Dollar rebounds as China COVID worries spook markets

NEW YORK, Nov 21 (Reuters) – The US dollar advanced against most major currencies on Monday, recouping recent losses, as fresh COVID-19 curbs in China fueled worries over the global economic outlook and made traders shun riskier currencies.

China’s capital warned on Monday that it was facing its most severe test of the COVID-19 pandemic, shutting businesses and schools in hard-hit districts and tightening rules for entering the city as infections ticked higher in Beijing and nationally.

The new cases have cast doubt on hopes that the government could soon ease its tough restrictions. That has boosted the dollar, which is seen as a safe haven in times of stress.

The dollar rose 0.9% against the Japanese yen JPY=EBS to 141.665 yen, on pace for its largest one-day gain since Oct. 14. The euro fell 0.74% against the greenback to USD 1.0248.

“All eyes are on China today and their COVID Zero policy. Traders are worried that China could expand their restrictions which could slowdown growth and threaten higher inflation,” said John Doyle, vice president of dealing and trading at Monex USA.

“The worry is seen across asset classes,” Doyle said.

China’s onshore yuan opened at 7.1451 per dollar and weakened to a low of 7.1708, the softest level since Nov. 11.

With investors taking a dim view of riskier currencies, the Australian dollar, viewed as a liquid proxy for risk appetite, sank 0.8% to a more than 1-week low of USD 0.6617.

Analysts pegged some of the dollar’s strength to a rebound following the sharp selloff over the last few weeks that saw the Dollar Index slip as much as 4.7% in November.

“I look at the dollar’s rally this morning as a reflection of recent weakness, rather than as a sign that anything is changing,” said Kit Juckes, chief FX strategist at Societe Generale.

Cooler-than-expected US inflation data had spurred investors’ hopes that the Federal Reserve’s dollar-boosting interest rate hikes may be set to be moderated. That had prompted traders to take profits on existing long dollar positions.

Speculators’ bets on the US dollar swung to a net short for the first time in more than a year, according to calculations by Reuters and Commodity Futures Trading Commission data released on Friday.

The dollar index remains up 12% for the year.

Investors will be parsing minutes from the Fed’s November meeting, due to be released on Wednesday, for any hints about the outlook for interest rates.

On Monday, the stronger dollar weighed on Sterling with the British currency slipping 0.6% to USD 1.18125 against a strengthening US dollar and as investors braced for further weakness for the pound ahead of public finances data due on Tuesday and flash PMI numbers on Wednesday.

Elsewhere, cryptocurrencies remained under pressure, with bitcoin BTC=BTSP down about 1% to USD 16,130 as the crypto industry continues to reel from the high profile collapse of crypto exchange FTX. FTX owes its 50 biggest creditors nearly USD 3.1 billion, according to bankruptcy filings.

(Reporting by Saqib Iqbal Ahmed, Editing by William Maclean)

After rough year, US corporate credit entices investors

Nov 21 (Reuters) – Investors are increasingly eyeing US corporate credit offering attractive valuations and yields after steep declines in 2022, fund managers told the Reuters Global Markets Forum (GMF).

“We are at the beginning of a rotation as investors come back into credit. With the rapid move in front-end rates, the curve has repriced credit to attractive levels,” said Salim Ramji, global head of exchange-traded funds (ETF) and index investments at BlackRock.

iShares iBoxx Investment Grade Corporate Bond ETF and iShares High Yield Corporate Bond ETF are on track for quarterly gains of more than 3% in the fourth quarter after falling 20% and 14% respectively this year.

“We don’t know exactly when the peak in inflation will be but I think that’s not a million miles away,” said Jim Leaviss, chief investment officer for public fixed income at M&G Investments.

“If we’re at this turning point then the entry level you get by buying investment-grade credit in the (United) States looks really attractive.”

The jump in bond yields, which move inversely to prices, has also made corporate credit more attractive to investors looking for income after years of low interest rates, Ramji said.

The yield spread on the ICE BofA US Corporate Index – which indicates the premium investors demand to hold corporate bonds over safe-haven US Treasuries – has fallen to 145 basis points from October, when it spiked to 171 bps, the highest in over two years.

Both Leaviss and Ramji expect the Fed to be near the end of its hiking cycle, with Leaviss noting that corporate bond issuers appeared relatively well-placed to withstand higher borrowing costs as default rates were still low.

“Where we’ve been short risk across bond portfolios, we’ve added risk back in,” Leaviss said, adding “there’s good things happening wherever you look in bond markets at the moment.”

(Reporting by Lisa Pauline Mattackal and Nishara Pathikkal in Bengaluru and Divya Chowdhury in Mumbai; Editing by Andrea Ricci)

FTX collapse shows need to regulate crypto, says Bank of England

LONDON, Nov 21 (Reuters) – The implosion of cryptocurrency exchange FTX shows the need to bring the crypto world within the regulatory framework, Bank of England Deputy Governor Jon Cunliffe said on Monday.

FTX, which has filed for US bankruptcy court protection, has said it owes its 50 biggest creditors nearly USD 3.1 billion.

“While the crypto world, as was demonstrated during last year’s crypto winter and last week’s FTX implosion is not at present large enough or interconnected enough with mainstream finance to threaten the stability of the financial system, its links with mainstream finance have been developing rapidly,” Cunliffe said.

He added that FTX’s woes highlighted the need for regulators to put in place tighter controls as quickly as possible. It did not have a license to operate in Britain, yet had caused waves.

“We should not wait until it is large and connected to develop the regulatory frameworks necessary to prevent a crypto shock that could have a much greater destabilizing impact,” Cunliffe told a Warwick Business School event.

Currently, crypto firms in Britain only have to show they can put in place sufficient controls to stop money-laundering, though many firms have had license applications rejected by the UK’s Financial Conduct Authority (FCA).

Britain is approving a new financial services and markets law that will introduce regulation for stablecoins, a cryptoasset backed by an asset such as a currency and marketing of cryptoassets generally.

Cunliffe said that the BoE will set out a public consultation to flesh out rules for stablecoins in more detail and on how coinholders’ claims on the issuer and wallets should be structured to deliver redemption at par in line with commercial bank money.

“The FTX example underlines how important these aspects are,” Cunliffe said.

The finance ministry will also consult soon on extending the investor protection, market integrity and other regulatory frameworks that cover the promotion and trading of financial products to activities and entities involving crypto assets, he added.

Jane Moore, head of payments and digital assets at the FCA, said that crypto will, one way or another, shape the future of financial services and therefore consumer protection must be considered.

Separately, the BoE and finance ministry are looking at the potential for a digital pound.

Cunliffe said his initial view had been that FTX’s failure would have no implication on the potential timeframe for a digital currency. However, on reflection, he said that the interconnected nature of the digital world was relevant.

“Our aim is to ensure that innovation can take place but within a framework in which risks are properly managed,” Cunliffe said. “The events of last week provide a compelling demonstration of why that matters.”

(Reporting by Marc Jones and Huw Jones, Editing by Louise Heavens)

Dollar rises as China COVID worries spur safe-haven buying

SINGAPORE/LONDON, Nov 21 (Reuters) – The US dollar was firmly higher against major currencies on Monday, as rising COVID-19 cases in China led to new restrictions there and weighed on global investor sentiment.

China is battling numerous COVID flare ups. Two deaths were reported in Beijing on Sunday, and the city’s most populous district urged residents to stay at home on Monday.

The new cases have cast doubt on hopes that the government could soon ease its tough restrictions. That has boosted the dollar, which is seen as a safe haven in times of global economic stress.

The dollar was up 0.5% against Japan’s yen at 141.07, its highest since Nov. 11. Meanwhile the euro was 0.62% lower against the greenback at USD 1.026.

“The outlook for China’s zero-COVID market will remain a key source of volatility,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia.

“If we do see another set of step up in restrictions, it indicates to me that the Chinese officials are still wary of any eventual reopening.”

The greenback was also rebounding somewhat after a sharp fall in recent weeks, analysts at Commerzbank said in a research note.

The dollar index, which tracks the currency against major peers, has slid more than 6% from a 20-year high in October. A fall in the US inflation rate last month has driven bets that the US Federal Reserve will slow down its interest rate hikes.

However, the index remained around 12% higher for the year on Monday. The Fed’s aggressive raising of interest rates has pushed up bond yields in 2022, sucking money back towards dollar-denominated fixed income assets.

China’s onshore yuan opened at 7.1451 per dollar and weakened to a low of 7.1708, the softest level since Nov. 11.

The People’s Daily newspaper, a mouthpiece of the Chinese Communist Party, on Monday published an article reiterating the need to catch infections early but avoid taking a “one-size-fits-all” approach.

Investors will be keenly interested in minutes from the Fed’s November meeting, due to be released on Wednesday, for any hints about the outlook for interest rates.

“(The) Fed has been pushing back against the dovish narrative the market has had after the October inflation data,” said Moh Siong Sim, currency strategist at Bank of Singapore.

Elsewhere, cryptocurrencies remained under pressure, with bitcoin down 1.6% to USD 16,003. FTX owes its 50 biggest creditors nearly USD 3.1 billion, according to bankruptcy filings, as the collapsed crypto exchange undertakes a strategic review of its global assets.

Sterling was last trading at USD 1.182, down 0.51% on the day.

The Australian dollar fell 0.49% versus the greenback to USD 0.664, while the kiwi was down 0.44% at USD 0.613.

(Reporting by Ankur Banerjee in Singapore and Harry Robertson in London; Editing by Shri Navaratnam and Bradley Perrett)

Oil prices ease to trade near 2-month lows on China demand fears, dollar strength

SINGAPORE, Nov 21 (Reuters) – Oil prices dropped to trade near two-month lows on Monday, having earlier slid by around USD 1 a barrel, as supply fears receded while concerns over fuel demand from China and US dollar strength weighed on prices.

Brent crude futures for January had slipped 74 cents, or 0.8%, to USD 86.88 a barrel by 0715 GMT.

US West Texas Intermediate (WTI) crude futures for December were at USD 79.40 a barrel, down 68 cents or 0.9%, ahead of the contract’s expiry later on Monday. The more active January contract last fell 59 cents or 0.7% to USD 79.52 a barrel.

Both benchmarks closed Friday at their lowest since Sept. 27, extending losses for a second week, with Brent down 9% and WTI 10% lower.

“Apart from the weakened demand outlook due to China’s COVID curbs, a rebound in the US dollar today is also a bearish factor for oil prices,” said Tina Teng, a CMC Markets analyst.

“Risk sentiment becomes fragile as all the recent major countries’ economic data point to a recessionary scenario, especially in the UK and euro zone,” she said, adding that hawkish comments from the US Federal Reserve last week also sparked concerns over the US economic outlook.

New COVID case numbers in China remained close to April peaks as the country battles outbreaks nationwide and in major cities. Schools across some districts in the capital Beijing buckled down for online classes on Monday after officials asked residents to stay home, while the southern city of Guangzhou ordered a five-day lockdown for its most populous district.

The front-month Brent crude futures spread narrowed sharply last week while WTI flipped into a contango, reflecting dwindling supply concerns.

Meanwhile, tight crude supplies in Europe have eased as refiners have piled up stocks ahead of the Dec. 5 European Union embargo on Russian crude, putting pressure on physical crude markets across Europe, Africa and the United States.

The EU’s energy policy chief told Reuters the EU expected to have its regulations completed in time for the introduction of a G7 plan to cap the price of Russian crude on Dec. 5.

RBC Capital analyst Mike Tran said the weak December WTI contract expiration indicated paper market selling rather than true physical market softness.

“Tight global inventories do not support the traditional surplus of barrels rationale for contango,” he said in a note.

While North Sea and West African spot market indicators are far from strong, they are also not suggesting signs of distress, he added.

Diesel markets remained tight, with Europe and the United States competing for barrels. While China nearly doubled its diesel exports in October from a year earlier to 1.06 million tonnes, the volume was well below September’s 1.73 million tonnes.

Demand in China, the world’s top crude importer, remains bogged down by COVID restrictions while expectations of further interest rate rises elsewhere have elevated the greenback, making dollar-denominated commodities more expensive for investors.

(Reporting by Florence Tan and Emily Chow; Editing by Bradley Perrett and Kenneth Maxwell)

Oil rebounds from early plunge after Saudis deny OPEC+ output report

NEW YORK, Nov 21 (Reuters) – Oil prices rebounded from early losses on Monday after Saudi Arabia denied a report it was discussing an increase in oil supply with OPEC and its allies.

Brent crude futures for January settled at USD 87.45, shedding 17 cents. US West Texas Intermediate (WTI) crude futures for December settled at USD 79.73 a barrel, falling 35 cents ahead of the contract’s expiry later on Monday.

The more active January contract was down 7 cents at USD 80.04 a barrel.

Both benchmarks had plunged by more than USD 5 a barrel early, hitting 10-month lows, after the Wall Street Journal reported an increase of up to 500,000 barrels per day will be considered at the OPEC+ meeting on Dec. 4.

Oil then retraced its losses after Saudi Arabian energy minister Prince Abdulaziz bin Salman said the kingdom is sticking with output cuts and not discussing a potential oil output increase with other OPEC oil producers, state news agency SPA reported, denying the Journal report.

“It turned the whole situation upside down in a matter of minutes,” said John Kilduff, partner at Again Capital LLC in New York. “The Saudis giveth and then they taketh away.”

The Organization of the Petroleum Exporting Countries (OPEC) and its allies, together known as OPEC+, recently cut production targets and the energy minister of de facto leader Saudi Arabia was quoted this month as saying the group will remain cautious.

Releasing more oil amid weak Chinese fuel demand and US dollar strength would have moved the market deeper into contango, encouraging more oil to go into storage and pushing prices still lower, said Bob Yawger, director of energy futures at Mizuho in New York. “That’s playing with fire.”

Expectations of further increases to interest rates have buoyed the greenback, making dollar-denominated commodities like crude more expensive for investors.

The dollar rose 0.9% against the Japanese yen to 141.665 yen, on pace for its largest one-day gain since Oct. 14.

“Apart from the weakened demand outlook due to China’s COVID curbs, a rebound in the US dollar today is also a bearish factor for oil prices,” said CMC Markets analyst Tina Teng.

New COVID case numbers in China remained close to April peaks as the country battles outbreaks nationwide.

The front-month Brent crude futures spread narrowed sharply last week while WTI flipped into contango, reflecting dwindling supply concerns.

(Reporting by Laila Kearney in New York; Additional reporting by Noah Browning, Florence Tan and Emily Chow; Editing by Chris Reese and Matthew Lewis)

With Black Friday ahead, investors look to US consumer stocks

NEW YORK, Nov 18 (Reuters) – As the most important shopping period of the year approaches, some investors are betting shares of beaten-down consumer stocks will benefit if inflation keeps falling and retail sales stay strong.

Consumer discretionary stocks, a group whose members run the gamut from Amazon.com Inc. (AMZN) and automaker Tesla Inc. (TSLA) to retailer Target Corp. (TGT), have been walloped by surging prices, with the S&P 500’s consumer discretionary sector falling nearly 33% for the year to date compared with a nearly 17% fall for the broader index.

Yet recent data has shown signs that inflation may be ebbing in the face of stronger-than-expected retail spending, raising cautious optimism that the economy could avoid a recession or experience only a mild downturn. Investors poured a net USD 1.05 billion into consumer discretionary stocks in the past week, the sixth-largest weekly inflows since 2008, data from BofA Global Research showed.

The upcoming Black Friday, the day after the US Thanksgiving holiday and traditionally one of the year’s biggest shopping days, may give investors greater insight into the extent that consumers are opening their wallets.

“There’s some questions as to how strong the consumer really is, so this will be a tricky holiday season,” said Edward Yruma, an analyst at Piper Sandler. “Everybody is watching the strength of the consumer and so far the consumer has held.”

Yruma is bullish on retailers Nordstrom Inc. (JWN) and Target. He believes, however, it may be too early to bet on the sector as a whole since inflation remains high by historical standards while many on Wall Street fear the Federal Reserve’s monetary policy tightening may bring on a US recession.

To be sure, consumer stocks have had more than their fair share of woes this year.

Target shares plunged on Tuesday after the company warned of “dramatic changes” in consumer behavior that were hurting demand. Amazon.com, the world’s biggest online retailer, said on Oct. 27 it was preparing for slower growth because “people’s budgets are tight” due to inflation.

The companies’ shares are down 29.6% and 43.5% year-to-date, respectively.

While retail sales in October were strong, data suggests that subprime auto loan delinquencies are increasing and higher-income shoppers are starting to trade down, Morgan Stanley economists said in a note on Friday.

“The consumer has been a pillar of strength this year, but as rates keep rising and the labor market slows, consumers will have no choice but to pull back on spending,” the firm’s economists wrote. The bank’s analysts are underweight the consumer discretionary sector.

Others, however, see reasons to remain bullish – even in the face of a potential economic downturn.

“Recession fears are so priced in to this group,” said Jim Paulsen, chief investment strategist at the Leuthold Group. “If we have a mild recession … they will do very well from here on out.” He is betting shares of retailers, hotels and restaurants will outperform the rest of the sector in the coming year.

Some companies’ lower valuations may also give investors wiggle room if the economy slows, said Bobby Griffin, an analyst at Raymond James. His firm has a strong “buy” on shares of Home Depot Inc. (HD), which are trading at a 15% discount to their historic forward price-to-earnings multiple.

“We’ve had this fear of inflation all year and the consumer has held up pretty well so far,” he said.

At the same time, signs of consumer strength could also be a red flag to the inflation-fighting Fed, bolstering the case for the central bank to push forward with the monetary policy tightening that has pressured markets and drained risk appetite this year.

Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, believes signs that consumers are not being affected by rising rates could lead to a higher-than-expected peak in the Fed’s rate hiking cycle.

“We’re skeptical the worst is behind us,” he said.

(Reporting by David Randall in New York; Editing by Ira Iosebashvili and Matthew Lewis)

Falling Q4 profit forecasts another negative for US stocks

NEW YORK, Nov 18 (Reuters) – After a disappointing third-quarter reporting period, analysts are projecting that fourth-quarter US earnings will decline for the first time in two years as rising interest rates and slowing growth further dampen the outlook.

Estimates have been falling for 2023 quarters as well, and Goldman Sachs recently cut its 2023 S&P 500 earnings per share growth forecast to zero, citing weakening profit margins.

As of Friday, analysts were forecasting a 0.4% fall in year-over-year fourth-quarter earnings for S&P 500 companies, according to IBES data from Refinitiv. That compares with the 5.8% increase they forecast on Oct. 1.

The last time there was a quarterly decline in S&P 500 earnings was in the third quarter of 2020, when companies were still reeling from the initial shock of and disruptions caused by the coronavirus pandemic.

The weakening profit outlook only adds to worries for investors, who have been concerned that aggressive interest rate hikes by the Federal Reserve to control inflation could lead to a recession. The S&P 500 is down about 17% for the year-to-date.

“Third-quarter earnings, they missed expectations. But what we’ve been focusing on really is 2023,” said Michael Mullaney, director of global markets research at Boston Partners in Boston.

“For the Fed to achieve their inflation targets, they’re going to have to push the economy into a recession,” which means 2023 profit estimates “have to come down a lot more,” he said.

Technology and tech-related companies have accounted for more than half of the negative S&P 500 profit revisions for the fourth quarter, Jonathan Golub, head of US equity strategy and quantitative research at Credit Suisse, wrote in a recent research note.

Several of the big tech and growth companies including Amazon.com (AMZN) and Facebook parent Meta Platforms (META) hit investors with big disappointments for the third quarter and gave disappointing forecasts for the fourth quarter.

Rising Treasury yields have pressured shares of tech and growth companies especially hard.

Top retailers were also among those reporting disappointing results, led by Target (TGT), although Walmart delivered cheer to investors.

With results in from 475 of the S&P 500 companies as of Friday, third-quarter earnings are now estimated to have increased just 4.2% from a year ago. That is weaker than the 4.5% gain predicted at the start of October, based on Refinitiv data.

Estimates for future earnings tend to fall as companies give guidance, but strategists said the declines this time have been larger than usual.

Analysts expect S&P 500 technology sector earnings to drop 7.8% in the fourth quarter, compared with a gain of 1.0% forecast on Oct. 1. Earnings for the communication services sector are predicted to fall 20.9%, compared with a 9.2% decline forecast on Oct. 1, per Refinitiv data.

Overall, seven of the 11 major S&P 500 sectors are expected to show a decline in fourth-quarter earnings from the year-ago period, based on the data.

(Reporting by Caroline Valetkevitch; Editing by Alden Bentley and Leslie Adler)

FTX’s Sam Bankman-Fried cashed out USD 300 million during funding spree – WSJ

Nov 18 (Reuters) – FTX founder Sam Bankman-Fried sold a stake in the company worth USD 300 million when the crypto exchange raised capital last year, the Wall Street Journal reported on Friday, citing the firm’s financial records and people familiar with the transaction.

At the time, Bankman-Fried told investors it was a partial reimbursement of money he’d spent to buy out rival Binance’s stake in FTX a few months earlier, the report added.

Bankman-Fried and FTX did not immediately respond to Reuters’ requests for comment on the matter.

The Journal’s report cited FTX’s October 2021 funding round where the company had raised USD 420 million from a clutch of big name investors including Temasek and Tiger Global, valuing the crypto exchange at USD 25 billion.

Last week, FTX filed for US bankruptcy protection and Bankman-Fried resigned as chief executive, after Binance walked away from its proposed acquisition.

Several crypto firms have since been bracing for a fallout from the FTX collapse, with many counting their exposure in millions to the beleaguered exchange.

(Reporting by Manya Saini in Bengaluru; Editing by Maju Samuel)

US recap: EUR/USD consolidates rally driven by Fed pivot hopes

Nov 18 (Reuters) – The dollar index rose on Friday for a second day after becoming oversold in its tumble following last week’s softer US CPI, consolidating above supports as Fed speakers pushed back against the market pricing a dovish policy pivot.

The dollar shrugged off data showing US existing home sales fell to their lowest since 2012, outside of the pandemic plunge, and leading indicators dropping by twice the 0.4% decline forecast.

EUR/USD fell 0.3% regardless of ECB speakers affirming rates need to rise further to become restrictive, as there was some relief Germany’s biggest union agreed to wage increases well below currently record-high euro zone inflation.

The ECB, and other central banks, are wary of wages trending sharply higher, exacerbating inflation and requiring even more policy tightening.

Sterling rose 0.2%, but like the EUR/USD, its recent recovery highs remained capped just below the 50% Fibo of this year’s downtrend, in sterling’s case at 1.2038.

The highly anticipated UK budget announcement Thursday was followed by a rebound in gilts yields, partly because the risk premia caused by September’s mini budget had already been shed and also because the new budget plan reveals how difficult it will be to lower rising debt servicing costs.

USD/JPY was nearly flat in a tight range below the 100-day moving average it broke bearishly below last week, now at 140.98. Friday’s 139.63 EBS low was the third consecutive higher low, as bulls try to keep prices from closing below the cloud base, last at 140.42, for the first time in 14 months.

Because the base rises above 141 next week, a bearish close is becoming harder to fend off.

Wednesday’s US durable goods and S&P Global’s November PMI are the last data points before Thursday’s Thanksgiving Day holiday.

(Editing by Burton Frierson; Randolph Donney is a Reuters market analyst. The views expressed are his own.)

2024 Mid-Year Economic Briefing: Navigating the Easing Cycle

Investing with Love: A Mother’s Guide to Putting Money to Work

Investor Series: An Introduction to Estate Planning

Inflation Update: Weak demand softens shocks

Monthly Economic Update: Fed cuts incoming