Long-end US yields fall to start the new year

NEW YORK, Jan 3 (Reuters) – Longer-dated US Treasury yields fell on Tuesday, with the 10-year yield retreating after two straight weeks of gains to close out 2022 with its biggest annual gain in decades over concerns about the path of the Federal Reserve’s tightening policy.

The 10-year yield rose about 238 basis points in 2022, its biggest yearly climb since at least 1953, according to Refinitiv data, as the US central bank raised interest rates at its fastest pace since the 1980s to fight stubbornly high inflation after years of loose monetary policy.

The yield on 10-year Treasury notes was down 3.9 basis points at 3.792%.

After falling as low as 3.402% on Dec. 7, the 10-year yield rose to a high of 3.905 on Dec. 30 before dropping to 3.724% on Tuesday, its lowest in a week.

“There is also an element here of ‘did I miss it?’ playing out. We are seeing some more moderate economic data. We are seeing some signs of inflation, which we expected to moderate, are moderating,” said Robert Tipp, chief investment strategist and head of global bonds at PGIM Fixed Income in New York.

“After a big bear market and a big Fed rate hiking cycle there usually is a bull market, so there is a fear of ‘OK, we are coming into the new year – did I miss the peak in interest rates last year?’ That could be creating some anxiety to buy the market here.”

Tipp also noted some technical pressure in the form of monthly rebalancing that was pushed into this year.

Investors will get a look at several pieces of data on the labor market this week, culminating in the employment report on Friday. A weakening labor market is seen as one of the key pieces needed to convince the Fed to begin slowing its monetary tightening path.

Economic data on Tuesday showed construction spending rebounded unexpectedly in November thanks to gains in nonresidential structures, but higher mortgage rates continue to weigh on single-family homebuilding.

The 30-year Treasury bond yield fell 4.8 basis points to 3.890%.

The US central bank expects the fed funds rate to climb above 5% this year. Fed Chair Jay Powell and other Fed officials have said rates may need to be kept high longer to tackle inflation. That represents a higher level than the market is anticipating, with a high of about 4.95% by mid-year according to fed funds futures.

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 a negative 61.3 basis points. Such an inversion is seen by many as a signal of recession.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was unchanged at 4.403%.

The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.314%, after closing at 2.382% on Friday.

The 10-year TIPS breakeven rate was last at 2.258%, indicating the market sees inflation averaging 2.3% a year for the next decade.

(Reporting by Chuck Mikolajczak; Editing by Andrea Ricci and Richard Chang)

Gold rises to near six-month highs while investors await Fed minutes

Jan 3 (Reuters) – Gold prices kicked off 2023 by hitting their highest levels in more than six months on Tuesday as benchmark Treasury yields fell, while investors assessed the prospects for more Federal Reserve interest rate hikes, which acted as a significant headwind to bullion last year.

Spot gold, which had ended a volatile 2022 little changed, was up 0.8% to USD 1,838.56 per ounce by 1:42 p.m. ET (1842 GMT) after touching its highest level since June 17 earlier at USD 1,849.89.

US gold futures settled up 1.1% at USD 1,846.1.

With an economy that could go into recession, uncertainty over the Fed’s rate-hike path and geopolitical risks, “investors remain a little cautious, and gold is looking pretty attractive,” said Edward Moya, senior analyst with OANDA.

Benchmark US 10-year Treasury yields were near their lowest in a week, reducing the opportunity cost of holding non-yielding gold. The dollar index jumped 1%

The market focus is now on the release on Wednesday of the minutes from the Fed’s Dec. 13-14 policy meeting as well as other economic data expected this week.

If the minutes reveal that the US central bank is considering slowing the pace rate hikes and ending the hiking cycle at a lower peak rate, there will be “scope for further increases in the price of gold”, said Ricardo Evangelista, senior analyst at ActivTrades.

While gold is seen as a hedge against economic uncertainty, it tends to loose appeal in a high interest rate environment.

Auto-catalyst metal palladium dipped 5.3% to USD 1,699.58 per ounce, with “recession fears and a darkening outlook for electric vehicles” weighing on both platinum and palladium, Moya said.

Spot silver rose 0.3% to USD 24.07, while platinum jumped 1.5% to USD 1,085.50.

(Reporting by Seher Dareen and Arundhati Sarkar in Bengaluru; Editing by Paul Simao and Shailesh Kuber)

Dollar has tech, risk-off props, but peak Fed view a hindrance

Aug 10 (Reuters) – The dollar index rallied sharply to start the new year on a combination of technical support and an unexpectedly large drop in German inflation, but rebounds will face resistance from the view that the Fed is much closer to peak rates than the ECB, BoE and BoJ.

Tuesday’s 103.46-4.86 index range came off December and January trend lows and the dollar’s lowest point since the Fed began raising rates by 75bp increments in June.

Even before the Fed’s final two 75bp rate hikes, 2-year Treasury-bund yield spreads had begun falling in anticipation of the Fed reaching its terminal rate before the ECB.

Futures foresee the Fed peaking just below 5% by mid-year and then cutting roughly 100bp over the following 12 months as US CPI has already fallen from a 9% peak in June to 7.1% in November.

Tuesday’s German HICP was still at 9.6%, despite a one-off government payment of household energy bills. The Bundesbank sees German inflation at 7.2% this year and 4.1% in 2024, making the ECB’s 3.4%, Q3 rate hiking peak look underpriced and a recovery of 2-year Treasury-bund yields spreads and the dollar index dominated by unsustainable.

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

China, HK stocks gain as recovery hopes trump weak factory activity data

SHANGHAI, Jan 3 (Reuters) – China and Hong Kong stock ended the first trading session of 2023 on a bullish note, as investors brushed aside dismal December factory activity data, betting on post-COVID era recovery.

** China’s CSI300 Index rose 0.4% on Tuesday, while the Shanghai Composite Index gained 0.9%.

** Hong Kong’s Hang Seng Index, which fell more than 2% earlier in the session, ended up 1.8%.

** A private survey showing China’s factory activity shrank at a sharper pace in December had dented sentiment early in the session.

** Although rising COVID-19 infections are holding back the economy, “the pace of recovery is expected to accelerate in 2023,” the fund unit of Ping An Insurance (Group) Co said in a note on Tuesday.

** “After COVID cases peak, people’s life becomes normal, and policy support measures take effect, market sentiment will be repaired and China’s A-share market will continue to recover.”

** The market was also aided by hopes of some easing in geopolitical tensions, after U.S. Secretary of State Antony Blinken spoke on Sunday with incoming Chinese Foreign Minister Qin Gang, who said he looked forward to maintaining close working ties with Blinken and promoting Sino-U.S. relations.

** In China, tech shares .CSIASITI and healthcare stocks posted solid gains, but consumer staple .CSICS and financial shares fell.

** An index tracking tourism shares fell 2%, following weaker-than-expected tourism data during the three-day New Year holiday.

** Chinese property stocks rose. Shares of Poly Developments and Holdings Group jumped as much as 5.6%, after the company unveiled plans to raise up to 12.5 billion yuan ($1.81 billion) via private share placement.

** But Huatai Securities Co Ltd tumbled in both China and Hong Kong, after saying it plans to raise 28 billion yuan ($4.07 billion) via share placements.

(Reporting by the Shanghai Newsroom; Editing by Vinay Dwivedi)

Oil dives 4%, trade choppy on worries about China, global economy

HOUSTON, Jan 3 (Reuters) – Oil prices tumbled 4% in volatile trade on Tuesday, pressured by weak demand data from China, a gloomy economic outlook and a stronger US dollar.

Brent futures for March delivery fell USD 3.81, or 4.4%, to USD 82.10 a barrel, the largest daily decline in more than three months.

US crude fell USD 3.33 to USD 76.93 per barrel, a 4.1% loss, its biggest fall in more than a month. Both benchmarks had risen USD 1 a barrel early in the session.

“There is plenty of reason for concerns here – the China COVID-19 situation and the fear of recession in the foreseeable future is putting pressure on markets,” Mizuho analyst Robert Yawger said.

The Chinese government raised export quotas for refined oil products in the first batch for 2023. Traders attributed the increase to expectations of poor domestic demand as the world’s largest crude importer continues to battle waves of infections.

China’s factory activity shrank in December as surging infections disrupted production and weighed on demand after Beijing largely removed anti-virus curbs.

Adding to the gloomy economic outlook, IMF Managing Director Kristalina Georgieva on Sunday said the economies of the United States, Europe and China, were all slowing simultaneously, making 2023 tougher than 2022 for the global economy.

The dollar posted its largest one-day rise in more than 2 week. A stronger dollar can crimp demand for oil as dollar-denominated commodities become more expensive for holders of other currencies.

On Wednesday, the market will scour minutes of the US Fed’s December policy meeting. The Fed raised interest rates by 50 basis points (bps) in December after four consecutive increases of 75 bps each.

Oil stocks at the Cushing storage hub rose about 176,000 barrels to 28.6 million barrels in the week to Dec 30, a broker said, citing Genscape data.

Stockpiles of crude oil were expected to rise by 2.2 million last week, a preliminary Reuters poll showed on Tuesday.

On the supply side, the US government released 2.7 million barrels of oil from the Strategic Petroleum Reserves last week, while oil major Chevron Corp’s Pascagoula, Mississippi, refinery is set to receive the first cargo of Venezuelan crude in nearly 4 years, according to shipping documents seen by Reuters on Tuesday.

US crude output in 2023 is expected to rise by an average of 620,000 barrels per day, according to the latest government estimates, a third less than the roughly 1 million bpd some forecasts called for at the start of the year.

Commerzbank said it expects the global economic outlook to play a “much more important role” in oil price developments than production decisions taken by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, a group known collectively as OPEC+.

The bank expects signs of economic recovery “in key economic areas” to push Brent back towards USD 100 a barrel, which it said could happen from the second quarter of the year onwards.

(Reporting by Rowena Edwards; Additional reporting by Florence Tan and Trixie Yap in Singapore; Editing by David Gregorio and Nick Zieminski)

Dollar creeps up in subdued start to new year

LONDON, Jan 2 (Reuters) – The dollar edged up on Monday, pulling away from recent six-month lows against a basket of major currencies.

The US currency has weakened as markets bet a Federal Reserve tightening cycle may be nearing an end.

Sentiment remained fragile and the first trading day of the year was subdued, with many countries, including big trading centers such as Britain and Japan, closed for a holiday.

The dollar index, which measures the value of the greenback against a basket of major currencies, rose by around 0.14% to 103.63 – off roughly six-month lows hit last week at around 103.38.

The euro slipped by about a third of a percent to USD 1.0683 but was not far from its highest levels since June. Sterling was down 0.35% at USD 1.2051.

Against the yen, the dollar fell 0.25% to 130.76, having hit its lowest levels since August last month.

“There is an attempt by the dollar index to pull higher today but we do see that it is losing a good part of the strength it gained last year,” Ulrich Leuchtmann, head of forex research at Commerzbank, said.

“After the last Fed meeting, the market was not convinced that the Fed won’t cut rates later in 2023. It’s going to be an interesting year.”

Having raised rates by a total of 425 basis points since March to curb surging inflation, the Fed has started to slow the pace of hikes.

That Fed tightening helped lift the dollar index 8% last year in its biggest annual jump since 2015.

Markets remain focused on central banks and inflation, as well as signals of how long and deep a recession might be.

International Monetary Fund Managing Director Kristalina Georgieva said on Sunday that 2023 would be a tough year for the global economy.

Data from China, meanwhile, showed factory activity shrank for the third straight month in December and at the sharpest pace in nearly three years.

But a downturn in euro zone manufacturing activity has likely passed its trough as supply chains recover and inflationary pressures ease, a survey showed on Monday.

S&P Global’s final manufacturing Purchasing Managers’ Index bounced to 47.8 in December from November’s 47.1, matching a preliminary reading but still below the 50 mark separating growth from contraction.

While the euro area economy is heading for a recession, concerns about gas supply over the winter have eased, meaning a downturn may not be as bad as feared a few months ago.

Euro zone wages are growing quicker than thought and the European Central Bank (ECB) must prevent this from adding to already high inflation, ECB chief Christine Lagarde said at the weekend.

“The recent euro strength is driven by a mix of things including both the hawkish ECB commentary and hopes of a peak in US rates,” said Danske Bank chief analyst Piet Haines Christiansen.

“It is also supported by hopes that the energy supply in natural gas is not as bad a situation as feared.”

(Reporting by Dhara Ranasinghe Additional reporting by Nell Mackenzie; Editing by Mark Potter and Barbara Lewis)

European shares start 2023 on upbeat note on encouraging factory data

Jan 2 (Reuters) – European shares rose in the first trading session of 2023 on Monday as euro zone manufacturing data suggested the worst had passed after a year marred by fears of a recession as central banks hiked rates globally.

The pan-regional STOXX 600 rose 1.0%, supported by consumer discretionary stocks. The automobile and parts sector gained 3.2% and luxury names like LVMH and Kering added about 2% each.

“With 10-year bund yields above 2.50%, relaxed year-end trading and the probable drop in HICP inflation are raising hopes for an upbeat start into the year,” Commerzbank Research analysts said in a note, referring to euro zone consumer prices inflation data due later this week.

An early indicator was data showing the downturn in euro zone manufacturing activity has likely passed its trough as supply chains begin to recover and inflationary pressures ease, leading to a rebound in optimism among factory managers.

“Europe is taking the latest round of PMIs well enough, as the final readings help to confirm the view (hope?) that the worst may be over for the EU bloc’s manufacturers, especially as energy prices recede to the levels of last February,” Russ Mould, investment director at AJ Bell, wrote in emailed remarks.

The STOXX 600 ended 2022 with sharp losses, driven by central banks’ aggressive policy tightening to rein in soaring prices, an economic slowdown, the Russia-Ukraine conflict that fanned inflationary pressures, and growing concerns over COVID cases in China.

Rate-sensitive technology stocks .SX8P, among the worst-performing shares last year, rose 1.6% on the day, despite more hawkish signals from the European Central Bank.

ECB President Christine Lagarde said euro zone wages are growing quicker than earlier thought and the central bank must prevent this from adding to already high inflation.

Bond yields of Europe’s largest economy, Germany, dropped from their highest levels in more than a decade as investors braced for inflation data this week.

Germany’s finance minister expects inflation in Europe’s biggest economy to drop to 7% this year and to continue falling in 2024 and beyond, but high energy prices to be the new normal.

The German DAX gained 1.1%, while other European exchanges also started the year on a positive note. The London and Dublin stock exchanges were closed for the New Year’s day holiday.

The energy sector added 1.8%, tracking firm crude prices.

Croatia rang in the new year with two historic changes, as the European Union’s youngest member joined both the EU’s border-free Schengen zone and the euro common currency.

(Reporting by Bansari Mayur Kamdar and Shreyashi Sanyal in Bengaluru; Additional reporting by Nell Mackenzie; Editing by Vinay Dwivedi, Savio D’Souza and Mark Heinrich)

Economic weakness set to weigh on oil price in 2023

Dec 30 (Reuters) – Oil prices are set for small gains in 2023 as a darkening global economic backdrop and COVID-19 flare-ups in China threaten demand growth and offset the impact of supply shortfalls caused by sanctions on Russia, a Reuters poll showed on Friday.

A survey of 30 economists and analysts forecast Brent crude would average USD 89.37 a barrel in 2023, about 4.6% lower than the USD 93.65 consensus in a November survey. The global benchmark has averaged USD 99 per barrel in 2022.

US crude is projected to average USD 84.84 per barrel in 2023, versus the previous month’s USD 87.80 consensus.

“We expect the world to slip into recession in early 2023 as the effects of high inflation and rising interest rates are felt,” said Bradley Saunders, assistant economist at Capital Economics.

Brent has fallen more than 15% since early November and was trading around USD 84 a barrel on Friday as surging COVID-19 cases in China depressed the outlook for oil demand growth in the world’s largest crude oil importer.

“The oil market is still tight despite a weakening global demand outlook as recession fears run wild,” said Edward Moya, senior analyst with OANDA, adding that China will be the primary focus in the first quarter of next year.

Most analysts said oil demand will grow significantly in the second half of 2023, driven by the easing of COVID-19 restrictions in China and by central banks adopting a less aggressive approach on interest rates.

The impact of Western sanctions on Russian oil is expected to minimal, the poll showed.

“We do not expect an impact from the price cap, which was designed to give bargaining power to third-country buyers,” analysts at Goldman Sachs said in a note.

Moscow this week signed a decree that bans the supply of oil and oil products to nations participating in the Group of Seven (G7) price cap from Feb. 1 for five months.

“In the event of a severe drop to Russian exports (which we do not expect to occur), OPEC+ will likely be ready to increase output to prevent prices from rising too high,” data and analytics firm Kpler said.

(Reporting by Brijesh Patel in Bengaluru; editing by Barbara Lewis)

Market misery deals sovereign wealth funds historic setback in 2022 -study

LONDON, Jan 1 (Reuters) – Heavy falls in stock and bond markets over the last year have cut the combined value of the world’s sovereign wealth and public pension funds for the first time ever – and to the tune of USD 2.2 trillion, an annual study of the sector has estimated.

The report on state-owned investment vehicles by industry specialist Global SWF found that the value of assets managed by sovereign wealth funds fell to USD 10.6 trillion from USD 11.5 trillion, while those of public pension funds dropped to USD 20.8 trillion from USD 22.1 trillion.

Global SWF’s Diego López said the main driver had been the “simultaneous and significant” 10%-plus corrections suffered by major bond and stock markets, a combination that had not happened in 50 years.

It came as Russia’s invasion of Ukraine boosted commodity prices and drove already-rising inflation rates to 40-year highs. In response, the US Federal reserve and other major central banks jacked up their interest rates causing a global market sell-off.

“These are paper losses and some of the funds will not see them realized in their role as long-term investors,” López said. “But it is quite telling of the moment we are living.”

The report, which analyzed 455 state-owned investors with a combined USD 32 trillion in assets, found that Denmark’s ATP had had the toughest year anywhere with an estimated 45% plunge that lost USD 34 billion for Danish pensioners.

Despite all the turbulence though, the money funds spent buying up companies, property or infrastructure still jumped 12% compared with 2021.

A record USD 257.5 billion was deployed across 743 deals, with sovereign wealth funds also sealing a record number of USD 1 billion-plus “mega-deals”.

Singapore’s supersized USD 690 billion GIC fund topped the table, spending just over USD 39 billion in 72 deals. Over half of that was piled into real estate with a clear bias towards logistics properties.

In fact, five of the 10 largest investments ever by state-owned investors took place in 2022, starting in January when another Singapore vehicle, Temasek, spent USD 7 billion buying testing, inspection and certification firm Element Materials from private equity fund Bridgepoint.

In March, Canada’s BCI then agreed to acquire 60% of Britain’s National Grid Gas Transmission and Metering arm with Macquarie. Two months later, Italy’s CDP Equity wealth fund spent USD 4.4 billion on Autostrade per l’Italia alongside Blackstone and Macquarie.

“If financial markets continue to fall in 2023, it is likely that sovereign funds will keep ‘chasing elephants’ as an effective way of meeting their capital allocation requirements,” the report said.

It tipped SWFs from the Gulf such as ADIA, Mubadala, ADQ, PIF, QIA to become much more active in buying up Western firms having received large injections of oil revenue money over the past year.

(Reporting by Marc Jones; Editing by Hugh Lawson)

Supreme dollar rules the roost in gold market

Dec 30 (Reuters) – Gold is poised to fall for the second year running in 2022 as aggressive interest rate hikes from the Federal Reserve fueled a dollar rally that challenged the precious metal’s role as a safe place to park assets.

The Fed’s fight against inflation is expected to dictate sentiment in precious metals markets next year. Russia’s invasion of Ukraine, surging inflation, COVID-19 restrictions and slowing growth meant precious metals had a mixed 2022.

Spot gold at USD 1,821.50 an ounce at 19:28 GMT is on course to wrap up 2022 about 0.4% lower. This past year, bullion came very close during the early days of the Ukraine crisis to touching the all-time highs above USD 2,000 hit in 2020 as countries around the world locked down.

The US currency’s climb to 20-year peaks this year eroded demand for dollar-priced bullion, which is down USD 250 since the March peak.

“In light of the fact that gold is a zero-yielding asset, the precious metal’s traditional roles as a safe haven and as a hedge against inflation were greatly undermined by the Fed’s supersized rate hikes in 2022,” said Han Tan, chief market analyst at Exinity.

Top policymakers at the US central bank have made clear their intentions on inflation, surprising investors who recently bet on a slower rate-hike trajectory.

“We are convinced that the outlook for US monetary policy should remain in the driving seat (for gold),” Julius Baer said in its 2023 commodity outlook.

Among other precious metals, silver at USD 23.87 an ounce is set to end the year over 2% up. But the possibility of a global recession poses a risk to demand for silver for industrial applications, analysts at Citi said.

The metal is used both as a safe-haven asset similar to gold and by manufacturers of everything from solar panels and automobiles to electronics.

Prices of autocatalyst metals platinum and palladium were boosted by fears of Western sanctions on major producer Russia.

“It is assumed that Russian production continues to reach the market and Nornickel and PGMs are not sanctioned. Nornickel should also complete its smelter maintenance, allowing it to increase output,” according to Heraeus Precious Metals.

Platinum at USD 1,066.01 an ounce has managed to hold on to gains and was headed for an over 10% yearly rise. However, palladium at USD 1,783.35 is down nearly 6%, in its second straight annual decline despite prices touching record highs in March.

(Reporting by Bharat Govind Gautam and Swati Verma in Bengaluru; Editing by Pratima Desai and Matthew Lewis)

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