Dollar higher as strong US data backs a hawkish Fed

NEW YORK, Jan 26 (Reuters) – The dollar edged higher against the euro on Thursday after data showed the US economy maintained a strong pace of growth in the fourth quarter, backing the case for the US Federal Reserve to maintain its hawkish stance for longer.

Gross domestic product increased at a 2.9% annualised rate last quarter, the Commerce Department said in its advance fourth-quarter GDP growth estimate. The economy grew at a 3.2% pace in the third quarter. Economists polled by Reuters had forecast GDP rising at a 2.6% rate.

A separate report from the Labor Department showed initial claims for state unemployment benefits dropped 6,000 to a seasonally adjusted 186,000 for the week ended Jan. 21.

“A somewhat mixed picture painted by the US data,” said Stuart Cole, head macro economist at Equiti Capital in London.

The data point to an economy that is continuing to show resilience in the face of the rapid monetary tightening so far delivered by the Fed, Cole said.

“But a big contributor to this growth story was inventories, a component that is almost certain to weaken as we go through 2023,” he said.

“I think it reinforces the expectation of the Fed moving to 25 basis points moves now,” Cole said.

The euro was 0.23% lower at USD 1.08895, but not far from the nine-month high of USD 1.09295 touched on Monday.

Against the yen, the dollar was up 0.54% at 130.275 yen.

Attention now turns to next week’s central bank meetings, including the Federal Reserve and the European Central Bank.

Traders broadly expect the Fed to increase rates by 25 basis points (bps) next Wednesday, a step down from a 50 bps increase in December. Meanwhile, the ECB has all but committed to raising its key rate by half a percentage point next week.

Sterling was about flat on the day against the US dollar, on pace to log a narrow gain for the week, its third straight weekly rise, even as traders remained concerned about the task facing the Bank of England in controlling inflation without damaging an economy already in recession.

The Aussie touched a new 7-month high of USD 0.71425 on growing expectations that more Reserve Bank of Australia interest rate hikes are due after data showed Australian inflation surged to a 33-year high last quarter.

The Canadian dollar rose to a two-month high against its US counterpart on Thursday, a day after the Bank of Canada raised interest rates as expected in a move that could mark the end of the central bank’s aggressive tightening campaign.

Meanwhile, bitcoin was little changed on the day at USD 23,123, continuing to tread water after having jumped by about a third in value since early January, following big losses spurred by the high-profile collapse of the FTX crypto exchange.

(Reporting by Saqib Iqbal Ahmed; Editing by Mark Potter and Andrew Heavens)

Oil settles up 2% on strong US data, China reopening

NEW YORK, Jan 26 (Reuters) – Oil prices rose about 2% on Thursday on expectations that global demand will strengthen as top oil importer China reopens its economy and on positive US economic data.

Brent futures rose USD 1.35, or 1.6%, to settle at USD 87.47 a barrel, while US West Texas Intermediate (WTI) crude rose 86 cents, or 1.1%, to settle at USD 81.01.

The US economy grew faster than expected in the fourth quarter, but a measure of domestic demand rose at its slowest pace in 2-1/2 years, reflecting higher borrowing costs.

“Crude prices got an unexpected boost from a US economy that doesn’t want to break,” said Edward Moya, senior market analyst at data and analytics firm OANDA.

US crude inventories edged up by 533,000 barrels to 448.5 million barrels in the week ending Jan. 20, the Energy Information Administration (EIA) said.

That was short of forecasts for a 1 million barrel rise, though the EIA says crude stocks are at their highest since June 2021.

China has been easing stringent COVID-19 restrictions this month, with Beijing reopening borders for the first time in three years.

“China’s reopening is supporting demand prospects,” said UBS analyst Giovanni Staunovo.

“Also, market participants are closely tracking the upcoming OPEC+ JMMC (Joint Ministerial Monitoring Committee) meeting and the EU (European Union) embargo on refined products,” Staunovo said.

The Organization of the Petroleum Exporting Countries (OPEC) and their allies, including Russia, are collectively known as OPEC+.

The OPEC+ ministerial panel meeting on Feb. 1 is likely to endorse the oil producer group’s current output levels, OPEC+ sources said.

Global economic growth is forecast to barely move above 2% this year, a Reuters poll of economists showed, suggesting a further downgrade is possible. That was at odds with widespread optimism in markets since the beginning of the year.

(Additional reporting by Ahmad Ghaddar in London and Jeslyn Lerh in Singapore; Editing by David Goodman, Kirsten Donovan, Jane Merriman and David Gregorio)

Asian shares scale fresh 7-month high as Hong Kong trade resumes

SINGAPORE, Jan 26 (Reuters) – Asian equities rose to a fresh seven-month high on Thursday, with Hong Kong shares playing catch-up to other markets’ gains as trade resumed after its three-day Lunar New Holiday.

MSCI’s broadest index of Asia-Pacific shares outside Japan climbed 0.56% to 555.81. Hong Kong’s Hang Seng index was 1.6% higher.

Japan’s Nikkei was, however, 0.25% lower.

Trading was thin on Thursday with Australia closed for a holiday and certain parts of Asia, including China, still away for the Lunar New Year.

Traders betting that the US Federal will soon tone down its aggressive rate hike policy got a lift after the Bank of Canada on Wednesday became the first major central bank to say it would likely hold off on further increases for now.

After a series of super-sized rate hikes last year, the US central bank is now largely expected to raise rates by a smaller 25 basis points next week on signs that inflation is cooling.

“The US GDP release today will be of key interest to gauge whether the market expectations shifting in favor of a soft landing rather than a recession can continue to hold,” Saxo strategists said in a note to clients.

The prospect of a less aggressive pace in monetary tightening has stoked expectations of a so-called soft landing – a scenario in which inflation eases against a backdrop of weakening but resilient economic growth.

But weak corporate earnings so far have revived worries over the economic impact of the Fed’s restrictive policy and the S&P 500 ended lower overnight.

Boeing Co (BA) on Wednesday reported a wider loss for 2022 on weakness in its defense unit as it warned of further supply chain issues, with the US planemaker missing Wall Street expectations on revenue and earnings per share in the final quarter of the year.

Investor attention will also be on the Bank of England and European Central Bank meetings due next week, with traders looking for clues as to when the central banks are likely to turn dovish.

In the currency market, the dollar index, which measures the US currency against six major rivals, was at 101.57, not far off the eight-month low of 101.51 it touched last week.

The Japanese yen strengthened 0.32% to 129.19 per dollar, while sterling was last trading at USD 1.2407, up 0.06% on the day.

The yield on 10-year Treasury notes was down 1.7 basis points at 3.445%, while the yield on the 30-year Treasury bond was down 2.2 basis points at 3.602%.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at -68.8 basis points. The inversion of this curve has predicted eight of the last nine recessions, analysts have said.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was down 0.6 basis points at 4.131%.

Oil prices were up as US crude stocks rose less than expected, with US West Texas Intermediate (WTI) crude rising 0.42% to USD 80.49 per barrel and Brent at USD 86.24, up 0.14% on the day.

Gold prices hit a nine-month high on Thursday, with spot gold flat at USD 1,946.73 per ounce after hitting its highest level since April 2022.

(Reporting by Ankur Banerjee; Editing by Edwina Gibbs)

Oil edges up as U.S. crude inventories rise less than expected

EIA shows U.S. crude stocks up less than expected

U.S. dollar eases

Global 2023 economic view downgraded, at odds with market

By Laila Kearney

Jan 26 (Reuters) – Oil prices were up in early Asian trade on Thursday as U.S. crude stocks rose less than expected, while a weaker dollar made oil cheaper for non-American buyers.

Brent crude futures LCOc1 had risen 12 cents to $86.24 per barrel by 0119 GMT, while U.S. West Texas Intermediate (WTI) crude CLc1 futures gained 30 cents to $80.45.

Crude inventories rose by 533,000 barrels to 448.5 million barrels in the week ending Jan. 20, the Energy Information Administration (EIA) said. That was substantially short of forecasts for a 1 million barrel rise.

Despite the smaller-than-expected crude build, crude stocks reached the highest level since June 2021, the EIA said. nL1N34A1F4

Also helping to boost oil was the U.S. dollar, which weakened against the euro on Wednesday as investors largely paused any big bets ahead of next week’s central bank meetings, including those of the Federal Reserve and the European Central Bank. nL1N34A0ZW

A factor that kept oil from moving higher was concern about a slowing global economy hampering fuel demand.

Global economic growth is forecast to barely move above 2% this year, according to a Reuters poll of economists, who said the greater risk was a further downgrade to their view. That was at odds with widespread optimism in markets since the beginning of the year. nW1N33O00T

(Reporting by Laila Kearney in New York; Editing by Bradley Perrett)

((Laila.kearney@thomsonreuters.com; (917) 809-0054))

Gloomy economic signals

Jan 26 (Reuters) – South Korea and the Philippines’ GDP data are on the Asian data docket for investors on Thursday, as the upbeat mood that has propelled global stocks and risk assets higher this year shows signs of fading.

Some gloomy signals from the latest US earnings reports, a stream of tech sector layoffs and worries over global growth are overshadowing hopes that the Fed and other central banks will take their foot off the monetary tightening pedal.

The Bank of Canada was the latest to signal a pause, indicating on Wednesday it would likely halt further hikes after lifting its key interest rate to 4.5%. Some Asian central banks have done likewise in recent weeks.

Of course, the end of the tightening cycle could be in sight for many central banks because the lagged effects of previous rate hikes have not yet been fully felt and policymakers expect growth to slow.

Investors on Thursday will get the latest snapshot on the health of two Asian economies – the Philippines and South Korea – before world markets get the first estimate of US growth in the October to December period later in the day.

South Korea’s economy is expected to have shrunk 0.3% in the fourth quarter of last year, the first quarterly contraction since the onset of COVID-19 in early 2020.

South Korea’s fortunes are closely tied to the global tech sector and its largest trading partner, China. Both are navigating choppy waters.

Still, Asian stocks are flying. MSCI’s broadest index of Asia-Pacific shares ex-Japan hit a seven-month high on Wednesday. Remarkably, the index is up 30% from an October low struck exactly three months ago, and it has risen 11 out of the last 13 weeks.

It may be due a correction, and if that comes on Thursday, it will be on greater volume than the three days of gains this week as some Asian markets re-open after the Lunar New Year holidays.

China, however, is still closed.

(Reporting by Jamie McGeever in Orlando, Fla.; Editing by Josie Kao)

Dollar edges down as traders look to central banks for cues

NEW YORK, Jan 25 (Reuters) – The dollar edged down against the euro on Wednesday in subdued trading as investors were hesitant to make any big bets ahead of next week’s central bank meetings, including the Federal Reserve and the European Central Bank.

In addition, much of Asia is observing Lunar New Year holidays. As a result, most major currencies clung to familiar ranges.

“Trading ranges remain remarkably compressed ahead of next week’s central bank meetings,” said Karl Schamotta, chief market strategist at Corpay.

“With global demand conditions holding up, inflation subsiding, and terminal rate expectations well below their peaks, last year’s big directional trades have given way to a more nuanced landscape,” Schamotta said.

Lack of any big US data releases on Wednesday contributed to sluggish trading conditions.

Still, with the US Commerce Department set to release its initial advance fourth-quarter gross domestic product estimates on Thursday, there was potential for market moves picking up later this week, Schamotta said.

“Surprises are possible in the gross domestic product and personal consumption numbers due tomorrow and the next day. If the post-pandemic era has taught us anything, it’s that ‘bullwhip effects’ can have deeply unpredictable consequences for the real economy,” he said.

The euro was 0.06% higher at USD 1.0895, not far from the nine-month high of USD 1.0927 touched on Monday.

Data on Tuesday showed euro zone business activity made a surprise return to modest growth in January. Expectations of further rate increases by the European Central Bank have also supported the euro.

German business morale improved in January, according to Ifo Institute survey data released Wednesday, as inflation eased and the outlook brightened.

In contrast, US business activity contracted for the seventh-straight month in January, data showed on Tuesday, though the downturn moderated across manufacturing and services for the first time since September.

The dollar was down 0.45% against the yen , at 129.575 yen per dollar, having hit a near 8-month low of 127.215 on Jan. 16.

Elsewhere, the Australian dollar surged to a more than five-month high on Wednesday after inflation data came in hotter than expected, bolstering the case for further rate increases from the Reserve Bank of Australia.

The Australian dollar was last up 0.28% to USD 0.7065.

Meanwhile, the New Zealand dollar was down 0.81% to USD 0.6455, after the country’s annual inflation of 7.2% in the fourth quarter came in below its central bank’s 7.5% forecast.

Sterling was -0.1% lower against the dollar after data showed British manufacturers unexpectedly lowered their prices in December, which suggested inflation may be easing, ahead of next week’s Bank of England policy meeting.

The dollar rose against its Canadian counterpart after the Bank of Canada on Wednesday hiked its benchmark overnight interest rate by 25 basis points to 4.5%, its highest level in 15 years, and said it would likely pause to measure the cumulative effect of previous increases.

Meanwhile, bitcoin was little changed on the day at USD 22,520, continuing to tread water after having jumped by about a third in value since early January, following steep losses after the high-profile collapse of the FTX crypto exchange.

(Reporting by Saqib Iqbal Ahmed and editing by Sharon Singleton)

US corporate bond rally stumbles on ‘Goldilocks’ skepticism

Jan 25 (Reuters) – A New Year rally in US corporate bonds has started to lose some momentum, as some investors become skeptical of recent optimism about a ‘Goldilocks’ economic scenario of slowing inflation against a backdrop of moderate growth.

Credit spreads for both investment-grade and high-yield bonds have been tightening in recent months, and more so this month, as lower inflation prints raised hopes of a pivot in the Federal Reserve’s current hawkish policy.

Seen as a measure of perceived risk compared to holding safer government bonds, spreads for investment grade bonds narrowed some 10 basis points so far in January and in total about 37 basis points since early October, while junk-rated debt spreads have come in 52 basis points and 116 basis points, respectively, in the same period.

But this tightening spree may be nearing an end, said analysts and investors.

“Credit spreads have rallied across the board since the beginning of the year despite heavy (new bond) issuance and are at multi-month tights. This puts the credit market at odds with economic forecasts and the rates market,” Barclays strategists said in a recent note.

They said US investment grade bonds rated BBB implied a 30% chance of recession, and CCC rated bonds implied a 35% chance. By comparison, economists polled by Reuters last month put a 60% probability on a recession taking place in 2023.

Behind the risk-on approach was optimism about the macroeconomic outlook: Easing inflation, accompanied by signs of a weakening but resilient economy, leading to a so-called soft landing where the Fed tames price pressures without pushing the economy into a recession.

But that theory is getting pushback from some investors, and price moves in recent days have started to reflect some caution. Spreads on investment grade bonds widened for the first time this year last week, though only marginally, and an index of credit default swaps – a derivative some investors use to either hedge their positions or to short credit – rose last week for investment grade debt.

Money markets bet the Fed will start cutting rates towards the end of the year, while Fed officials forecast interest rates to remain higher for longer.

“There is a collision waiting to happen between market expectations of a Fed rate cut later in the year and the growing evidence of a global economic recovery that may keep inflation high so might not lead to a reversal in Fed policy,” said Bruce Clark, senior macro strategist at Informa Global Markets.

Corporate spreads seem “rich,” or over-valued, because they do not fully account for the risk of a recession or economic slowdown where the Fed may not be as accommodative in its policy as in previous downturns, said Dan Krieter, director (FI Strategy) at BMO Capital Markets.

“Even though (companies’) balance sheets are pretty strong here, we’re going to be heading into a recession or strong slowdown, where the Fed’s response function could be different than previous recessions,” Krieter said. “Credit markets would have to play out on their own without the Fed’s massive, extraordinary accommodative policy, unlike the last two recessions.”

For now, corporate bond spreads are still holding but the potential for significant further tightening has narrowed, said Pramod Atluri, fixed income portfolio manager at Capital Group and principal investment officer on Bond Fund of America.

In the most bullish scenario, investment-grade bond spreads could tighten another 20 to 30 basis points, but they could widen much more if the economic downturn is deeper than anticipated, he added.

While currently overweight credit, Atluri said he would consider lightening up that exposure should spreads tighten more because any upside would be further limited, increasing his allocation to government bonds instead.

(Reporting by Davide Barbuscia and Matt Tracy; Editing by Shankar Ramakrishnan and Andrea Ricci)

Gold hovers near nine-month high, focus turns to US data

Jan 25 (Reuters) – Gold reversed course to edge up on Wednesday as the dollar weakened, and investors kept a close eye on a slew of upcoming US economic data that could influence the Federal Reserve monetary policy meeting next week.

Spot gold rose 0.2% to USD 1,940.49 per ounce by 1:40 p.m. ET (1840 GMT). US gold futures settled up 0.4% to USD 1,942.6.

Prices had fallen by up to 0.6% earlier in the session.

Some corrective price action and profit-taking from traders are the reasons for the slight pullback earlier today in gold, which “could be argued as being healthy for the uptrend to be extended,” said Jim Wyckoff, senior analyst at Kitco Metals.

Gold prices rose to a nine-month high on Tuesday as fears over a global recession and hopes around slower rate hikes from the US central bank boosted its allure.

The dollar was 0.3% lower on Wednesday, making gold more attractive to holders of foreign currencies.

The US Commerce Department is expected to unveil its initial advance fourth-quarter gross domestic product (GDP) estimates on Thursday, which could set the tone for the Fed’s Jan. 31-Feb. 1 policy meeting.

US weekly initial jobless claims, new home sales and durable goods orders are also on the radar for Thursday.

Traders see the policy rate peaking at 4.91% in June, even though Fed policymakers have repeatedly backed taking rates above the 5% level.

Lower interest rates tend to be beneficial for bullion as they decrease the opportunity cost of holding the non-yielding asset.

“Gold’s run was sparked by a change in sentiment in how quickly the Fed will pause its rate hikes,” along with the weakening in crypto exchange FTX and the US dollar, said Rupert Rowling, market Analyst at Kinesis Money in a note.

“Gold will need a fresh catalyst to push it higher than the elevated level it is already trading at.”

Elsewhere, spot silver rose 0.6% to USD 23.81 per ounce, platinum dropped 1.5% to USD 1,041.63 while palladium was down 2.7% to USD 1,696.50.

(Reporting by Seher Dareen in Bengaluru; Editing by Elaine Hardcastle and Krishna Chandra Eluri)

NYSE says manual error triggered major trading glitch

Jan 25 (Reuters) – The New York Stock Exchange said on Wednesday a manual error triggered a technical issue that prevented the opening auctions in some listed stocks, leading to widespread confusion and attracting a review from the US Securities and Exchange Commission.

The glitch, which occurred on Tuesday, impacted stocks of major companies including 3M (MMM), Wells Fargo & Co WFC.N and Verizon Communications Inc (VZ).

The NYSE, owned by Intercontinental Exchange Inc (ICE), said it began trading in 2,824 securities without an opening auction, which led to erroneous prices, with nearly 4,341 trades in 251 securities “busted”, or nullified. The exact cost of the fallout was still unclear.

The exchange also said it had erroneously triggered a sell short restriction (SSR) on about 80 securities on Tuesday.

The SSR is a process aimed at limiting short selling to prevent traders from pushing the shares of a company lower.

“The NYSE is trying to make up for that lost time by allowing people to trade the way they would have yesterday,” Sam Stovall, chief investment strategist at New York-based CFRA Research, said.

That could potentially lead to volatile trading on Wednesday but it was “nothing investors have to worry about”, Stovall added.

NYSE said it was expecting a normal open on Wednesday.

(Reporting by Niket Nishant and Johann M Cherian in Bengaluru; Editing by Anil D’Silva)

Oil prices steady after smaller-than-expected US crude build

BENGALURU, Jan 25 (Reuters) – Oil prices settled largely unchanged on Wednesday after government data showed a smaller-than-anticipated build in US crude inventories, countering weak economic data from Tuesday.

Brent crude futures settled at USD 86.12 a barrel, down a cent, while the US West Texas Intermediate (WTI) crude futures settled at USD 80.15 a barrel, up by 2 cents.

The Brent benchmark had dropped 2.3% and WTI futures slipped 1.8% in Tuesday’s session after data showed US business activity contracted in January for the seventh straight month, raising concerns about an economic slowdown.

“End of the day here, the market is starting to get a little more anxious about the economy and things along those lines,” Mizuho analyst Robert Yawger said. “Main worry at this point is demand destruction due to an economic slowdown.”

WTI prices briefly rose by over USD 1 per barrel on Wednesday after the Energy Information Administration (EIA) said that US crude inventories rose by 533,000 barrels in the last week to 448.5 million barrels. Analysts polled by Reuters were expecting a 1-million-barrel rise.

“The market is taking the report as somewhat supportive,” said Phil Flynn, analyst at Price Futures Group.

“If we look at crude, the increase in stocks was much smaller than anticipated, and that is raising concerns about tightness in supply. There is no backup supply, like we normally do, as the Strategic Petroleum Reserve is heavily drawn.”

Crude prices have rallied in 2023, with global benchmark Brent crude topping USD 89 a barrel this week for the first time since early December on the ending of China’s COVID-19 controls and hopes that rises in US interest rates will soon taper off.

Elsewhere on the supply side, volume should remain steady as the Organization of the Petroleum Exporting Countries (OPEC) and its allies, a group known as OPEC+, are likely to endorse the group’s current output levels at a Feb. 1 meeting, OPEC+ sources said on Tuesday.

(Reporting by Shariq Khan; Additional reporting by Alex Lawler, Yuka Obayashi and Muyu Xu; Editing by David Gregorio and Lisa Shumaker)

2024 Mid-Year Economic Briefing: Navigating the Easing Cycle

Investing with Love: A Mother’s Guide to Putting Money to Work

Investor Series: An Introduction to Estate Planning

Inflation Update: Weak demand softens shocks

Monthly Economic Update: Fed cuts incoming