Gold little changed as market ponders over Fed rate path

Dec 6 (Reuters) – Gold firmed slightly on Tuesday as the dollar gave up some of its recent gains and US Treasury yields retreated, with traders awaiting further direction from the Federal Reserve’s interest rate hike strategy.

Spot gold rose 0.1% to USD 1,769.42 per ounce by 1:31 p.m. ET (1831) GMT, while moves remained fairly contained. US gold futures settled up 0.1% at USD 1,782.4.

“Gold remains tied to the dollar and has found a fresh bid as it weakens,” said Ole Hansen, head of commodity strategy at Saxo Bank,

Also, considering the market only lost about 2% on Monday on a day that saw a strong US data print (ISM) and a reduction in ETF holdings, the “gold market still has some underlying strength”, Hansen added.

Better-than-expected US services industry data spooked investors on Monday and raised fears that the Fed might stick longer with aggressive rate increases.

As a result, bullion dropped from a five-month high to close 1.6% lower as the dollar rebounded after the data. The greenback is little changed and holding near its lowest since June touched in the last session.

“With the Fed due to meet next week, the direction of prices is likely to be determined on how the US central bank sees the glide path for future rate rises,” said Michael Hewson, chief markets analyst at CMC Markets.

The final Fed meeting of 2022 is scheduled on Dec. 13-14.

However, “signs of stronger-than-expected demand may lead markets to revisit more hawkish expectations”, said IG Market strategist Yeap Jun Rong.

High rates have dimmed gold’s traditional status as a hedge against high inflation and other uncertainties this year to some extent, as they translate into higher opportunity cost to hold the non-yielding asset.

Spot silver fell 0.8% to USD 22.07 per ounce, while platinum dropped 1% to USD 987.75. Palladium shed 1.3% to USD 1,852.38.

(Reporting by Arpan Varghese, Arundhati Sarkar and Ashitha Shivaprasad in Bengaluru; editing by David Evans, Louise Heavens and Nick Macfie)

Bond yields rise as traders sell ahead of RBI rate decision

MUMBAI, Dec 6 (Reuters) – Indian government bond yields tracked US yields to end higher on Tuesday, further propped by traders cutting positions ahead of the Reserve Bank of India’s monetary policy decision due on Wednesday morning.

The benchmark 10-year bond yield ended at 7.2486% after ending at 7.2254% on Monday.

Treasury yields rose on Tuesday after strong data from the services and manufacturing sectors and a solid non-farm payrolls report reinforced expectations of the US Federal Reserve continuing to raise interest rates in 2023.

The 10-year yield rose to 3.60%, while inversion between the two-year yield and the 10-year yield widened, a scenario which generally precedes recession.

“There was some position cutting … traders are now waiting for the RBI’s policy guidance and rate action,” said Rajeev Pawar, head of treasury at Ujjivan Small Finance Bank.

The monetary policy committee is expected to hike rates by a smaller 35 bps to 6.25%, according to economists polled by Reuters.

A strong two-thirds majority, however, said it was still too soon for it to take its eye off inflation. The MPC has hiked the repo rate by 190 bps since May.

Retail inflation eased to a three-month low of 6.77% in October, helped by a slower rise in food prices and a higher base effect.

India’s benchmark bond yield is expected to rise on the back of higher government borrowings, Rohit Arora, senior emerging markets forex and rates strategist at UBS Global Research said.

“For the fiscal year end, we are forecasting the 10-year India bond yield at around 7.50%. Over the course of next few months, we expect the debt markets’ demand-supply misbalances to resurface,” he said.

Arora said he did not see value in entering the Indian bond market at current levels as a combination of “somewhat elevated supply burden,” and tapering demand from banks fuel a rise in yields.

(Reporting by Dharamraj Dhutia; Editing by Nivedita Bhattacharjee)

Dollar holds firm on upbeat US data, RBA rate rise lifts Aussie

LONDON/TOKYO, Dec 6 (Reuters) – The US dollar index held firm on Tuesday, following its biggest rally in two weeks after strong services data in the United States fuelled expectations for higher interest rates from the Federal Reserve than recently projected.

The Australian dollar perked up from near one-week lows after the Reserve Bank of Australia (RBA) raised rates for the eighth time in as many months.

The US dollar index, which measures the currency against six major peers, was at 105.24, steady after Monday’s 0.7% rally, its biggest since Nov. 21.

It had dipped to 104.1 on Monday for the first time since June 28. It later reversed course after data showing US services industry activity unexpectedly picked up in November, with employment rebounding.

“The longer the U.S. economy is robust the more doubts are probably going to increase as to whether the US will actually face a recession next year and whether the US central bank will actually cut its key rate at that stage,” said You-Na Park-Heger, FX Analyst at Commerzbank.

The Federal Open Market Committee decides policy on Dec. 15. Traders currently expect a half-point hike to a 4.25-4.5% policy band and a terminal rate of just above 5% in May.

German industrial orders recovered more than expected in October, but that failed to strengthening the euro, flat on the day at USD 1.0500 after on Monday touching its highest level since late June.

The Western price cap on Russian seaborne crude, which came into force on Monday, may start to show its impact on the energy market soon, said Francesco Pesole, FX strategist at ING.

“When adding an expected drop in temperatures in Europe from this week, the risks of a new rally in energy prices are non-negligible, and the euro is highly exposed to such risks,” he said.

The Aussie dollar rose 0.3% to USD 0.6718, clawing back some of a 1.4% tumble on Monday as the RBA said it was not on a preset course to tighten policy but that inflation was still high.

“Whilst the RBA have spoken of a pause publicly, we may not be as close to one as I originally thought,” said Matt Simpson, a senior analyst at brokerage City Index in Brisbane.

In volatile Monday trading, the Aussie reached a 2-1/2-month peak of USD 0.6851.

(Reporting by Joice Alves and Kevin Buckland; Editing by Alexander Smith)

Japanese shares end higher as chip stocks, exporters gain

TOKYO, Dec 6 (Reuters) – Japanese shares closed slightly higher on Tuesday, supported by gains in chip-related stocks and as exporters advanced after the yen weakened against the dollar overnight.

The Nikkei share average rose 0.24% to close at 27,885.87, while the broader Topix ended 0.12% higher at 1,950.22.

“As the yen weakened, some shares looked attractive,” said Chihiro Ohta, assistant general manager at the investment research and investor services at SMBC Nikko Securities.

The dollar gained against the yen overnight, after data showed that US services industry activity unexpectedly picked up in November, prompting speculation the Federal Reserve may lift interest rates more than recently projected.

Tokyo Electron and Advantest rose 1.04% and 0.95%, respectively. Robot maker Fanuc 6954.T gained 1.1%.

Uniqlo brand owner Fast Retailing rose 2.04% and provided the biggest support to the Nikkei.

Automaker Mitsubishi Motors jumped 3.31% and Mazda Motor climbed 3.23%. Motorcycle maker Yamaha Motor rose 2%.

“The market took cues from the US market and was down earlier, but there was demand for buying on dips mainly from retail investors,” said Shigetoshi Kamada, general manager at the research department at Tachibana Securities.

CyberAgent, which has been streaming all the FIFA World Cup matches on its Abema platform, slipped 4.14% to become the worst performer on the Nikkei after Japan lost against Croatia.

British-style pub chain Hub Co., another stock which benefited from Japan’s surprise win over Germany and Spain at the World Cup, fell 6.21%.

(Reporting by Junko Fujita; Editing by Subhranshu Sahu)

Oil prices climb after Russian crude sanctions kick in

Dec 6 (Reuters) – Oil rebounded on Tuesday after plunging by more than 3% in the previous session, as the implementation of sanctions on Russian seaborne crude oil eased concerns about oversupply while the relaxing of China’s COVID curbs bolstered the demand outlook.

Brent crude futures had gained 85 cents to USD 83.53 a barrel by 0733 GMT. West Texas Intermediate crude (WTI) rose 68 cents to USD 77.62 a barrel.

Crude futures on Monday recorded their biggest daily drop in two weeks, after US service sector data raised worries that the Federal Reserve could continue its aggressive policy tightening path.

The Group of Seven set a top price of USD 60 a barrel on Russian crude, aiming to limit Moscow’s ability to finance its war in Ukraine, but Russia has said it will not abide by the measure even if it has to cut production.

The price cap, to be enforced by the G7 nations, the European Union and Australia, comes on top of the EU’s embargo on imports of Russian crude by sea and similar pledges by the United States, Canada, Japan and Britain.

While the market weighs the impact of sanctions on Russian supply, it was also watching a traffic jam of oil tankers off the coast of Turkey on Monday, with Ankara insisting on new proof of insurance for all vessels.

“The threat of losing protection and indemnity (P&I) insurance will limit Russia’s access to the tanker market, reducing crude exports to 2.4 million barrels per day (bpd) – 500,000 bpd lower than levels seen before Russia invaded Ukraine in late February this year,” said analysts from Rystad Energy in a note.

In China, more cities are easing COVID-19-related curbs, prompting optimism for increased demand in the world’s top oil importer.

The country is set to announce a further relaxation of some of the world’s toughest COVID curbs as early as Wednesday, sources said.

Business and manufacturing activity in China, the world’s second-largest economy, have been hit this year by strict measures to rein in the spread of the coronavirus.

But the oil price gains could prove fragile, as it would take time to confirm a sustained recovery in Chinese consumption, as well as the supply impact of Russian sanctions.

Saudi Arabia, the world’s top oil exporter, cut the January official selling price for its flagship Arab Light crude for Asian buyers to a 10-month low.

(Reporting by Stephanie Kelly; Editing by Bradley Perrett and Edmund Klamann)

Oil prices slump to pre-Ukraine crisis levels on economic jitters

NEW YORK, Dec 6 (Reuters) – US oil prices fell in frenzied trading on Tuesday to their lowest settlement levels this year, with Brent finishing below USD 80 per barrel for the second time in 2022, as investors fled the volatile market in an uncertain economy.

Brent crude futures fell USD 3.33, or 4%, to settle at USD 79.35 a barrel. WTI crude futures fell USD 2.68, or 3.5%, to settle at USD 74.25 a barrel, their lowest settlement this year.

Prices have dropped by more than 1% for three straight sessions, giving up most of their gains for the year. A string of bearish news has unnerved investors despite an ongoing war in Ukraine and one of the worst energy crises in recent decades.

“It’s been quite the three days – with OPEC+ deciding not to further cut production on Sunday, the toothless start of the Russian price cap and sanctions yesterday, and a rout in equity markets today, oil speculators are charging for the exits amid a flight from risk assets,” said Matt Smith, lead oil analyst at Kpler.

Service-sector activity in China has hit a six-month low, and European economies have slowed due to the high cost of energy and rising interest rates.

Wall Street benchmarks also tumbled on Tuesday on uncertainty around the direction of Federal Reserve rate hikes and further talk of a looming recession.

Tuesday’s slump was the largest daily decline in Brent prices since late September, which have traded in a USD 62 range this year – their widest swing in a single year since the 2008 financial meltdown.

“We could be looking at USD 60-a-barrel WTI the way that things are going,” Eli Tesfaye, senior market strategist at RJO Futures said. “I think USD 80s are going to be the new high, and I would be very surprised to see any higher than that.”

The oil market has also largely overlooked threats to supply, such as the one from a G7 price cap of USD 60 on Russian seaborne crude oil exports, which is likely to make the country cut its oil output.

Russia has said it will not sell oil to anyone who signs up to the price cap. Russia’s January-November oil and gas condensate production rose 2.2% from a year ago, according to Deputy Prime Minister Alexander Novak, who expects a slight output decline following the latest sanctions.

In China, more cities are easing COVID-19-related curbs, prompting expectations of increased demand in the world’s top oil importer, although that has not been enough to stop the bleed in oil futures.

“Oil markets will likely stay volatile in the near term, driven by COVID headlines in China and central bank policies in the US and Europe,” UBS analyst Giovanni Staunovo said.

US crude oil inventories fell by 6.4 million barrels last week, while gasoline and distillate stockpiles rose, according to market sources citing American Petroleum Institute figures on Tuesday.

(Reporting by Shariq Khan; Additional reporting by Rowena Edwards, Muyu Xu; Editing by Barbara Lewis, Mark Potter, David Gregorio and Deepa Babington)

Philippines’ November annual inflation at 8.0%

MANILA, Dec 6 (Reuters) – Philippine annual inflation was 8.0% in November, the statistics agency said on Tuesday, faster than the 7.7% rate in October.

Last month’s inflation was above the 7.8% forecast in Reuters poll, but within the central bank’s 7.4%-8.2% forecast for November.

(Reporting by Neil Jerome Morales and Enrico dela Cruz; Writing by Karen Lema
Editing by Ed Davies)

Gold flat after sharp declines on US data

Dec 6 (Reuters) – Gold prices were little changed in early Asian trade on Tuesday, after falling more than 1.5% in the previous session as the US dollar rebounded on bets that strong economic data may prompt bigger interest rate hikes by the Federal Reserve.

FUNDAMENTALS

* Spot gold was flat at USD 1,768.61 per ounce, as of 0011 GMT. Bullion hit a five-month high on Monday before closing 1.6% lower in its biggest daily drop since Sept. 23.

* US gold futures were little changed at USD 1,780.90.

* The dollar index rebounded on Monday after data showed US services industry activity unexpectedly picked up in November, prompting speculation the Fed may lift interest rates more than recently projected.

* Higher interest rates tend to weigh on gold’s appeal as they increase the opportunity cost of holding the non-yielding metal.

* Meanwhile, the European Central Bank is likely to raise interest rates by 50 basis points next week, governing council member Gabriel Makhlouf said on Monday.

* SPDR Gold Trust GLD, the world’s largest gold-backed exchange-traded fund, said its holdings fell 0.2% to 903.46 tons on Monday.

* Top bullion consumer China is set to announce a further easing of some of the world’s toughest COVID curbs as early as Wednesday, sources said, as investors cheered the prospect of a policy shift that follows widespread protests and mounting economic damage.

* Spot silver inched 0.1% lower to USD 22.23, platinum was flat at USD 997.84 and palladium rose 0.2% to USD 1,878.93.

DATA/EVENTS (GMT)

0030 Australia Current Account Balance SA Q3

0030 Australia Net Exports Contribution Q3

0700 Germany Industrial Orders MM Oct

0700 Germany Manufacturing O/P Cur Price SA Oct

0700 Germany Consumer Goods SA Oct

1330 US International Trade Oct

(Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Subhranshu Sahu)

Wall Street slides as services data spooks investors about Fed rate hikes

Dec 5 (Reuters) – US markets ended Monday lower, as investors spooked by better-than-expected data from the services sector re-evaluated whether the Federal Reserve could hike interest rates for longer, while shares of Tesla slid on reports of a production cut in China.

The electric-vehicle maker Tesla slumped 6.4% on plans to cut December output of the Model Y at its Shanghai plant by more than 20% from the previous month.

This weighed on the Nasdaq, where Tesla was one of the biggest fallers, pulling the tech-heavy index to its second straight decline.

Broadly, indexes suffered as data showed US services industry activity unexpectedly picked up in November, with employment rebounding, offering more evidence of underlying momentum in the economy.

The data came on the heels of a survey last week that showed stronger-than-expected job and wage growth in November, challenging hopes that the Fed might slow the pace and intensity of its rate hikes amid recent signs of ebbing inflation.

“Today is a bit of a response to Friday, because that jobs report, showing the economy was not slowing down that much, was contrary to the message which (Chair Jerome) Powell had delivered on Wednesday afternoon,” said Bernard Drury, CEO of Drury Capital, referencing comments made by the head of the Federal Reserve saying it was time to slow the pace of coming interest rate hikes.

“We’re back to inflation-fighting mode,” Drury added.

Investors see an 89% chance that the US central bank will increase interest rates by 50 basis points next week to 4.25%-4.50%, with the rates peaking at 4.984% in May 2023.

The rate-setting Federal Open Market Committee meets on Dec. 13-14, the final meeting in a volatile year, which saw the central bank attempt to arrest a multi-decade rise in inflation with record interest rate hikes.

The aggressive policy tightening has also triggered worries of an economic downturn, with JPMorgan, Citigroup and BlackRock among those that believe a recession is likely in 2023.

The Dow Jones Industrial Average fell 482.78 points, or 1.4%, to close at 33,947.1, the S&P 500 lost 72.86 points, or 1.79%, to end on 3,998.84, and the Nasdaq Composite dropped 221.56 points, or 1.93%, to finish on 11,239.94.

In other economic data this week, investors will also monitor weekly jobless claims, producer prices and the University of Michigan’s consumer sentiment survey for more clues on the health of the US economy.

Energy was among the biggest S&P sectoral losers, dropping 2.9%. It was weighed by US natural gas futures slumping more than 10% on Monday, as the outlook dimmed due to forecasts for milder weather and the delayed restart of the Freeport liquefied natural gas (LNG) export plant.

EQT Corp. (EQT), one of the largest US natural gas producers, was the steepest faller on the energy index, closing 7.2% lower.

Financials were also hit hard, slipping 2.5%. Although bank profits are typically boosted by rising interest rates, they are also sensitive to concerns about bad loans or slowing loan growth amid an economic downturn.

Meanwhile, apparel maker VF Corp. (VFC) dropped 11.2% – its largest one-day decline since March 2020 – after announcing the sudden retirement of CEO Steve Rendle. The firm, which owns names including outdoor wear brand The North Face and sneaker maker Vans, also cut its full-year sales and profit forecasts, blaming weaker-than-anticipated consumer demand.

Volume on US exchanges was 10.78 billion shares, compared with the 11.04 billion average for the full session over the last 20 trading days.

The S&P 500 posted six new 52-week highs and four new lows; the Nasdaq Composite recorded 105 new highs and 133 new lows.

(Reporting by Shubham Batra, Ankika Biswas, Johann M Cherian and Devik Jain in Bengaluru and David French in New York; Editing by Anil D’Silva, Shounak Dasgupta and Lisa Shumaker)

Dollar gains broadly as upbeat US data muddles Fed rate hike views

NEW YORK, Dec 5 (Reuters) – The dollar gained against the yen, the euro and the pound on Monday after data showed that US services industry activity unexpectedly picked up in November, prompting speculation the Federal Reserve may lift interest rates more than recently projected.

The Institute for Supply Management (ISM) said its non-manufacturing PMI increased to 56.5 last month from 54.4 in October, indicating that the services sector, which accounts for more than two-thirds of US economic activity, remained resilient in the face of rising interest rates. Economists polled by Reuters had forecast the non-manufacturing PMI slipping to 53.1.

The survey followed on the heels of stronger-than-expected job and wage growth data for November released last Friday. Consumer spending also accelerated in October.

The upbeat reports have raised optimism the economy could avoid recession next year, with growth just slowing sharply, while also spurring speculation about how high rates will rise.

“The ISM services PMI data highlighted a US economy that’s still showing some strength, despite tighter financial conditions,” said Priscilla Thiagamoorthy, an economist at BMO Capital Markets. “While that’s good news for the growth outlook, it’s not so great for the Fed trying to dampen demand and ease inflation.”

Fed Chair Jerome Powell said last week the US central bank could scale back the pace of its rate increases “as soon as December.”

The dollar climbed 1.68% against the yen to 136.615 yen, bouncing from Friday’s three-and-a-half month low of 133.62, while sterling, which had risen to a more than five-month high of USD 1.2345 in Asian trade Monday, was down 0.94% at USD 1.2178 at 2:15 p.m. EST (1915 GMT).

The euro slid 0.42% to USD 1.0494, having earlier climbed to USD 1.0585, its highest level since June 28.

The dollar index, which tracks the greenback against six peers, fell 1.4% last week, and 5% in November, its worst month since 2010.

But now speculation is growing that the Fed ‘pivot’ narrative has run its course.

“I think this issue about ‘peak inflation, peak rates, peak dollar’ – I think – is slowly turning into a ‘persistence of inflation, a persistence of higher-for-longer interest rates,” said Jane Foley, senior FX strategist at Rabobank.

The dollar’s aggregate positioning against G10 currencies is now neutral, and at the lowest levels since August 2021, according to ING calculations based on CFTC data.

ING also believes that dollar softening may have run its course for now, given the possibility of the Fed maintaining its hawkish narrative for longer, that relaxing China’s COVID restrictions could prove complicated, and that oil and gas prices could rise again.

The other major factor for markets on Monday was China, where several cities have been easing their COVID restrictions. Official messaging about how dangerous the virus is also has changed following recent, unprecedented protests against the government’s uncompromising “dynamic zero-COVID” strategy.

This boosted China’s yuan, and the dollar fell below 7.0 yuan in offshore trade for the first time since mid September, and was last at 6.9767.

(Reporting by John McCrank in New York and Alun John in London; Editing by Chizu Nomiyama, Susan Fenton and Andrea Ricci)

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