02% to 102.22.

The dollar index had hit it lowest level since June 6 earlier in the session, following data on Thursday that showed cooling US inflation, firming up expectations the Federal Reserve will slow the pace of its interest rate hikes.

“Hikes of 25 basis points will be appropriate going forward,” Philadelphia Fed president Patrick Harker said in a speech to a local group in Malvern, Pennsylvania, on Thursday.

Goldman Sachs strategists said the December inflation data likely sealed the deal on a shift to 25 basis point hikes in February but cautioned it was too early in the process for central banks to feel comfortable declaring victory.

The University of Michigan Surveys on Friday showed that US consumers believe price pressures would ease back to levels seen in the spring of 2021 over the next year.

(Reporting by John McCrank in New York; Additional reporting by Iain Withers and Alun John in London; Editing by Alexander Smith, Tomasz Janowski and Alison Williams)

Gold rises over 1% on slower Fed rate-hike prospects

Jan 13 (Reuters) – Gold prices scaled an over eight-month peak on Friday, holding above the key pivot of USD 1,900 per ounce, as cooling US inflation raised hopes for slower interest rate hikes from the Federal Reserve.

Spot gold rose 1.3% to USD 1,920.70 per ounce by 2:11 p.m. ET (1911 GMT), the highest since end-April 2022. The metal has risen 2.9% so far this week.

US gold futures settled up 1.2% at USD 1,921.7.

“That gold prices are rallying after an on-consensus CPI for which the market was well positioned for highlights that there’s another source of buying activity in gold markets,” said Daniel Ghali, commodity strategist at TD Securities, attributing it to central banks and non-central bank government agencies.

Data on Thursday showed that U.S consumer prices fell for the first time in more than 2-1/2 years in December.

Following the data, Fed policymakers expressed relief that inflation continued to ease in December, paving the way for a possible step down to a 25-bps rate hike increase at its next policy meeting in February.

Lower interest rates tend to be beneficial for bullion, decreasing the opportunity cost of holding the non-yielding asset.

Additionally, buying in top-consumer China normally picks up ahead of the Lunar New Year holidays, which run from Jan. 21.

The US dollar was heading for its worst week in over a month, making gold less expensive for other currency holders.

“We believe that the (gold) market will initially take a breather until it becomes clearer whose prediction of the future course of US monetary policy is more accurate – the market’s or the Fed’s,” Commerzbank analysts said in a note.

Spot silver jumped 2.1% to USD 24.28 per ounce, en route its highest weekly rise since the week of Dec. 23.

Platinum edged 0.2% lower to USD 1,065.62 and palladium was down 0.2% at USD 1,788.85, falling earlier to USD 1,727, with both metals headed for a weekly drop.

(Reporting by Seher Dareen in Bengaluru; Editing by Mark Porter, Shailesh Kuber and Maju Samuel)

China demand optimism sets oil on track for strong weekly gain

Jan 13 (Reuters) – Oil prices rose on Friday, set to gain more than 6% for the week, on solid signs of demand growth in top oil importer China and expectations of less aggressive interest rate rises in the United States.

Brent crude futures rose by 5 cents to USD 84.08 a barrel by 0746 GMT, off a session low of USD 83.50. US West Texas Intermediate (WTI) crude futures gained 13 cents to USD 78.52 a barrel after falling to USD 77.97 earlier in the session.

Brent has jumped 6.7% so far this week and WTI is up 6.2%, recouping most of last week’s losses.

Analysts said recent Chinese crude purchases and a pick-up in road traffic fuelled confidence in a demand recovery in the world’s second-largest economy following the reopening of its borders and easing of COVID-19 curbs after protests last year.

“Given the focus on energy security, we anticipate that Chinese imports will continue to pick up, particularly as refinery runs ramp and stockpiling crude remains a strategic priority,” RBC commodity strategist Michael Tran told clients in a note.

In another encouraging sign, ANZ analysts said a congestion index covering the 15 Chinese cities with the largest number of vehicle registrations had risen 31% from a week earlier.

Oil prices have also been buoyed by a slide in the dollar to a nearly nine-month low, after data showed U.S. inflation fell for the first time in 2-1/2 years, reinforcing expectations that the Federal Reserve would slow the pace of rate hikes.

A weaker greenback tends to boost demand for oil, as it makes the commodity cheaper for buyers holding other currencies.

However, some of the week’s gains are likely to fizzle out in Asian trade, said Vandana Hari, founder of oil market analysis provider Vanda Insights.

“Crude is in for a correction, even if a modest one …. The past two sessions were almost entirely driven by renewed Fed pivot hopes, which, going by the experience of the past quarter, tend to be a short-lived phenomenon,” Hari said.

(Reporting by Mohi Narayan in New Delhi and Sonali Paul in Melbourne; Editing by Bradley Perrett and Clarence Fernandez)

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