BOJ policymakers rule out countering weak yen with rate hike

TOKYO, Oct 19 (Reuters) – Bank of Japan policymakers on Wednesday stressed the need to keep monetary policy ultra-loose to shield the economy from heightening overseas risks, ruling out the possibility of raising interest rates to slow the yen’s slump to 32-year lows.

Finance Minister Shunichi Suzuki also warned investors against pushing down the yen too much, saying the government would “properly respond” in the exchange-rate market, according to Jiji news agency.

In a speech on Wednesday, BOJ board member Seiji Adachi said it was premature to shift away from the central bank’s ultra-loose monetary policy with Japan’s economy facing mounting risks from slowing global growth and volatile financial markets.

Responding to short-term currency moves with monetary policy would heighten uncertainty over the BOJ’s policy guidance and do more harm to the economy, Adachi said.

“When looking at the global financial and economic environment surrounding Japan, downside risks are building up rapidly,” Adachi said in a speech delivered to business leaders in Toyama, central Japan.

“When downside risks are so high, we should be cautious of shifting toward monetary tightening,” he said, warning that heightening external headwinds risked tipping Japan back to deflation.

BOJ Governor Haruhiko Kuroda echoed that view, saying that monetary policy does not directly target exchange-rates, and Japan’s fragile economy still needed massive monetary support.

“Sharp and one-sided moves in the currency market are undesirable for the economy,” Kuroda told parliament. “As such, it was very appropriate for the government to intervene in the currency market to address excessively sharp yen falls.”

The remarks by BOJ and government policymakers underscore the dilemma Japan faces, as the central bank’s ultra-low rates aimed at supporting a weak economy help accelerate an unwelcome yen fall that inflates households’ living costs.

The dollar rose as high as 149.415 yen on Wednesday for the first time since August 1990, moving closer to the key psychological barrier of 150.

The government, which holds jurisdiction over currency policy, spent 2.8 trillion yen (USD 19 billion) in dollar-selling, yen-buying intervention last month when authorities acted in the markets to prop up the yen for the first time since 1998.

Prime Minister Fumio Kishida has defended the BOJ’s ultra-easy policy as a necessary step to support the economy.

He has also pledged to compile another spending package to cushion the economic blow from the rising costs of living, a sign fiscal policy will play a major role in combatting fresh downside risks to the recovery.

The BOJ, for its part, is facing renewed challenges in maintaining yield curve control (YCC), under which it pumps money aggressively to cap the 10-year bond yield around 0%.

The 10-year Japanese government bond (JGB) yield briefly hit 0.255% on Wednesday, rising above the BOJ’s implicit 0.25% cap for the first time since June.

Yields for other maturities also came under upward pressure form rising global interest rates with the 5-year JGB yield briefly edging up to 0.105%, the highest since July 2015.

(USD 1 = 149.4600 yen)

(Reporting by Leika Kihara and Kantaro Komiya, Additional reporting by Chang-Ran Kim and Takahiko Wada; Editing by Gerry Doyle and Jacqueline Wong)

US stocks extend rally, Treasury yields dip

NEW YORK, Oct 18 (Reuters) – Wall Street stocks closed higher and Treasury yields dipped on Tuesday as upbeat earnings and better-than-expected factory data stoked a risk-on rally.

Building on Monday’s broad gains, the S&P 500 led the major US stock indexes higher to end the session up nearly 1% or more, with sectors across the board advancing.

Meanwhile benchmark Treasury yields were last lower, having oscillated throughout the day.

“The market was a bit oversold leading into Monday, and people were worried of what was going to happen over the weekend. People walked into the week feeling a little better,” said Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Conn. “You’re getting a combination of short covering and fear of missing out.”

Better-than-expected quarterly results from Goldman Sachs Group Inc. (GS), Johnson & Johnson (JNJ) and Lockheed Martin (LMT) set the tone, with robust industrial output data providing signs of economic strength even as central banks tighten monetary policy to tackle inflation.

The belief that “a recession is coming and the Fed is going to be raising interest rates, with the hope that maybe a pause is going to be coming something next year,” is now baked into the market, Pavlik said. “Without all that weight, the market can rise higher after being sold off.”

The Dow Jones Industrial Average rose 337.98 points, or 1.12%, to 30,523.8, the S&P 500 gained 42.04 points, or 1.14%, to 3,719.99 and the Nasdaq Composite added 96.60 points, or 0.9%, to 10,772.40.

Monday’s policy reversal from British finance minister Jeremy Hunt’s continued to buoy investor sentiment.

European shares extended their policy U-turn rally – with an assist from the tech sector – to close modestly higher on the day.

The pan-European STOXX 600 index rose 0.34% and MSCI’s gauge of stocks across the globe gained 1.13%.

Emerging market stocks rose 1.50%. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 1.55% higher, while Japan’s Nikkei .N225 rose 1.42%.

Treasury yields wavered throughout the session, but had edged lower by the closing bell.

The benchmark 10-year note yield was last at 3.9922%, from 4.015% late on Monday.

The 30-year bond last rose 1/32 in price to yield 4.0142%, from 4.015% late on Monday.

The British pound dipped after surging nearly 2% on Monday, which propped up the greenback against a basket of world currencies, but the dollar was last essentially flat, its gains held in check by risk-on investor sentiment.

The dollar index rose 0.02%, with the euro up 0.17% to USD 0.9855.

The Japanese yen weakened 0.12% versus the greenback at 149.22 per dollar, while sterling was last trading at USD 1.1327, down 0.23% on the day.

Crude prices dropped on fears of higher US stockpiles and signs of waning global demand.

US crude slid 3.09% to settle at USD 82.82 per barrel, while Brent settled at USD 90.03 per barrel, down 1.74% on the day.

The unchanged dollar helped support gold’s nominal gain.

Spot gold added 0.1% to USD 1,650.94 an ounce.

(Reporting by Stephen Culp; additional reporting by Elizabeth Howcroft in London; Editing by Alison Williams, Will Dunham and Deepa Babington)

Dollar higher but gains in check as risk appetite rebounds

The US dollar edged higher against a basket of currencies on Tuesday, shaking off some of the weakness of the previous session, but a revival in risk appetite in global financial markets kept a lid on its gains.

“Yesterday’s risk-on vibe looks to be continuing into today’s session,” said Michael Brown, head of market intelligence at payments firm Caxton in London.

“A lack of any major headlines, coupled with some semblance of fiscal stability in the UK, appear to be the culprits,” he said.

Britain’s new Finance Minister Jeremy Hunt on Monday scrapped Prime Minister Liz Truss’s economic plan, which had sapped investor confidence in Britain in recent weeks.

Relief at the U-turn prompted a rally in risk assets, including on wall Street. US stock market gains were also driven by strong corporate earnings from Goldman Sachs (GS) and Johnson & Johnson (JNJ).

The British finance minister’s decision to reverse most of the government’s “mini-budget” prompted investors to reassess the outlook for UK interest rates and sent the pound 0.4% lower on the day to USD 1.1316.

The Bank of England said on Tuesday it would go ahead with plans to start selling some of its huge stock of government bonds with the first sale due on Nov. 1, a day later than previously planned to avoid clashing with a government fiscal statement.

Last month, that market upheaval caused by the government’s now-abandoned tax-cutting mini-budget, prompted the BoE to start an emergency round of bond-buying and push back the start of its ‘quantitative tightening’ (QT) sales from Oct. 6 to Oct. 31.

Against a basket of currencies, the dollar was 0.07% higher at 112.15, having earlier slipped to a near two-week low of
111.76. The index, which fell 1% in the previous session, remains just 2% shy of the two-decade high of 114.58 touched in late September.

“With the Fed remaining one of the most hawkish G10 central banks, and downside risks to the outlook continuing to intensify … I stay bullish on the USD over the medium-term,” Caxton’s Brown said.

The dollar found some support after data showed production at US factories rising in September, led by output gains in durable and nondurable goods, indicating that the manufacturing sector remains on a reasonable footing despite the Federal Reserve’s efforts to limit demand through higher interest rates.

Meanwhile the Japanese yen traded near a 32-year trough to the dollar at 149 yen, putting the major psychological barrier of 150 in focus and raising the possibility of the Bank of Japan doing more to support the battered currency after its first yen-buying intervention since 1998 on Sept. 22.

“I think there is an expectation that they (Bank of Japan) may intervene, however authorities seem more concerned with the speed of any move rather than the level at which we trade,” Brown said.

The risk-sensitive New Zealand dollar rose about 0.63% to USD 0.5671, taking support from hotter-than-expected consumer inflation data which bolstered bets for further rate hikes.

Bitcoin was 1.9% lower at USD 19,165, clinging close to the levels it has traded at for the last four weeks.

(Reporting by Saqib Iqbal Ahmed; Editing by Ken Ferris and Nick Zieminski)

Gold flat as bets for aggressive US Fed blunt appeal

Oct 18 (Reuters) – Gold steadied on Tuesday, giving up gains made earlier in the session on a softer dollar, as prospects of further large US Federal Reserve interest rate hikes continued to weigh.

Spot gold was nearly flat at USD 1,649.63 per ounce by 3:22 p.m. ET (1921 GMT). US gold futures settled down 0.5% to USD 1,655.8.

“In the end, the primary catalyst (for gold) will be the Fed’s rate hiking cycle,” said Edward Moya, senior analyst with OANDA.

Federal Reserve Bank of Minneapolis board members sought a full percentage point increase in a key emergency borrowing rate for commercial banks ahead of the US central bank’s September monetary policy meeting, minutes of discount rate meetings showed on Tuesday.

“You’re getting relief in yields (and) the dollar rally has definitely hit a major hurdle … gold, at the very least, has not seen selling pressure return, it’s somewhat stabilizing,” Moya said.

The dollar edged higher after hitting its lowest level since Oct. 6 earlier in the session, making greenback-priced bullion more expensive for overseas buyers.

Expectations of a large Fed interest rate hike were cemented following a red-hot US consumer inflation print last week, with markets pricing in a 75-basis-point hike in November.

Rising interest rates and bond yields dim gold’s appeal as they increase the opportunity cost of holding the non-yielding asset.

Benchmark US 10-year Treasury yields eased on Tuesday, buoying gold.

“The main fixation of gold and silver traders remains the daily price direction of the US dollar index,” Jim Wyckoff, senior analyst at Kitco Metals, said in a note.

Spot silver was flat at USD 18.6863 per ounce and platinum fell 0.7% to USD 904.03, while palladium gained 0.6% to USD 2,011.94.

Platinum “continues to benefit from a robust recovery in automotive demand across the globe, with the European Union’s new vehicle registrations rising 9.6% year-over-year,” TD Securities said in a note.

(Reporting by Kavya Guduru and Seher Dareen in Bengaluru; Editing by Maju Samuel, Alexandra Hudson and Shounak Dasgupta)

More respite for markets, for now at least

MORE RESPITE FOR MARKETS, FOR NOW AT LEAST (0642 GMT)

European stocks look set to get a nice uplift at the open this morning, with STOXX 50 futures indicating a 1.3% gain for the index.

It’s a similar story for the DAX, while FTSE futures are lagging slightly, up 0.9%.

After yesterday’s stunning reversal of Truss’s fiscal plan by new finance minister Jeremy Hunt, news reports this morning that the Bank of England might hold off on winding down its holdings of UK gilts is likely to provide even more respite for markets – for now at least.

The looming earnings season has not been top of the priority list in what has been a chaotic few weeks in markets. But it will provide an important read on how the unfolding economic slowdown is impacting different sectors.

The effects should be clearer this time around compared to last quarter, when outlooks were blurry – and some telltale signs are already emerging.

Roche’s quarterly sales declined 6% after a slump in COVID-19 treatments and diagnostic testing , while Rio Tinto has tempered its annual iron ore shipments outlook as demand weakens.

UK homebuilder Bellway flagged moderating demand amid increased pressure from rising mortgage rates as the housing sector faces the risk of a slowdown amid a deepening cost-of-living crisis.

On a positive note for European IPO market – which has been defined by plunging volumes in 2022 – British exploration and production company Ithaca Energy is planning a London listing.

(Lucy Raitano)

*****

GOOD WILL HUNTING (0615 GMT)

Three days into the job, Jeremy Hunt has pretty much gutted British Prime Minister Liz Truss’ entire economic plan that propelled her to lead the government less than six weeks ago. The new finance minister’s policy reversal has lifted investors’ mood, leading to a rally across equities, bonds and some currencies.

With Truss’s spokesman batting down suggestions that Hunt was running the country, it remains to be seen how long the PM is able to survive the political maelstrom, even though she remains defiant. “I’m sticking around because I was elected to deliver for this country.”

The dramatic U-turn might lead to BoE not hiking interest rates in November by as much as previously anticipated (75-basis-point hike vs previous estimate of 100 basis points, according to Morgan Stanley analysts). Meanwhile, a report from the Financial Times said that the BoE is likely to delay the sale of billions of pounds of government bonds.

Over in Australia, the central bank expects to raise interest rates further over the coming months, while minutes of its meeting last month showed that the surprise decision to slow the pace of rate increases was “finely balanced”.

Elsewhere, another day of intervention watch awaits the currency market as the yen JPY=EBS remains perilously close to the major psychological barrier of 150 after touching a 32-year low of 149.10 against the dollar overnight.

The new low led to yet another response from the Japanese authorities that they are closely watching excessive currency moves.

On the corporate front, a source told Reuters that Credit Suisse Group AG has approached at least one Middle Eastern sovereign wealth fund for a capital injection.

Key developments that could influence markets on Tuesday:

Economic events: Sept car registration data from UK, Germany, France and Italy, Germany Oct ZEW survey, U.S. Sept industrial output data

Speakers: Riksbank’s Per Jansson and Bank of Canada’s Carolyn Rogers to speak at different events

Earnings on the deck: J&J, Goldman and Netflix

(Ankur Banerjee)

*****

Philippines’ Marcos ready to defend peso, fight inflation

MANILA, Oct 18 (Reuters) – Philippine President Ferdinand Marcos Jr said on Tuesday his government was prepared to defend the peso, given that continued weakness in the currency could accelerate inflation that is already at four-year highs.

“We may have to defend the peso in the coming months, but the overall forecast is that we are still doing better than other countries in terms of inflation,” Marcos said on Twitter after meeting with his economic ministers.

Marcos said the government will continue to use interest rates to combat inflation, which is on track to breach a 2%-4% target for the year due in part to higher prices of imported commodities like fuel. Year-to-date inflation was at 5.1% in September, while year-on-year inflation stood at 6.9%.

“Number one priority is still inflation. We will continue to use interest rates to mitigate the effects,” he said.

The central bank has so far raised key policy rates by 225 basis points (bps) this year, including an off-cycle 75 bps hike in July, to tame inflation and slow the peso’s decline. Bangko Sentral ng Pilipinas has two more meetings left before the end of the year.

Central Bank Governor Felipe Medalla has said the monetary authority was active in the forex market and selling strategically to prevent “excessive” forex movements.

The peso, like other emerging market currencies, has hit multi-year lows this year as aggressive monetary tightening by the US Federal Reserve strengthened the greenback by boosting its safe-haven appeal. The peso, the worst-performing Southeast Asian currency, has lost 13.5% against the US. dollar year-to-date.

Marcos’ statement was consistent with recent signals from the central bank about a possible large hike in policy rates and increased intervention in the foreign exchange market, said Michael Ricafort, an economist at Rizal Commercial Banking Corp. in Manila.

“These measures help stabilise both the peso exchange rate and overall inflation, as well as inflation expectations,” Ricafort said.

(Reporting by Enrico dela Cruz, Karen Lema and Neil Jerome Morales; Editing by Martin Petty and Kanupriya Kapoor)

Oil prices rise on softer US dollar, supply woes

SINGAPORE, Oct 18 (Reuters) – Oil prices climbed on Tuesday, bolstered by a weaker US dollar and supply woes, although gains were capped by the spectre of lower fuel demand from China as it persists with its stringent zero-COVID policy.

Brent crude futures LCOc1 rose 82 cents, or 0.9%, to USD 92.44 per barrel by 0643 GMT, while US West Texas Intermediate (WTI) crude CLc1 futures gained 86 cents, or 1.0%, to USD 86.32 per barrel.

The US dollar index – which measures the greenback against six major peers including sterling – sagged to its lowest since Oct. 6. A weaker dollar makes oil cheaper for buyers holding other currencies, making them more likely to make purchases.

Following the steep production cut agreed on by OPEC+ – the Organization of the Production Exporting Countries (OPEC) and its allies, including Russia – earlier this month, investors have been seen increasing their long positions in futures, ANZ Research analysts said in a note.

OPEC+ member states have been lining up to endorse the cut to the output target after the White House accused Riyadh of coercing some other nations into supporting the move.

Meanwhile, expectations that China will stick to a loose monetary policy to help its economy, hobbled by COVID-19 restrictions, lent some support to oil prices. The country’s central bank rolled over maturing medium-term policy loans on Monday while keeping its key interest rate unchanged for a second month.

China’s fuel demand outlook, however, weighed on sentiment after the world’s top crude oil importer delayed the release of its economic indicators, originally scheduled to be out on Tuesday, CMC Markets analyst Tina Teng said. No date for a rescheduled release has been given.

China’s adherence to its zero-COVID policy has continued to increase the uncertainties about the country’s economic growth, Teng said.

On the supply side, US crude oil stocks were expected to have risen a second consecutive week and are estimated to have increased by 1.6 million barrels in the week to Oct. 14, a preliminary Reuters poll showed on Monday.

Output in the Permian Basin of Texas and New Mexico, the biggest US shale oil basin, is forecast to rise by about 50,000 barrels per day (bpd) to a record 5.453 million bpd this month, the Energy Information Administration said.

(Reporting by Isabel Kua in Singapore and Laila Kearney in New York; Editing by Edwina Gibbs and Tom Hogue)

Oil prices settle lower on US supply, lower China demand

Oct 18 (Reuters) – Oil prices settled lower on Tuesday on fears of higher US supply combined with an economic slowdown and lower Chinese fuel demand.

Brent crude futures settled down USD 1.59, or 1.7%, to USD 90.03 per barrel, while US West Texas Intermediate (WTI) crude settled down USD 2.64, or 3.1%, to USD 82.82 per barrel.

China, the world’s top crude oil importer, indefinitely delayed release of economic indicators originally scheduled to be published on Tuesday, indicating to the market that fuel demand is significantly depressed in the region.

“It’s not a good sign when China decides not to publish economic figures,” said John Kilduff, partner at Again Capital LLC in New York.

China’s adherence to its zero-COVID policy has continued to increase uncertainties about the country’s economic growth, CMC Markets analyst Tina Teng said.

Oil prices were also pressured by reports that the US government would continue releasing crude oil from reserves.

The Biden administration plans to sell oil from the Strategic Petroleum Reserve in an effort to cool fuel prices before next month’s congressional elections, sources told Reuters on Monday.

In addition, US crude oil stocks were expected to have risen for a second consecutive week, a preliminary Reuters poll showed on Monday.

Investors had been increasing long positions in futures after OPEC+ agreed to lower output by 2 million barrels per day, ANZ Research analysts said in a note.

Several members of the oil producer group have endorsed the cut after the White House accused Saudi Arabia of coercing some nations into supporting the move, a charge Riyadh denies.

(Additional reporting by Rowena Edwards in London, Isabel Kua in Singapore; Editing by David Goodman, Ed Osmond, Nick Macfie and David Gregorio)

BoE set to delay start of bond sales again until markets calm -FT

LONDON, Oct 18 (Reuters) – The Bank of England is likely to further delay the Oct. 31 start of its sales of billions of pounds of government bonds to help stabilise the government bond markets after Britain’s failed “mini” budget, the Financial Times reported on Tuesday.

Amid turmoil in financial markets, the BoE had already pushed back the start of a scheme to sell some of its 838 billion pounds (USD954.90 billion) of government bond holdings, which was originally due to begin on Oct. 6.

The pound briefly rose against the US dollar on the report but was flat at USD1.1353 at 7:22 am (0622 GMT).

The FT said it had learned that top officials at the BoE had come to the view that a delay was needed after judging the gilts market to be “very distressed” in recent weeks, a view backed by its Financial Policy Committee.

No one at the Bank of England’s press office was immediately available to comment on the report.

BoE Governor Andrew Bailey said in a speech on Saturday that the central bank was not using its stock of bonds as an active tool of monetary policy at present and its benchmark Bank Rate remained its primary instrument of policy.

British financial markets have been under strain since former finance minister Kwasi Kwarteng announced the string of tax cuts with no details of how they would be paid for on Sept. 23.

On Monday, new finance minister Jeremy Hunt scrapped most of Prime Minister Liz Truss’s economic plan and scaled back her vast energy support scheme, making a historic policy U-turn to try to stem a dramatic loss of investor confidence.

British bond prices rose after his announcement.

(USD1 = 0.8776 pounds)

(Reporting by Akriti Sharma in Bengaluru and William Schomberg in London; Additional reporting by Kevin Buckland in Tokyo; Editing by Clarence Fernandez, Sam Holmes and Andrew Heavens)

BoE to start selling bonds on Nov. 1, but not longer-dated gilts

LONDON, Oct 18 (Reuters) – The Bank of England said it would start selling some of its huge stock of British government bonds from Nov. 1 but would not sell this year any longer-duration gilts that have been in the eye of a recent storm in the British government bond market.

The BoE said it was delaying its start date for the launch of its so-called quantitative tightening programme by a day from its previous schedule to avoid clashing with a government fiscal statement on Oct. 31.

The central bank wants to reduce its 838 billion pounds (USD 948 billion) of government bonds acquired over more than a decade of crisis-fighting, from the global financial crisis to the coronavirus pandemic and its aftermath.

The BoE said sales in 2022 would be in short- and medium-maturity sectors, not bonds of more than 20 years. They suffered the biggest sell-offs in the recent market upheaval caused by the government’s now-abandoned tax-cutting mini-budget.

Last month, the BoE sought to stop the bond market rout from damaging pension funds by starting an emergency round of buying long-dated debt, delaying its “quantitative tightening” (QT) sales by almost a month.

Those purchases ended on Friday last week.

Analysts at consultancy Evercore said the plan looked “punchy” given the still volatile market conditions.

“We assess that the Bank sees pressing ahead with substantial QT as essential to uphold its independence and credibility amid the UK’s fiscal misadventures,” they said.

BoE officials have stressed their bond-buying is not aimed at underwriting the increased borrowing of the British government in recent years.

The central bank confirmed on Tuesday that it would start the tightening scheme in a statement after markets closed.

“The maturity split of gilt sales for subsequent quarters will be considered ahead of Q1 2023,” it said.

Earlier the central bank described as inaccurate a report in the Financial Times which said top officials at the BoE had decided that a delay to QT was likely to be needed after judging the gilts market to be “very distressed” in recent weeks.

British government bonds – or gilts – suffered historic losses after the Sept. 23 publication of Prime Minister Liz Truss’ new economic growth plan.

Gilts have recouped some of their losses following a major U-turn announced by new finance minister Jeremy Hunt on Monday.

“The Bank will continue to monitor market conditions closely, and where appropriate factor that into the design of its sales operations,” the BoE statement said.

BoE Deputy Governor Jon Cunliffe said on Tuesday financial markets could remain volatile in the coming weeks but the risk of another gilts “fire sale” had been significantly reduced.

The central bank has previously said there would be a “high bar” for any delays to its sales plans.

“There’s not a huge amount of sales to come this quarter, which could support their view that sales go ahead but perhaps it’s a bit early to be sure,” said Chris Scicluna, head of economic research at Daiwa Capital Markets, London.

BoE Governor Andrew Bailey said on Saturday that the central bank was not using its stock of bonds as an active tool of monetary policy at present and its benchmark Bank Rate remained its primary instrument of policy.

(USD 1 = 0.8842 pounds)

(Reporting by Akriti Sharma in Bengaluru and William Schomberg and William James in London; Additional reporting by Kevin Buckland in Tokyo and Dhara Ranasinghe in London; Editing by William Maclean, Marguerita Choy and Matthew Lewis)

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: Prices rise even slower in May

Monthly Recap: BSP to outpace the Fed in rate cuts