Tax-loss selling in battered US stocks could spur January snap-back

NEW YORK, Dec 7 (Reuters) – Investors who sell underperforming US stocks to lock in tax benefits before year-end may be adding to recent pressure on equities while sowing the seeds of a January rebound in some corners of the market.

With the S&P 500 down about 16% year-to-date and many individual stocks nursing even sharper losses, tax-loss harvesting – or investors selling assets with a loss in order to cancel out the income taxes they owe on realized gains elsewhere in their portfolios – may be a stronger than usual headwind to markets this year.

Yet some investors are betting a number of those beaten-down stocks and possibly the broader market could snap back in January, once the selling period is over.

“This is the first time that investors are looking at double-digit declines in about 13 years, and we’ve never seen this level of tax-loss selling before,” said Peter Essele, who oversees roughly USD 11 billion as in assets as head of portfolio management for Commonwealth Financial Network. “That could result in a pretty strong first couple of months as people start reentering long-term assets.”

S&P 500 stocks that are down 10% or more for the year – making them likely targets for tax-loss selling – have historically outperformed the broader index by 8.2 percentage points between November and the end of January during years in which the index fell more than 10%, analysts at BofA Global Research noted in a research report.

The firm identified 159 out of 338 stocks with a 10% or greater loss for the year in the S&P 500 that could bounce following tax selling, including Meta Platforms Inc. (META), Domino’s Pizza Inc. (DPZ), Home Depot Inc. (HD), and Amazon.com Inc. (AMZN). Shares of each company are down 1% or more for December, with Amazon leading the way with a roughly 8% decline.

DoubleLine founder Jeffrey Gundlach told CNBC on Wednesday that risk assets will likely rally in January once retail investors finish tax-loss selling. Strategists at Evercore wrote on Nov. 30 that they were “buyers of stocks whose 2022 Tax Loss selling pressure will soon abate.”

Investors appear to have already started selling underperforming shares. Private clients at BofA, for instance, sold nearly USD 1.4 billion of stocks in likely tax-motivated selling in November, up from roughly USD 800 million last year, and appear poised to continue that outsized rate of selling this month, the firm said.

Vanda Research, which tracks the behavior of retail traders, wrote in a late-November research note that individual investors typically pull an average of approximately USD 1 billion on net from the shares of single US stocks during the last weeks of December and put their funds into ETFs that give exposure to broader markets, helping fuel so-called “Santa Claus rallies” at the end of the year.

Of course, macroeconomic concerns such as monetary policy and worries over a potential recession resulting from the Federal Reserve’s rapid interest rate hikes are likely to remain the main drivers of stock moves in 2023, potentially dwarfing the impact of seasonal flows, said Emily Rowland, co-chief investment strategist at John Hancock Investment Management.

“We wouldn’t want to overplay that trend as we move into more challenging waters next year,” she said.

(Reporting by David Randall; Editing by Ira Iosebashvili and Nick Zieminski)

Emerging markets November foreign inflows most since June 2021 – IIF

Dec 8 (Reuters) – Foreigners dumped the most cash into emerging market portfolios in November than any month since June 2021 even as Chinese debt continues to see outflows, the Institute of International Finance (IIF) said on Thursday.

Overall, foreign investors added USD 37.4 billion to emerging market portfolios last month, with fixed income attracting USD 14.4 billion in the strongest monthly inflows so far this year.

Flows to Chinese equities also posted their largest monthly increase this year at USD 8.5 billion, but Chinese debt continued to see outflows that now total almost USD 77 billion in 2022.

“Non-resident investor flows to China have essentially ground to a halt, which is consistent with anecdotes we pick up from market participants who have become more attuned to geopolitical risk,” said IIF economist Jonathan Fortun in a report alongside the flows data.

China this week eased COVID-19 quarantine rules in a major policy adjustment which could reverse the flow of cash back into portfolios in the world’s second-largest economy.

Chinese stock indexes have had a rough year, and the low prices have enticed investors even before the new COVID rules. Shanghai stocks rose nearly 9% last month and are down 12% YTD while Hong Kong .HSI, down 17% so far in 2022, added 27% last month alone. The China MSCI index, priced in dollars, rose almost 30% in November.

The yuan CNY= gained 3% last month against the dollar but remains down near 9% this year, still on track for the largest yearly losses in almost three decades.

IIF regional data showed an inflow of USD 25.6 billion to Asia, while Latin America took in some USD 8.2 billion, the most since March, and emerging Europe another USD 3.2 billion. Africa and the Middle East took in USD 0.4 billion in the first positive reading since March.

(Reporting by Rodrigo Campos; Editing by Chizu Nomiyama)

Gold firms on softer dollar with focus on Fed’s next move

Dec 8 (Reuters) – Gold prices edged higher on Thursday as the dollar eased, while investors positioned themselves ahead of key US inflation data and the Federal Reserve’s policy meeting due next week.

Spot gold was up 0.2% at USD 1,789.42 per ounce, as of 1901 GMT, after rising more than 1% on Wednesday.

US gold futures settled 0.2% higher at USD 1,801.50.

The dollar index slipped 0.3% against its rivals, making gold less expensive for other currency holders.

“We’re just waiting for some fresh fundamental inputs,” said Jim Wyckoff, senior analyst at Kitco Metals, adding that gold prices are likely to be in “choppy and sideways” trade leading up to the Fed’s policy meeting next week.

Investors are keeping a close eye on the Fed policy decision due on Dec. 14, with market participants largely pricing in a 50-basis-point (bps) rate hike. November’s consumer price data due on Dec. 13 will also be closely watched.

“What traders are going to watch is not only whether the Fed raises (interest rates) by half a point or three-quarters of a point, but also the tenor of their rhetoric on the pace of future rate hikes,” Wyckoff said.

However, recent strong US economic data has led to fears that the Fed may lift interest rates more than recently projected.

“The jobs report was a setback and one that could stand in the way of another break higher before the Fed meeting,” Craig Erlam, senior market analyst at OANDA said in a note.

Interest rate hikes to fight soaring inflation tend to raise the opportunity cost of holding non-yielding gold.

The World Gold Council (WGC) said global gold ETFs (exchange traded funds) holdings fell for a seventh straight month in November, although outflows slowed to a modest 34 tonnes worth USD 1.8 billion.

Spot silver added 1.5% to USD 23.07 per ounce, platinum rose 0.2% to USD 1,004.22 and palladium climbed 4.6% to USD 1,929.98.

(Reporting by Kavya Guduru in Bengaluru; Editing by Sherry Jacob-Phillips and Maju Samuel)

Central banks flash a huge blip on the FX option radar

Dec 8 (Reuters) – One week FX option expiries now capture a swathe of central bank rate decisions from the U.S, Europe, UK and Switzerland, on top of Tuesday’s US CPI data, which has further boosted related implied volatility and warns dealers of the extreme risk of increased actual volatility ahead.

Dealers use implied volatility to gauge actual volatility expectations over the life of the options. Option holders can profit if actual volatility outperforms implied, so the big jump in the latter since capturing the US CPI data and now these central bank meetings flag the additional volatility risk premium.

EUR/USD one-week implied volatility adds 3.0 to match longer term highs at 15.0 since Wednesday and 10.0 before the CPI data – a premium/break-even for a simple vanilla straddle of USD 175-pips in either direction.

USD/JPY one-week implied volatility is up 5.0 on the week to 18.0 – a premium/break-even of 272-JPY pips in either direction.

USD/CHF one-week implied volatility is 13.25 from 8.5 at the start of the week – 137 CHF pips in either direction, with EUR/CHF now 9.5 from 6.5 Wednesday (104 CHF pips either side).

GBP/USD 1-week is up 5.0 on the week to 17.0 – a break-even of USD 228-pips in either direction, while 1-week expiry EUR/GBP implied volatility has added 3.0 to 9.0 since capturing the BoE and ECB to £86-pips in either direction.

AUD/USD and NZD/USD 1-week implied volatilities gain 4.5 to 18.5 this week, which are USD 133-pips and 126-pips in either direction respectively.

(Richard Pace is a Reuters market analyst. The views expressed are his own)

Japan’s Nikkei ends at near 1-month low amid economic worries

TOKYO, Dec 8 (Reuters) – Japan’s Nikkei index closed at near one-month low Thursday, weighed down by Wall Street’s weak finish on economic concerns as well as corporate earnings.

The Nikkei share average fell 0.4% to close at 27,574.43, its lowest close since Nov. 10.

The broader Topix slipped 0.35% to 1,941.50.

The S&P 500 and Nasdaq closed lower overnight after a choppy session on Wall Street, as investors struggled to grasp a clear direction as they weighed how the Federal Reserve’s monetary policy tightening might feed through into corporate America.

“Investors were worried about global economic and corporate outlook, following comments from Goldman Sachs and JP Morgan executives,” Maki Sawada, strategist at Nomura Securities told at a media briefing on the market.

Downbeat comments from top executives at the biggest U.S banks rattled the market, with Goldman Sachs Group Inc. (GS), JPMorgan Chase & Co. (JPM) and Bank of America Corp. (BAC) saying a mild to more pronounced recession was likely ahead.

In Japan, chip-making equipment maker Tokyo Electron lost 0.94%, game and audio equipment maker Sony Group fell 1.93% and robot maker Fanuc slipped 0.6%.

Motor maker Nidec lost 2.89% to become the worst performer on the Nikkei. Toy maker Konami Holdings Group 9766.T slipped 2.7%.

SoftBank Group jumped 2.15% and provided the biggest support to the Nikkei after a report that its billionaire chairman and CEO, Masayoshi Son, has raised his stake in the firm to 34%, taking him closer to a buyout of the conglomerate.

(Reporting by Junko Fujita; editing by Uttaresh.V)

Oil falls on weakening demand, shrugs off Keystone closure

NEW YORK, Dec 8 (Reuters) – Oil settled lower for a fifth straight session on Thursday as traders shrugged off the closure of a major Canada-to-US crude pipeline, focusing instead on concerns that global economic slowdowns would slash fuel demand.

Brent crude settled at USD 76.15 a barrel, losing USD 1.02, or 1.3%. US West Texas Intermediate (WTI) crude settled at USD 71.46 a barrel, shedding 55 cents, or 0.8%.

Canada’s TC Energy said it shut its 622,000 barrel-per-day Keystone pipeline, which is the primary line shipping heavy Canadian crude from Alberta to the US Midwest and Gulf Coast, after a spill into a Kansas creek.

The line has had several spills since it began operating in 2010.

Oil prices rose after the company announced the closure, but the rally dissipated as analysts noted that the US Gulf is likely to have enough inventory to handle short-term outages. Several analysts also said the section of the line that goes to Midwest refiners could be restarted soon. TC Energy has not announced when the pipeline would reopen.

“I would tend to think that, any minute here, you’re going to see a headline hit the tape that’s going to say that Keystone is going to be back sooner rather than later,” said Bob Yawger, director of energy futures at Mizuho in New York.

The energy markets are weighed down by fears of an economic slowdown, weakening fuel demand amid the prospect of more US interest rate hikes, with the Federal Reserve widely expected to raise interest rates by 50 basis points next week.

While US crude inventories fell last week, gasoline and distillate inventories surged, adding to concern about easing demand.

Limiting losses was an announcement by China on Wednesday detailing the most sweeping changes to its strict anti-COVID regime since the pandemic began, while at least 20 oil tankers faced delays in crossing to the Mediterranean from Russia’s Black Sea ports.

The 14-day relative strength index for Brent was below 30 on Thursday according to Eikon data, a level taken by technical analysts as indicating an asset is oversold and could be poised for a rebound.

Both Brent and US crude hit 2022 lows on Wednesday, unwinding all the gains made after Russia’s invasion of Ukraine exacerbated the worst global energy supply crisis in decades and sent oil close to its all-time high of USD 147.

Western officials were in talks with Turkish counterparts to resolve the tanker queues, a British Treasury official said on Wednesday, after the G7 and European Union rolled out new restrictions aimed at Russian oil exports.

(Reporting by Laila Kearney; Additional reporting by Jeslyn Lerh in Singapore and Alex Lawler; Editing by Jason Neely, Kirsten Donovan, Lisa Shumaker and John Stonestreet)

Philippines’ forex reserves at USD 93.95 bln at end-November

MANILA, Dec 7 (Reuters) – The Philippines’ gross international reserves dropped to USD 93.95 billion at end-November, from USD 94.03 billion a month earlier, the central bank said on Wednesday, citing preliminary data.

The latest forex reserves represent a more-than-adequate external liquidity buffer equivalent to 7.5 months worth of imports of goods and payments of services and primary income, it said in a statement.

(Reporting by Neil Jerome Morales)

Dollar in demand as growth outlook darkens, yuan up as China eases curbs

SINGAPORE, Dec 7 (Reuters) – The dollar crept higher on Wednesday as some of the biggest US banks warned of an impending recession, which dampened appetite for riskier assets and kept the greenback in demand.

Top bankers from JPMorgan Chase & Co, Bank of America and Goldman Sachs said overnight that the banks are bracing for a worsening economy next year, as inflation and high interest rates cuts into consumer demand.

Against the dollar, sterling was last 0.03% lower at USD 1.2131, after falling 0.4% overnight.

The greenback rose 0.2% against the Japanese yen to 137.30 yen, following a 0.16% overnight gain.

“We’ve been forecasting a recession in the US, the UK, the euro zone and Japan … It’s part of our baseline,” said Joseph Capurso, head of international and sustainable economics at Commonwealth Bank of Australia.

“(That) will provide more support to the US dollar, as a safe-haven currency.”

Against a basket of currencies, the US dollar index edged 0.07% higher to 105.62.

It had risen nearly 0.3% overnight, extending a brief rally for a second straight session after upbeat US services and factory data released at the start of the week pointed to underlying momentum in the world’s largest economy.

This supported the view that while the Federal Reserve may scale back the pace of its rate hikes, US rates will remain higher for longer.

Elsewhere, the euro was last 0.08% lower at USD 1.0465.

Two European Central Bank (ECB) officials had signalled that inflation and rates may be close to peaking, ahead of the ECB’s monetary policy meeting next week.

The Aussie gained 0.19% to USD 0.6701, after a muted reaction to data which showed that Australia’s economy slowed a little in the September quarter.

The antipodean currency remained buoyed by a hawkish stance from the Reserve Bank of Australia, which on Tuesday signalled more rate hikes ahead to cool inflation, after it lifted its cash rate by 25 basis points to a 10-year high.

The kiwi rose 0.13% to USD 0.6326.

In Asia, China’s yuan firmed as the government announced a slew of measures that marked a sharp change to its tough, three-year-old zero-COVID policy that has battered its economy and sparked historic protests.

China’s national health authority said that asymptomatic COVID-19 cases and those with mild symptoms can self-treat while in quarantine at home.

While some of the changes echoed similar shifts made by other countries many months ago, the announcement was the strongest sign so far that China is preparing its people to live with the disease, though analysts say the path to fully reopening the economy will be long and bumpy, and not without risk.

The onshore yuan was last more than 0.2% higher at 6.9771 per dollar.

“These are follow-up measures and reinforce the fact that China is taking calibrated steps in the direction of reopening,” said Christopher Wong, a currency strategist at OCBC.

“Anticipation of further easing of measures in China should continue to favor RMB (and) RMB-linked assets.”

The optimism over further easing of China’s strict COVID-19 restrictions outweighed its dismal trade data released earlier in the day, which showed that the country’s exports and imports shrank at a much steeper-than-expected pace in November, as a result of feeble global and domestic demand, COVID-induced production disruptions and a property slump at home.

(Reporting by Rae Wee; Editing by Sam Holmes and Kim Coghill)

Oil steady as China revival hopes offset Russia uncertainty

SINGAPORE, Dec 7 (Reuters) – Oil futures were little changed in Asia on Wednesday as hopes of improved Chinese demand offset uncertainty about how a Western cap on Russian oil prices would play out, keeping markets on edge after a sharp fall in the previous session.

Brent crude futures edged up 3 cents, or 0.04%, to USD 79.38 a barrel by 0717 GMT, after they fell below USD 80 for the second time in 2022 during the previous trading session.

US crude futures mostly traded sideways, and were down 9 cents or 0.12% to USD 74.16 a barrel.

Brent’s slump on Tuesday was the largest daily decline since late September, which have traded in a USD 62 range this year.

Expectations of rising China demand continued to be a positive driver, as the country posted fewer new COVID-19 infections for the second consecutive day and announced sweeping changes in its tough anti-virus policy.

China’s national health authority said on Wednesday that asymptomatic COVID-19 cases and those with mild symptoms can quarantine at home, in the strongest sign so far that China is preparing its people to live with the disease.

“China has (been) rapidly eased COVID-19 restrictions, which may boost demand,” markets analyst Leon Li at CMC Markets said in a note.

The reopening could see a 1% boost to global oil demand, ANZ said in a client note.

Data earlier on Wedneday showed China’s crude oil imports in November rose 12% from a year earlier to their highest in 10 months, as companies replenished stocks with cheaper oil and as new plants started up.

A potential drawdown in US crude stockpiles of around 6.4 million barrels, according to API figures, also gave some sentiment support on the supply front.

However, uncertainty on how the price cap on Russian oil would impact supply contributed to volatility. Russia is considering three options, including banning oil sales to some countries and setting maximum discounts at which it would sell its crude, to counter the price cap imposed by Western powers, the Vedomosti daily reported on Wednesday.

“There’s still tons of uncertainty in the markets today,” said Claudio Galimberti, senior vice-president at Rystad Energy, adding crude production in Russia may not drop as much as expected earlier.

Some weakness was attributed to a stronger greenback, after it firmed from the earlier session, and cautious activity in Asian stock markets.

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

Those fears were sparked by strong economic data or hawkish signals from other policymakers.

Oil prices have dropped by more than 1% for three straight sessions, giving up most of their gains for the year.

Some optimism remained that buyers could come back if the market bottoms out amid a contango price structure, where forward prices are higher than prompt prices.

“Energy traders are not confidently buying dips, but they will if the current selloff sends (UScrude) prices close to the levels the Biden administration might refill the SPR, which is in the USD 70 region,” senior market analyst at OANDA Edward Moya said in a client note, referring to the US Strategic Petroleum Reserve.

(Reporting Trixie Yap in Singapore, additional reporting by Laura Sanicola; Editing by Cynthia Osterman, Lincoln Feast and Kim Coghill)

S&P posts 4th straight decline amid recession talk

Dec 6 (Reuters) – Wall Street ended lower on Tuesday, with the S&P 500 extending its losing streak to four sessions, as skittish investors fretted over Federal Reserve rate hikes and further talk of a looming recession.

Meta Platforms Inc. (META) dragged down markets, with its shares sliding 6.8% following reports that European Union regulators have ruled the company should not require users to agree to personalized ads based on their digital activity.

However, technology names generally suffered as investors applied caution toward high-growth companies whose performance would be sluggish in a challenging economy. Apple Inc. (AAPL), Amazon.com Inc. (AMZN) and Alphabet Inc. (GOOGL) fell between 2.5% and 3%, while the tech-heavy Nasdaq was pulled lower for a third straight session.

Most of the 11 major S&P sectors declined, with energy and communications services joining technology as leading laggards. Utilities, a defensive sector often preferred during times of economic uncertainty, was the only exception, gaining 0.7%.

Future economic growth prospects were in focus on Tuesday following comments from financial titans pointing toward uncertain times ahead.

Bank of America Corp’s (BAC) chief executive predicted three quarters of mild negative growth next year, while JPMorgan Chase and Co’s (JPM) CEO Jamie Dimon said inflation will erode consumer spending power and that a mild to more pronounced recession was likely ahead.

Their comments came on the heels of recent views from BlackRock and others that believe the US Federal Reserve’s aggressive monetary tightening to combat stubbornly high price rises could induce an economic downturn in 2023.

“The market is very reactive right now,” said David Sadkin, president at Bel Air Investment Advisors.

He noted that, while markets traditionally reflect the future, right now they are moving up and down based on the latest headlines.

Fears about economic growth come amid a re-evaluation by traders of what path future interest rate hikes will take, following strong data on jobs and the services sector in recent days.

Money market bets are pointing to a 91% chance that the US central bank might raise rates by 50 basis points at its Dec. 13-14 policy meeting, with rates expected to peak at 4.98% in May 2023, up from 4.92% estimated on Monday before service-sector data was released.

The S&P 500 rallied 13.8% in October and November on hopes of smaller rate hikes and better-than-expected earnings, although such Fed expectations could be undermined by further data releases, including producer prices due out on Friday.

“The market got ahead of itself at the end of November, but then we got some good economic data, so people are re-evaluating what the Fed is going to do next week,” said Bel Air’s Sadkin.

The Dow Jones Industrial Average fell 350.76 points, or 1.03%, to close at 33,596.34, the S&P 500 lost 57.58 points, or 1.44%, to finish at 3,941.26 and the Nasdaq Composite dropped 225.05 points, or 2%, to end on 11,014.89.

Jitters on the direction of global growth have also weighed on oil prices, with US crude slipping to levels last seen in January, before Russia’s invasion of Ukraine disrupted supply markets. The energy sector fell 2.7% on Tuesday.

Banks are among the most sensitive stocks to an economic downturn, as they potentially face negative effects from bad loans or slowing loan growth. The S&P banks index slipped 1.4% to its lowest close since Oct. 21.

Volume on US exchanges was 11.01 billion shares, in line with the average for the full session over the last 20 trading days.

The S&P 500 posted three new 52-week highs and nine new lows; the Nasdaq Composite recorded 52 new highs and 262 new lows.

(Reporting by Devik Jain, Ankika Biswas and Johann M Cherian in Bengaluru and David French in New York; Editing by Vinay Dwivedi, Shounak Dasgupta and Lisa Shumaker)

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