Dollar rises as China defends stringent COVID policy

SINGAPORE, Nov 7 (Reuters) – The dollar firmed on Monday as sentiment soured after China said it is sticking with its strict COVID restrictions, quashing hopes of an imminent reopening in the world’s second-largest economy which had earlier fired a broad rally in riskier assets.

China said over the weekend that it will persevere with its “dynamic-clearing” approach to COVID-19 cases as soon as they emerge, giving little indication it would ease its outlier zero-COVID strategy nearly three years into the pandemic.

The dollar gained 0.55% on the Chinese offshore yuan to 7.2141, while the risk-sensitive Australian and New Zealand dollars were also among the biggest losers, both falling nearly 1% in early Asia trade.

The Aussie was last down 0.7% at USD 0.6426, while the kiwi fell 0.6% to USD 0.5893.

The two currencies were huge beneficiaries of a broad rally on Friday – rising nearly 3% – as speculation that China could soon end its COVID restrictions gathered pace and buoyed risk appetite.

“People are kind of thinking there’s going to be an eventual opening … but it’s not obvious to me that there’s an imminent reopening due, and I think it’s kind of premature,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets.

The economic impact of China’s zero-COVID policy was again highlighted in trade figures released on Monday, which showed exports and imports unexpectedly contracted in October, the first simultaneous slump since May 2020.

Elsewhere, sterling edged 0.3% lower to USD 1.1340, while the euro slipped 0.1% to USD 0.9949, erasing some of their roughly 2% jump on Friday.

“Any rally in the Aussie, as well as the other currencies, will likely prove short-lived, given China is still very committed to its approach to the COVID outbreaks,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia (CBA).

Against the Japanese yen, the dollar was up 0.32% at 147.14.

Investors were also assessing Friday’s US jobs report which showed that firms added a more-than-expected 261,000 jobs in October and hourly wages continued to rise, evidence of a still-tight labour market.

But hints of some easing of market conditions, with the unemployment rate rising to 3.7%, fuelled hopes that the much sought after Fed pivot could be on the horizon, capping the dollar’s gains.

Against a basket of currencies, the US dollar index last stood at 111.02. It had lost almost 2% at the end of last week.

“It was, overall, a pretty mixed report,” said CBA’s Kong. “Judging by market reaction, investors really focused on the lift in unemployment rate, and that might have led to market participants scaling back their expectations on the Fed funds rate.”

Four Federal Reserve policymakers on Friday also indicated they would still consider a smaller interest rate hike at their next policy meeting.

Fed funds futures now show that markets are pricing in a 69% chance of a 50-basis-point rate hike at the Fed’s December meeting, with the next key data point being Thursday’s US inflation figures.

(Reporting by Rae Wee; Editing by Shri Navaratnam)

Gold retreats from three-week high as firmer dollar dulls appeal

Nov 7 (Reuters) – Gold prices slipped on Monday from a three-week high scaled in the previous session, as the US dollar regained some ground, making greenback-priced bullion more expensive for holders of other currencies.

Spot gold was down 0.6% at USD 1,670.09 per ounce, as of 0712 GMT. Bullion prices surged 3% on Friday as the dollar fell nearly 2% after US jobs data raised hopes about the Federal Reserve being less aggressive on rate hikes going forward.

US gold futures fell 0.2% at USD 1,673.40.

It’s not unusual to see prices retrace against a large move from the prior session, gold is pulling back as the dollar gently rises, said City Index analyst Matt Simpson.

The dollar index reclaimed some lost ground to edge up 0.2%.

Four Federal Reserve policymakers on Friday indicated they would still consider a smaller interest rate hike at their next policy meeting.

Investors will now focus on the US inflation data due later this week. The data is likely to shed some light on Fed’s rate-hike move in the upcoming December meet.

“US inflation data has the ability to make or break gold. Whilst markets currently favour a 50 basis-point rate hike, a hot inflation print would likely see odds for a 75 bps increase and send the dollar higher and gold lower,” Simpson added.

Bullion is considered an inflation hedge, but rising interest rates dent the non-yielding asset’s appeal.

On the physical front, World Gold Council said in a note dated Friday, a stable local gold price, weak RMB and economic uncertainty supported gold sales in regions such as Beijing and Shanghai in October.

Spot silver was down 1.8% at USD 20.47 and platinum fell 1.3% to USD 948.57. Palladium rose 1.1% to USD 1,882.83.

(Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Sherry Jacob-Phillips and Rashmi Aich)

Oil falls on fading demand hopes as China sticks to strict COVID plan

SINGAPORE, Nov 7 (Reuters) – Oil prices fell more than USD 1 a barrel on Monday after Chinese health officials on the weekend reiterated their commitment to a stringent COVID containment approach, dashing hopes of a rebound in oil demand from the world’s top crude importer.

Brent crude futures dropped USD 1.24 or 1.26% to trade at USD 97.33 a barrel at 0731 GMT, after falling as low as USD 96.50 earlier in the day. US West Texas Intermediate crude was at USD 91.17 a barrel, down USD 1.44 or 1.55% after hitting a session-low of USD 90.40.

“Oil prices dropped sharply as the Chinese officials vowed to stick to the COVID-zero policy while infected cases climbed in China, which may cause more restrictions measures, darkening the demand outlook,” CMC Markets analyst Tina Teng said.

A jump in the US dollar is also weighing on oil prices, she added.

Four Federal Reserve policymakers on Friday indicated they would still consider a smaller interest rate hike at their next policy meeting despite strong jobs data.

Brent and WTI rose last week, climbing 2.9% and 5.4% respectively on rumours of a possible end to stringent COVID-19 lockdowns despite the lack of any announced changes.

However, at a news conference on Saturday, health officials said they will persevere with their “dynamic-clearing” approach to COVID cases as soon as they emerge.

Meanwhile, China’s exports and imports unexpectedly contracted in October, the first simultaneous slump since May 2020, as a perfect storm of COVID curbs at home and global recession risks dented demand and further darkened the outlook for a struggling economy.

Although China’s crude oil imports rebounded to the highest level since May, volume for the first 10 months was still 2.7% below the same period a year earlier at 413.53 million tonnes or 9.93 million bpd.

“The market is still dealing with signs of weakness in oil demand from already high prices and the weak economic backdrop in developed markets,” ANZ analysts said in a note, adding that demand in Europe and the United States has fallen back to 2019 levels.

“We now expect global demand in Q4 2022 to grow by only 0.6 mb/d (millions of barrels per day) from the same quarter last year and to moderate next year.”

Oil prices have been underpinned by expectations of tighter supplies as the European Union’s embargo on Russia’s seaborne crude exports will start on Dec. 5 even though refineries worldwide are ramping up output.

US oil refiners this quarter will run their plants at breakneck rates, near or above 90% of capacity. China’s largest private refiner Zhejiang Petroleum and Chemical Co (ZPC) is raising diesel output.

Kuwait Integrated Petroleum Industries Co (KIPIC) said on Sunday the first phase of the Al-Zour refinery has started commercial operations, according to a state news agency.

(Reporting by Florence Tan and Mohi Narayan; Editing by Lincoln Feast, Kenneth Maxwell and Edwina Gibbs)

Oil falls in choppy trade on mixed China COVID signals

NEW YORK, Nov 7 (Reuters) – Oil prices fell on Monday, paring gains after rising to more than two-month highs, on mixed signals over China, the world’s top crude importer, potentially relaxing its strict COVID-19 restrictions.

Brent crude futures fell 65 cents to settle at USD 97.92 a barrel. Earlier in the session, they rose to a session high of USD 99.56 a barrel, the highest since Aug. 31.

US West Texas Intermediate crude dropped 82 cents to settle at USD 91.79. It earlier rose 74 cents to a session high of USD 93.74 a barrel, the highest since Aug. 30.

Prices climbed during the session on news that Chinese leaders are considering reopening the economy from strict COVID-19 restrictions but are proceeding slowly and have set no timeline, the Wall Street Journal reported, citing sources.

“The market seems to be thinking that if China opens the economy, that would tighten supply significantly and put further upward pressure on prices,” said Phil Flynn, an analyst at Price Futures Group.

However, weighing on futures, Chinese health officials at the weekend reiterated their commitment to strict COVID containment measures.

Meanwhile, China’s imports and exports contracted unexpectedly in October, but its crude oil imports rebounded to the highest level since May.

Adding some price support, the US dollar sank against the euro on Monday and sterling was supported by risk-on sentiment and a rally in European stock markets. A weakening dollar makes greenback-denominated oil less expensive for other currency holders, helping push prices higher.

Oil prices have also been underpinned by expectations of tighter supplies when the European Union’s embargo on Russia’s seaborne crude exports starts on Dec. 5, even though refineries worldwide are ramping up output.

“For a lot of folks, it looks like there is going to be a scramble for barrels come December, in particular in the euro zone,” said Bob Yawger, director of energy futures at Mizuho in New York.

US oil refiners this quarter will run their plants at breakneck rates, near or above 90% of capacity. China’s largest private refiner Zhejiang Petroleum and Chemical Co (ZPC), meanwhile, is raising diesel output.

Kuwait Integrated Petroleum Industries Co (KIPIC) said on Sunday the first phase of its Al Zour refinery had started commercial operations, the KUNA state news agency reported.

(Reporting by Stephanie Kelly; additional reporting by Rowena Edwards, Florence Tan and Mohi Narayan; Editing by David Goodman, Mark Potter, Josie Kao and Paul Simao)

Inflation data, midterm elections loom for struggling US stock rally

NEW YORK, Nov 4 (Reuters) – A sputtering US stock rally faces a double-dose of potentially market moving events next week: US midterm elections and inflation data that could influence the Federal Reserve’s monetary policy.

Wall Street’s rebound on Friday dissipated some of the gloom that pervaded since the Fed on Wednesday hiked interest rates, while Chairman Jerome Powell said policymakers will likely take rates higher than envisioned in their bid to crush inflation.

Nevertheless, the S&P 500 finished the week with a 4.6% loss, likely burning many bulls that had jumped aboard an October rally that lifted the index more than 8% from its lows. A break of the index’s Oct. 12 closing low would mark the fifth time this year that stocks have rallied by 6% or more only to reverse course and plumb fresh depths.

Meanwhile, data from BoFA Global Research showed some USD 62.1 billion flowing into cash in the latest week, the largest inflows since the COVID-19 crash of early 2020, underlining pessimism that has prevailed among many market participants.

“We think we are on the path for a rocky landing for the economy, and next week we will get two pretty big clues as to what it’s going to look like,” said Steve Chiavraone, head of multi-asset solutions at Federated Hermes, who is holding larger-than-normal allocations in cash and commodities.

Consumer price data has driven huge market moves this year, as surging inflation forced investors to ramp up expectations for Fed rate hikes. A stronger-than-expected reading on Nov. 10 would likely bolster the case for the Fed to continue.

Investors are now pricing in a peak of around 5.1% for the fed funds rate next year, compared to expectations of just under 5% before the most recent Fed meeting. The central bank has raised rates to 3.75% this year.

“If we get lower inflation reading then you could get a relief rally based on that data,” said Emily Roland, co-chief investment strategist at John Hancock Investment Management. In that case, however, “markets will be more focused on higher probability of a recession.”

Strategists at Wells Fargo believe CPI is more likely to fall short of expectations. They see the Fed’s terminal rate falling by 12 basis points or more if CPI comes in at a monthly gain below 0.4%. Analysts polled by Reuters expect a 0.5% monthly rise.

“All told, disinflationary forces are gathering strength,” Sarah House, senior economist at the firm, wrote Friday.

At the same time, analysts said a surprise win by Democrats in the Nov. 8 midterm election, which will determine control of Congress, could fuel concerns about more fiscal spending and inflation.

Republicans have been leading in polls and betting markets and many analysts believe the likely result will be a split government, with GOP control of the House of Representatives and possibly the Senate for the second half of Democratic President Joe Biden’s term.

“If the Dems were to retain full control of Congress, you’re more likely to see fiscal expenditures rise and that would be highly problematic in this inflationary environment,” said Spenser Lerner, a portfolio manager at Harbor Capital.

Options hedges on the S&P 500 imply a move of nearly 3% in either direction on the day after the election, analysts at Goldman Sachs wrote this week, nearly twice the size of the average daily move the index has recorded this year.

Some investors are more hopeful regarding the period of stronger markets that past midterm elections have ushered in rather than on moves stemming from the vote itself: the S&P 500 has posted a positive return in the 12 months following all 19 midterm elections since World War Two, according to CFRA Research.

Similar gains could be in store this time around – as long as inflation numbers are not hotter than investors expect, said Kei Sasaki, senior portfolio advisor at Northern Trust, who believes energy and financial stocks will perform well in a divided government.

“The results of the midterm will give greater visibility and help draw investor confidence higher,” he said.

(Reporting by David Randall; Additional reporting by Saqib Iqbal Ahmed; Editing by Ira Iosebashvili and David Gregorio)

Gold soars as US jobs data raises Fed slowdown hopes

Nov 4 (Reuters) – Gold prices surged 3% on Friday as the dollar fell after data showing an uptick in the US unemployment rate in October raised optimism the Federal Reserve would be less aggressive on rate hikes going forward.

US employers hired more workers than expected in October, but a rise in the unemployment rate to 3.7% suggested some loosening in labor market conditions.

“The US jobs report has hit the sweet spot of what the marketplace was wanting to see and that has allowed gold prices to rally,” said Jim Wyckoff, senior analyst at Kitco Metals.

Spot gold rose nearly 3% to USD 1,677.67 per ounce by 2:34 p.m. ET (1834 GMT). Bullion is up nearly 2.2% for the week, the biggest weekly percentage gain since end-July.

US gold futures settled up 2.8% to USD 1,676.6.

Following the jobs data, the dollar index fell 1.6%, making greenback-priced gold more appealing for overseas buyers.

The US central bank on Wednesday raised interest rates by 75 basis points, but signaled they would soon scale down its aggressive rate-hike cycle as it allows time for the economy to absorb the swiftest tightening of monetary policy in 40 years.

Fed policymakers on Friday indicated they would still consider a smaller interest rate hike at their next policy meeting.

Gold is considered an inflation hedge, but high interest rates dent the non-yielding asset’s appeal.

“The long variable lags of Fed tightening has traders convinced they opt for a slower pace of hikes and decide later on when to stop,” said Edward Moya, senior analyst with OANDA.

“If next week’s US inflation report contains a downward surprise, gold might be able to make a run towards the USD 1,700 level.”

Silver soared 6.9% to USD 20.80 per ounce and was headed for a weekly gain of 8.3%.

Platinum rose 4.3% to USD 957.97, while palladium was up 3.8% at USD 1,869.62.

(Reporting by Seher Dareen in Bengaluru; Editing by Emelia Sithole-Matarise and Chris Reese)

US equity funds lure inflows for third straight week

Nov 4 (Reuters) – US equity funds continued to gain inflows for a third straight week in the week to Nov. 2, helped by expectations that the Federal Reserve would slow the pace of its interest rate hikes soon.

According to Refinitiv Lipper data, investors bought a net USD 10.19 billion worth of US equity funds, compared with purchases of USD 7.93 billion in the previous week.

Solid earnings beat from Apple Inc. (AAPL) and energy giants Chevron (CVX), Exxon Mobil (XOM) also boosted investor confidence during the reported week.

Investors purchased US large- and small-cap equity funds worth USD 6.62 billion and USD 1.59 billion respectively, although mid-cap funds witnessed outflows of USD 473 million.

By sector, health care, tech and consumer staples funds obtained inflows worth USD 630 million, USD 478 million, and USD 393 million respectively.

However, the US Federal Reserve hiked the interest rates by 75 basis points and said the peak for rates would likely be higher than previously expected.

Meanwhile, outflows from bond funds stood at just USD 14 million, a seven-week low.

Investors purchased US high yield bond funds of USD 5.07 billion, which was their biggest weekly net buying since August 2020, but government bond funds witnessed USD 1.75 billion worth of withdrawals after luring inflows for nine straight weeks.

Money market funds drew USD 46.64 billion in inflow after posting two weeks of outflows in a row.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Chizu Nomiyama)

Oil settles up 5% as further interest rate hikes loom

Nov 4 (Reuters) – Oil prices settled up by more than 5% on Friday amid uncertainty around future interest rate hikes by the US Federal Reserve, while a looming EU ban on Russian oil and the possibility of China easing some COVID restrictions supported markets.

Though fears of global recession capped gains, Brent crude futures settled up USD 3.99 to USD 98.57 per barrel, a weekly gain of 2.9%.

US West Texas Intermediate (WTI) crude futures were up USD 2.96, or 5%, at USD 92.61, a 4.7% weekly gain.

China is sticking to its strict COVID-19 curbs after cases rose on Thursday to their highest since August, but a former Chinese disease control official said substantial changes to the country’s COVID-19 policy are to take place soon.

China’s stock markets have been buoyed this week by the rumors of an end to stringent lockdowns despite the lack of any announced changes.

However, signals about the size of US interest rate hikes caused oil to pare some gains.

The US Labor Department’s non-farm payrolls report on Friday showed a rise in the unemployment rate to 3.7% last month from 3.5% in September, suggesting some loosening in labor market conditions that could give the Fed cover to shift towards smaller rate increases.

Richmond Federal Reserve President Thomas Barkin on Friday said he is ready to act more “deliberatively” on consideration of the pace of future US interest rate hikes, but said rates could continue rising for longer and to a higher end point than previously expected.

“The China re-opening talk this morning got oil going, but the various Fed representatives have been making it clear there’s a long way to go with respect to interest rate hikes, and oil markets are more sensitive to that,” said John Kilduff, partner at Again Capital LLC.

While demand concerns weighed on the market, supply is expected to remain tight because of Europe’s planned embargoes on Russian oil and a slide in US crude stockpiles.

“The slight weakness in the dollar, the upcoming ban on Russian oil sales are certainly supportive as focus is shifting from recession fears to supply issues,” said PVM Oil Associates analyst Tamas Varga.

“The main catalyst, however, is reports that China may ease its zero-Covid restrictions, which would be a boon to its economy and oil demand.”

The EU ban on Russian crude imports is due to take effect from Dec. 5. Details of G7 price cap aimed at alleviating constraints on Russian flows outside the EU are still under discussion.

RECESSION FEARS

On the bearish side, fears of a recession in the United States, the world’s biggest oil consumer, grew on Thursday after Fed Chairman Jerome Powell said it was “very premature” to be thinking about pausing interest rate hikes.

“The spectre of further rate hikes dimmed hopes of a pick-up in demand,” ANZ Research analysts said in a note.

The Bank of England warned on Thursday that it thinks Britain has entered a recession and the economy might not grow for another two years.

Underscoring demand concerns, Saudi Arabia lowered December official selling prices (OSPs) for its flagship Arab Light crude to Asia by 40 cents to a premium of USD 5.45 a barrel versus the Oman/Dubai average.

The cut was in line with trade sources’ forecasts, which were based on a weaker outlook for Chinese demand.

Looking into next week, investors are awaiting the US Energy Information Administration’s short-term energy outlook and the November US Consumer Price Index for insight on the pace of inflation.

(Additional reporting by Julia Payne in London and Sonali Paul in Melbourne and Jeslyn Lerh in Singapore; Editing by Chris Reese and Nick Zieminski)

European shares rally on hopes of smaller Fed hikes, China reopening

Nov 4 (Reuters) – European stocks rallied on Friday after US jobs data backed bets the Federal Reserve would deliver smaller rate hikes, with hopes of easing COVID-19 curbs in China boosting mining and luxury stocks.

The STOXX 600 closed 1.8% higher, with basic resources, personal & household goods and automakers leading a broad rally.

Thanks to a largely better-than-expected earnings season and hopes that central banks will slow their pace of monetary policy tightening, the benchmark index marked its fourth straight weekly gain with a 1.5% rise.

Wall Street’s main indexes held steady as a slowing pace of US job growth and rising unemployment rate suggested some loosening in labour market conditions, supporting hopes of a shift towards smaller rate hikes starting December.

“We definitely believe that the Fed will continue with its hiking cycle, although not with the jumbo hikes that we have seen during the last meetings,” said Teeuwe Mevissen, senior market economist at Rabobank.

Furthermore, China is expected to make substantial changes to its “dynamic-zero” COVID-19 policy in coming months and further shorten quarantine requirements for inbound travelers.

Luxury giants including LVMH (LVMH), Kering (PRTP), Pernod Ricard (PERP) and Hermes International (HRMS), which have a large exposure to China, climbed between 3.7% and 7.1%.

Miners rose 5.3% to post their best day in almost four months as metal prices jumped on speculation over easing COVID-19 curbs in top metal consumer China.

The Euro STOXX volatility index dropped to an 11-week low, reflecting easing anxiety among investors.

Meanwhile, data so far indicates that the euro zone is heading towards a winter recession. A survey showed euro zone business activity contracted last month at the fastest pace since late 2020 as high inflation and fears of an intensifying energy crisis hit demand.

Among other stocks, Adidas (ADSGn) shot up 21.4% to the top of the STOXX 600 after Germany’s manager magazin reported that outgoing Puma (PUMG) chief executive Bjorn Gulden is set to become the new Adidas head.

Manufacturer Andritz (ANDR) surged 10.7% as its quarterly sales and profit rose significantly.

Societe Generale (SOGN) jumped 2.6% after posting a higher-than-expected net income, while shares in Monte dei Paschi di Siena (BMPS) plunged 12.0% after the bank completed a 2.5-billion-euro (USD 2.4 billion) capital raise.

(Reporting by Shreyashi Sanyal and Ankika Biswas in Bengaluru; Editing by Subhranshu Sahu, Vinay Dwivedi and Elaine Hardcastle)

World equities fall, US Treasury yields rise after hawkish Fed

NEW YORK, Nov 3 (Reuters) – Global equities fell while US Treasury yields rose on Thursday as investors weighed hawkish commentary from Federal Reserve Chair Jerome Powell on the prospects of further interest rate hikes targeted at reining in inflation.

Market sentiment has been bearish after the Fed on Wednesday raised rates by 75 basis points and Powell said during a press conference that the “ultimate level” of interest rates is likely higher than previously estimated, and the central bank still has “some ways to go.”

Traders, who were expecting the Fed to strike a more dovish stance after delivering its fourth consecutive rate hike, were rattled.

“We’ve done 400 basis points in eight months – one of the steepest ascents in tightening in history – and to not sit back and see for a few months how the data comes in is just reckless,” said Thomas Hayes, chairman at Great Hill Capital in New York.

The MSCI world equity index, which tracks shares in 50 countries, shaved almost 2%. European stocks dropped nearly 1% after the Bank of England delivered its biggest rate rise since 1989.

On Wall Street, all three major indexes closed lower, led by a selloff in technology, communication services, financials, healthcare, and consumer discretionary stocks.

The Dow Jones Industrial Average fell 0.46% to 32,001.25, the S&P 500 lost 1.06% to 3,719.89 and the Nasdaq Composite dropped 1.73% to 10,342.94.

“I think the kind of double talk that we saw yesterday is really beginning to massively erode the credibility of anything they say. What’s going to happen is that at some point, they’re going to talk hawkish and the market is going to rally,” Hayes added.

Treasury yields were higher, with the two-year note climbing toward 5%, following comments by the Fed chair and the interest rate hikes by the US and British central banks. Both notes have pared back some gains from the previous day’s session.

The yield on the benchmark 10-year note rose to 4.149%, while the two-year yield, which typically moves in step with interest rate expectations, was up at 44.7117%.

The US dollar strengthened after the Fed’s hawkish comments, while the euro and the pound slid after the BoE’s statement. The dollar index rose 1.46%, with the euro EUR= down 0.7% to USD 0.9748.

Oil prices fell as an increase in US interest rates pushed up the dollar and heightened fears of a global recession that would crimp fuel demand.

Brent futures were down 1.5% to settle at USD 94.67 a barrel, while US West Texas Intermediate (WTI) crude fell 2.0% to settle at USD 88.17.

Gold prices fell to a more than one-month low after the dollar gained following the Fed’s stiff interest rate stance. Spot gold dropped 0.3% to USD 1,630.15 an ounce, while US gold futures settled 1.2% lower at USD 1,630.9.

(Reporting by Chibuike Oguh in New York; Editing by Chizu Nomiyama and William Maclean)

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