US yields lower after Fed minutes

NEW YORK, Jan 4 (Reuters) – The benchmark US 10-year Treasury yield fell on Wednesday, putting it on track for its longest streak of declines in more than five months after the release of the minutes from the most recent meeting of the Federal Reserve.

At the Fed’s December policy meeting which resulted in a rate hike of 50 basis points (bps) after four straight hikes of 75 bps, all officials agreed with the slower pace, but were concerned with any “misperception” in financial markets that their commitment to fight stubbornly high inflation was in any way starting to ebb.

“The market thinks the Fed is going to blink and the Fed is going out of their way to say we are bringing inflation down to 2% and there is going to be some pain,” said Christopher Lanouette, managing director and fixed income manager of taxable and tax-exempt bond portfolios at CIBC Private Wealth US in Boston.

“It seems like the market still hasn’t come to terms with that,” he added.

Earlier, economic data showed the labor market remained tight in November, which bolsters the case for the Fed to continue to hike interest rates more than is currently expected, although a separate report showed manufacturing contracted in December for a second straight month.

However, the same report showed a measure of prices paid by manufacturers tumbled to its lowest level since February 2016, excluding the drop during the early stages of the COVID-19 pandemic.

The yield on 10-year Treasury notes was down 9.2 basis points to 3.700%, on track for its biggest one-day drop since Dec. 13. The yield was poised to fall for a fourth straight session, it’s longest streak of declines since a five-session run that began on July 26.

Yields briefly moved higher after Minneapolis Fed President Neel Kashkari said the Fed should continue to raise rates at its next few meetings until it is confident that inflation has peaked, and laid out his own view that the policy rate should first pause at 5.4%, which is more aggressive than the majority of policymakers.

The yield on the 30-year Treasury bond was down 7.7 basis points to 3.814%.

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.

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 67.4 basis points. Such an inversion is seen by many as a signal of an impending recession.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was down 3.3 basis points at 4.372%.

The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.258%, after closing at 2.306% on Tuesday.

The 10-year TIPS breakeven rate was last at 2.226%, indicating the market sees inflation averaging 2.2% a year for the next decade.

(Reporting by Chuck Mikolajczak; Editing by Paul Simao and Elaine Hardcastle)

Gold hovers near mid-June highs after Fed minutes

Jan 4 (Reuters) – Gold held near seven-month highs reached on Wednesday after the minutes of the Federal Reserve’s last meeting showed all its policymakers remained committed to fighting inflation but agreed on the need to slow rate hikes in 2023.

Spot gold rose 0.7% to USD 1,851.41 per ounce by 2:48 p.m. ET (1948 GMT), having risen as much as 1.4% earlier to its highest price since June 13.

US gold futures settled up 0.7% at USD 1,859.

Officials at the Federal Reserve’s Dec. 13-14 policy meeting acknowledged they had made “significant progress” over the past year in raising rates enough to bring inflation down, the minutes showed.

“Gold is holding remarkably steady despite Fed minutes that state clearly that rates will continue to rise and there would be no rate cuts in 2023 contrary to what the market has priced,” said Tai Wong, a senior trader at Heraeus Precious Metals in New York.

The dollar index was down 0.2%, making gold less expensive for overseas investors, while benchmark 10-year yields were slightly higher for the day.

Higher rates tend to weigh on non-yielding gold.

The minutes indicated that officials “emphasized the need to retain flexibility and optionality when moving policy to a more restrictive stance,” with a scale back to quarter-percentage-point increases as of the Jan. 31-Feb. 1 meeting possible, but open to an even higher “terminal” rate if inflation persists.

Fed fund futures kept bets that the central bank would raise rates another half of a percentage point in coming months before pausing just shy of 5%.

Gold prices could, however, ease if recent aggressive buying in Asia and Europe fades, Wong added, while expecting that gold could move between USD 1,800-USD 1,900 in the short term.

Silver fell 1% to USD 23.74 per ounce, platinum was down 0.6%, to USD 1,077.03, while palladium jumped 5.4% to USD 1,802.13.

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

Asian stocks in 2022 suffer biggest foreign outflows since 2008 global crisis

Jan 4 (Reuters) – Foreign investors withdrew more money from emerging Asian equities in 2022 than they had done in any year since the global financial crisis in 2008, as rising US interest rates pulled funds towards dollar assets.

Data from stock exchanges in Taiwan, India, the Philippines, Vietnam, Thailand, Indonesia, and South Korea showed foreigners sold equities worth USD 57 billion last year, the biggest outflow since 2008.

After four straight 75-basis point hikes earlier in 2022, the US Federal Reserve raised its overnight borrowing rate by another 50 basis points in December.

Due to the hikes, the yield on safer 10-year US Treasuries climbed about 230 basis points to 3.83% last year, which hit the foreign demand for riskier regional equities.

Taiwanese equities faced outflows worth USD 41.6 billion last year, leading the regional sales, while India and South Korea witnessed an outgo of USD 15.4 billion and USD 9.6 billion, respectively.

Hit by falling foreign demand and a worsening economic outlook, the MSCI’s Asia Pacific index plunged 19.4% last year – the biggest fall since dropping 43.3% in 2008.

Some analysts expect more outflows, at least in the first half of the year, as US interest rates are expected to rise further this year.

“The first half of the new trading year could continue to bring a cautious tone in the region, as market participants brace for further economic impact from tighter global central banks’ policies, along with risks of China’s reopening triggering cross-border virus spreads,” said Yeap Jun Rong, a market strategist at IG.

In December, emerging Asian equities, excluding Japan and China, witnessed net sales worth USD 3 billion, with Taiwanese, Indonesian and South Korean equities facing outflow of USD 2.55 billion, USD 1.34 billion, and USD 1.31 billion, respectively.

On the flip side, India, Vietnam, and Thailand received net inflows of USD 1.36 billion, USD 559 million and USD 372 million, respectively, in December.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Simon Cameron-Moore)

Oil falls more than 5% on global economy worry, China COVID cases

NEW YORK, Jan 4 (Reuters) – Oil fell by more than USD 4 a barrel on Wednesday, posting the steepest percentage loss in the first two trading days of any year for over 3 decades, as investors worried about fuel demand as the global economy slows and COVID-19 cases grow in China.

Brent futures settled at USD 77.84 a barrel, falling USD 4.26, or 5.2%. US crude settled at USD 72.84 a barrel, shedding USD 4.09, or 5.3%.

Brent has fallen by about 9.4% this week, its steepest two-day loss at the start of the year since January 1991, according to Refinitiv Eikon data.

“Crude oil is trading lower on concerns around China COVID-19 and the Fed forcing a global recession… both demand destruction events,” said Bob Yawger, director of energy futures at Mizuho in New York.

Data from China showed that while no new coronavirus variant has been found there, the country has under-represented how many people have died in its recent, rapidly spreading outbreak, World Health Organization officials said.

The state of the global economy and central bank rate hikes also weighed on crude prices.

US manufacturing contracted further in December, dropping for a second straight month to 48.4 from 49.0 in November, in the weakest reading since May 2020, the Institute for Supply Management (ISM) said.

At the same time, a survey from the US Labor Department showed job openings fell less than expected, raising concerns that the Federal Reserve would use the tight labor market as a reason to keep rates higher for longer.

The Chinese government increased export quotas for refined oil products in the first batch for 2023, signaling expectations of poor domestic demand.

Top oil exporter Saudi Arabia could cut prices for its flagship Arab Light crude grade to Asia in February, having been set at a 10-month low for this month, as concern about oversupply continued to cloud the market.

OPEC oil output rose in December, a Reuters survey found on Wednesday, despite an agreement by the wider OPEC+ alliance to cut production targets to support the market.

The Organization of the Petroleum Exporting Countries (OPEC)pumped 29 million barrels per day (bpd) last month, the survey found, up 120,000 bpd from November.

US crude oil stockpiles are likely to have risen by 1.2 million barrels last week, with distillate inventories expected to have fallen, a revised Reuters poll showed.

US crude oil inventories likely rose by 3.3 million barrels last week along with gasoline stocks jumping 1.2 million barrels, while distillate stocks fell, according to market sources citing American Petroleum Institute figures.

The Energy Information Administration will release its figures on Thursday morning.

(Reporting by Laila Kearney in New York; Additional reporting by Ahmad Ghaddar, Muyu Xu and Stephanie Kelly; Editing by Bernadette Baum, Matthew Lewis and David Gregorio)

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.

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)

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