Dollar extends fall after inflation data knock

NEW YORK, Nov 11 (Reuters) – The dollar fell across the board for a second straight day on Friday, as investors favored riskier currencies following signs U.S. inflation is cooling that boosted the case for the Federal Reserve to ease off its hefty interest rate hikes.

Friday’s dollar weakness was an extension of the move set off after Thursday’s data showed U.S. consumer inflation rose 7.7% year-on-year in October, its slowest rate since January and below forecasts for 8%.

Against a basket of currencies .DXY, the dollar was down about 3.8% over two sessions, on pace for its largest two-day percentage loss since March 2009.

The U.S. currency’s long rally over the last two years had drawn a host of dollar bulls leading to crowded positioning and Thursday’s data left a lot of them looking for a quick exit, strategists said.

“It’s not just short term trend-followers, momentum players having to get out of positions, but some long-term structural long dollar positions have to be unwound,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

The dollar was 1.7% lower against the Japanese yen at 138.55 yen while the euro advanced 1.46% against the U.S. unit to $1.036.

“The dollar is one of those markets that is extreme in its overvaluation – there is a strong chance we have seen the peak,” Jim Cielinski, global head of fixed income at Janus Henderson Investors told the Reuters Global Markets Forum on Friday.

Still, some strategists warned that dollar bears remain vulnerable to a possible near-term rebound.

“Yes, more people have become convinced the dollar has peaked but the move has been so sharp that I caution people against chasing it,” Bannockburn’s Chandler said.

The dollar found little support from survey data on Friday that showed U.S. consumer sentiment fell in November, pulled down by persistent worries about inflation and higher borrowing costs.

The risk-sensitive Australian AUD=D3 and New Zealand dollars NZD=D3 advanced 1.4% and 1.6%, respectively, against the greenback.

Investor risk appetite got an additional boost from Chinese health authorities easing some of the country’s strict COVID-19 restrictions, including shortening quarantine times for close contacts of cases and inbound travellers.

Sterling, meanwhile, GBP=D3 rose 1.22% against the dollar to $1.1853 after UK data showed the economy did not contract as much as expected in the three months to September, although it is still entering what is likely to be a lengthy recession.

The dollar was 2.4% lower against the Swiss franc at 0.94025 francs after Swiss National Bank Chairman Thomas Jordan said on Friday the bank was prepared to take “all measures necessary” to bring inflation back down to its 0-2% target range.

Cryptocurrencies remained under pressure from ongoing turmoil in the crypto world after exchange FTX’s fall. FTX’s native token, FTT FTT=CCCL, was last down 26.7% at $2.731, taking its month-to-date losses to nearly 90%.

(Reporting by Saqib Iqbal Ahmed; Additional reporting by Anisha Sircar in Bengaluru; Editing by Richard Chang and Emelia Sithole-Matarise)

Gold races for best week since March 2020 on Fed slowdown hopes

Nov 11 (Reuters) – Gold prices extended gains to a near three-month high on Friday and were heading for their best week in over 2-1/2 years, as signs of cooling U.S. inflation bolstered bets that the Federal Reserve would be less hawkish on rate hikes going forward.

Spot gold XAU= gained 0.7% to $1,766.39 per ounce by 14:28 p.m. ET (1928 GMT), after hitting its highest since Aug. 18 earlier in the session. Bullion is up over 5% so far this week.

U.S. gold futures GCv1 settled up 0.9% at $1,769.4.

“We are seeing a follow-through in gold prices on yesterday’s CPI data, a weaker dollar and the likelihood that the Fed is going to do a half-point rate hike versus the 75-basis point hike,” said Bob Haberkorn, senior market strategist at RJO Futures.

U.S. consumer prices rose less than expected in October and data showed annual inflation below 8% for the first time in eight months.

The inflation data triggered a sharp fall in the U.S. dollar, which was headed for its biggest two-day drop in almost 14 years, making gold more appealing for other currency holders. USD/

Markets are now pricing in a 71.5% chance of a 50-basis point rate hike at the Fed’s December meeting, up from around 50/50 a week ago. FEDWATCH

“The precious metals bulls are charged up late this week as their near-term technical postures have turned bullish at the same time the U.S. dollar index and U.S. Treasury yields are dropping,” Jim Wyckoff, senior analyst at Kitco Metals, said. US/

Gold is trading above its 50-day and 100-day moving averages, which is considered a bullish signal by traders.

Elsewhere, spot silver XAG= slipped 0.3% to $21.6 per ounce, but was poised for its second straight weekly rise having hit its highest since June.

Platinum XPT= fell 0.4% to $1,027.62 and was headed for its fourth consecutive weekly gain as it touched a high since March earlier. Palladium XPD= climbed 2.8% to $2,019 and was on course for a weekly rise.

(Reporting by Brijesh Patel and Kavya Guduru in Bengaluru; additional reporting by Swati Verma; Editing by Shounak Dasgupta, Andrea Ricci and Shailesh Kuber)

Emerging stocks head for biggest one-day gain since March

LONDON, Nov 11 (Reuters) – Emerging market stocks headed for their largest one-day gain since March on Friday, after US inflation data softened expectations for more big rate hikes from the Federal Reserve and China eased some COVID restrictions.

The MSCI emerging market equity index was last up 4.7%, having hit its highest since September 21.

The benchmark has a heavy weighting towards China, where mainland stocks rose 2.8% and Hong Kong’s main index was up more than 7.6% – its largest daily gain since March 16. Chinese authorities eased COVID-19 rules, including shortening quarantines and removing a penalty for airlines for bringing in too many cases.

The index is up almost 10% this month and is headed for the first quarterly gain since the second quarter of 2021. The MSCI EM index has fallen 24.5% since the beginning of the year.

Foreign investors added USD 9.2 billion to emerging market portfolios last month, with fixed income attracting USD 7.6 billion in the strongest monthly inflows so far this year, according to the Institute of International Finance (IIF) data released this week.

(Reporting by Jorgelina do Rosario; Editing by Amanda Cooper and Alex Richardson)

European companies’ robust Q3 makes timing the end of the bear market even harder

LONDON, Nov 11 (Reuters) – European companies have delivered positive surprises this earnings season but profit growth could dry up in a matter of months as high inflation and recession rattle the economy, potentially dragging the bear market out for even longer.

Over a third of the 600 companies on the pan-European STOXX 600 .STOXX index have reported earnings so far and of those, 60% have beaten expectations, according to data from Refinitiv I/B/E/S, which noted that in a typical quarter, 53% would top forecasts.

Refinitiv data also shows analysts expect STOXX constituents to post quarterly earnings growth of 32.2% year on year, compared to just 4.3% for the benchmark S&P 500 index .SPX in the United States.

While many economists expect Europe to tip into recession next year and earnings growth to eventually dry up, the STOXX is already heading for its biggest annual loss since 2008 – down 14% – raising the question of just how much is already priced in.

“Historically it’s pretty much unprecedented for the market to trough before we’ve even seen the start of the downward cycle, but it doesn’t mean it can’t happen,” said Graham Secker, chief European equity strategist at Morgan Stanley.

“It’s all about how much of the earnings decline is already in the price and can the market effectively bottom here, even if we’ve got a couple of quarters of earnings downgrades to come.”

Refinitiv data shows annual earnings growth is expected to shrink to 20.5% in the fourth quarter of 2022 and to just 4.1% in the first quarter of 2023 before turning negative later in the year.

REVENUE BEATS FAIL TO TRICKLE THROUGH TO EARNINGS

Europe’s booming energy sector is one factor propping up earnings along with a weaker euro, according to analysts, who also note how revenue in particular has exceeded expectations this earnings season.

Inflation has seen prices soar on the continent, but so far companies are showing they have been able to pass on rising costs.

Of the 243 that have reported revenue, 80.7% beat analyst estimates, compared with 58% in an average quarter, according to Refinitiv.

But Bernie Ahkong, co-chief Investment Officer at O’Connor Global Multi-Strategy Alpha, part of UBS Asset Management, said that while top line revenue beats have been strong, this has not translated into the same magnitude of earnings beats.

“Companies were able to pass through higher pricing than analysts expected, normally that would translate to better earnings and profits, but because of the stickiness and lag effect of costs, that is not coming through,” Ahkong said.

“As we move into 2023, the concern is we are going to see a lot of that pricing and top line benefit fade away while costs remain sticky.”

STOCKS: HOW LOW CAN THEY GO?

The STOXX technically entered a bear market in late September when it accumulated losses of more 20% from a January peak.

But the relatively few negative surprises in this earnings round may suggest there isn’t much room left for further sharp falls, according to Morgan Stanley’s Secker.

“Our thesis at the moment is that we’re not ready to say the bear market has finished. But a bit like we saw in 2008/2009 you could end up with a sort of a six-month bottoming process which is quite choppy,” he said.

According to UBS economists, European and UK stocks are already pricing in an 80% and a 68% probability of recession, respectively, compared with just 41% for U.S. stocks.

They expect the bottom for an index of eurozone stocks .STOXXE to occur in the second quarter of 2023, before it rises again towards the end of the year.

“Earnings have been quite benign, there is quite a lot already priced in,” said Suzanne Keane, senior portfolio manager at Amundi, Europe’s largest asset manager.

“We have to keep an eye on what’s going on at a macro level and whether headwinds from inflation for example are going to be felt more keenly on some sectors,” Keane said, adding that considering country-specific elements for European stocks “has been more important than ever”.

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

Hopes of easing inflation beckon cash-rich investors into US stocks

Nov 11 (Reuters) – Softer-than-expected U.S. inflation is bolstering the case for cash-heavy investors to step off the sidelines and plunge into risky assets, though many remain skeptical on how far stocks can run without further evidence that consumer price pressure will keep declining.

Thursday’s massive rally in the S&P 500 showcased investors’ hunger for upside after a bruising year in stocks and bonds, as the index soared 5.5% to its biggest daily gain in over 2 1/2 years on signs that U.S. inflation may be turning the corner.

As equities rallied, the dollar, a popular redoubt of risk-averse investors this year, notched up its sharpest one day drop in years against multiple currencies while Treasury yields tumbled. The S&P is 10.6% above its Oct. 12 closing low for 2022, though still down 17% for the year.

Market participants said investors’ rotation out of large cash positions and into stocks likely contributed to the outsize move and could fuel further gains in equities and other risky assets – although many were far from convinced that the tough times for stocks were over.

“There is plenty of liquidity out there. Money market balances are huge. You’ve got fear of missing out,” said Michael Farr, chief executive of investment advisory firm Farr, Miller & Washington. “If you’re sitting in cash and the market rallies, you might think you were greedy waiting for a bigger discount.”

Institutional investors’ exposure to stocks was low going into Thursday’s inflation report. Discretionary and systematic investors have increased positions in stocks over the past two weeks, but equity positioning was still lower than it had been for about 87% of the time since January 2010, according to a Deutsche Bank report published on Nov. 4.

At the same time, market volatility and higher interest rates have bolstered the allure of cash this year. Last month’s fund manager survey from BofA Global Research showed investors’ cash levels at their highest since April 2001.

“There are a number of institutional accounts that are under-risk and, as we get closer to the end of the year, individuals become much more momentum-oriented. They don’t want to miss the market too much,” said Christopher Harvey, head of equity strategy at Wells Fargo Securities.

“We think there’s some more near-term upside, but we won’t get too excited about that. It’s not a bull market.”

Part of the rise was also fueled by bearish investors rushing to unwind trades. An index of shorted companies monitored by Wells Fargo rose 10% on Thursday, nearly double the S&P’s gain, suggesting that investors were unwinding bets, Harvey said.

INFLATION BELOW 8%

Thursday’s data showed the consumer price index (CPI) had risen less than expected in October, pushing the annual increase below 8% for the first time in eight months. It was the strongest sign yet that inflation was slowing, which could allow the Federal Reserve to scale back its hefty interest rate hikes.

“Systematic strategies were set up completely wrong for this CPI print today,” said Mike Lewis, head of US equity cash trading at Barclays.

Lewis said he had not seen so-called real money – a term for mutual funds, pension funds and other non-leveraged market investors – participating in Thursday’s rally, though he saw no evidence of selling from that cohort, either.

Lewis believes the rally is unlikely to last until “we get more data like this CPI print, and with similar velocity.”

It was a sentiment shared by Michael Purves, chief executive at Tallbacken Capital Advisors, who believes the S&P could climb to 4200, some 6% above Thursday’s close.

Still, he does not think risk assets are out of the woods yet.

“I am not being very bearish. I just don’t know whether this means you should start buying every dip you get,” Purves said. “We need a lot more confirming evidence.”

Analysts at Capital Economics, meanwhile, said relief at signs of cooling inflation would eventually be overtaken by worries over a looming global recession, a result of furious tightening by the world’s central banks. They forecast the S&P 500 falling to 3200 in 2023.

“While equities received a boost today from lower real ‘safe’ asset yields, and we think this tailwind will persist, we still expect it ultimately to be more than offset by concerns over the economic outlook,” they wrote.

(Reporting by Carolina Mandl and Saqib Iqbal Ahmed; Additional reporting by Ira Iosebashvili; Editing by Ira Iosebashvili and Bradley Perrett)

China shortens COVID quarantine times, eases flight curbs

BEIJING, Nov 11 (Reuters) – Chinese health authorities on Friday eased some of the country’s heavy COVID-19 curbs, including shortening by two days quarantine times for close contacts of cases and inbound travellers, and eliminating a penalty on airlines for bringing in infected passengers.

Under the new rules, quarantine for close contacts will be cut to five days at a centralised location plus three days at home, from seven days centralised and three days at home previously. A similar shortening of quarantine rules was made for inbound travellers.

(Reporting by Tony Munroe; Editing by Christopher Cushing)

Yuan jumps to month high after China eases some COVID measures

SHANGHAI, Nov 11 (Reuters) – China’s yuan extended gains against the dollar on Friday afternoon, underpinned by the government’s decision to ease some strict COVID-19 prevention measures.

The yuan traded both onshore and offshore jumped following the decision. The onshore yuan CNY touched a high of 7.1020, the firmest since Oct. 10. Its offshore counterpart CNH also touched a more than one-month high of 7.1011.

(Reporting by Winni Zhou and Brenda Goh; Editing by Jacqueline Wong)

Oil jumps by over 2% as China eases COVID curbs

SINGAPORE, Nov 11 (Reuters) – Oil prices jumped more than 2% on Friday after health authorities in China, the top global crude importer, eased some of the country’s heavy COVID curbs.

Brent crude futures rose USD 2.39, or 2.6%, to USD 96.06 a barrel by 0745 GMT, extending a 1.1% rise in the previous session.

US West Texas Intermediate (WTI) crude futures gained USD 2.24, or 2.6%, to USD 88.71 a barrel, after climbing 0.8% in the previous session.

The easing curbs include shortening quarantine times for close contacts of cases and inbound travellers by two days, as well as eliminating a penalty on airlines for bringing in infected passengers.

“Oil traders are applauding the news. The key for oil markets is to continue watching developments closely for this and further marginal positive changes in the government’s zero-COVID stance,” said Stephen Innes, managing partner at SPI Asset Management.

The move towards liberalising the COVID-zero policy will provide a springboard for oil markets, given that lockdowns hurt mobility and oil prices more than economic activity, he said.

Prices also picked up on Friday after milder-than-expected US inflation data reinforced hopes that the Federal Reserve would slow down rate increases, boosting chances of a soft landing for the world’s biggest economy.

A weaker US dollar also supported oil prices as it makes the commodity cheaper for buyers holding other currencies.

Still, the benchmark oil contracts were headed for weekly declines of more than 1% due to rising US oil inventories, and lingering fears over capped fuel demand in China amid an uptick in daily COVID cases.

China’s COVID-19 case load soared to its highest since the lockdown in Shanghai earlier this year. Both Beijing and Zhengzhou reported record daily cases.

Besides work-from-home orders reducing mobility and fuel demand, travel across China remained subdued as people wanted to avoid the risk of being caught up in quarantine, ANZ Research analysts said in a note.

Oil settles higher, posts weekly loss as China eases COVID curbs

Nov 11 (Reuters) – Oil prices settled higher on Friday but fell week-on-week after health authorities in China eased some of the country’s heavy COVID-19 curbs, raising hopes for improved economic activity and demand in the world’s top crude importer.

Brent crude LCOc1 futures settled up $2.32 at $95.99 a barrel, extending a 1.1% rise from the previous session but falling 2.6% on the week.

U.S. West Texas Intermediate (WTI) crude CLc1 futures settled up $2.49, or 2.9%, at $88.96 a barrel, after climbing 0.8% in the previous session but down nearly 4% on the week.

The easing curbs include shortening quarantine times for close contacts of cases and inbound travelers by two days, as well as eliminating a penalty on airlines for bringing in infected passengers.

The benchmark oil contracts fell during the week due to rising U.S. oil inventories, and lingering fears over capped fuel demand in China, but late-week gains limited the losses.

“China’s changing response to stubbornly high COVID-19 cases has added to the oil market’s price volatility and, should this new Chinese policy continue, the energy complex could be poised to erase most of this week’s decline,” said Jim Ritterbusch, president of Ritterbusch and Associates LLC in Galena, Illinois.

A weaker U.S. dollar also supported oil prices as it makes the commodity cheaper for buyers holding other currencies.

Prices also picked up on Friday after milder-than-expected U.S. inflation reinforced hopes that the Federal Reserve would slow down rate increases, boosting chances of a soft landing for the world’s biggest economy. MKTS/GLOB

Saudi Arabia’s energy minister Prince Abdulaziz bin Salman said OPEC+ will remain cautious on oil production, noting that members saw “uncertainties” in the global economy ahead of the bloc’s next meeting in December, Bloomberg News reported on Friday.

The Organization of the Petroleum Exporting Countries and allies led by Russia, collectively known as OPEC+, last month agreed to steep production cuts, and will meet again on Dec. 4 to set its policy.

China’s COVID-19 caseload soared to its highest since the lockdown in Shanghai earlier this year. Both Beijing and Zhengzhou reported record daily cases.

(Additional reporting by Ahmad Ghaddar in London Sonali Paul in Melbourne and Jeslyn Lerh in Singapore; editing by David Evans,Tomasz Janowski and Jonathan Oatis)

China stocks, yuan soar on easing COVID rules, global rally

SHANGHAI, Nov 11 (Reuters) – Chinese stocks and currency surged on Friday, after the country’s health authorities eased some of their stringent COVID-19 curbs, while strong Wall Street gains overnight also boosted sentiment and lifted other Asian markets.

The bluechip CSI 300 Index closed up 2.8%, and the Hang Seng Index jumped 7.7%, its biggest daily gain since March, with property and tech stocks leading gains.

The onshore yuan also strengthened as high as 7.0650 per dollar, its strongest level since Sept. 22.

China’s National Health Commission (NHC) shortened quarantine times for close contacts of cases and inbound travellers, removed a penalty on airlines that bring in infected passengers and eased other anti-virus measures.

“The stock market responded positively, reflecting the expectation of gradual relaxing of the COVID restriction in the coming months,” Hang Seng Bank (China) chief economist Dan Wang said.

Foreign investors bought net 14.6 billion yuan (USD 2.1 billion) worth of Chinese shares via the Stock Connect Scheme, the biggest amount in two months.

“Any change in the future regarding COVID control will continue to be gradual and marginal unless effective vaccination and treatment drugs become widely available,” Wang said.

The rally in China’s markets mirrored broad regional gains, after a smaller-than-expected increase in U.S. consumer prices fuelled hopes that the Federal Reserve could tone down its aggressive pace of interest rate hikes.

The relaxation comes after China’s new top leadership body reaffirmed Beijing’s “dynamic-zero” COVID-19 policy on Thursday.

The easing in curbs came even as infections hit their highest since this year’s Shanghai lockdown.

“These policies indicate the government intends to move toward reopening the economy, though the exact schedule is still not clear at this stage,” said Pinpoint Asset Management chief economist Zhang Zhiwei.

“Reopening is likely to be a long process,” Zhang said. “Nonetheless this is an important step in the right direction.”

Citi analysts said local governments’ responses are the next key watch point. “Since COVID prevention is often overdone at a local level, a correction in implementation will be a de facto easing.”

Hong Kong-listed tech giants surged 10%, tracking a 7.6% overnight jump in the Nasdaq Golden Dragon China Index.

Property developers rallied nearly 10% in the mainland by their daily limit of gains, and their Hong Kong traded peers jumped 12.8%, amid the country’s latest measures to support the crisis-ridden sector.

The policies “are fueling bets that those on the edge of bankruptcy have a chance to survive,” Guangzhou Zeyuan Investment hedge fund manager Zhong Daqi said.

Central bank data on Thursday showed China’s new bank lending fell sharply in October, far below expectations in a Reuters poll.

The weak data might fuel expectations of more monetary easing, GF Securities analysts said.

For the week, China’s CSI 300 Index edged up 0.6%, while Hong Kong’s Hang Seng benchmark .HSI climbed 7.2%.

(Reporting by Shanghai Newsroom; Editing by Shri Navaratnam, Sam Holmes and Rashmi Aich)

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