Gold prices gain on hopes of smaller US rate hikes

Jan 9 (Reuters) – Gold prices edged higher on Monday and hovered near a seven-month high, supported by a weaker dollar and hopes that the Federal Reserve might slow its pace of interest rate hike.

* Spot gold was up 0.2% at USD 1,868.89 per ounce, as of 0016 GMT. US gold futures also inched 0.2% higher at USD 1,873.80.

* The dollar index was down 0.2%, making gold cheaper for overseas buyers.

* Data showed on Friday that the US economy added jobs at a solid clip in December, as the labor market remains tight, but Fed officials could draw some solace from a moderation in wage gains.

* US services industry activity contracted in December for the first time in more than 2-1/2 years amid weakening demand, offering more evidence that inflation was abating.

* Higher interest rates dim gold’s allure as an inflation hedge and raise the opportunity cost of holding the non-yielding bullion.

* Retail gold buying in major Asian hubs was slow on higher prices at the start of last week, while demand was seen picking up in top consumer China on the back of reopening and upcoming Lunar New Year festival.

* Spot silver gained 0.6% to USD 23.95, while platinum rose 0.5% to USD 1,094.97 while palladium fell 0.1% to USD 1,804.30.

(Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Sherry Jacob-Phillips)

Asia shares rally on US rate hopes, China reopening

SYDNEY, Jan 9 (Reuters) – Asian shares rallied on Monday as hopes for less aggressive US rate hikes and the opening of China’s borders bolstered the outlook for the global economy.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.6%, with South Korean shares gaining 1.1%.

Japan’s Nikkei was closed for a holiday but futures were trading at 26,235, compared with a cash close on Friday of 25,973. S&P 500 futures ESc1 added 0.2% and Nasdaq futures 0.3%.

Earnings season kicks off this week with the major US banks, with the Street fearing no year-on-year growth at all in overall earnings.

“Excluding Energy, S&P 500 EPS (earnings per share) is expected to fall 5%, driven by 134 bp of margin compression,” wrote analysts at Goldman Sachs. “Entering reporting season, earnings revision sentiment is negative relative to history.

“We expect further downward revisions to consensus 2023 EPS forecasts,” they added. “China reopening is one upside risk to 2023 EPS, but margin pressures, taxes, and recession present greater downside risks.”

Beijing has now opened borders that had been all but shut since the start of the COVID-19 pandemic, allowing a surge in traffic across the nation.

Bank of America analyst Winnie Wu expects China’s economy, the second-largest economy in the world, to benefit from a cyclical upturn in 2023 and anticipates market upside from both multiple expansion and 10% EPS growth.

Sentiment on Wall Street got a boost last week from a benign blend of solid US payroll gains and slower wage growth, combined with a sharp fall in service-sector activity. The market scaled back bets on rate hikes for the Federal Reserve.

Fed fund futures 0#FF: now imply around a 25% chance of a half-point hike in February, down from around 50% a month ago.

That will make investors ultra sensitive to anything Fed Chair Jerome Powell might say at a central bank conference in Stockholm on Tuesday.

It also heightens the importance of US consumer price index (CPI) data on Thursday, which is forecast to show annual inflation slowing to a 15-month low of 6.5% and the core rate dipping to 5.7%.

“We at NatWest have lower than consensus CPI forecasts, and if right that will likely solidify the market pricing of 25bps vs 50bps,” said NatWest Markets analyst John Briggs.

“In context, it should still be seen as a Fed that is still likely to hike a few more times and then hold rates high until inflation’s decline is guaranteed – to us that means a 5-5.25% funds rate.”

Friday’s mixed data had already seen US 10-year yields drop a steep 15 basis points to 3.57%, while dragging the US dollar down across the board.

Early Monday, the euro was holding firm at USD 1.0664, having bounced from a low of USD 1.0482 on Friday. The dollar eased to 131.63 yen, away from last week’s top of 134.78, while its index was down a fraction at 103.800.

The Brazilian real had yet to trade after hundreds of supporters of far-right former President Jair Bolsonaro were arrested after invading the country’s Congress, presidential palace and Supreme Court.

The drop in the dollar and yields was a boon for gold, lifting it to a seven-month peak around USD 1,870 an ounce.

Oil prices were steady for the moment after sliding around 8% last week amid demand concerns.

Brent gained 26 cents to USD 78.83 a barrel, while US crude rose 30 cents to USD 74.07 per barrel.

(Reporting by Wayne Cole; Editing by Bradley Perrett)

Payrolls boost sterling as earnings hint at less hawkish Fed path

Jan 6 (Reuters) – GBP/USD firmed on Friday, erasing earlier losses following data in the monthly U.S. jobs report and ISM non-manufacturing PMI that indicated U.S. wage and economic growth was cooling, which may signal a less hawkish Fed path in early 2023 and lend support to a sterling recovery.

Cable’s recovery catapulted it off its pre-payrolls low of 1.1848 to 1.1948 afterward.

The payrolls report left U.S. interest rates lower across the curve, converging UK rates, which could stabilize GBP/USD as markets await more data.

Support by the lower 30-day Bolli at 1.1858, while bruised, is holding but weakness that produces a close within the daily cloud — 1.1899-1.1319 — would facilitate a test of the 50% Fib of 1.1150-1.2446 at 1.1798.

Below there GBP/USD bears would target the 100-DMA at 1.1668 and then the Nov. 10 low at 1.1358.

Sterling gains will be hard-fought, with the 200-DMA at 1.2019 and multiple highs ahead of 1.21 providing resistance.

Traders will focus on U.S. CPI data on Jan. 12 next, which could bolster bears if progress toward lower price growth falters.

(Paul Spirgel is a Reuters market analyst. The views expressed are his own)

Dollar hits four-week peak on resilient US jobs market

LONDON, Jan 6 (Reuters) – The dollar held near an almost one-month high on Friday, after US economic data highlighted a still-tight labour market that could keep the Federal Reserve on its aggressive rate hike path.

The number of Americans filing new claims for jobless benefits dropped to a three-month low last week while layoffs fell 43% in December, data on Thursday showed.

A separate report also revealed that private employment increased by 235,000 jobs last month, far exceeding expectations for a 150,000 increase.

Against a basket of currencies, the US dollar index rose 0.2% to 105.3, having briefly touched a four-week peak of 105.36.

The index was on track for a weekly gain of more than 1.8%, its largest since September.

“Strong labour market data means the narrative that the Fed can keep hiking interest rates is alive,” said Giles Coghlan, chief market analyst at HYCM.

“That’s why we saw the reaction in the dollar to the positive labour data yesterday,” Coghlan added.

Most major currencies were nursing losses on Friday, after the surging greenback knocked them to multi-week lows in the previous session.

The euro extended on the 0.8% decline in the previous session to touch a more than three-week low of USD 1.05075.

Against the Japanese yen, the dollar climbed 0.7% to hit 134.45 yen, its highest level in over a week.

Markets now turn their attention to the closely-watched nonfarm payrolls report due later on Friday, with economists polled by Reuters forecasting the US economy to have added 200,000 jobs in December.

“Today, it’s exactly the same narrative as yesterday. If the labour market is doing well, then we’re likely to see more dollar strength,” HYCM’s Coghlan said, adding that a payrolls number towards the lower end of expectations could see the dollar weaken and give comfort to the Fed that their hiking cycle is working.

December’s flash inflation figures for the euro zone will also be out on Friday, where expectations are for an annual inflation rate of 9.7%, down from 10.1% in November.

Data from Germany, France, Italy and Spain have already showed a slowdown in inflation last month, suggesting that euro zone consumer prices should have eased in December.

“Lower energy prices are likely to have driven a marked fall in headline CPI inflation in December,” said Hann-Ju Ho, senior economist, commercial banking at Lloyds Bank in a note.

“However, this will likely provide limited comfort for ECB policymakers, especially as core inflation excluding food and energy is forecast to continue accelerating.”

Elsewhere, sterling was last 0.2% lower at USD 1.1883, having fallen to a six-week low of USD 1.1873 on Thursday.

The Aussie was last little changed at USD 0.6753, after sliding 1.3% in the previous session and reversing most of the gains it made earlier in the week on news that China has eased its restrictions on coal imports from Australia.

The kiwi was flat at USD 0.6220, following a 1% slump on Thursday, and was on track for a weekly loss of close to 2%, its worst since September.

(Reporting by Samuel Indyk in London and Rae Wee in Singapore; Editing by Jacqueline Wong and Kim Coghill)

Global stocks tepid before US jobs test; dollar stands tall

LONDON, TOKYO, Jan 6 (Reuters) – Global equities were set to end the first week of 2023 on a tepid note and the dollar stood tall as fears of higher US interest rates hit market sentiment.

The MSCI World equity index traded steadily on Friday, on course for its fifth consecutive weekly drop despite a brief rally earlier in the week.

The dollar also touched a one-month high against major currencies on Friday as investors braced for the crucial US non-farm payrolls report later in the day.

The official jobs report comes after private payrolls data on Thursday showed a bigger than expected rise in employment and a drop in jobless claims, underscoring the Fed’s determination to prevent a doom loop of rising wages and prices that would embed high inflation in the world’s dominant economy for longer.

Investors have started “to price in a more aggressive path of rate hikes from the Fed”, Deutsche Bank strategist Jim Reid said.

According to a Reuters survey of economists, the non-farm payrolls report is expected to show on Friday that 200,000 jobs were created in December, easing from November’s 263,000 pace but still about double the level the Fed considers sustainable.

Traders will also zero in on any gains in hourly wages, Reid cautioned, “given the Fed’s focus on wage inflation” while there was “little doubting the still strong labour market.”

US two-year Treasury yields, which track interest rate expectations, spiked to a more than two-month high of 4.497% overnight before easing to 4.4561% in early European trading. The 10-year yield, which rose as high as 3.784% in New York overnight, dropped to 3.7088%.

“There is concern that the labour market isn’t showing any signs of cooling,” putting financial markets “very much on edge”, said Tony Sycamore, a market analyst at IG.

The dollar index, which measures the greenback against six counterparts including the yen and euro, stood at 105.24, having earlier touched 105.31 for the first time in a month.

The dollar index is up about 1.7% this week, putting it on course to snap a streak of three losing weeks. It is shaping up for the best performance since late September.

In Europe, the broad Stoxx 600 equity index opened 0.4% higher on Friday as falling gas prices combined with mild winter weather boosted hopes for that the region may overcome the worst of its inflation crisis. Germany’s Xetra Dax traded flat.

US E-mini stock futures were steady, after a 1.16% overnight slide for the S&P 500.

The euro was little changed at USD 1.05255, after earlier easing to USD 1.0511, a level last seen on Dec. 12.

(Reporting by Naomi Rovnick and Kevin Buckland; Editing by Bradley Perrett, Sam Holmes and Barbara Lewis)

China stocks shine in first week of 2023 on economic recovery hopes

Updates to market close

SHANGHAI, Jan 6 (Reuters) – China stocks logged a five-day winning streak on Friday on investors’ expectations that the economy would soon emerge from its COVID woes and stage a robust recovery in 2023.

** China’s blue-chip CSI 300 Index .CSI300 closed up 0.3%, while the Shanghai Composite Index .SSEC added 0.1%.

** Hong Kong’s Hang Seng Index .HSI and the Hang Seng China Enterprises Index .HSCE slipped 0.3% and 0.4%, respectively, after rising in the previous four sessions.

** For the week, the CSI 300 Index gained 2.8%, while the Hang Seng benchmark advanced 6.1% to touch a six-month high.

** Other Asian equities also gained, while the dollar hovered near a one-month high as investors braced for crucial U.S. jobs data later in the day that should provide clues on how aggressive the Federal Reserve will be in tightening policy.

** “A-share sentiment recovered steadily post new year,” said Morgan Stanley analysts in a note.

** “We expect nationwide infections to peak in January … an earlier peak in infection cases implies earlier normalization in economic activity. We thus expect the economy to start a strong recovery in 2Q23,” J.P.Morgan analysts wrote in a note.

** Foreign investors bought a net 20 billion yuan ($2.9 billion) of Chinese stocks via the Stock Connect Scheme this week, the biggest weekly purchase amount since Dec. 2.

** As COVID curbs have been scrapped, China expects the total number of passenger trips made by travellers during the upcoming Lunar New Year to reach 2.1 billion this year, double from last year’s 1.05 billion during the same period.

** New energy shares .CSI399808 added 3.2% to lead the gains, while tourism .CSI930633, healthcare .CSIHCSI lost 2.3% and 0.9%, respectively.

** Tech giants listed in Hong Kong .HSTECH declined 1.4% as some investors booked profits after recent gains, with Meituan 3690.HK down 4.3% as the biggest drag on the Hang Seng benchmark.

** Hong Kong’s Hang Seng Mainland Properties Index .HSMPI rose 1.7%, lifted by more state support for the highly indebted sector struggling with weak sales and investments as China reopens its economy.

** Morgan Stanley said Chinese equities would likely lead global stock market performance in 2023, and advised investors to be overweight on China within global equity portfolios with a skew towards the offshore space.

(Reporting by Shanghai Newsroom
Editing by Vinay Dwivedi and Gareth Jones)

((Jason.Xue@thomsonreuters.com))

Oil prices edge up on optimism over China’s reopening

SINGAPORE, Jan 6 (Reuters) – Oil prices rose as much as USD 1 on Friday, extending gains from the previous session, supported by hopes of a China demand boost and after data showed lower US fuel inventories following a winter storm that hit at the end of the year.

Brent crude futures were 75 cents, or 1%, higher at USD 79.44 a barrel at 0645 GMT, after settling 85 cents stronger at USD 78.69 on Thursday.

US West Texas Intermediate crude futures were up 74 cents, or 1%, at USD 74.41 a barrel. They had settled 83 cents higher at USD 73.67 in the previous session.

“China’s reopening optimism, especially further stimulus measures to boost the property sector, is the main bullish factor for the oil prices, which has improved the demand outlook in the near year,” said Tina Teng, an analyst at CMC Markets.

“A softened US dollar has also added upside momentum to the oil markets,” she added.

China announced more state support measures on Thursday, including establishing a dynamic adjustment mechanism on mortgage rates for first-time home buyers, in a bid to boost its highly indebted property sector, which accounts for a quarter of the country’s economy.

The total number of passenger trips via road, rail, water and air during the upcoming Lunar New Year is expected to reach 2.1 billion this year, transport officials said on Friday, double the 1.05 billion during the same period last year.

Daily passenger flights scheduled during the holiday season beginning on Saturday are averaging 73% of pre-pandemic levels in 2019.

China, the world’s largest crude oil importer, has ended its stringent zero-COVID policy, leading to a surge in COVID infections across the country.

In the US, data from the Energy Information Administration (EIA) showed on Thursday that distillate inventories, which include diesel and heating oil, dropped more than expected in the week to Dec. 30. They fell by 1.4 million barrels, compared with expectations of a 396,000-barrel drop.

Meanwhile, US gasoline stocks fell 346,000 barrels last week, according to the EIA data, compared with analysts’ expectations for a 486,000-barrel drop.

On a weekly basis, however, oil prices were on track to end lower, with both the Brent and WTI contracts down around 7% on a week earlier. Concern about the possibility of a global recession have weighed on trading sentiment.

“Oil is trying to rally but demand concerns are keeping the gains small,” said Edward Moya, senior market analyst at OANDA, in a note.

“The Saudis are slashing prices as the short-term crude demand outlook seems like it won’t quite get a major boost from a robust China reopening.”

The world’s top crude exporter Saudi Arabia lowered prices for the flagship Arab light crude it sells to Asia to its lowest since November 2021 amid global pressures hitting oil.

(Reporting by Emily Chow; Editing by Stephen Coates and Bradley Perrett)

Dollar’s vice grip on FX markets to loosen this year – analysts

BENGALURU, Jan 6 (Reuters) – The dollar’s vice grip on FX markets will loosen a bit this year, according to analysts in a Reuters poll who expect most currencies to post marginal gains against the greenback over the coming 12 months.

After enjoying complete domination over nearly every currency last year with the dollar index having its best annual performance since 2015, the run is over as the US currency is expected to give back some of its gains this year.

The Reuters Jan. 3-5 poll of 65 forex strategists showed most major and emerging currencies gaining against the dollar over the coming year.

But with factors that helped the dollar’s outperformance expected to linger the predicted gains would be limited and not enough to offset heavy losses from the past couple of years.

“There is a general perception the dollar has peaked, but I don’t think we’re going to have a straight-line movement of dollar losses,” said Jane Foley, head of FX strategy at Rabobank.

“Even though the market is already beginning to debate when the Fed could potentially start to cut interest rates… hikes are still to come… there are also concerns about global growth and the combination of these two mean the dollar is likely to find bouts of strength.”

Asked whether the dollar risked ending 2023 higher or lower than their predicted levels, a strong 60% majority of analysts – 30 of 50 who answered the additional question – said the risk was to the upside while the other 20 said there was downside risk to their forecast.

Despite being wrong-footed for years predicting dollar weakness, analysts still clung to that view in the latest poll.

The euro, down nearly 13% over the last two years, was expected to only recoup around a third of those losses in a year.

Median forecasts showed the euro will trade at USD 1.04, USD 1.06 in the next three and six months respectively. It is then forecast to change hands around USD 1.10 in a year, a near 4% gain from current levels.

The Japanese yen took a beating last year, losing over a fifth of its value until late December when the Bank of Japan made a surprise tweak to its bond yield curve control. But it still ended the year 12% lower against the dollar.

It is expected to gain nearly 4% to trade at 128.00/dollar by the end of 2023.

With an expected slowdown in global economic growth and uncertainty over how long central banks will keep interest rates higher to temper inflation, analysts were split over which currencies would perform better against the dollar this year.

A strong minority of analysts, 24 of 50, said emerging market currencies; 13 said developed market currencies; nine said safe-haven currencies; and four said commodity-linked currencies.

“The emerging market currencies can probably outperform relative to the G10 and then also relative to the dollar over the longer term,” said Brendan McKenna, international economist and FX strategist at Wells Fargo.

“We’re still in an environment where yields associated with the emerging market currencies are still the highest and probably the most attractive.”

(Reporting by Hari Kishan; Analysis by Sarupya Ganguly; Polling by Mumal Rathore and Indradip Ghosh; Editing by Susan Fenton)

Gold falls as tight US labor market suggests higher rates

Jan 5 (Reuters) – Gold prices pared losses on Thursday after Fed remarks of inflation easing in 2023, after slipping more than 1% on reports of a tighter-than-expected US labor market boosting expectations of higher interest rates for longer.

Spot gold pared losses and fell 0.9% to USD 1,837.01 per ounce by 1:40 p.m. ET (1840 GMT), earlier falling as low as USD 1,824.08.

US gold futures settled down around 1% at USD 1,840.6.

The strength in the dollar index was weighing on gold, said Phillip Streible, chief market strategist at Blue Line Futures in Chicago, highlighting that the Fed would continue to remain hawkish for longer as the labor market continues to be strong.

The dollar was up 0.7%, making gold more expensive for holders of foreign currencies, yet benchmark 10-year yields edged lower.

Higher interest rates tend to weigh on non-yielding bullion since it pays no interest.

The number of Americans filing new claims for unemployment benefits dropped to a three-month low last week while layoffs fell 43% in December, pointing to a tight labor market.

The US economic outlook presented by Fed staff at last month’s meeting suggested that the battle to lower prices may last longer than anticipated.

While a couple of Fed officials on Thursday reiterated their fight to lower inflation back to its 2% target, yet St. Louis leader James Bullard said 2023 could finally bring some welcome relief on the inflation front.

Traders now await the US Labor Department’s nonfarm payrolls (NFP) data on Friday.

“If we get the same kind of ‘beats-expectations’ (report), we’ll probably see another extension lower on gold and silver – USD 1,805-USD 1,800 is your key level support,” Streible added.

Spot silver fell 1.7% to USD 23.32 per ounce, platinum dropped 1.5% to USD 1,062.06 while palladium fell 2.8% to USD 1,738.75.

(Reporting by Seher Dareen in Bengaluru; Editing by Devika Syamnath and Shailesh Kuber)

Investors bid sayonara to sub-zero yields as Japan’s bonds turn positive

LONDON, Jan 5 (Reuters) – Government bonds around the world now all have positive yields, after rates in Japan, the last hold-out, rose following the country’s surprise move to inch towards normalizing monetary policy last month.

The milestone illustrates the dramatic turnaround in global policy over the last year, as central banks, one by one, ditched their previous ultra-loose monetary stance.

The global stock of bonds for which investors received sub-zero yields peaked at USD 18.4 trillion in late 2020, with over 4,600 bonds, according to a Bloomberg index of fixed-rate notes.

Many of the world’s largest central banks, including the European Central Bank and Bank of Japan, had been holding their policy rates below zero percent to provide stimulus for their economies to weather the pandemic.

It climbed back near that level again in August 2021 as worries that the emerging Omicron variant of COVID-19 would suppress efforts at re-opening of major economies but began its sharp and persistent fall afterward when it became clear that inflation – not growth – was emerging as the top risk for central banks.

The last negative-yield bond in the series – a Japanese government bond maturing in March 2024 – finally dropped out of the index on Wednesday as its yield edged above zero, according to the data.

Europe’s negative-yielding debt pool made up as much as three-quarters of the sovereign debt market in late 2020 or roughly 6.7 trillion euros, as the COVID-19 pandemic hurt the economy and kept rates near record lows.

However, the amount of negative-yielding debt fell sharply towards zero last year as the ECB and Swiss National Bank jacked up interest rates rapidly to contain decades-high inflation.

That left Japan’s as the only major global central bank that has stuck with negative interest rates, but even the BOJ last month surprised markets by tweaking its policy of yield curve control.

The change fueled market speculation that the central bank could normalize policy further, sending yields higher across the curve.

At the long end, the 20-year JGB yield reached 1.35% on Thursday, its highest since October 2014.

Jim Reid, strategist at Deutsche Bank, described the end of negative yielding global debt as a “landmark event” in a note to clients.

“For now, this looks set to be the welcome end of an era as some value returns to global fixed income,” he said.

(Reporting by Alun John in London and Dan Burns in New York; Additional reporting by Dhara Ranashinghe; Editing by Hugh Lawson)

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