Japan yields break central bank ceiling as markets press for policy shift

TOKYO, Jan 13 (Reuters) – The yield on Japan’s benchmark 10-year government bonds breached the central bank’s new ceiling on Friday in the market’s most direct challenge yet to decades of uber-easy monetary policy, before a wave of emergency bond buying reined it back in.

Swirling speculation that the Bank of Japan’s policy of yield curve control (YCC) could be revised, or even abandoned, as early as next week had investors rushing for the exits.

That catapulted 10-year Japanese government bond yields as much as 4 basis points higher to 0.54%, the highest since mid-2015 and above a recently widened band of -0.5% to +0.5% set by the BOJ in a shock decision just three weeks ago.

The stress was evident across the yield curve, forcing the BOJ to announce two separate rounds of emergency buying worth around 1.8 trillion yen (USD 13.9 billion) combined. The central bank already holds 80% to 90% of some bond lines.

That went some way to restoring calm, and the 10-year yield gradually eased back. It was at 0.51% as of 0900 GMT.

“The attack on BOJ, mainly from foreign investors, continues,” said Takafumi Yamawaki, head of Japan rates research at J.P. Morgan Securities.

Later in the day, the BOJ said it would conduct additional outright bond purchases on Monday.

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 emboldened some investors.

Most domestic analysts, though, hold to the view that no major shift will come until Haruhiko Kuroda, the current BOJ governor and author of Japan’s super-stimulus policy, retires at the end of March.

“I think it’s too early for the BOJ to give up,” said Naka Matsuzawa, chief Japan macro strategist at Nomura. “It still has ammunition to defend the 0.5% yield cap.”

Offshore investors sold record amounts of Japanese government bonds in the week the central bank widened the band, scenting that its six-year-old YCC policy was on the way out.

A shift appeared more imminent after the Yomiuri newspaper reported on Wednesday that BOJ officials would review the side effects of YCC at their two-day meeting ending next Wednesday.

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There is talk in the markets that the central bank could shorten its yield target to three- and five-year bonds, but history abroad suggests the strain will remain.

Much the same conundrum was faced by the Reserve Bank of Australia (RBA) in late 2021 when it was forced to abandon its three-year yield target in a painful reversal.

With the local economy recovering faster than expected and inflation accelerating, the RBA realized its pledge to keep three-year yields at 0.1% out to 2024 was no longer credible.

So it abruptly dropped the whole thing and three-year yields spiked to 0.48%, an episode the RBA itself conceded caused “reputational damage” that would not be repeated.

The similarities are striking given data this week showed inflation in Tokyo, a leading indicator of nationwide trends, unexpectedly rose at double the central bank’s 2% target.

At the same time, Uniqlo store operator Fast Retailing 9983.T said it would hike wages by as much as 40%, concentrating mainly on Japan, giving hope that salaries might finally start to catch up to inflation.

The challenge, then, will be for policymakers to find a way to exit YCC without too much damage to markets.

“The bond market is very illiquid, and any major selloff could push long-term rates up to one and a half percent in a very short time,” said Amir Anvarzadeh, a market strategist at Asymmetric Advisors.

“So you can’t just abandon this overnight, you have to do it gradually.”

(USD 1 = 129.1700 yen)

(Reporting by Kevin Buckland, Junko Fujita and Wayne Cole; Editing by Muralikumar Anantharaman, Edmund Klamann and Mark Potter)

Stocks rise, dollar stumbles after US inflation data

NEW YORK, Jan 12 (Reuters) – A gauge of global stocks climbed on Thursday while longer-dated US Treasury yields, and the dollar fell after a reading of consumer prices fed expectations the Federal Reserve may have leeway to scale back the size of future interest rate hikes.

U.S consumer prices fell in December for the first time in more than 2-1/2 years as prices fell for gasoline and other goods, suggesting inflation was on a sustained downward trend.

Still, a separate reading on the labor market showed weekly initial jobless claims came in at 205,000, below expectations of 215,000. Many market participants are looking for signs of weakness in the labor market as a signal of slowing inflation.

On Wall Street, equities were choppy after the data, with the S&P 500 falling as much as 0.8% and then rebounding. Friday will bring results from a number of big US banks, kicking off the fourth-quarter earnings season for S&P 500 companies.

The Dow Jones Industrial Average rose 216.96 points, or 0.64%, to 34,189.97, the S&P 500 gained 13.56 points, or 0.34%, to 3,983.17 and the Nasdaq Composite added 69.43 points, or 0.64%, to 11,001.11.

The pan-European STOXX 600 index rose 0.63%, closing at its highest level since April 29, and MSCI’s gauge of stocks across the globe gained 0.80% to notch a fifth straight session of gains, its longest streak since August.

Expectations for a 50-basis-point rate hike at the next Federal Reserve meeting fell to 3.8% according to CME’s FedWatch Tool, down from 23.3% the day prior. The market is pricing in a 96.2% chance of a 25-basis-point hike, up from 76.7% on Wednesday.

The benchmark US 10-year notes were down 12.9 basis points to 3.427%, from 3.556% late on Wednesday.

St. Louis Fed President James Bullard said the inflation data was a step in the right direction and the US economy was primed for disinflation this year, but the road back to the central bank’s 2% target would be bumpy. Richmond Federal Reserve president Tom Barkin echoed the sentiment about the data and said it allowed the Fed to “steer more deliberately”.

The dollar index hit its lowest level since early June at 102.07 before slightly paring losses, and was last down 0.873%, with the euro up 0.89% to USD 1.0851.

The Japanese yen strengthened 2.56% versus the greenback at 129.18 per dollar, while Sterling was last trading at USD 1.2215, up 0.60% on the day.

Crude prices rose in the wake of the data, getting an additional boost from optimism over China’s emergence from its COVID-19 restrictions creating additional demand.

US crude settled up 1.27% at USD 78.39 per barrel and Brent settled at USD 84.03, up 1.65% on the day.

(Reporting by Chuck Mikolajczak, additional reporting by Karen Brettell, Shashwat Chauhan and Johann M Cherian; Editing by Nick Zieminski, Alex Richardson and David Gregorio)

Dollar slides to nearly 9-month low vs euro after US inflation data

NEW YORK, Jan 12 (Reuters) – The dollar tumbled to a nearly nine-month low against the euro on Thursday after data showed US inflation was easing, prompting bets that the Federal Reserve will be less aggressive with rate hikes going forward.

The move lower in the dollar came as the Japanese yen surged, hitting a more than six-month high against the greenback, on a report that the Bank of Japan may take further steps to address the side effects of monetary easing.

US data showed the consumer price index (CPI) dipped 0.1% last month, marking the first decline in the data since May 2020, when the economy was reeling from the first wave of COVID-19 infections.

Price pressures are subsiding as the US central bank’s fastest monetary policy tightening cycle since the 1980s dampens demand, and bottlenecks in the supply chains ease.

“Three months of relatively lighter core inflation figures are starting to form a trend … one that could spur the Fed to slow the pace of tightening further on February 1,” said Sal Guatieri, senior economist at BMO Capital Markets.

Fed policymakers expressed relief that price pressures were easing, paving the way for a possible slowdown in interest rate hikes, but they signaled the central bank’s target rate was still likely to rise above 5% and stay there for some time despite market bets to the contrary.

Following the CPI report, the dollar plunged as much as 1% against the euro, its weakest versus the common currency since April 21.

The euro has been supported by hawkish messaging from European Central Bank officials, with four on Wednesday calling for additional rate increases.

“Our expectations are for another 125 basis points of rate hikes from the ECB and stay there until 2024,” said Chris Turner, global head of markets at ING in London.

“Our core views for Fed policy versus ECB policy would be for a stronger euro-dollar through the year.”

The dollar was down 0.83% versus the euro at USD 1.0845 at 3 p.m. EST (2000 GMT) and down 0.56% against the pound at USD 1.22195.

The US dollar index was down 0.815% at 102.20, its lowest level since June 6.

The greenback slumped as much as 2.7% against the yen, hitting a 6-1/2-month low against the Japanese currency.

The yen was boosted by a Yomiuri report that the Bank of Japan (BOJ) will review the side effects of its monetary easing at next week’s policy meeting and may take additional steps to correct distortions in the yield curve.

The news follows the BOJ’s surprise tweak in December to its bond yield curve control (YCC), though the move has failed to address distortions caused in the bond market by the central bank’s massive bond buying.

“With reports that the BOJ will review its lax monetary policy settings at its upcoming meeting, speculation has grown that another YCC shift will occur this quarter,” said Mazen Issa, senior FX strategist at TD Securities.

That will likely happen at the BOJ’s January meeting, and if not then, by March, he said.

“We expect 122 this quarter and likely in short order,” he said of the dollar-yen currency pair.

The dollar was last down 2.41% versus the yen at 129.35 yen per dollar.

The Aussie rose 0.92% to USD 0.69695, while the kiwi was up 0.52% at USD 0.63995.

China’s offshore yuan was at its strongest level in five months, at 6.7331 per dollar, on optimism that China’s economy is on the road to recovery.

Meanwhile, bitcoin rose for the fifth consecutive day, hitting its highest in a month at USD 18,863.

(Reporting by John McCrank in New York; additional reporting by Samuel Indyk in London and Rae Wee in Singapore; Editing by Mark Potter, Bernadette Baum and Jonathan Oatis)

Dollar dumped after first monthly US CPI fall since May 2020

Jan 12 (Reuters) – The dollar index fell 0.95% on Thursday led by USD/JPY’s 2.5% plunge on BoJ policy tightening speculation, but much more broadly after US overall CPI posted its firstly monthly decline since May 2020, encouraging trading based on the Fed nearing the end of its tightening cycle.

The dollar index pierced a trio of major technical supports in the 102.32-40 range, including the pandemic uptrend line off May 2021’s pivotal low and the 61.8% Fibo of last year’s rally, a close below which could be quite bearish.

There was a short-lived rebound in Treasury yields and the dollar from post-CPI reaction lows on profit-taking and acknowledgement that core inflation, particularly the services less rent of shelter gauge — closely watched by the Fed — trended higher and the claims data reinforced the view the labor market remains tight.

Regardless of those factors and St. Louis Fed President James Bullard reiterating why he, and virtually all Fed speakers of late, think higher rates will be around for a while, the market continues to price in a fed funds terminal rate in June further below 5% with 50bp of rate cuts by year-end.

In contrast, the ECB is expected to hike rates roughly 150bp further by July.

EUR/USD rose 0.84% to its highest since last April as 2-year bund-Treasury yields spreads hit their highest in 11 months and before the invasion of Ukraine hastened EUR/USD’s retreat. Prices are now well above the 61.8% Fibo of the post-invasion slide at 1.0736 and widely expected to rise substantially.

USD/JPY plunged from 132.435 to below the prior trend low at 129.51 in anticipation of the Jan. 18 BoJ meeting producing another 25bp rise in the current 0.5% cap on 10-year JGB, with discussions about further dismantling of its yen-bearish yield curve control policies.

Sterling rose 0.6% on the dollar’s risk-on response to the CPI report.

The Australian dollar and yuan rose 0.85% and 0.6%, respectively, as hopes for China’s COVID reopening remain high.

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

Listing hopefuls on Beijing bourse slash floor IPO prices

SHANGHAI, Jan 12 (Reuters) – A growing number of listing applicants on the Beijing Stock Exchange are slashing the floor prices of their planned initial public offerings (IPOs), as the pandemic-hit companies seek to lure investors in a sluggish corner of China’s reviving stock markets.

The move by nearly a score of IPO hopefuls – including green tech firm Polygree and wireless solution provider Lierda – to lower their minimum offer prices over the past month is being hailed by some investors who expect more market-oriented price-setting on the Beijing bourse.

Unlike the Shanghai and the Shenzhen stock exchanges, the Beijing Stock Exchange – set up about a year ago to fund small companies – require that IPO candidates set a floor price for their share sales to protect the interest of existing shareholders.

Despite a recent share price rally in China on the back of post-pandemic recovery hopes, trading on the Beijing Stock Exchange remains depressed, forcing companies to be practical in their IPO fundraising plans.

Polygree has slashed its minimum IPO offer price to its book value of 5.79 yuan a share, 64% lower than the floor set in June, according to its latest prospectus this week. The company said its net profit nearly halved during the first six months of 2022 due to the COVID pandemic.

Lierda, also slashed its IPO price floor close to its book value of 1.72 yuan per share, from 8 yuan previously, representing a nearly 80% fall. The company’s net profit fell 30.9% in 2022 from the previous year partly due to COVID-19.

Other companies that reduced IPO price expectations include Shandong Inov Polyurethane Co, Xinganjiang Pharma and Sichuan Kezhi Civial Defense Equipment Co.

The rush to slash floor prices is the result of the companies’ blind confidence previously, anaemic trading on the Beijing Stock Exchange, and a desire to woo investors, said Zhou Yunnan, founder of NS Capital Ltd.

Beijing Stock Exchange’s benchmark index the BSE 50 trades at 21 times earnings. In contrast, Shanghai’s tech-heavy STAR Market trades at a price/earnings ratio of 45, while Shenzhen’s start-up board ChiNext trades at an earnings multiple of 39.

“For investors on the Beijing bourse, this is really good news as … lower IPO prices create bigger room for profit” after the IPO shares begin trading, he said.

The view is echoed by SWS Research, which said in a note: “pricing power is given to the market. Superior companies would be selected, while the inferior would be eliminated.”

(Reporting by Shanghai newsroom; Editing by Kim Coghill)

Oil up more than 1% on US inflation data, demand optimism

NEW YORK, Jan 12 (Reuters) – Oil prices gained about USD 1 a barrel on Thursday, supported by figures showing U.S consumer prices unexpectedly fell in December and by optimism over China’s demand outlook.

The US consumer price index dipped 0.1%, suggesting inflation was now on a sustained downward trend. Top oil importer China is reopening its economy after the end of strict COVID-19 curbs, boosting hopes of higher oil demand.

Brent crude settled at USD 84.03 a barrel, rising USD 1.36, or 1.7%. US West Texas Intermediate crude settled at USD 78.39 a barrel, gaining 98 cents, or 1.3%.

Also boosting oil, the US dollar tumbled to a nearly 9-month low against the euro after inflation data lifted expectations that the Federal Reserve will be less aggressive going forward with rate hikes.

“The market was looking forward to the CPI data and the strong possibility the number would spawn a slide in the dollar, with the reverse correlation super sizing the bid in crude oil,” said Bob Yawger, director of energy futures at Mizuho in New York. “Crude Oil is now feasting on the weak dollar.”

On Wednesday, both oil benchmarks jumped 3% on hopes the global economic outlook may not be as bleak as many feared.

“A softer landing for the US, and perhaps elsewhere, combined with a strong economic rebound in China following the current COVID wave could make for a much better year than feared and stimulate extra crude demand,” said Craig Erlam of brokerage OANDA before the CPI data was issued.

The market is also bracing for an additional curb on Russian oil supply due to sanctions over its invasion of Ukraine.

The US Energy Information Administration said the upcoming EU ban on seaborne imports of petroleum products from Russia on Feb. 5 could be more disruptive than the EU ban on seaborne imports of crude oil from Russia implemented in December 2022.

Limiting oil’s gains was a hefty and unexpected jump in US crude oil inventories.

“Other than the China factor and recent lift in the equities amidst some weakening in the dollar, the complex doesn’t appear to possess much bullish impetus, especially when viewed within the context of transparent US crude and product balances,” said Jim Ritterbusch of consultancy Ritterbusch and Associates.

Crude inventories rose by 19 million barrels in the week ended Jan. 6 to 439.6 million barrels. Analysts polled by Reuters had expected a 2.2-million-barrel drop.

(Additional reporting by Alex Lawler, Laura Sanicola and Emily Chow; editing by Kirsten Donovan, David Evans and David Gregorio)

BSP hopes to cut rates in 2024, flags RRR reduction

MANILA, Jan 12 (Reuters) – The Philippines’ central bank governor said on Thursday he hoped benchmark interest rates could be cut in 2024, once inflation was under control, and flagged the prospect of lowering reserve requirements for banks in the first half of the this year.

While pent-up domestic demand will carry the economy this year, it will likely fade by 2024, Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla said in a speech at a Rotary Club event.

“By 2024, when pent-up demand is gone, then monetary policy hopefully at that time will be much looser than what we have now,” he said.

Central banks around the world, led by the US Federal Reserve, have since last year raced to contain elevated inflation through large increases in benchmark rates, dampening economic growth and fueling fears of recession.

Another easing measure could involve banks’ reserve requirement ratio, with a high probability of it being cut in the first half, Medalla told reporters.

“Cutting the RRR is very important to us”, he said.

Monetary authorities last cut the RRR, or the percentage of deposits and deposit substitutes banks must keep with the BSP, by 200 basis points to 12% in March 2020.

The BSP stands ready to take further monetary policy actions to bring inflation back to within a target-consistent path, Medalla said.

The consumer price index rose 8.1% to a 14-year high in December from a year earlier, mainly driven by food and energy costs. The figure brought the average full-year inflation rate to 5.8%, also a 14-year high and above the official 2%-4% target band.

“If the US is increasing policy rates, we need not match it but if it’s 50 (basis points), it’s hard not to respond, at least partially,” Medalla said.

(Reporting by Neil Jerome Morales; Editing by Ed Davies)

Australian shares rise on optimism ahead of US inflation data

Jan 12 (Reuters) – Australian shares rallied on Thursday, driven by broad-based gains across almost all sectors, supported by optimism that upcoming US December inflation data would point to a more resilient economy and a slower pace of interest rate hikes.

The S&P/ASX 200 index jumped 0.6% to 7,240.70 by 2323 GMT. The benchmark finished 0.9% higher on Wednesday.

The US consumer price index for December, crucial for investors placing bets on the Federal Reserve’s next steps, is expected to show annual inflation at 6.5%, down from 7.1% in November. Data is due later in the day.

Investors are expecting a 25 basis points (bps) interest rate increase at the Fed’s February meeting after a 50 bps increase in December.

Back in Australia, miners rose 0.5% as concerns over supply added support to iron ore prices already boosted by brightening demand prospects in top steelmaker China.

Shares of heavyweights Rio Tinto, BHP Group and Fortescue Metals Group added between 0.5% and 1.1%.

Financials gained about 0.6%, with the “Big Four” lenders advancing between 0.3% and 0.7%.

Tech stocks jumped 0.8%, tracking overnight Wall Street gains. ASX-listed shares of Block Inc and shares of accounting software provider Xero Ltd advanced 1.3% and 1.5%, respectively.

Energy stocks jumped 0.5%, as oil prices touched a one-week high on hopes of an improved global economic outlook.

Santos and Woodside Energy rose 0.7% and 0.8%, respectively.

On the other hand, a fall in bullion prices dragged gold stocks 0.6% lower, with sector majors Newcrest Mining and Northern Star Resources falling 0.4% and 0.3%, respectively.

Across the Tasman Sea, New Zealand’s benchmark S&P/NZX 50 index jumped 0.2%to 11,662.93.

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

Gold off 8-month highs as markets brace for US inflation data

Jan 11 (Reuters) – Gold prices held steady after touching an eight-month peak on Wednesday as investors positioned themselves ahead of US inflation data that could influence the Federal Reserve’s policy path.

Spot gold was steady at USD 1,877.51 per ounce by 1:40 p.m. ET (1840 GMT). US gold futures settled up 0.1% at USD 1,878.9.

Prices were trending lower on some “profit-taking from the shorter-term futures traders ahead of the CPI report tomorrow,” said Jim Wyckoff, senior analyst at Kitco Metals, adding that the market could continue to trade sideways ahead of the data.

The US consumer price report will be closely watched, after the Fed slowed its pace of rate hikes to 50 basis points in December after four consecutive 75 bps increases.

Traders see a 77% chance the Fed will raise the benchmark rate by 25 bps to 4.50%-4.75% in February and see rates peaking at 4.92% by June.

Susan M. Collins, the president of the Federal Reserve Bank of Boston, said she was leaning toward a quarter-point interest rate increase at the central bank’s next meeting, the New York Times reported on Wednesday.

Gold is considered an inflation hedge, but is highly sensitive to rising interest rates, which increase the opportunity cost of holding non-yielding bullion.

“This could be a big report if we get another good reading that shows inflation falling faster than anticipated,” said Craig Erlam, a senior market analyst at OANDA.

While worries linger over the scale and impact of the COVID outbreak in top gold consumer China, “over the longer term, China is expected to bounce back strongly, which could stimulate additional demand”, Erlam said.

Spot silver fell 0.9% to USD 23.40 per ounce, platinum was down 0.5% to USD 1,075.63 while palladium was unchanged at USD 1,780.66.

Despite palladium lagging, platinum, gold and silver have been seeing bullish attitudes based upon China’s reopening, Wyckoff said.

(Reporting by Seher Dareen in Bengaluru, additional reporting by Swati Verma; Editing by Tomasz Janowski and Shailesh Kuber)

European shares rise on bets of easing rate hikes

Jan 11 (Reuters) – European shares advanced on Wednesday, buoyed by hopes of less aggressive interest rate hikes, while insurer Direct Line fell sharply after scrapping its full-year dividend.

The pan-regional STOXX 600 climbed 0.4%, with market participants awaiting US inflation data on Thursday for clues on the Federal Reserve’s interest rate policy.

“Investors remain in an upbeat mood going into tomorrow’s US inflation report, buoyed still by the December jobs report and the prospect of the economy being less squeezed by interest rates,” said Craig Erlam, senior market analyst at OANDA.

On Tuesday, Wall Street ended higher and European stocks cut their losses as risk appetite improved on the expectation of softer inflation data and after Fed Chair Jerome Powell refrained from commenting on the US rate policy.

Europe’s STOXX 600 has risen 5.4% so far in the year, helped by a sharp decline in natural gas prices due to warmer weather, and as data pointed to a milder-than-expected recession in the euro zone.

Signs of slowing wage inflation last week also boosted bets of a less aggressive tightening by the Fed and the European Central Bank.

“The real driver of everything this week is the US CPI data due tomorrow and expectations are that it is going to be mildly weaker than expected,” said Mark Taylor, a trader at Mirabaud Securities.

“There is actually maybe a chance that a positive or an inline shock from the CPI may trigger a little bit of profit-taking.”

On Wednesday, rate-sensitive tech stocks rose 1.3%. Energy stocks advanced 0.9%, while miners jumped 0.1% as commodity prices rose on optimism over top consumer China’s reopening of its borders.

Among individual stocks, Direct Line Insurance Group Plc dropped to the bottom of STOXX 600, plunging 23.5% after the British motor and home insurer unexpectedly scrapped its 2022 final dividend.

Rivals Admiral and Aviva fell 6.8% and 2.1%, respectively.

Sainsbury’s, Britain’s second-biggest supermarket group, fell 1.6% after Chief Executive Simon Roberts said he was cautious on the consumer backdrop.

Nevertheless, Britain’s commodity-heavy FTSE 100 hit its highest in more than four years as oil majors and mining giants advanced.

Bayer rose 3.6% as a source told Reuters that activist investor Bluebell was pushing for a break-up of the German pharmaceutical company. Bluebell’s move was first reported by Bloomberg late on Tuesday.

LVMH gained 2.1% after Chairman and Chief Executive Bernard Arnault tightened his family’s grip on the luxury goods empire, putting his daughter Delphine in charge of one of its leading labels, Christian Dior.

Denmark’s Jyske Bank hit an all-time high after hiking its full-year outlook. Peers Danske Bank and Sydbank added 1.0% and 0.9%, respectively.

(Reporting by Bansari Mayur Kamdar and Shreyashi Sanyal in Bengaluru; Editing by Uttaresh.V, Subhranshu Sahu and Alison Williams)

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