Japan’s 10-year bond yields rise after BOJ Governor Kuroda comments

SINGAPORE, Dec 26 (Reuters) – Japanese 10-year government bond yields rose on Monday after Bank of Japan Governor Haruhiko Kuroda reiterated that the decision to widen the allowance band around its yield target was “absolutely not a first step” towards an exit from ultra-loose monetary policy.

The 10-year JGB yield rose 5.5 basis points (bps) to 0.430%, having slipped to as low as 0.345% earlier in the day.

Last week, the BOJ in a surprise move decided to allow the 10-year bond yield to move up and down 50 bps around the 0% target, wider than the previous 25-bps band, while keeping its yield curve control targets unchanged.

The move stoked expectations the lone dovish central bank is set to adjust its monetary policy but Governor Kuroda has repeatedly said it was not changing its policy.

“Under our yield curve control policy, we will maintain monetary policy accommodative to sustainably and stably achieve our price target accompanied by wage increases,” Kuroda said in a speech delivered at a meeting of Japan’s business lobby Keidanren on Monday.

Benchmark 10-year JGB futures fell 9 yen to 146.

The 30-year JGB yield fell 2 bps to 1.485%, while the five-year yield fell 0.5 bps to 0.195%.

The 40-year JGB yield fell 3 bps to 1.685%, while the 20-year JGB yield fell 1 bps to 1.205%.

The BOJ offered to buy 675 billion yen (USD 5.10 billion) of bonds with maturities of more than 5 years and up to 10 years, in the middle of the range the central bank planned to purchase for January to March.

The central bank offered to buy 575 billion yen of bonds with maturities of more than 3 years and up to 5 years and 200 billion yen of JGBs with maturity of more than 25 years. The offers were also in the middle of the range of its planned purchase.

(USD 1 = 132.4600 yen)

(Reporting by Ankur Banerjee in Singapore and Tokyo Markets team; Editing by Krishna Chandra Eluri)

Investors look for ‘Santa Rally’ after grim year in US stocks

NEW YORK, Dec 23 (Reuters) – Bruised investors are hoping a so-called Santa Claus rally can soften the pain of a tough year in US stocks and potentially brighten the outlook for 2023.

Without a doubt, the market could use some holiday cheer. In December – typically a strong month for equities – the S&P 500 has so far lost around 6%, weighed down by hefty declines in shares of Tesla Inc., Amazon.com Inc., and other names that had led markets higher in previous years. The index is down nearly 20% year-to-date and on track for its worst annual performance since 2008.

History shows the market still has a better-than-average chance to pare those losses. US stocks have risen during the last five trading days of December and the first two days of January about 75% of the time, CFRA Research data showed, a pattern attributed to low liquidity, tax-loss harvesting and investing of year-end bonuses.

Friday is this year’s start date for this rally named after Santa Claus – if it happens. It will only be clear around the second trading day of 2023.

The phenomenon has lifted the S&P 500 an average of 1.3% since 1969, according to the Stock Trader’s Almanac. A December without a Santa rally has been followed by a weaker-than-average year, data from LPL Financial going back to 1950 showed.

The S&P 500 has gained an average of 4.1% in the year after a December without a Santa rally, compared to a 10.9% gain following a period when one takes place. January gains are also muted in a non-Santa year, with the index falling an average of 0.3% compared to a 1.3% gain after a Santa year, the data showed.

“When Santa Claus doesn’t arrive that typically means that there’s something in the market that is causing confusion or an obstacle that it is facing. Negative sentiment doesn’t change because it’s a new year,” said Keith Lerner, co-chief investment officer at Truist Advisory Services.

This month’s steep decline underscores how seasonal trends seem to be offset by worries over whether the Federal Reserve’s monetary tightening will plunge the economy into recession.

The S&P 500 has posted only 18 Decembers with losses since 1950, Truist Advisory Services data showed. The index has gained an average of 1.6% in December, the highest of any month and more than double the average 0.7% gain of all months, according to CFRA data.

This December is shaping up to be one of the exceptions. Investors shed stocks at the highest weekly rate ever in the week to Wednesday, selling a net USD 41.9 billion, according to a BofA Global Research report on Friday. It attributed the sell-off to “tax loss harvesting,” a strategy that involves selling assets at a loss to offset capital gains taxes.

“The lack of a ‘Santa Claus rally’ this month, with a ‘lump of coal selloff’ in its place, is a troubling sign about 2023 US equity returns,” strategists at DataTrek wrote.

Few economic reports are due next week, with readings on the US housing market and jobless claims, while stock market liquidity is expected to fall near its lowest levels of the year with many on Wall Street off for the holidays.

Much of the market’s trajectory will be dictated by whether inflation can continue to subside and allow the Fed to stop raising interest rates sooner than it has projected.

US consumer spending barely rose in November, while annual inflation increased at its slowest pace in 13 months, but demand is probably not cooling fast enough to discourage the Fed from driving interest rates higher next year.

Other inflation measures have also shown signs of slowing, with consumer prices rising less than expected for a second straight month in November.

“If investors start to see the economy slowing more rapidly than people are anticipating and the Fed ends its rate hikes in the first quarter, we could see a tale of two halves” and a strong positive return next year, said Sam Stovall, chief investment strategist at CFRA.

(Reporting by David Randall; Editing by Ira Iosebashvili and Richard Chang)

Equity funds record largest ever weekly outflows – BofA

LONDON, Dec 23 (Reuters) – Investors shed stocks at the highest weekly rate ever in the week to Wednesday, selling a net USD 41.9 billion of equities, according to a report from BofA Global Research on Friday that attributed the sell-off to tax-related purposes.

US value funds and passive equities also recorded record weekly net outflows, of USD 17.2 billion and USD 27.8 billion respectively, the bank said.

BofA said “tax loss harvesting” was behind the record outflows, a strategy that involves selling assets at a loss to offset capital gains taxes.

Investors also reduced their cash holdings by a net USD 59.5 billion, the biggest drop since February 2022, and sold the largest quantity of investment grade and high yield bonds in nine weeks.

Local emerging market bonds drew their first net inflow since April, while emerging market equities recorded a third week of inflows, adding a net USD 3.2 billion.

The sell-off in equity holdings came in a week where investors were rattled by the Bank of Japan’s surprise monetary policy tweak on Tuesday.

With an historic approach of ultra-low interest rates, deflationary Japan has set the ‘floor’ for global rates for the past 30 years, BofA said, adding that this floor would now be higher with the planned end of the BoJ’s yield-curve control in 2023.

As a result, the bank’s analysts said they preferred commodities over credit, ‘rest of the world’ stocks over US stocks, and small (caps) over large. On a sector basis they favor value over growth, and industrials and banks over tech and private equity.

Stocks took a hit last week after several major central banks raised interest rates, including the Federal Reserve and the European Central Bank (ECB), along with warnings that more hikes are needed to curtail inflation.

The US benchmark S&P 500 has fallen 3.6% in the last ten days and is at a more than six-week low, while the pan-European STOXX 600 index retreated from a six-month high last week.

Bond funds recorded net outflows of USD 10 billion, prompting a small drop in BofA’s “Bull & Bear” indicator to 3 from 3.1 last week – which was its highest since March 15th.

(Reporting by Lucy Raitano; Editing by Amanda Cooper and Kirsten Donovan)

China financial futures, stock exchanges to cut fees in 2023

SHANGHAI, Dec 23 (Reuters) – China’s financial futures and stock exchanges said on Friday they would cut or waive some fees in 2023, to lower the cost of trading for market participants.

China’s State Council, or cabinet, has been urging various government bodies to cut fees and taxes to aid an economy struggling with the COVID-19 pandemic.

The China Financial Futures Exchange (CFFEX) said in a statement it would halve delivery fees for bond futures and equity index futures in 2023. It would also cut by half exercise fees for equity index options.

“Such arrangements will effectively reduce the cost of financial futures transactions, better meet investors’ risk management needs, and enhance financial support for the real economy,” CFFEX said in a statement on its website.

In separate statements on Friday, the Shanghai and Shenzhen stock exchanges said they would waive some fees in 2023 to support the real economy and reduce market costs for participants.

Listed companies would be temporarily exempt from initial listing fees and annual listing fees. Some trade-related fees will also be reduced.

(Reporting by Shanghai newsroom; Editing by Jane Merriman and Jacqueline Wong)

Asian shares slip on fears that Fed will have to stay hawkish

SINGAPORE, Dec 23 (Reuters) – Asian shares fell on Friday and were set for a second week of losses, while the dollar firmed as strong US data revived fears the Federal Reserve will have to retain its hawkish stance to tame inflation.

MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 1%, snapping a two-day winning streak. Australia’s S&P/ASX 200 index and Japan’s Nikkei also lost 1%.

US weekly jobless claims data pointed to a still tight labour market, while the US economy rebounded faster than previously estimated in the third quarter.

The data “flamed fears that further monetary policy tightening in 2023 will be necessary to cool inflation,” said Tony Sycamore, a market analyst at IG.

Specifically, investors are fretting that the Fed funds target rate could rise higher and stay there longer than previously expected, raising the possibility of an economic contraction.

European stock futures indicated that stocks were set to rise, with the Eurostoxx 50 futures climbing 0.44%, German DAX futures advancing 0.48% and FTSE futures up 0.20%.

Market attention will now shift to US personal consumption expenditures (PCE) data due later on Friday that will provide further clues on whether inflation is continuing to moderate. Economists polled by Reuters expect core PCE price index to rise 0.2% for November, while predicting a 4.7% rise for the twelve months through November.

“Friday could be an important day for markets,” said Tom Lee, head of research at Fundstrat Global Advisors, adding that downside surprises to PCE inflation could result in a less hawkish path forward for the Fed.

The US central bank raised interest rates by 50 basis point this month after four consecutive 75 basis-point hikes this year, but Chair Jerome Powell has said the Fed will deliver more hikes in 2023 even as the economy slips towards a recession.

China stocks were little changed, while Hong Kong stocks fell as China grapples with soaring COVID-19 infections, in the wake of Beijing dismantling its strict zero-COVID policy to contain the virus.

In the currency market, the Japanese yen weakened 0.26% versus the greenback to 132.70 per dollar. It, however, remains on track for its third largest weekly gain this year of more than 3%, after the central bank stunned markets on Tuesday by tweaking its policy on government bonds.

“Investors should prepare themselves for rapid yen appreciation against the dollar once the market sees monetary policy in Japan and the US flipping direction,” Mizuho analysts said.

The spike in the yen has come after Bank of Japan’s surprise tweak on Tuesday to allow the 10-year bond yield to move 50 basis points either side of its 0% target, wider than the previous 25 basis point band.

Data on Friday showed Japan’s core consumer inflation in November hit a fresh 40-year high of 3.7% as companies continued to pass on rising costs to households, casting doubts on the BOJ’s view that recent cost-push inflation will prove temporary.

The latest inflation numbers are likely to keep alive market expectations the central bank will further roll back its massive stimulus next year.

The dollar index, which measures the greenback against six other currencies, rose 0.01% to 104.39.

The euro was up 0.09% to USD 1.0603. Sterling was last trading at USD 1.2032, down 0.09% on the day.

Meanwhile, oil prices rose on expectations of lower Russian crude exports from the Baltic region in December.

US crude rose 1.02% to USD 78.28 per barrel and Brent was at USD 81.68, up 0.86% on the day.

(Reporting by Ankur Banerjee; Editing by Jacqueline Wong and Edwina Gibbs)

Iron ore little changed as China COVID risks prevail

Dec 23 (Reuters) – Iron ore futures were little changed on Friday, trapped in a tight range, as top metals consumer China grappled with widening COVID-19 outbreaks that could derail the recovery of the world’s second-largest economy and its top steel producer.

Fears of widespread COVID-19 infections have forced many businesses, notably in China’s financial hub Shanghai, to shut down, and have dampened investor optimism that had been spurred by Beijing’s oft-repeated pledge to step up policy support and stimulate economic growth in 2023.

A Shanghai hospital has told its staff to prepare for a “tragic battle” with COVID-19 as it expects half of the city’s 25 million people to get infected by the end of the year.

“The reality is that in the whole country, infections have entered the peak season. Production and other activities have stagnated,” Sinosteel Futures analysts said in a note.

Iron ore’s most-traded May contract on China’s Dalian Commodity Exchange ended morning trade 0.1% lower at 825.50 yuan (USD 118.08) a ton, and was little changed from last week.

On the Singapore Exchange, the steelmaking ingredient’s benchmark January contract was up 0.8% at USD 111.70 a ton as of 0518 GMT, trapped within USD 107-USD 113 levels this month.

Supply-side pressures, as “global iron ore shipments have rebounded significantly”, also tempered investor optimism about a price rebound next year, Sinosteel analysts said.

Steel benchmarks were largely subdued, with rebar on the Shanghai Futures Exchange up 0.2%, while wire rod slipped 0.3% and hot-rolled coil SHHCcv1 was nearly flat. Stainless steel shed 0.8%.

The blast furnace capacity utilization rate among 247 Chinese steel mills covered by Mysteel consultancy’s regular survey dropped by 0.25 percentage points to 82.39% over Dec. 16-22 from a week ago, as they reined in output amid tepid demand.

Other Dalian steelmaking inputs were under pressure, with coking coal DJMcv1 and coke down 1% and 0.9%, respectively.

(Reporting by Enrico Dela Cruz in Manila)

Oil rises USD 1 on Russian supply worries; US storm impact in focus

SINGAPORE, Dec 23 (Reuters) – Oil prices rose more than USD 1 on Friday on expectations of a drop in Russian crude supply, which helped offset worries of a hit to US transport fuel demand growth as a looming Arctic storm threatens travel during the holiday season.

Brent crude was up by 73 cents, or 0.9%, to USD 81.71 a barrel by 0715 GMT, while US West Texas Intermediate (WTI) crude was at USD 78.40 a barrel, up 91 cents, or 1.2% higher.

They hit highs of USD 82.17 and USD 78.77, respectively, earlier in the session. Both contracts were on track to post a second weekly gain, with Brent up 3.3% and WTI up 5.5%.

Russia’s Baltic oil exports could fall by 20% in December from the previous month after the European Union and G7 nations imposed sanctions and a price cap on Russian crude from Dec. 5, according to traders and Reuters calculations.

Russia may cut oil output by 5%-7% in early 2023 as it responds to price caps on its crude and oil products by halting sales to the countries which support them, the RIA news agency cited Deputy Prime Minister Alexander Novak as saying on Friday.

“Crude prices are higher as energy traders focus on Moscow’s response to the price cap put on Russian oil and not so much the thousands of flight cancellations that will disrupt holiday travel,” OANDA analyst Edward Moya said.

More than 4,400 US flights have been cancelled over a two-day period due to the winter storm, coinciding with a holiday travel season that some predict could be the busiest ever.

On Thursday, oil prices on both sides of the Atlantic settled lower as flights were scrapped. The snowstorm could also upend motorists’ plans to travel during Christmas and New Year, curbing gasoline consumption.

However, heating oil demand could be boosted as the extreme weather is expected to cause power outages.

“As US crude oil inventories fall and winter storms hit the US, cold temperatures are expected to extend southward to Texas, Florida, and the eastern states. Demand for heating oil will soar,” Leon Li, an analyst at CMC Markets, said.

US crude stocks fell more than expected in the week to Dec. 16 as imports dropped sharply, the Energy Information Administration said, with inventories falling by 5.9 million barrels to 418.2 million barrels versus forecasts for a 1.7-million-barrel drop.

However, surging COVID-19 cases in the world’s No.2 oil consumer China, concerns about further rate hikes globally and recession curbing fuel consumption limited oil’s price gains.

“The oil market’s biggest wildcard is China and optimism is still strong that the reopening will continue and eventually lead to more demand,” OANDA’s Moya said.

(Reporting by Florence Tan and Emily Chow; Editing by Himani Sarkar and Kenneth Maxwell)

Oil rallies on tight US stocks as winter blast hits

MELBOURNE, Dec 22 (Reuters) – Oil prices rose for a fourth straight day on Thursday with US crude, heating oil and jet fuel stocks seen tight just as a chilly blast hits the United States and travel is set to soar for the holiday season.

US West Texas Intermediate (WTI) crude futures climbed 35 cents, or 0.5%, to USD 78.64 a barrel, while Brent crude futures gained 27 cents, or 0.3%, to USD 82.47 at 0145 GMT, extending gains of around 2.7% in the previous session.

Both benchmark contracts jumped on Wednesday after government data showed US crude inventories fell by much more than analysts had expected, posting a drop of 5.89 million barrels for the week ending Dec. 16.

At the same time there was a decline in distillate stocks, which include heating oil and jet fuel, which defied expectations for a build.

The falling stockpiles come as demand for heating oil is set to soar with a powerful winter storm hitting the United States, expected to bring sub-zero wind chills as far south as Texas and record-breaking lows to Florida and the eastern states.

Jet fuel consumption is also expected to pick up with a post-COVID boom in travel for the end-of-year holiday season.

“On our numbers…the crude market is finely balanced,” said National Australia Bank’s head of commodity research Baden Moore.

“As we look into 2023, we see China’s re-opening and a likely continued steady roll-up in global jet demand (towards 2019 levels) will tighten global crude markets and drive prices higher,” he said.

A softer US dollar has also buoyed oil prices, as crude becomes cheaper for buyers holding other currencies.

(Reporting by Sonali Paul in Melbourne; Editing by Michael Perry)

Asia shares join Wall Street bounce, yen keeps climbing

SYDNEY, Dec 22 (Reuters) – Asian stocks climbed into the black on Thursday after an upbeat reading on US consumers cheered Wall Street investors, while the yen added to its recent massive gains as Japanese bond yields shifted into a new higher range.

In a surprise, US consumer confidence rose to an eight-month high in December as the labour market remained strong. Inflation expectations fell to 6.7%, the lowest since September 2021, courtesy of falling gas prices.

That helped spark a rally on Wall Street with S&P 500 futures ESc1 and Nasdaq futures both adding another 0.3% on Thursday.

EUROSTOXX 50 futures rose 0.1% and FTSE futures 0.3%, though turnover was subdued by the usual seasonal lull.

MSCI’s broadest index of Asia-Pacific shares outside Japan firmed 1.1%, while Chinese blue chips rose 0.75%.

Japan’s Nikkei edged up 0.2% after the country’s government revised up its growth forecast for the next fiscal year on hopes for higher business expenditure and substantial wage hikes.

Investors continue to grapple with the ramifications of the Bank of Japan’s (BOJ) shock decision to allow JGB yields to rise this week, leading many to assume an outright tightening of policy is only a matter of time.

Ten-year government bond yields have soared 23 basis points so far this week to 0.480%, the highest since July 2015 and within a whisker of the BOJ’s new ceiling of 0.5%.

“The jump in yields and the further strengthening of the yen will lower the value of assets owned by Japanese investors,” noted analysts at Capital Economics.

“Insurance firms will be most affected by falling bond prices, whereas pension funds have most to lose from a stronger exchange rate. However, we doubt that lower investment returns carry systemic risks.”

Capital also now expects the dollar to drop toward 125 yen next year. The dollar was already down at 131.93 yen, having shed 3.5% for the week so far, though it had found some support around 130.40.

The euro had also lost 3.6% on the yen for the week at 140.11. With all the action in the yen, the euro was a shade firmer on the dollar at USD 1.0622.

Sterling had less luck after British public borrowing hit a record in November and strikes across the country darkened the UK economic outlook. The pound was pinned at USD 1.2082 GBP=D3 having hit a three-week low overnight.

The pullback in the dollar has been a boon for gold, which was up 1.4% on the week so far at USD 1,818 an ounce.

Oil prices rallied after data showed a larger-than-expected draw in US crude stockpiles, though a massive snowstorm is expected to blanket much of the United States and hit travel-related demand for fuel.

Brent gained 34 cents to USD 82.54 a barrel, while US crude rose 44 cents to USD 78.73 per barrel.

(Reporting by Wayne Cole; Editing by Jacqueline Wong)

Yen rises in cautious calm after BOJ policy tweak

SINGAPORE, Dec 22 (Reuters) – The yen firmed towards its recent four-month peak against the dollar on Thursday, after the Bank of Japan’s surprise tweak to its bond yield control earlier this week provided a catalyst for trade in an otherwise dull week ahead of year-end holidays.

The yen was about 0.3% higher at 132.05 per dollar, after surging to a four-month high of 130.58 on Tuesday in the aftermath of the BOJ’s decision to allow the 10-year bond yield to move 50 basis points either side of its 0% target, wider than the previous 25 basis point band.

The greenback, which rose 0.6% against the yen in the previous session, had failed to meaningfully recoup its 3.8% slump following Tuesday’s news.

“The BOJ opened the door, obviously, for further unwinding of its super-loose policies,” said Sean Callow, a senior currency strategist at Westpac.

“It’s a case of what’s the price action on the yen? Do people want to try to keep pounding at (dollar/yen), having absorbed the shock of Tuesday?”

Against the euro, the yen steadied at 140.27, while trading at 159.73 per pound. Both pairs were holding close to roughly three-month peaks hit on Tuesday.

Sterling rose 0.14% against the dollar to USD 1.2102, after having slid 0.85% overnight.

British public borrowing unexpectedly jumped last month to its highest for any November on record, figures overnight showed, underscoring challenges for the British economy.

“The borrowing figures are just a reminder of what a difficult position the UK is in, fiscally,” Callow said.

“In a world where risk sentiment is still very fragile, currencies whose countries have a twin deficit are at risk compared to others.”

The euro edged 0.1% higher to USD 1.0617, while the Aussie rose 0.22% to USD 0.67225.

The kiwi fell 0.06% to USD 0.62905, after a 0.8% slump overnight.

Against a basket of currencies, the US dollar index was 0.13% lower at 104.10.

US consumer confidence rose to an eight-month high in December as inflation retreated and the labor market remained strong, but fears of a recession persisted, resulting in fewer households planning to make big-ticket purchases over the next six months, data released overnight showed.

In Asia, the Chinese offshore yuan was last marginally higher at 6.9775 per dollar but has traded mostly sideways in the last few sessions due to growing worries over a surge in COVID-19 cases across the country.

With China’s economy having been badly hurt by its stringent COVID-related restrictions, state media on Wednesday quoted the cabinet as saying that the country will seize the time window to implement policy measures to support the economy, aiming for an improvement in growth in early 2023.

(Reporting by Rae Wee; Editing by Edmund Klamann)

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: Prices rise even slower in May

Monthly Recap: BSP to outpace the Fed in rate cuts