Yen falls on dovish BOJ as market awaits Fed decision

NEW YORK, Oct 28 (Reuters) – The yen fell more than 1% against the dollar on Friday after the Bank of Japan bucked the trend among other major central banks and stuck with ultra-low interest rates, while the greenback firmed after US data showed inflation was still running hot.

The greenback was under pressure this week ahead of the Federal Reserve’s Nov. 1-2 policy setting meeting. The central bank is expected to raise rates by 75 basis points for the fourth-straight time before “pivoting” to a slower pace of rate hikes, which the market has begun pricing in.

“The bottom line is that if the Fed does not pivot toward a more forward-looking stance, the result will be a more restrictive monetary policy than otherwise required,” said Admir Kolaj, an economist at TD Securities.

The dollar index was on track for a weekly decline of around 1%.

Speculation over the timing of a Fed pivot has weakened the dollar, yet the greenback still gained on the yen after BOJ Governor Haruhiko Kuroda said Japan was nowhere near raising rates, with inflation in the country likely to fall short of its 2% target for years to come.

The yen fell as much as 1.07% in aftermath of the BOJ’s decision. At 3:00 p.m. EDT (1900 GMT), the Japanese currency was down 0.83% at 147.5. For the week, the yen was down around 0.17%.

Kuroda dismissed the view the BOJ’s yield cap was to blame for recent sharp declines in the yen, reinforcing views that the central bank will not use rate hikes to prop up the currency.

“The BoJ still carries the baton as the most accommodative G7 central bank,” said Stephen Innes, managing partner at SPI Asset Management. “That leaves USDJPY very much at the mercy of broad dollar trends that, in turn, reflect moves in US fixed income.”

Sterling rose against the dollar, adding to gains earlier in the week following the appointment of Rishi Sunak as Britain’s third prime minister in two months. The pound was up 0.39% at USD 1.1609, on track for a weekly rise of around 2.65%.

The euro EUR=EBS dipped 0.1% to USD 0.9955, adding to Thursday’s more than 1% drop after the European Central Bank raised rates by 75 basis points, as expected, but took a more dovish tone on its rate outlook. For the week, euro was up around 0.93%.

The common currency was somewhat supported by German data, which showed that Europe’s biggest economy unexpectedly avoided a recession in the third quarter, while inflation, driven by a painful energy standoff with Russia, surprised to the upside.

US data on Thursday showed that consumer spending rose more than expected in September while underlying inflation pressures continued to bubble, keeping the Fed on track to hike interest rates by 75 basis points next week.

“The data that came in this week gave Fed Chairman Jerome Powell a lot of credit because he has been adamant about the economy being strong enough to withstand the hikes,” said Juan Perez, director of trading at Monex USA.

“A strong economy leads to faith in the economy but inflation must be battled with high rates, which only make the dollar stronger,” he said.

The more dovish ECB and the Bank of Canada’s smaller-than-expected interest rate hike this week helped drive expectations of a Fed pivot.

The dollar was also firmer against the Swiss franc and the Australian dollar.

(Reporting by John McCrank in New York; Editing by Richard Pullin, Jacqueline Wong, Simon Cameron-Moore, Alison Williams, Ken Ferris and David Gregorio)

Hopeful US stock rally set for date with Federal Reserve reality

NEW YORK, Oct 28 (Reuters) – A bounce in US stocks that has defied a barrage of major earnings disappointments faces a key test in the coming week, when the Federal Reserve’s next meeting could shed light on how long it will stick to the aggressive monetary policies that have crippled asset prices in 2022.

Betting on a less hawkish Fed has been a dangerous undertaking this year. Stocks have repeatedly rebounded from lows on expectations of a so-called Fed pivot, only to be crushed anew by fresh evidence of persistent inflation or a central bank bent on maintaining its pace of rate increases.

Pockets of softness in the US economy have fueled recent hopes of a tempering of rate hikes, along with signs that some of the world’s central banks may be nearing the end of their rate hiking cycles. Meanwhile, cash-heavy investors afraid of missing out on a sustained rally have contributed to the bullish move, market participants said.

“The market is starting to believe that there is an endgame in sight for this huge global tightening cycle,” said Keith Lerner, co-chief investment officer at Truist Advisory Services.

The S&P 500 was on pace to end the week with a gain of over 3%, as investors shrugged off brutal earnings reports from companies such as Amazon (AMZN), Microsoft (MSFT), Google parent Alphabet (GOOGL) and Facebook parent Meta Platforms (META).

The benchmark index is up over 8% from its most recent low, a move that has been accompanied by a sharp rally in US Treasuries and a weakening of the dollar, reversing trends that have prevailed for most of the year.

A smaller than expected rate increase by the Bank of Canada added to hopes of a peak in global central bank hawkishness, as did comments from a Bank of Mexico board member cautioning against increasing monetary policy to excessively restrictive levels.

While investors have broadly factored in a 75-basis-point rate hike on Wednesday at the end of the Fed’s two-day meeting, many will be looking for hints of future policy moves in Chairman Jerome Powell’s press conference, as his comments have swayed asset prices this year.

For example, stocks rallied ahead of the Fed’s conference in Jackson Hole, Wyoming, in August, only for the market to decline anew after Powell warned about economic fallout from the Fed’s efforts to fight inflation.

“If his tone is as terse and as hawkish as it was in August at Jackson Hole, that would certainly change the narrative rather rapidly,” said Art Hogan, chief market strategist at B. Riley Wealth.

Next week will also test whether stocks can continue to weather disappointing earnings news. More than 150 S&P 500 companies are due to report quarterly results next week, including Eli Lilly (LLY), ConocoPhillips (COP) and Qualcomm (QCOM).

Investors will also closely watch next Friday’s monthly jobs report for signs of whether the Fed’s actions have tempered the labor market.

Plenty of investors believe it’s too early to hope for a slowing of rate hikes. Analysts at UBS Global Wealth Management said the Fed has yet to see evidence of cooling inflation and labor market conditions and that they “continue to think that it is too early to expect the Fed to signal a more dovish stance.”

“Conditions for an equity market bottom, including that rate cuts and an economic trough need to be on the horizon, are not yet in place,” the UBS analysts said in a note.

Lerner, of Truist, on Friday issued a report downgrading his view on equities to “less attractive” from “neutral” following the rebound. He said that while stocks have become cheaper on an absolute basis this year, “they have actually become more expensive relative to bonds given the sharp rise in interest rates.”

For now, however, it appears the bulls are emboldened. One example of investor enthusiasm can be seen in the options market, where the one-month average daily volume of S&P 500 puts, typically used for defensive positioning, outnumbers bullish calls by the smallest margin in at least four years, according to Trade Alert data.

“The market is thinking good things,” said Kristina Hooper, chief global market strategist at Invesco. “Jay Powell will either confirm that or dispel that next week.”

(Reporting by Lewis Krauskopf; additional reporting by Saqib Iqbal Ahmed; Editing by Ira Iosebashvili and Nick Zieminski)

US recap: Dollar firms as Fed, BoE come into view

Oct 28 (Reuters) – The dollar index held onto gains of 0.31% heading toward the close of a mixed session on Friday after close-to-consensus US PCE and ECI data allowed traders to look ahead to Fed and BoE rate announcements on Nov 2 and 3.

At 110.90, the index has rebounded off weekly lows respecting 109.22, the 50% Fib of 103.66-114.78 June-Sept rise.

Both the Fed and BoE are expected to hike 75bp next week, with some market participants expecting the US central bank to shift to a less aggressive rate stance amid rising recession fears.

GBP/USD rose 0.3% to 1.1595, unable, for the third consecutive session, to hold gains above 1.16.

Cable’s shallow dip from recent trend highs indicates an underlying bid for sterling with traders curating longs ahead of the key central bank meetings.

With the UK political horizon clearing and the BoE expected to ultimately match the Fed on rates, further gains may be in the offing for GBP as traders unwind recent shorts.

EUR/USD remained on the backfoot after Thursday’s dovish 75bp ECB hike. Euribor futures are pricing in euro zone rates stalling near 3% in early 2023, nearly 200bp below US and UK rates sapping the EUR of recent vigor.

USD/JPY rose 0.96% to 147.66. The BoJ’s dovish hold and guidance kept USD bulls’ hopes alive as it pledged to add further accommodation as needed, torpedoing hopes for an upward adjustment in yield curve control or rate hikes as inflation ticks higher.

The takeaway from the BoJ and recent Japanese intervention is that the yen will continue to weaken but the MOF will take steps to manage the currency’s decline.

Cryptocurrencies eked out gains after early NorAm weakness, the equities rally supporting a 1.5% rise in bitcoin and 2.4% gain for ether.

US Treasury yields moved higher as traders still expect a further 135bp in Fed hikes by year-end 2022.

(Editing by Burton Frierson; Paul Spirgel and Christopher Romano are Reuters market analysts. The views expressed are their own.)

Gold down 1% as dollar, yields rise on Fed rate-hike bets

Oct 28 (Reuters) – Gold fell more than 1% on Friday as the dollar and bond yields climbed after data showed underlying inflation pressures remained high, cementing expectations around another hefty rate hike from the US Federal Reserve next week.

Spot gold fell 1.3% to USD 1,641.30 per ounce by 1:43 p.m. ET (1743 GMT). US gold futures settled down 1.3% at USD 1,644.8.

Consumer spending, which accounts for more than two-thirds of US economic activity, rose 0.6% last month, the Commerce Department said.

“There is concern that core PCE at 0.5% monthly or 6% on an annual basis will keep the Fed relatively more aggressive and a slowdown in hikes will come later rather than sooner,” said Tai Wong, a senior trader at Heraeus Precious Metals in New York.

Gold has been a little disappointing this week given the huge bond rally and the dollar moving lower – which should have seen it head towards USD 1,700, he added.

The dollar gained 0.3% against its rivals after the US economic data, making gold more expensive for other currency holders. The benchmark US Treasury yields also rose.

The Fed is widely expected to raise interest rate by 75 basis-point at its policy meeting on Nov. 1-2. For December, traders are largely expecting a 50 basis point increase.

Gold is highly sensitive to rising US interest rates, as these increase the opportunity cost of holding non-yielding bullion, while boosting the dollar.

“Another pronounced rate hike of 75 basis points is generally anticipated after US inflation remained stubbornly high again in September,” Commerzbank analysts said in a note.

“That said, if the central bankers were to hint that they will raise their key rate at a less aggressive pace in future – in response to the cooling economy, for instance – the gold price could be lent some tailwind.”

Spot silver fell 2.1% to USD 19.17 per ounce, platinum dropped 1.8% to USD 942.13, while palladium declined 2.4% to USD 1,895.46.

(Reporting by Seher Dareen and Brijesh Patel in Bengaluru; Editing by Maju Samuel)

China to launch market-making on tech-focused STAR Market on Monday

SHANGHAI, Oct 28 (Reuters) – China’s Nasdaq-style STAR Market will officially launch market making on Monday, in a bid to make the tech-focused board more liquid, vibrant and resilient, the Shanghai Stock Exchange said.

The first batch of qualified market markers on STAR will start trading next week, which will cut investors’ trading cost, and improve pricing efficiency, the bourse said in a statement on its website.

The STAR Market, home to some of China’s biggest chipmakers, biotech companies and high-end manufactures, is tasked with funding Beijing’s tech innovation amid growing Sino-U.S. rivalry.

The Shanghai Stock Exchange said it will continue to improve market mechanisms to help China achieve tech independency and self-sufficiency.

Regulators have approved 14 brokerages as the first batch of market makers, which actively quote in stocks, providing liquidity and depth to the market.

They include Industrial Securities, Guotai Junan Securities, and Sinolink Securities.

(Reporting by Shanghai Newsroom; Editing by Toby Chopra)

Global equity funds receive inflows for first time in 10 weeks

Oct 28 (Reuters) – Global equity funds attracted money inflows in the week ended Oct. 26, bolstered by expectations the Federal Reserve would slow its pace of rate hikes to counter the economic slowdown.

According to Refinitiv Lipper data, investors bought a net USD 7.8 billion worth of global equity funds in the week, after ditching them in the previous nine weeks.

US equity funds obtained USD 7.9 billion, while Asian equity funds received USD 2.1 billion. On the other hand, European equity funds faced net sales of USD 2.3 billion during the week, the data showed.

US business activity contracted for a fourth straight month, data on Monday showed, suggesting that the Fed’s rate increases have softened the economy, which in turn raised hopes that the central bank could begin slowing the pace of the hikes.

Global stock markets were also buoyed this week after the Bank of Canada delivered a smaller-than-expected interest rate hike and said it was getting closer to the point where rate increases could end.

However, lingering worries over an economic recession were evident, as investors put a huge amount of money in safer money market funds.

The data showed global money market funds received inflows worth USD 18.6 billion, its fourth consecutive weekly inflow.

Meanwhile, global bond funds had outflows for the 10th successive week, with net sales of USD 4.9 billion.

Emerging market (EM) bonds and equities faced outflows worth USD 2.1 billion and USD 1.4 billion respectively, data for 24,664 EM funds showed.

Among commodity funds, precious metal funds had outflows of USD 457 million, lesser than the net sales of USD 1.2 billion in the previous week. Energy funds, on the other hand, received a small inflow of USD 81.3 million.

(Reporting By Patturaja Murugaboopathy in Bengaluru; editing by David Evans)

Oil futures ease 1% as China widens COVID curbs

NEW YORK, Oct 28 (Reuters) – Oil prices eased about 1% on Friday after top crude importer China widened its COVID-19 curbs, though the crude benchmarks were poised for a weekly gain on supply concerns and surprisingly strong economic data.

Brent futures fell USD 1.19, or 1.2%, to settle at USD 95.77 a barrel. US West Texas Intermediate (WTI) crude fell USD 1.18, or 1.3%, to USD 87.90.

US gasoline futures RBc1 dropped about 3%, while US diesel futures rose about 5% to their highest since mid-June.

“Diesel (was) still (the) strongest component of complex (with) shorts being squeezed out of the November contract ahead of Monday expiry,” analysts at energy consulting firm Ritterbusch and Associates said.

For the week, Brent rose about 2% and WTI was up about 3%.

Chinese cities ramped up COVID-19 curbs on Thursday, sealing up buildings and locking down districts after China registered 1,506 new COVID infections on Oct. 27, the National Health Commission said, up from 1,264 new cases a day earlier.

The International Monetary Fund expects China’s growth to slow to 3.2% this year, a downgrade of 1.2 points from its April projection, after an 8.1% rise in 2021.

“It’s hard to make a case for a rebound in China’s crude purchases given the backdrop of uncertainty over its zero-COVID policy,” said PVM Oil analyst Stephen Brennock.

PetroChina said China’s demand for refined fuel and natural gas was set to grow year-on-year in the fourth quarter in tandem with an expected economic recovery as Beijing rolls out more stimulus policy.

Economic strength in two major economies limited oil’s losses.

Data on Thursday showed a strong rebound in US gross domestic product (GDP) in the third quarter, demonstrating resilience in the world’s largest economy and oil consumer.

The German economy also grew unexpectedly in the third quarter, data showed on Friday, as Europe’s largest economy kept recession at bay despite high inflation and energy supply worries ahead of a looming European ban on Russian crude imports.

“The market remains wary of the impending deadlines for European purchases of Russian crude before the sanctions kick in on 5 December,” ANZ Research analysts said in a note.

Global oil-and-gas giants including Exxon Mobil, Chevron, and Equinor posted huge third-quarter profits, feeding criticism from consumer groups in the United States and Europe. US President Joe Biden has told oil companies they are not doing enough to bring down energy costs.

US oil and natural gas rigs fell this week, but in October notched their first monthly increase since July, according to energy service firm Baker Hughes Co.

The Organization of the Petroleum Exporting Countries (OPEC) is likely to maintain its view world oil demand will rise for another decade.

(Additional reporting by Ahmad Ghaddar in London, Jeslyn Lerh in Singapore and Sonali Paul in Melbourne; Editing by David Goodman , Marguerita Choy and David Gregorio)

BoJ Preview – No policy tweaks expected

Oct 27 (Reuters) – The Bank of Japan is not looking to make any changes when it announces policy tomorrow. Specifically, the BoJ is looking to remain on hold until April 2023 when current Gov Haruhiko Kuroda’s term expires.

The governor and other members of the BoJ’s Policy Board have made it clear on repeated occasions that monetary policy will remain on hold till inflation stabilizes around its 2% target and the economy is on a clearer path to growth. The government seems to agree.

The BoJ again conducted operations to cap JGB yields under yield curve control on Wednesday, attesting to its resolve. Such measures will continue until there is fundamental shift in the BoJ’s policy stance.

On USD/JPY, the BoJ’s ultra-easy monetary policy stance will remain a JPY negative. That said, dovish shifts in central banks’ expectations abroad, especially the US Federal Reserve, the resulting broad USD weakness this week and the relative success of Japanese intervention efforts, suggest a possible USD/JPY cap in place for now at Friday’s 151.94/95 peak Friday.

(Haruya Ida is a Reuters market analyst. The views expressed are his own)

Wall Street loses over USD 200 billion in value after report from Amazon

Oct 27 (Reuters) – Over USD 200 billion in US stock market value went up in smoke in extended trade on Thursday, after a weak forecast from Amazon (AMZN) added to a string of downbeat quarterly reports from Big Tech companies.

Amazon’s stock tumbled 17% after the bell, wiping out USD 190 billion in market capitalization after the retail and technology heavyweight projected a holiday slump that would leave current-quarter sales below Wall Street estimates.

Also after the bell, Apple (AAPL) shares fell about 1%, erasing about USD 30 billion of its stock market value after the Cupertino, California company reported quarterly iPhone sales that fell short of Wall Street targets.

The latest in a string of poor quarterly results from some of Wall Street’s most widely owned companies underscores deep worries about the health of the global economy as central banks raise interest rates in a battle against inflation.

“Big Tech companies are not impervious to slowdowns in the economy, particularly if they are consumer driven,” said Rick Meckler, a partner at Cherry Lane Investments in New Vernon, New Jersey.

“As the Fed embarks on this planned slowdown, it is eating away at some of their consumer-faced businesses, and given their high multiples it is causing big contractions in their stock prices,” Meckler said.

Amazon’s weak report sent Nasdaq futures tumbling about 3%, showing traders expect Wall Street to open with a deep decline on Friday. Google-owner Alphabet (GOOGL) and Microsoft (MSFT) dropped about 1% each, adding to losses following their own poorly received quarterly reports on Tuesday.

Thursday’s late-day reports also followed disappointing results from Facebook-owner Meta Platforms (META) that earlier sent its stock plummeting 25%. Thursday’s drop left Meta’s stock market value at about USD 260 billion, with the one-time behemoth now about the 20th most valuable company on Wall Street.

If Amazon’s drop after hours is reflected in Friday’s trading session, it will have been its deepest one-day loss since 2006.

Among a handful of winners late on Thursday, Pinterest PINS.N surged 12% after the social media platform reported higher than expected quarterly revenue, while Intel (INTC) climbed 6%, despite forecasting annual revenue below analysts’ estimates.

(Reporting by Noel Randewich and Lewis Krauskopf; editing by Richard Pullin)

Euro sinks more than 1% after ECB rate hike, US GDP data

NEW YORK, Oct 27 (Reuters) – The euro dropped more than 1% on Thursday, falling back below parity with the dollar, after the European Central Bank (ECB) raised interest rates and US data showed that the world’s biggest economy rebounded more than expected in the third quarter.

The ECB raised its deposit rate by 75 basis points to 1.5%, the highest since 2009, in an effort to prevent rapid price growth from becoming entrenched. Further rate hikes are almost certain, but with a weakening economy, the pace is up for debate.

While risks to the euro zone’s growth outlook had shifted to the downside, the central bank has made substantial progress in removing monetary accommodation through three consecutive rate increases, ECB President Christine Lagarde said at a news conference.

“Overall, Lagarde seems to have indicated a pivot without explicitly saying as much,” foreign exchange strategists at TD Securities said.

The euro fell from a one-month high of USD 1.0094 versus the dollar earlier in the day to back below parity with the greenback after the ECB rate decision. The single currency was down 1.1% at 0.9969 at 3:20 p.m. EDT (1920 GMT).

The greenback strengthened after data showed that US gross domestic product rose at a 2.6% annualized rate last quarter, ending two straight quarterly decreases in output that had raised concerns the economy was in recession.

Economists polled by Reuters had forecast GDP growth would rebound at a 2.4% rate.

The stronger-than-expected GDP figures followed a raft of weaker-than-forecast economic data in recent weeks that had raised concerns about the impact of the Federal Reserve’s aggressive interest rate increases on the economy.

“Despite the shiny headline number, a look under the hood shows a much grimmer picture of the US economy, one that is clearly losing steam,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto.

“With the full effect of past and future Fed rate hikes still to be felt, the economy appears poised for a modest downturn in the first half of next year,” he said.

The Fed is expected to raise its benchmark overnight interest rate by 75 basis points to 1.5%, a 13-year high, at its Nov. 1-2 policy meeting It is also likely to reel in a key subsidy to commercial banks.

Speculation that the Fed will pivot from its hawkish stance starting at its December policy meeting had caused the greenback to decline in recent days and Thursday’s bounceback was natural, analysts said.

“A bit of profit-taking at this level is not unheard of,” said Alvin Tan, head of Asia FX strategy at RBC Capital Markets. “Since Monday, the euro-dollar has gone up around 2.2%, so we’ve had quite a big move in the dollar over the last two days.”

The British pound was down 0.58% against the greenback to USD 1.1559 following a two-day rally on the back of Rishi Sunak’s appointment as the United Kingdom’s prime minister.

Japan’s yen rose 0.14% to 146.19 to the dollar.

Trading in the Japanese currency has been volatile after suspected interventions by the government to boost the ailing currency on Friday and Monday.

On Wednesday, the Bank of Canada announced a smaller-than-expected interest rate hike of 50 basis points. The move has made investors even more alert to signs that the Fed and ECB might be slowing their tightening down.

The Canadian dollar last traded 0.03% lower at 1.3557 per US dollar.

(Reporting by John McCrank; Editing by Paul Simao)

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