Gold steady as investors eye economic data

Dec 22 (Reuters) – Gold prices were little changed during early Asian hours on Thursday, as market participants awaited economic data for further direction.

* Spot gold was steady at USD 1,815.00 per ounce as of 0036 GMT. US gold futures were unchanged at USD 1,824.70.

* The US gross domestic product data for the third quarter and weekly US jobless claim numbers are due at 1330 GMT.

* The core personal consumption expenditure (PCE) data scheduled on Friday is also on investors’ radar.

* The Federal Reserve lowered its pace of rate hikes gradually to 50 bps in December after four consecutive 75 bps rate hikes.

* However, last week, Fed Chair Jerome Powell said the US central bank will deliver more rate hikes next year, even as the economy slips towards a possible recession.

* Rising interest rates increase the opportunity cost of holding bullion since it pays no interest.

* US consumer confidence rose to an eight-month high in December as inflation retreated and the labour market remained strong, but fears of a recession persisted.

* China will seize the time window to implement policy measures to support the economy, aiming for an improvement in growth in early 2023, state media on Wednesday quoted the cabinet as saying.

* A US district court has ordered a California precious metals operation and its owners to pay USD 38 million in restitution and a civil penalty for commodity fraud and registration violations, the Commodity Futures Trading Commission said on Wednesday.

* Spot silver fell 0.1% to USD 23.94, platinum gained 0.4% to USD 1,002.29 and palladium rose 0.4% to USD 1,697.93.

DATA/EVENTS (GMT)

0500 Japan Leading Indicator Revised Oct

0700 UK GDP QQ, YY Q3

1330 US GDP Final Q3

1330 US Initial Jobless Clm Weekly

(Reporting by Ashitha Shivaprasad in Bengaluru; editing by Uttaresh.V)

Wall Street ends up with help from Nike, FedEx and consumer sentiment

Dec 21 (Reuters) – Wall Street’s three main stock indexes closed higher on Wednesday for their biggest daily gains so far in December with help from upbeat Nike and FedEx quarterly earnings, as well as improving consumer confidence and easing inflation expectations from investors.

Nike Inc shares soared 12% after beating profit expectations for its second quarter on strong holiday demand from North American shoppers, while FedEx finished up 3.4% and shares in cruise operator Carnival Corp jumped 4.7% after posting a smaller-than-expected quarterly loss.

FedEx Corp, which sparked a market selloff in September after pulling financial forecasts, provided financial guidance and announced plans for USD 1 billion cost cuts.

Also, US consumer confidence rose to an eight-month high in December as inflation retreated and the labor market remained strong while 12-month inflation expectations fell to 6.7%, the lowest since September 2021.

“We’re seeing a broad rally. It’s been helped by upbeat corporate commentary and an improvement in consumer confidence,” said Angelo Kourkafas, investment strategist at Edward Jones in St. Louis referring to Nike and FedEx.

The Dow Jones Industrial Average rose 526.74 points, or 1.6%, to 33,376.48, the S&P 500 gained 56.82 points, or 1.49%, to 3,878.44 and the Nasdaq Composite added 162.26 points, or 1.54%, to 10,709.37.

Energy firms were the biggest gainers among the S&P’s 11 major industry sector, adding 1.89%, as oil futures rose.

The smallest gainer among the sectors was consumer staples, which finished up 0.8%.

Still, Wednesday’s data also showed that US existing home sales slumped 7.7% to a 2-1/2-year low in November as the housing market was hurt by higher mortgage rates. But the data may be fueling investor hope that the Fed could ease up on its tightening policy.

“At the macro level you have economic weakness but at the micro level you have companies that are resilient and delivering positive expectations from an earnings perspective,” said Brian Price, head of investment management for Commonwealth Financial Network in Waltham, Mass. “That combination is going to be positive.”

Fears of a recession following the US central bank’s prolonged interest rate hikes have weighed heavily on equities and these fears have put the S&P on track for its biggest annual decline since 2008 and a decline for December.

“There’s still a lot of uncertainty and we’re likely to see a lot of volatility early in the year as we could be in a mild recessionary environment,” said Edward Jones’ Kourkafas but he believes the market has already priced in a weaker economy.

“We still have some headwinds ahead but maybe we don’t have to price in a recession twice. So far what we’ve seen this year has already priced in a mild recession.”

AMC Entertainment Holdings Inc finished up 4.3% after the cinema-chain operator said it suspended talks to acquire certain assets of bankrupt Cineworld Group.

Advancing issues outnumbered declining ones on the NYSE by a 3.43-to-1 ratio; on Nasdaq, a 2.10-to-1 ratio favored advancers.

The S&P 500 posted 5 new 52-week highs and 3 new lows; the Nasdaq Composite recorded 69 new highs and 268 new lows.

On US exchanges 9.81 billion shares changed hands, compared with the 11.16 billion average for the last 20 sessions.

(Reporting by Sinéad Carew in New York, Shubham Batra, Amruta Khandekar, Ankika Biswas and Johann M Cherian in Bengaluru; Editing by Shounak Dasgupta, Maju Samuel and Aurora Ellis)

Philippines concerned over report of China construction on reefs

MANILA, Dec 21 (Reuters) – The Philippines on Wednesday said it was seriously concerned about a report of Chinese construction on four uninhabited features in the disputed Spratly islands, news that Beijing dismissed as “unfounded”.

The Philippines foreign ministry said such construction would go against a 2002 Declaration of Conduct on the South China Sea, in which China and Southeast Asian countries pledged to avoid actions that could escalate disputes, including occupying uninhabited shoals, reefs, islands, cays and other features.

The ministry said it would try to validate the report by Bloomberg, which cited unnamed western officials as saying maritime militia controlled by Beijing had been involved in construction work at Eldad Reef, Lankiam Cay, Whitsun Reef and Sandy Cay.

The Spratlys are one of the world’s most contested archipelagos, with competing claims from the Philippines, Malaysia, Brunei, Vietnam, Taiwan and China.

Some islands are inhabited by small communities from several of the countries, ostensibly to reinforce their claims. Some are close to artificial islands constructed by China and equipped with buildings, runways and missile systems.

China’s embassy in Manila called the report “fake news”, while its foreign ministry reiterated a “solemn consensus” had been reached among claimants that included not developing uninhabited reefs and islands.

“China has always strictly adhered to this consensus. At present, China-Philippines relations are developing with a good momentum, and both sides will continue to properly deal with maritime issues through friendly consultations,” spokesperson Mao Ning said at a regular news briefing on Wednesday.

Lankiam, known in the Philippines as Panata island, is one of the nine Philippine-occupied features in the Spratlys, while Whitsun has been a source of diplomatic tension, with Manila irked by what it calls a “swarming and threatening presence” of Chinese fishing boats in its 200-mile exclusive economic zone.

Referring to the Chinese vessels, State Department spokesperson Ned Price on Monday said the United States stood with defence ally the Philippines in upholding a rules-based international order.

(Reporting by Karen Lema in Manila and Yew Lun Tian in Beijing; Editing by Martin Petty)

Yen holds on to big gains after BOJ’s surprise policy tweak

SINGAPORE/LONDON, Dec 21 (Reuters) – The yen traded flat on Wednesday after surging almost 4% in the previous session, when the Bank of Japan (BOJ) unexpectedly tweaked a key policy, allowing government bond yields more room to move.

The BOJ decided to change its “yield curve control” policy on Tuesday even as it kept broad policy settings unchanged. It is now letting 10-year yields move 50 basis points either side of its 0% target, wider than the previous 25 basis point band.

On Wednesday, the yen was last up less than 0.1%, trading at 131.55 per dollar, not far off the four-month high of 130.58 touched on Tuesday, when the yen jumped 3.8% in its biggest one-day rise since 1998.

The surge was a sign that traders expect the BOJ to further tighten monetary policy in coming meetings, said Derek Halpenny, head of research at Japanese bank MUFG.

“The easiest way to express a view in this being the first step in a normalization process was obviously in FX rather than in rates,” he said.

Elsewhere in currency markets, the euro was up 0.11% against the dollar at USD 1.063. The British pound was down 0.25% to USD 1.216.

The BOJ’s move marked a small step away from the central bank’s ultra-loose monetary policy.

Japan, long preoccupied with reviving price growth to avert a risk of deflation, has been an outlier this year. It has kept interest rates negative while other central banks have hiked hard to tame inflation and bolster domestic currencies against the mighty US dollar.

Traders are still digesting the BOJ’s policy tweak, said Carol Kong, a currency strategist at the Commonwealth Bank of Australia.

“The market has interpreted the decision as step towards an eventual pivot from the current ultra-dovish monetary policy,” she said. Kong added that the yen could continue to rise in the near term.

The Australian dollar fell 0.1% to USD 0.667, while the kiwi dropped 0.89% to USD 0.629. The Antipodean currencies were wobbly after suffering big losses against the yen as rising Japanese bond yields threatened to kill “carry trade” flows into Australia and New Zealand.

Activity in currency markets was winding down on Wednesday ahead of the festive period, with trading volumes low.

The story of 2022 has been the strength of the dollar, which has surged as the US Federal Reserve has hiked interest rates at a rapid clip, luring investors back towards the country’s fixed income assets.

Yet the dollar index has dropped roughly 9% since hitting a 20-year high in September, with a sharp slowdown in US inflation raising hopes that the Fed may soon end its tightening cycle.

The index, which measures the dollar’s performance against a basket of major currencies, was down less than 0.1% on Wednesday to 103.89. It remained around 8% higher for the year.

Many analysts expect the dollar to weaken further next year as inflation cools and the Fed’s rate hikes come to an end.

Goldman Sachs expects the euro to fall in the first three months of the year to USD 1.02, but to strengthen to USD 1.10 in 12 months’ time.

(Reporting by Ankur Banerjee in Singapore and Harry Robertson in London; Editing by Lincoln Feast and Tomasz Janowski)

Wall Street ends green, dollar dips, Treasury yields rise on BOJ policy shift

NEW YORK, Dec 20 (Reuters) – US stocks closed higher on Tuesday in a modest reversal of a four-day sell-off, but the greenback lost altitude and bond yields jumped in the wake of an unexpected policy pivot from the Bank of Japan (BOJ).

All three major US equity indexes rebounded from an early-session dip, while the rising yen sent the dollar lower, and 10-year US Treasury yields touched their highest level this month in reaction to the Japanese central bank’s surprise policy change to allow long-term interest rates to rise.

“Japan has been consistently consistent for many years,” said Matthew Keator, managing partner in the Keator Group, a wealth management firm in Lenox, Massachusetts. “The slightest tweak in their policy has investors scratching their heads as to how to interpret that going forward.”

As of Monday’s close, the benchmark S&P 500 had fallen 5% from last Tuesday.

Indeed, the S&P 500, the Dow and the Nasdaq are all on track to notch their biggest annual percentage drops since 2008, the darkest year of the global financial crisis, largely due to persistent inflation and the Fed’s increasingly hawkish battle against it.

“A calibration is happening with regards to the Fed’s language last week, and the market is digesting it,” said Keator, who added that “there’s a lot of work (the Fed has) done this year that will take time to take root.”

“It’s better to pause than to pivot and cut, because the Fed’s been vocal about the fact that it’s not their intention to reverse course anytime soon,” Keator said.

The Dow Jones Industrial Average rose 92.2 points, or 0.28%, to 32,849.74, the S&P 500 gained 3.96 points, or 0.10%, to 3,821.62 and the Nasdaq Composite added 1.08 points, or 0.01%, to 10,547.11.

European stocks were pulled lower by interest rate-sensitive tech and industrial stocks following the BOJ’s announcement that it would allow long-term interest rates to rise, joining its global counterparts in their inflation-taming policy tightening.

The pan-European STOXX 600 index lost 0.40% and MSCI’s gauge of stocks across the globe gained 0.16%.

Emerging market stocks lost 0.61%. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 1.08% lower, while Japan’s Nikkei lost 2.46%.

US Treasury yields jumped after Japan’s central bank broadened its yield curve control, which prompted a global bond sell-off.

Benchmark 10-year notes last fell 30/32 in price to yield 3.6918%, from 3.583% late on Monday.

The 30-year bond last fell 74/32 in price to yield 3.7466%, from 3.623% late on Monday.

Japan’s surprise policy review sent the yen to a four-month peak against the greenback, and the dollar fell sharply against a basket of currencies.

The dollar index fell 0.69%, with the euro up 0.17% to USD 1.0623.

The Japanese yen strengthened 3.94% versus the greenback at 131.71 per dollar, while the British pound was last trading at USD 1.2178, up 0.26% on the day.

Crude prices forfeited earlier gains on worries that a major US winter storm could persuade millions of Americans to curb their travel plans.

US crude settled up 1.2% at USD 76.09 per barrel, while Brent rose 0.24% to settle at USD 79.99 on the day.

Gold breached the USD 1,800 level on the back of the falling dollar.

Spot gold added 1.7% to USD 1,817.55 an ounce.

(Reporting by Stephen Culp; additional reporting by Nell Mackenzie in London; Editing by David Gregorio, Cynthia Osterman and Jonathan Oatis)

Oil prices settle higher on weak dollar, worries US winter storm could cut travel

Dec 20 (Reuters) – Oil prices ended higher on Tuesday in a volatile session as a worsening outlook for a major US winter storm sparked fears that millions of Americans might curb travel plans during the holiday season.

Brent crude futures settled up 19 cents, or 0.2%, to USD 79.99 per barrel while US West Texas Intermediate (WTI) crude futures settled up 90 cents at USD 76.09 per barrel.

Oil prices were buoyed by a softer dollar and a US plan to restock petroleum reserves, but gains were capped by uncertainty over the impact of rising COVID-19 cases China.

A weaker dollar has also supported prices, making oil cheaper for those holding other currencies.

The Midwest and Great Lakes region could see a major blizzard beginning Thursday, while cold air moving east could bring a flash freeze caused a rapid temperature drop across the country, according to the National Weather Service.

Heating oil futures have fallen more than 4% since the start of the week to USD 3.03 per gallon on Tuesday.

“The storm could majorly affect travel this holiday season – I’m happy I’m not traveling,” said John Kilduff, partner at Again Capital LLC in New York.

Prices also fell on news that TC Energy Corp submitted its plan to restart the Keystone pipeline to US regulators, a source familiar with the matter said, nearly two weeks after the 622,000 barrel-per-day (bpd) pipeline ruptured in the worst oil spill in the United States in nine years.

While China has been relaxing pandemic restrictions, a surge in COVID-19 cases hurt the fuel demand outlook and fed uncertainty about the country’s economic recovery, said CMC Markets analyst Tina Teng.

Cities across China have been racing to add hospital beds and build fever-screening clinics as international concern mounted that Beijing’s decision to dismantle its stringent “zero-COVID” regime could result in deaths and virus mutations.

Washington plans to buy up to 3 million barrels of oil for the Strategic Petroleum Reserve after this year’s record release of 180 million barrels.

US crude oil stocks were expected to have dropped last week by about 200,000 barrels while gasoline and distillates inventories were expected to be higher, a preliminary Reuters poll showed on Monday.

The poll was conducted ahead of reports from the American Petroleum Institute on Tuesday and the Energy Information Administration on Wednesday.

(Additional reporting by Dmitry Zhdannikov in London, Sonali Paul in Melbourne and Isabel Kua in Singapore; Editing by Louise Heavens, David Gregorio and David Evans)

Precious metals rally as US dollar extends losses

Dec 20 (Reuters) – Gold prices climbed more than 1% to their highest levels in a week on Tuesday and other precious metals also rallied on the back of a sliding dollar, as markets remained focused on the Federal Reserve’s interest rate strategy.

Spot gold rose 1.6% to USD 1,815.10 per ounce by 1:57 p.m. ET (1857 GMT), while US gold futures settled up 1.5% at USD 1,825.4.

The yen surged to a four-month peak against the dollar after the Bank of Japan stunned markets by deciding to review its yield-curve control policy.

Weaker housing data lead to flight-to-safety buying in the precious metals, which along with the decision from the Bank of Japan, was the “perfect storm” this morning, said Bob Haberkorn, senior market strategist at RJO Futures.

Bullion has shed more than USD 260 an ounce since its March peak as central banks stepped up efforts to fight soaring inflation, but is enjoying its best quarter since early 2020, up 9.4% so far.

Fed Chair Jerome Powell last week said the US central bank will deliver more rate hikes next year even as the economy slips towards a possible recession.

“I see that it’s going to be a dark shadow on the gold market, but I still think we’re headed for an upside,” said Jeffrey Sica, chief executive officer of Circle Squared Alternative Investments, referring to the prospect of the Fed continuing to raise rates.

Higher interest rates increase the opportunity cost of holding bullion that pays no interest.

Top consumer of bullion China was grappling with surging COVID-19 cases, and the World Bank cut its growth outlook for this year and the next.

Spot silver rose 4.6% to USD 24.01 per ounce, posting its biggest intraday gain since early November.

Platinum was up 3.4% at USD 1,012.75, while palladium gained 3.8% to USD 1,733.38.

(Reporting by Seher Dareen in Bengaluru; Editing by Paul Simao and Krishna Chandra Eluri)

Yields rise with Fed policy in focus

NEW YORK, Dec 19 (Reuters) – US Treasury yields rose on Monday as investors evaluated how high the Federal Reserve will ultimately hike interest rates and how long it will hold them at higher levels as it battles persistently high inflation.

A sell-off in European government bonds also weighed on the US market.

The US central bank will deliver more interest rate hikes next year even as the economy slips toward a possible recession, Fed Chair Jerome Powell said on Wednesday, arguing that a higher cost would be paid if the US central bank does not get a firmer grip on inflation.

Fed presidents on Friday, including New York’s John Williams, San Francisco’s Mary Daly, and Cleveland’s Loretta Mester, reiterated this message, saying that the US central bank may need to lift US borrowing costs above the peak 5.1% they penciled in at the Fed’s December meeting and keep them there, perhaps into 2024.

Bond investors, however, are pricing in less aggressive rate increases than Fed officials are signaling.

“Part of that could be that the market’s expecting an imminent recession,” said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York, though he added that “I don’t think (it) is likely. The consumer is still quite strong and labor markets are just too tight.”

Personal consumption expenditures (PCE) data for November due on Friday will be the next major focus for further clues about price pressures.

Investors are optimistic that inflation will subside and that the Fed will respond to data with less hawkish policy, which has created a divergence in expectations between the market and Fed officials, according to analysts at Barclays Capital.

Fed funds futures traders are pricing for a peak rate of around 4.88% in May, and then a decline to 4.40% by year-end.

Benchmark 10-year note yields were last at 3.581%. They are above an almost three-month low of 3.402% on Dec. 7 but are holding well below the 15-year high of 4.338% reached on Oct. 21.

Two-year yields were at 4.254% and are below a 15-year high of 4.883% hit on Nov. 4.

The yield curve between two-year and 10-year notes remains deeply inverted at minus 68 basis points, indicating concerns about a recession in the next one to two years.

Yields were also pulled higher on Monday in line with rising euro zone borrowing costs as investors worried about a hawkish European Central Bank and increasing bond supply.

German business morale rose more than expected in December as the outlook for Europe’s largest economy improved despite an energy crisis and high inflation, a survey showed on Monday.

Moves this week are expected to be choppy with many investors out, or reluctant to take risks, before the Christmas and New Year holidays.

The Treasury Department will sell USD 12 billion in 20-year Treasuries on Wednesday and USD 19 billion in five-year Treasury Inflation-Protected Securities (TIPS) on Thursday.

(Reporting by Karen Brettell; Editing by Andrea Ricci and Jonathan Oatis)

Gold inches lower in thin trading on higher yields

Dec 19 (Reuters) – Gold prices inched lower on Monday in thin trading, as rising yields on expectations of higher interest rates countered weakness in the US dollar.

Spot gold fell 0.2% to USD 1,789.46 per ounce by 1:51 p.m. ET (1851 GMT), while US gold futures settled down 0.1% to USD 1,797.

“We’re just seeing a quieter day. We’re starting to see some pre-holiday trading set in and the gold and silver traders are looking for a fresh fundamental input after recent central bank data,” said Jim Wyckoff, senior analyst at Kitco Metals.

US Treasury yields rose on Monday, while the dollar eased. Higher interest rates and bond yields increase the opportunity cost of holding the non-yielding bullion.

US Federal Reserve Chair Jerome Powell said last week the central bank will deliver more interest rate hikes next year. Other major central banks have also signaled the same.

Prices could trade sideways to higher into the end of the year, with some early bargain hunting in the gold market, once bigger institutions and funds start to make some new purchases, Wyckoff added.

In top gold consumer China, COVID-19 is sweeping through trading floors in Beijing and spreading fast in the financial hub of Shanghai.

However, the government said it would step up measures to stabilize its economy amid damage from COVID-19.

“You’re going to need to see an uptick in economic activity in China in order to spark some of the industrial metals,” said Phillip Streible, chief market strategist at Blue Line Futures in Chicago.

Spot silver fell 1% to USD 22.97 per ounce, platinum dropped 1.1% to USD 980.25, and palladium dipped 2.1% to USD 1,677.04.

(Reporting by Seher Dareen in Bengaluru; Editing by Shounak Dasgupta, Krishna Chandra Eluri and Shinjini Ganguli)

Hedge funds slashed US rate hike bets ahead of Fed: McGeever

ORLANDO, Fla., Dec 19 (Reuters) – Hedge funds slashed their wager on rising US interest rates and deepened their bearish bets against the dollar ahead of the Federal Reserve’s last policy meeting, an indication of how they may be looking to position themselves for the year ahead.

Commodity Futures Trading Commission data show that speculators now hold the smallest net short position in three-month ‘SOFR’ rate futures since April, and the largest net short dollar position since July last year.

The CFTC data is for the week ending Dec. 13, just before the Fed raised rates by 50 basis points and Fed Chair Jerome Powell gave his clearest pledge yet that more tightening is coming and rates will stay higher for longer.

In the very short term, funds will have been caught out by the Fed’s surprisingly hawkish stance. But zoom out, and two broader pictures emerge: they are taking profit on two highly lucrative trades this year, and are setting out their stall for 2023.

The CFTC report showed that funds and speculators cut their net short position in three-month Secured Overnight Financing Rate futures to 332,000 contracts from 532,000 the week before.

That is the smallest since the week ending April 3, and the week-on-week change is third biggest since these contracts were launched in 2018.

LEVELING OUT

At the start of the year, funds’ net short position was only 43,000 contracts, while SOFR contracts implied a fed funds rate of just 0.85% by the end of this year and 1.4% next year.

That short position hit a record 1.06 million contracts in early September and funds have been scaling back ever since, a trend that has broadly coincided with the leveling out of ‘terminal rate’ expectations.

Since mid-October, the SOFR curve has consistently implied a peak fed funds rate of around 5.00% by June next year. Significantly, SOFR pricing also implies around 50 bps of rate cuts in the second half of 2023.

A short position is essentially a wager that an asset’s price will fall, and a long position is a bet it will rise. In bonds and rates, yields fall when prices rise, and move up when prices fall.

Hedge funds take positions in short-dated US rates and bonds futures for hedging purposes, so the CFTC data is not reflective of purely directional bets. But it is a pretty good guide.

USD 3 BILLION DOLLAR SHORT

In currencies, the CFTC report showed that funds grew their net short dollar position against other G10 currencies to the largest since July last year – a USD 3 billion bet that the dollar will weaken.

Again, funds are cashing in on a winning trade and positioning for the year ahead.

In January CFTC funds were super bullish on the dollar, with a net long position worth around USD 20 billion, and the dollar soared 20% through September. Funds then began whittling that away, and since then the dollar has declined almost 10%.

Even though the Fed is still promising to tighten policy more, there are other central banks further behind in the cycle and are likely to do more than the Fed in 2023. Step forward Christine Lagarde and the European Central Bank.

CFTC funds are now holding a USD 16.6 billion net long euro position, compared with a USD 6 billion net short position at the start of September.

(By Jamie McGeever; Editing by Andrea Ricci)

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