Oil slips 2% on China demand worries, US rate hikes

NEW YORK, Nov 3 (Reuters) – Oil prices slid about 2% on Thursday as China stood by its zero-COVID policy and an increase in US interest rates pushed up the dollar, raising fears of a global recession that would crimp fuel demand.

Losses, however, were limited by concern over tight supply.

Brent futures were down USD 1.49, or 1.5%, to settle at USD 94.67 a barrel, while US West Texas Intermediate (WTI) crude fell USD 1.83, or 2.0%, to settle at USD 88.17.

Both benchmarks had gained more than USD 1 on Wednesday, aided by another drop in US oil inventories, even as the Federal Reserve boosted interest rates by 75 basis points and US central bank chief Jerome Powell said it was premature to consider pausing rate increases.

That sent the dollar higher on Thursday, with Powell indicating that US rates are likely to peak above current investor expectations.

A strong dollar reduces demand for oil by making it more expensive for buyers using other currencies.

“Oil is battling both a weakening global economic outlook and a surging dollar. It seems these bearish drivers won’t be easing up anytime soon,” said Edward Moya, senior market analyst at data and analytics firm OANDA.

The number of Americans filing new claims for unemployment benefits unexpectedly fell last week, suggesting the labor market remains strong despite slowing domestic demand amid the Fed’s hefty rate hikes to tame inflation.

The United States is not the only country tightening policy.

The Bank of England raised interest rates by the most since 1989 but also warned Britain faced a long recession.

“Rising anxiety about stalling growth will inevitably impact global oil demand and another downward revision in the next set of forecasts is not a far-fetched idea,” said PVM Oil analyst Tamas Varga.

STRICT COVID CONTAINMENT

In China, meanwhile, COVID-19 cases hit their highest level in two and a half months after the health authority stuck by its strict containment policy, dampening investor hopes for an easing of curbs battering the world’s second-largest economy.

In addition, China’s natural gas consumption may post the first decline in 2022 in two decades amid a struggling economy, with demand this winter set to rise more modestly than in previous years, state energy officials said.

Chinese policymakers pledged on Wednesday that growth was still a priority.

Oil price losses, however, were limited by expectations the market is set to tighten in the coming months.

The European Union’s (EU) embargo on Russian oil over its invasion of Ukraine is set to start on Dec. 5 and will be followed by a halt on oil product imports in February.

Lower output from the Organization of the Petroleum Exporting Countries (OPEC) also lent price support, with a Reuters survey finding the producer group’s output fell in October for the first time since June.

OPEC and its allies including Russia, known collectively as OPEC+, decided in early October to cut targeted output by 2 million barrels per day from this month.

(Additional reporting by Arpan Varghese and Muyu Xu in Singapore, and Ahmad Ghaddar in London; Editing by David Goodman, Mark Potter and Paul Simao)

Gold subdued as Fed’s Powell sours pivot hopes

Nov 3 (Reuters) – Gold prices were flat on Thursday, following a volatile session, as hopes of a pivot dissipated after US Federal Reserve Chair Jerome Powell signalled further rise in borrowing costs.

Spot gold was flat at USD 1,635.42 per ounce, as of 0637 GMT, after falling 0.8% on Wednesday.

US gold futures shed 0.8% to USD 1,636.20.

The Fed raised interest rates by 75 basis points on Wednesday, as expected, and signalled it may be nearing an inflection point.

However, Powell soured sentiments by saying the Fed has “ways to go with interest rates before we get to the level that’s sufficiently restrictive” and that it is “premature to discuss pausing.”

“Sentiments are still weak after the hawkish takeaway from the FOMC meeting,” said IG market strategist Yeap Jun Rong.

With the continued shift in landscape towards a higher-for-longer rate, it seems difficult for gold to gain significant traction and the downward trend for prices remains intact, Yeap added.

Gold rose as much as 1.3% after the release of the policy statement at the end of the two-day meet. However, it later gave up gains on Powell’s remarks.

Although gold is considered a hedge against inflation, higher US interest rates increase the opportunity cost of holding the non-yielding asset and boosts the dollar.

The dollar index was slightly lower after touching its highest level since Oct. 24 earlier at 112.19.

Attention now shifts to Friday’s US nonfarm payrolls data, which could provide more cues on the resilience of the labour market.

“If the jobs numbers reinforce this combative rhetoric that we heard from Powell, gold can take out the range floor (at USD 1,615 an ounce) and try to extend downward in a more meaningful way,” said DailyFX currency strategist Ilya Spivak.

Elsewhere, spot silver was steady at $19.27 per ounce, platinum was flat at USD 929.80 and palladium rose 0.7% to USD 1,867.93.

(Reporting by Eileen Soreng in Bengaluru; Editing by Rashmi Aich and Uttaresh.V)

Philippine c.bank to match Fed’s 75 bps rate hike on Nov. 17

Nov 3 (Reuters) – The Philippine central bank signalled on Thursday it planned a 75 basis point hike in its key interest rates later this month to match the latest monetary tightening by the US Federal Reserve.

“(The Fed hike) supports the BSP’s stance to hike its policy rate by the same amount in its next policy meeting on Nov. 17,” Bangko Sentral ng Pilipinas Governor Felipe Medalla said in a statement.

“The BSP deems it necessary to maintain the interest rate differential prevailing before the most recent Fed rate hike, in line with its price stability mandate and the need to temper any impact on the country’s exchange rate of the most recent Fed rate hike,” he said.

Ruling out an off-cycle policy move, Medalla said the hike would be effective after the Nov. 17 meeting.

Inflation in January to September averaged 5.1%, well outside the central bank’s 2%-4% target for 2022, partly because of a weaker peso that has further aggravated the cost of importing food and fuel.

By matching the Fed’s rate hike, Medalla said the BSP reiterated its strong commitment to maintaining price stability by aggressively dealing with inflationary pressures stemming from local and global factors.

He cited the BSP’s preparedness to “take necessary policy actions to bring inflation toward a target-consistent path”, as he projected it to return to the 2%-4% target band in the second half of 2023 and full-year 2024.

Economists welcomed the rate hike signal, viewing it as intended to reassure markets.

“Reaction from BSP was timely and should be able to temper market reactions, namely from the foreign exchange side,” said Robert Dan Roces, an economist at Security Bank in Manila.

Roces expects rate increases of 75 bps this month and 50 bps on Dec. 15, the last policy meeting this year.

Medalla last month said interest rates could rise by more than 100 basis points before the year-end to ease pressure on the peso, Southeast Asia’s worst-performing currency that has lost 12.5% against the US dollar so far this year.

The BSP has so far raised rates five times this year, amounting to a total of 225 bps and bringing the overnight reverse repurchase facility rate to 4.25%.

“The rate hikes so far this year have merely normalised our policy settings and aren’t likely to pare growth by much,” said Emilio Neri, lead economist at Bank of the Philippine Islands.

(Reporting by Enrico Dela Cruz and Neil Jerome Morales; Editing by Ed Davies)

Asia shares slip, Fed flags higher rates for longer

SYDNEY, Nov 3 (Reuters) – Asian share markets slid on Thursday after the US Federal Reserve laid the groundwork for a protracted tightening campaign that torpedoed market hopes for a pause, sank bonds and lifted the dollar.

Investors were initially cheered that the Fed opened the door to a slowdown in the pace of hikes after raising interest rates 75 basis points to 3.75-4.0%, by noting that policy acted with a lag.

But Chair Jerome Powell soured the mood by saying it was “very premature” to think about pausing and that the peak for rates would likely be higher than previously expected.

“The Fed is now more comfortable with taking smaller rate increases for a longer period than delivering larger increases now,” said Brian Daingerfield, an analyst at NatWest Markets.

“The tightening cycle is officially now a marathon, not a sprint.”

Futures were now split on whether the Fed would move by 50 or 75 basis points in December, and nudged up the top for rates to 5.0-5.25% likely by May next year. They also imply little chance of a rate cut until December 2023.

“Higher for longer” was not what the equity markets wanted to hear and Wall Street fell sharply after Powell’s comments. Early Thursday, S&P 500 futures were off another 0.3%, while Nasdaq futures fell 0.2%.

MSCI’s broadest index of Asia-Pacific shares outside Japan shed 0.9%, with South Korea down 1.5%.

Japan’s Nikkei was closed for a holiday, but futures were trading around 350 points below Wednesday’s cash close.

Two-year Treasury yields popped up to 4.63% as the curve bear flattened, with the spread to 10-year notes near its most inverted since the turn of the century.

Attention now turns to the US ISM survey of services later Thursday and Friday’s payrolls report where any upside surprise will likely reinforce the Fed’s hawkish outlook.

BoE TAKES THE STAGE

Also taking centre stage will be the Bank of England where the market is fully priced for a rate hike of 75 basis points to its highest since late 2008 at 3.0%.

“There will be interest in the BoE’s new CPI and GDP forecasts, with the latter likely to show a deeper and more protracted recession in 2023 and 2024,” said Ray Attrill head of FX strategy at NAB.

A gloomy outlook could put more pressure on the pound, which was pinned at USD 1.1374 after retreating from a top of USD 1.1564 overnight.

The US dollar was broadly bid on Powell’s hawkish take, leaving the dollar index at 112.190 after an overnight bounce from a 110.400 low.

The euro was flat at USD 0.9810, having toppled from a high of USD 0.9976 overnight, while the dollar climbed to 147.87 yen from a trough of 145.68.

The bounce in the dollar and yields was a drag for gold, which was stuck at USD 1,633 an ounce after being as high as USD 1,669 at one stage overnight.

Oil prices also disliked the dollar rally with Brent down 88 cents at USD 95.28 a barrel, while US crude fell USD 1.02 to USD 88.98.

In good news for bread lovers, wheat futures plummeted overnight after Russia said it would resume its participation in a deal to export grain from war-torn Ukraine.

(Reporting by Wayne Cole; Editing by Lincoln Feast)

Dollar regains strength as Powell dashes hope of a Fed pause

NEW YORK, Nov 2 (Reuters) – The dollar regained some strength on Wednesday after Federal Reserve Chair Jerome Powell said it was premature to discuss a pause in its hiking of interest rates to battle rising consumer prices, as there is “no sense that inflation is coming down.”

The Fed, as markets had expected, raised its key lending rate by 75 basis points for the fourth straight time after a two-day meeting of policy-makers.

Markets initially read the Fed’s statement at the end of the meeting as dovish and a signal that future rate increases to tame high inflation could be made in smaller increments.

Yet Powell made clear at the press conference after the statement that a mistake in not tightening monetary policy enough would risk dealing with entrenched inflation.

“If you undertighten, it is a year or two down the road you realize you haven’t got inflation under control,” he said.

A change in pace in rate hikes could come at the Fed’s next meeting in December, Powell said. But he cautioned extensive uncertainty remains about how high rates need to go and that they could end up higher than policymakers previously thought.

“There are still a lot of missing pieces in terms of Fed policy and where the dollar goes from here because we’re going to have a pair of jobs reports and inflation surveys before we next hear from the Fed,” said Joe Manimbo, senior market analyst at Convera in Washington.

Equities and other risk assets at first rose after the Fed statement was released, but stocks on Wall Street closed sharply lower after Powell spoke, as hopes the Fed would ease its hiking campaign quickly dissipated.

“We have not seen a pivot, a pivot is looking further over the horizon,” Manimbo said.

“The near-term outlook calls for the dollar staying strong and resilient because even if the Fed is nearing the finish line for rate hikes, it’s not expected to pivot to rate cuts for a very long time yet,” he said.

The euro initially rose against the dollar but later turned lower, down 0.5% at USD 0.9825. The Japanese yen strengthened 0.31% versus the greenback at 147.79 per dollar.0.3

The Fed’s battle against inflation running at four-decade highs has unleashed the most aggressive hiking campaign in more than a decade.

Future markets were divided on how high the Fed will increase rates at its next meeting on Dec. 13-14. The CME Group’s FedWatch tool showed a 56.8% probability of a 50 basis point increase, and a 43.2% chance of a 75 bps increase.

Growing expectations that the Fed would dial down the aggressiveness of its rate hikes have weighed on the dollar in recent weeks.

Sterling fell, last down 0.82% on the day at USD 1.1389. The Bank of England on Thursday also is expected to announce a 75-basis-point rate increase.

The yen has slipped about 22% against the dollar this year, leading traders to be on alert for a possible intervention.

Japanese authorities are widely considered to have intervened in FX markets several times since September to pull the yen back from 32-year lows.

Japan’s currency interventions have been stealth operations in order to maximize the effects of its forays into the market, Finance Minister Shunichi Suzuki said on Tuesday, after the government spent a record USD 43 billion supporting the yen last month.

(Reporting by Herbert Lash, additional reporting by Saqib Iqbal Ahmed in New York and Joice Alves in London; Editing by Mark Potter, Alex Richardson, Leslie Adler, William Maclean)

Wall Street drops as Powell signals Fed not close to done

NEW YORK, Nov 2 (Reuters) – US stocks ended sharply lower on Wednesday, as comments from Fed Chair Jerome Powell shattered initial optimism over a Fed policy statement that raised interest rates by 75 basis points but signaled that smaller rate hikes may be on the horizon.

In a volatile trading session, equities initially moved higher in the wake of the hike by the Fed, the fourth straight increase from the central bank of that magnitude as it attempts to bring down stubbornly high inflation.

The target federal funds rate was set in a range between 3.75% and 4.00%, but the impact of the hike was initially tempered by new language that suggested the central bank was mindful of the effect its outsized rate hikes have had on the economy.

Investors had been widely anticipating a 75-basis point rate hike, while hoping the Fed would signal a willingness to begin downsizing the rate hikes at its December meeting.

However, comments from Fed Chair Jerome Powell that it was “very premature” to be thinking about pausing rate hikes sent stocks sharply lower.

“It is one speech, maybe it is a moment of frustration. I don’t think he should have done it the way he did this. But I understand why he did it, and in the big picture of things, he is doing the right thing right now,” said Stephen Massocca, senior vice president at Wedbush Securities in San Francisco.

“Ultimately this will be good for the economy and good for the market.”

The Dow Jones Industrial Average fell 505.44 points, or 1.55%, to 32,147.76, the S&P 500 lost 96.41 points, or 2.50%, to 3,759.69 and the Nasdaq Composite dropped 366.05 points, or 3.36%, to 10,524.80.

After a strong rally in October that saw the Dow Industrials post their biggest monthly percentage gain since 1976 and the S&P rally about 8%, the three major indexes on Wall Street have no fallen for three straight session. Wednesday’s decline was the largest percentage drop for the S&P 500 since October 7.

The S&P 500 had been modestly lower prior to the policy announcement, as the ADP National Employment report showed US private payrolls increased more than expected in October, giving more reason to the Fed to continue an aggressive path of rate hikes.

The private payrolls report came on the heels of data on Tuesday that showed a jump in US monthly job openings, indicating labor demand remained strong.

Investors will get more looks at the labor market in the form of weekly initial jobless claims on Thursday and the October payrolls report on Friday that will help drive expectations for interest rate hikes.

Volume on US exchanges was 12.80 billion shares, compared with the 11.57 billion average for the full session over the last 20 trading days.

Declining issues outnumbered advancing ones on the NYSE by a 3.38-to-1 ratio; on Nasdaq, a 2.81-to-1 ratio favored decliners.

The S&P 500 posted 22 new 52-week highs and 20 new lows; the Nasdaq Composite recorded 108 new highs and 203 new lows.

(Reporting by Chuck Mikolajczak; Editing by Cynthia Osterman)

Gold slips after Powell dashes hopes on Fed rate hike pause

Nov 2 (Reuters) – Gold turned negative on Federal Reserve Chair Jerome Powell’s remarks on Wednesday that it was premature to discuss pausing rate hikes, after prices jumped over 1% as the US central bank signalled future interest rate increases could be made smaller.

Spot gold fell 0.5% to USD 1,640.05 per ounce by 3:45 p.m. EDT (1945 GMT). US gold futures settled up 0.02% at USD 1,650 ahead of the Fed decision.

Prices had jumped over 1% after the Fed raised interest rates by 75 basis points, as widely expected, but signaled future increases in borrowing costs could be made in smaller steps to account for the “cumulative tightening of monetary policy” it has enacted so far.

Later, Powell cautioned against any sense the central bank will soon move to the sidelines with interest rate rises. “It is very premature to be thinking about pausing.”

Fed Chair Powell de-emphasizing speed yet stating that it was premature to consider a pause set a fairly hawkish tone for the presser, said Tai Wong, a senior trader at Heraeus Precious Metals in New York.

“Powell is giving the Fed the option of decelerating to 50 bps but preventing a mad market rally by emphasizing how high rates will be and how long they will stay there while taking the focus off the speed of rate hikes.”

Gold is highly exposed to interest rates, as higher rates increase the opportunity cost of holding non-yielding assets.

The dollar index and benchmark 10-year Treasury yields rebounded after Powell’s comments.

Gold prices will average USD 1,712.50 an ounce next year, per a Reuters poll, rising from current levels.

Elsewhere, spot silver fell 1.6% to USD 19.3 per ounce, after climbing to a three-week peak on Tuesday.

Platinum dipped 0.7% to USD 936.28, while palladium slipped 1.3% to USD 1,856.50.

Analysts and traders downgraded their forecasts for platinum and palladium prices next year, according to a Reuters poll.

(Reporting by Seher Dareen and Swati Verma in Bengaluru; Editing by Shailesh Kuber and Diane Craft)

US SEC proposes new liquidity, pricing rules for mutual funds

Nov 2 (Reuters) – The US Securities and Exchange Commission on Wednesday proposed new rules aimed at better preparing the mutual fund industry for distressed market conditions, including a new pricing mechanism that has drawn opposition from fund managers.

The market disruptions of March 2020 reinforced the fact that liquidity can deteriorate rapidly, said the SEC, which adopted the proposal in a 3-2 vote.

“In times of stress, when many investors may redeem their shares in a fund at once, a fund might need to sell less-liquid securities quickly to generate cash,” SEC Chair Gary Gensler said. “When done in volume, this can raise issues for investor protection, our capital markets, and the broader economy.”

The proposed rule would require mutual funds, and some exchange-traded funds, to ensure that at least 10% of their net assets are highly liquid.

The new requirements would also demand a hard daily closing time for mutual funds, and the use of “swing pricing,” which involves adjusting a fund’s value in line with trading activity so redeeming investors bear the costs of exiting without diluting remaining investors.

The rules could have a big impact on how retirement savings are handled. Mutual funds managed USD 4.1 trillion, or 63%, of assets held in 401(k) plans at the end of June, as well as USD 5.1 trillion, or 43%, of IRA assets, according to the Investment Company Institute.

The group, which represents top asset managers, criticized Wednesday’s proposal. Chief executive officer Eric Pan said it could cause an “enormous negative impact” on Americans who invest in such funds, which are already “highly liquid” products.

The plan will be open for comment before being finalized.

Asset managers have also pushed back against an SEC proposal from December that would implement swing pricing for money market funds, arguing it would be operationally challenging, impose excessive costs on fund sponsors, and reduce daily liquidity for investors, potentially killing off some popular products.

Separately, the SEC voted 3-2 in favor of adopting new rules aimed at enhancing the reporting of proxy votes by registered management investment companies and the reporting of executive compensation votes by institutional investment managers.

Funds will now have to categorize the votes in a consistent manner and disclose the number of shares voted for proxy cards filed with the SEC. Investment managers will also have to report how they voted on proxies related to executive compensation, or “say on pay” votes.

(Reporting by John McCrank in New York and Chris Prentice in Washington; Editing by Matthew Lewis, Kirsten Donovan)

Asian equities receive meagre inflows in October amid recession worries

Nov 2 (Reuters) – Asian equities saw meagre inflows in October after massive selling in the previous month, and analysts expect fears of a global recession and a stronger US dollar to weigh on near-term money flows into the region.

Data from stock exchanges in Taiwan, India, the Philippines, Vietnam, Thailand, Indonesia, and South Korea showed foreigners bought equities worth a net USD 53 million last month. In September, they had sold shares worth a net USD 8.8 billion.

Last month, the MSCI’s broadest index of Asia-Pacific shares fell 1.97%, compared with the MSCI World’s 6% gain.

“Headwinds to Asia intensified owing to enhanced US curbs on Chinese companies sourcing US technology and continued doubts about China’s economic recovery,” said Manishi Raychaudhuri, head of APAC equity research at BNP Paribas.

South Korea received the highest inflow of USD 2.1 billion, while Indonesia and Thailand got USD 729 million and USD 196 million, respectively. Taiwanese equities witnessed a huge outflow of USD 2.9 billion.

Destocking in the information and communication technology sector is massive, hitting many Taiwanese companies in the semiconductor sector, said Alicia Garcia-Herrero, chief economist for Asia-Pacific at Natixis.

Vietnam, the Philippines, and India also faced outflows last month.

“Flows into Asia, especially North Asia, remain challenging in the face of DM (Developed market) recession concerns and a strengthening USD,” said BNP’s Raychaudhuri.

“Both drivers are likely to sustain in the near term.”

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Subhranshu Sahu)

Oil prices gain by tight supply; other risk assets swoon on Fed rate hike

NEW YORK, Nov 2 (Reuters) – Oil prices rose on Wednesday, gaining ground even as other risk assets dropped following the Federal Reserve’s fourth interest rate hike of the year.

The market was supported by another decline in US oil inventories as refineries picked up activity ahead of the winter heating season.

The oil market held its rally even as stocks fell and the dollar rallied after Federal Reserve Chair Jerome Powell said it was premature to think about pausing rate increases.

Brent crude settled up USD 1.51, or 1.6%, to USD 96.16 while US West Texas Intermediate (WTI) crude settled up USD 1.63, or 1.8%, to USD 90 on the nose. The gains did ebb after settlement.

The US Federal Reserve boosted interest rates by 75 basis points to bring down consumer inflation that has reached a four-decade high, though the central bank signaled future increases may be in smaller increments.

So far, the Fed’s moves have not affected the strong labor market, though its actions operate with a lagged effect.

Powell suggested it was premature to think about ending the interest-rate increases. Wall Street quickly gave back its gains, while the Treasury market also fell, boosting yields.

Oil held firm, a signal of worries about global energy supply. US crude oil stocks fell about 3.1 million barrels on the week, according to federal data. Gasoline inventories while distillate stocks rose only marginally ahead of the key heating season, when demand is expected to pick up.

“There’s definitely a lot of focus on supply/demand fundamentals and inventories which we saw on the (EIA) release today, and about when the Russia sanctions kick in,” said Rebecca Babin, senior energy trader at CIBC Private Wealth US.

The European Union’s embargo on Russian oil is set to start on Dec. 5. The ban, a reaction to Russia’s invasion of Ukraine, will be followed by a halt on oil product imports in February. It is expected to limit Russia’s ability to ship crude and products worldwide, and therefore could tighten the market.

Output from the Organization of the Petroleum Exporting Countries (OPEC) fell in October for the first time since June, in addition to pumping 1.36 million barrels per day below its targets.

US inventories remain low across most products, worrying analysts who believe that the impending end of releases from US strategic reserves will remove a source of supply that will further tighten markets.

“Every week that goes by, the US is drawing hydrocarbon inventories, and that leads to the question of where does the industry turn when there are no more supplies from strategic petroleum reserve releases,” said Andrew Lipow, president of Lipow Oil Associates in Houston.

(Reporting by David Gaffen; additional reporting by Scott DiSavino; Editing by David Gregorio)

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