Dollar at 7-month low vs euro on slower Fed rate hike expectations

NEW YORK, Jan 9 (Reuters) – The US dollar on Monday slid to a seven-month low against the euro as traders bet recent economic data would prompt the Federal Reserve to slow the pace of interest rate hikes, while riskier currencies benefited from China reopening its borders.

The euro was up 0.96% at USD 1.0747 at 2:50 p.m. EST (1950 GMT), its highest level versus the greenback since June 9, adding to Friday’s 1.17% increase.

Sterling surged 0.87% to USD 1.21975 against the dollar, building on Friday’s 1.5% rally, while the Swiss franc jumped 0.82% to USD 0.92, its strongest since early March.

The moves continued the trend lower for the dollar, which in the final three months of 2022 posted its biggest quarterly loss in 12 years. That was driven mainly by investors’ belief that the Fed will not raise rates beyond 5%, from its current range of 4.25%-4.50%, as inflation and growth cool.

“There are a lot of people looking at the Fed funds futures and it seems we might get one rate hike in February and then possibly a rate cut at the end of the year and that’s, I think, paving the way for a lot of people to bet against the dollar,” said Edward Moya, senior markets analyst at Oanda.

Fed fund futures 0#FF: show investors believe the most likely outcome for the Fed’s February meeting is for a 25 basis- point increase.

“The consensus call is that at the end of the year the dollar will be much lower and a lot of people are trying to get ahead of that trade,” said Moya.

The Fed raised interest rates by 50 basis points last month after delivering four consecutive 75 basis-point hikes last year, but said it was likely to keep interest rates higher for longer to tame inflation.

Two separate reports on Friday painted a picture of an economy that is growing and adding jobs, but where overall activity is tilting into recession territory, prompting traders to sell the dollar against a range of currencies.

Friday’s monthly employment report showed a bigger-than-expected increase in the number of workers and a slowing in wage growth – welcome news for the US central bank.

A report from the Institute for Supply Management showed activity in the service sector contracted for the first time in 2-1/2 years in December.

The dollar index was at a 7-month low, last down 0.81% at 103.033. The index, which measures the greenback against six major currencies, tumbled 1.15% on Friday as investors shifted into riskier assets.

With US inflation data due on Thursday, the outlook for price pressures will be front-and-center for investors.

“The expectation with this week’s Consumer Price Index is for further easing of inflation pressures,” said Greg McBride, chief financial analyst at Bankrate. “Anything less than broad-based improvement will rattle investors’ nerves and keep the Fed active.”

Elsewhere, China continued to dismantle much of its strict zero-COVID rules around movement as it reopened its borders.

Optimism about a swift economic recovery sent China’s offshore yuan to five-month highs against the dollar on Monday.

The Australian dollar rose by 0.8% to USD 0.69305, hitting its highest level against the US currency since Aug. 30, while the kiwi was last up 0.45% at USD 0.6378.

(Reporting by John McCrank in New York and Amanda Cooper in London; Editing by Conor Humphries and Matthew Lewis)

Equities, bonds, ETFs drew in near-record amounts of cash in 2022: BlackRock

LONDON, Jan 9 (Reuters) – Investors ploughed USD 867 billion into ETPs (exchange-traded products) in 2022, the second biggest inflow after 2021’s record USD 1.29 trillion, despite a hugely volatile market environment, data from BlackRock showed on Monday.

ETPs across asset classes recorded inflows, with equity ETPs enjoying bumper inflows despite plunging global stocks, while a shift to rates-driven investing was seen in bond ETPs flows, despite central banks around the world tightening financial conditions to temper inflation.

“If you look at the market context for 2022, on the surface you would expect that the flows would have been more muted, because stocks and bonds declined by double digits compared to 2021,” Karim Chedid, BlackRock’s EMEA head of investment strategy for its iShares unit, said.

“But we have seen the second-best year for ETF flows on record, only behind 2021. This shows the acceleration of ETFs as an investment vehicle of choice in 2022.”

Exchange-traded products include exchange-traded funds (ETFs), exchange-traded notes (ETNs), and other products. ETFs are traded like shares and track an index, either via an underlying asset, or by synthetically replicating the returns using derivatives.

Last year marked the third-largest inflow into fixed-income ETPs on record, with flows of USD 266 billion.

The figures closely track the record-breaking USD 280 billion and USD 269 billion inflows into bond ETPs of the previous two years, though allocations have shifted significantly according to BlackRock.

Within fixed income ETPs, rate ETPs drove 68% of overall inflows in 2022, over three times the corresponding level in 2021, with over 90% of that going into US products, BlackRock said in its report.

EQUITIES

But investors were picky about what they bought. Inflows into investment-grade credit ETPs reached USD 40.1 billion, while high-yield credit ETPs recorded outflows of USD 5.6 billion.

There were also outflows from inflation-linked bonds and emerging-market debt ETPs, which reached USD 14.6 billion and USD 9.2 billion, respectively.

Major equity indexes plunged in value in 2022 as Russia’s war in Ukraine caused an energy squeeze and triggered soaring inflation. The S&P 500 index lost almost a fifth of its value while Europe’s STOXX 600 ended the year down 13%.

Despite this, equity ETPs saw the second-highest yearly inflows on record, reaching USD 598 billion, although this was below the USD 1 trillion seen in 2021.

“Within equities, flows were positive but still defensively tilted; for instance the sectors that saw the largest demand were healthcare, tech and utilities with a significant preference for these vs cyclicals,” Chedid said.
The picture was less positive for commodities, which recorded net outflows of USD 9.5 billion, even though oil and gas prices soared for most of last year.

Meanwhile, investors set a record for the biggest inflow into emerging market (EM) equity ETPs, snapping up USD 110 billion, up from USD 90.4 billion in 2021, with Chinese equities accounting for USD 63.7 billion of that.

“From a macro perspective, it has to do with the fact that a lot of the EM central banks already hiked rates before and are fundamentally in a better place than previous rate hike cycles,” Chedid said.

“Finally, the tailwind from China reopening late in the year helped accelerate this trend,” he said.

(Reporting by Lucy Raitano; Editing by Amanda Cooper and Alison Williams)

Philippines mulls more onion imports amid inflation fears

MANILA, Jan 9 (Reuters) – The Philippines is looking into importing onions for immediate delivery to boost a tight supply and bring down exorbitant prices that have contributed to 14-year-high inflation, an agriculture official said on Monday.

Retail prices of red onions has skyrocketed to as high as 700 pesos (USD 12.70) per kilogram in recent days in Manila markets, possibly the most expensive in the world according to some economists.

That compares with 120 pesos to 170 pesos per kg about four months ago.

The plan to import emerged just days after the Department of Agriculture said it would not import onions as the local harvest season was about to begin and expected to peak in February onwards.

The Philippines is a regular onion importer and usually buys from China and other Asian neighbors.

“We don’t really have (enough) supply of onions,” Mercedita Sombilla, undersecretary for planning at the Department of Agriculture, told Reuters. “We were really trying to see whether we need to import a little bit.”

Monthly domestic demand for onions is about 22,000 tons, she said.

Philippine consumer prices soared to 8.1% in December from a year earlier PHCPI=ECI, the highest since 2008, largely driven by double-digit food inflation, which economists said is likely to prompt further monetary policy tightening this year.

Sombilla said there was about close to 20,000 tons of local onion harvest expected in January.

“Even with that production I think we still really need to intervene in the market to help push the prices a little bit lower,” she said.

(Reporting by Enrico Dela Cruz; Editing by Martin Petty)

Philippines’ Marcos picks ex-military chief and COVID tsar as defence minister

MANILA, Jan 9 (Reuters) – Philippine President Ferdinand Marcos Jr has chosen a former military chief who led the country’s fight against the coronavirus as his new defense minister, his office said on Monday.

Carlito Galvez, 60, headed the Philippines’ COVID-19 task force and as a regional army commander was in 2017 credited with overseeing the defeat of militants loyal to Islamic State, who took over and held a southern town for five months in 2017.

He replaces Jose Faustino, whose resignation as acting defense chief was announced by the president’s office, without providing a reason.

Galvez, who served as armed forces chief in 2018, will be responsible for protecting the Philippines maritime territory and its exclusive economic zone, amid tension with China over the prolonged presence in the South China Sea of fishing boats believed to be manned by militia.

The defense ministry has been pushing to modernize the military and upgrade its outdated air and sea assets, in an effort to boost its ability to protect its vast maritime borders and islands it holds close to manmade facilities built on reefs and militarized by China.

(Reporting by Karen Lema; Editing by Martin Petty)

China tightens listing guidelines to funnel funding to strategic sectors – FT

Jan 9 (Reuters) – China’s stock regulator is set to stop local companies in certain sectors from listing on the country’s main stock exchanges, the Financial Times reported on Monday, citing two capital markets bankers familiar with the matter.

The China Securities Regulatory Commission (CSRC) has informed bankers it has given some industries, including food and beverage and COVID-19 testing companies, a “red light” that stops them from equity financing on Shanghai and Shenzhen main exchanges, the report said.

The regulator has also recognized a number of “yellow light” sectors, which include apparel and furniture companies, where listing requests would come under scrutiny if their growth relies heavily on debt for expansion, the report said.

(Reporting by Akriti Sharma in Bengaluru; Editing by Tom Hogue)

Dollar slips on China re-opening and hopes of slower US rate hikes

SINGAPORE, Jan 9 (Reuters) – The US dollar was on the back foot on Monday as China’s re-opening of its borders, and increasing hopes of the Federal Reserve slowing the pace of its interest rate hikes boosted risk sentiment.

Sterling was on the charge again on Monday, gaining 0.42% to USD 1.2143, after spiking 1.5% on Friday. The euro was up 0.28% at USD 1.0674, after closing 1.17% higher on Friday.

US data showed a jump in the workforce and easing wage growth, while there were further signs of an economy slowing down, with the services industry activity contracting for the first time in more than 2-1/2 years in December.

“Data on Friday gave market some hope that perhaps the US is slowing down and the Fed does not need to a lot more,” said Moh Siong Sim, currency strategist at Bank of Singapore. “But the jury is still out whether we are really heading towards a soft landing scenario.”

Analysts have pointed out that the still tight labour market is likely to concern Fed officials and keep them on their hawkish path.

“Right now, it’s been softer wages, softer inflation but the job market is still a bit too hot,” Sim said.

The Fed fund futures now imply around a 25% chance of a half-point hike in February, down from around 50% a month ago.

The US central bank raised interest rates by 50 basis points last month after delivering four consecutive 75 basis point hikes last year but said it was likely to keep interest rates higher for longer to tame inflation.

The dollar index, which measures the US dollar against six major currencies, fell 0.145% to 103.570 on Monday, after sliding 1.15% on Friday as investors moved to riskier assets.

Also helping sentiment was China re-opening its borders, dismantling much of its stringent ‘zero-COVID’ policy, with travellers coming into the country by air, land and sea.

Optimism over a swift economic recovery buoyed China’s yuan to a near five-month high against the dollar on Monday.

The trade-and-China sensitive Australian dollar rose 0.80% versus the US currency to USD 0.693, its highest since Aug. 30, while the kiwi climbed 0.68% to USD 0.639, the highest in three weeks.

Elsewhere, the Brazilian real had yet to trade after supporters of far-right former President Jair Bolsonaro were arrested after invading the country’s Congress, presidential palace and Supreme Court.

With the next Fed meeting scheduled at the start of next month, investors will focus on the consumer price index data due on Thursday and a speech by Fed Chair Jerome Powell this week to parse for cues on the central bank’s next move.

Citi said it expects another “softer” core CPI print with some upside risk but said core inflation could pick up again in early 2023.

“We continue to expect the Fed to hike by 50 basis points in February as there are still strong underlying inflationary pressures and further loosening in financial conditions would likely not be a desirable outcome.”

The Japanese yen strengthened 0.37% to 131.59 per dollar.

Amir Anvarzadeh, market strategist at Asymmetric Advisors, said the Asian currency will continue to move towards the 120 level or lower this year as rising inflationary pressures in Japan will force policy makers to further tweak their yield curve control and eventually pivot away from quantitative easing.

Reporting by Ankur Banerjee in Singapore; Editing by Muralikumar Anantharaman

Oil rises on demand optimism as China borders reopen

SINGAPORE, Jan 9 (Reuters) – Oil prices climbed on Monday as the borders reopened in China, the world’s top crude importer, boosting the outlook for fuel demand growth and offsetting global recession concerns.

Brent crude futures were up USD 1.49, or 1.9%, at USD 80.06 a barrel as of 0745 GMT, while US West Texas Intermediate crude rose USD 1.43, or 1.9%, to USD 75.20.

Hopes for less-aggressive US interest rate rises are buoying financial markets and depressing the dollar. A weaker US currency makes dollar-denominated commodities more affordable for investors holding other currencies.

Both Brent and WTI tumbled more than 8% last week, their biggest weekly declines at the start of a year since 2016.

“Crude oil prices recovered from the previous week’s losses as the economic reopening in China and less aggressive monetary tightening prospects from the Federal Reserve set a positive tone for demand recovery,” said Avtar Sandu, senior manager for commodities at Phillip Futures.

As part of a “new phase” in the fight against COVID-19, China opened its borders over the weekend for the first time in three years. Domestically, some 2 billion trips are expected during the Lunar New Year season, nearly double last year’s movement and recovering to 70% of 2019 levels, Beijing says.

Over the last week, airlines have boosted their January international seat capacity to and from China by 9.5% as they ramp up flights after its border opening, according to aviation data provider Cirium.

Despite the gains in oil on Monday, concerns remain that the massive flow of Chinese travellers may cause another surge in COVID infections, while broader economic concerns also lingered.

Those concerns are reflected in the market structure for the benchmark oil futures. Both front-month Brent and WTI contracts are in contango, when current prices are below prices for later-delivery contracts, which typically indicates bearish sentiment for the market.

“Oil prices have likely ticked up on increased confidence on China’s reopening, but fears of recession in the wider global market remains. This uncertainty will likely lead to swings in oil prices in the near-term,” said Serena Huang, Vortexa’s head of APAC analysis.

Energy futures for crude oil, refined products and natural gas have plummeted in the New Year as traders have reconsidered near-term worries over cold weather and fears of supply shortages and dumped contracts.

Last week, US energy firms cut the number of operating oil and natural gas rigs by seven, the biggest weekly decline since September 2021, energy services firm Baker Hughes Co said on Friday.

(Reporting by Florence Tan and Jeslyn Lerh; Editing by Bradley Perrett, Christian Schmollinger and Muralikumar Anantharaman)

Gold prices gain on hopes of smaller US rate hikes

Jan 9 (Reuters) – Gold prices edged higher on Monday and hovered near a seven-month high, supported by a weaker dollar and hopes that the Federal Reserve might slow its pace of interest rate hike.

* Spot gold was up 0.2% at USD 1,868.89 per ounce, as of 0016 GMT. US gold futures also inched 0.2% higher at USD 1,873.80.

* The dollar index was down 0.2%, making gold cheaper for overseas buyers.

* Data showed on Friday that the US economy added jobs at a solid clip in December, as the labor market remains tight, but Fed officials could draw some solace from a moderation in wage gains.

* US services industry activity contracted in December for the first time in more than 2-1/2 years amid weakening demand, offering more evidence that inflation was abating.

* Higher interest rates dim gold’s allure as an inflation hedge and raise the opportunity cost of holding the non-yielding bullion.

* Retail gold buying in major Asian hubs was slow on higher prices at the start of last week, while demand was seen picking up in top consumer China on the back of reopening and upcoming Lunar New Year festival.

* Spot silver gained 0.6% to USD 23.95, while platinum rose 0.5% to USD 1,094.97 while palladium fell 0.1% to USD 1,804.30.

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

Asia shares rally on US rate hopes, China reopening

SYDNEY, Jan 9 (Reuters) – Asian shares rallied on Monday as hopes for less aggressive US rate hikes and the opening of China’s borders bolstered the outlook for the global economy.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.6%, with South Korean shares gaining 1.1%.

Japan’s Nikkei was closed for a holiday but futures were trading at 26,235, compared with a cash close on Friday of 25,973. S&P 500 futures ESc1 added 0.2% and Nasdaq futures 0.3%.

Earnings season kicks off this week with the major US banks, with the Street fearing no year-on-year growth at all in overall earnings.

“Excluding Energy, S&P 500 EPS (earnings per share) is expected to fall 5%, driven by 134 bp of margin compression,” wrote analysts at Goldman Sachs. “Entering reporting season, earnings revision sentiment is negative relative to history.

“We expect further downward revisions to consensus 2023 EPS forecasts,” they added. “China reopening is one upside risk to 2023 EPS, but margin pressures, taxes, and recession present greater downside risks.”

Beijing has now opened borders that had been all but shut since the start of the COVID-19 pandemic, allowing a surge in traffic across the nation.

Bank of America analyst Winnie Wu expects China’s economy, the second-largest economy in the world, to benefit from a cyclical upturn in 2023 and anticipates market upside from both multiple expansion and 10% EPS growth.

Sentiment on Wall Street got a boost last week from a benign blend of solid US payroll gains and slower wage growth, combined with a sharp fall in service-sector activity. The market scaled back bets on rate hikes for the Federal Reserve.

Fed fund futures 0#FF: now imply around a 25% chance of a half-point hike in February, down from around 50% a month ago.

That will make investors ultra sensitive to anything Fed Chair Jerome Powell might say at a central bank conference in Stockholm on Tuesday.

It also heightens the importance of US consumer price index (CPI) data on Thursday, which is forecast to show annual inflation slowing to a 15-month low of 6.5% and the core rate dipping to 5.7%.

“We at NatWest have lower than consensus CPI forecasts, and if right that will likely solidify the market pricing of 25bps vs 50bps,” said NatWest Markets analyst John Briggs.

“In context, it should still be seen as a Fed that is still likely to hike a few more times and then hold rates high until inflation’s decline is guaranteed – to us that means a 5-5.25% funds rate.”

Friday’s mixed data had already seen US 10-year yields drop a steep 15 basis points to 3.57%, while dragging the US dollar down across the board.

Early Monday, the euro was holding firm at USD 1.0664, having bounced from a low of USD 1.0482 on Friday. The dollar eased to 131.63 yen, away from last week’s top of 134.78, while its index was down a fraction at 103.800.

The Brazilian real had yet to trade after hundreds of supporters of far-right former President Jair Bolsonaro were arrested after invading the country’s Congress, presidential palace and Supreme Court.

The drop in the dollar and yields was a boon for gold, lifting it to a seven-month peak around USD 1,870 an ounce.

Oil prices were steady for the moment after sliding around 8% last week amid demand concerns.

Brent gained 26 cents to USD 78.83 a barrel, while US crude rose 30 cents to USD 74.07 per barrel.

(Reporting by Wayne Cole; Editing by Bradley Perrett)

Payrolls boost sterling as earnings hint at less hawkish Fed path

Jan 6 (Reuters) – GBP/USD firmed on Friday, erasing earlier losses following data in the monthly U.S. jobs report and ISM non-manufacturing PMI that indicated U.S. wage and economic growth was cooling, which may signal a less hawkish Fed path in early 2023 and lend support to a sterling recovery.

Cable’s recovery catapulted it off its pre-payrolls low of 1.1848 to 1.1948 afterward.

The payrolls report left U.S. interest rates lower across the curve, converging UK rates, which could stabilize GBP/USD as markets await more data.

Support by the lower 30-day Bolli at 1.1858, while bruised, is holding but weakness that produces a close within the daily cloud — 1.1899-1.1319 — would facilitate a test of the 50% Fib of 1.1150-1.2446 at 1.1798.

Below there GBP/USD bears would target the 100-DMA at 1.1668 and then the Nov. 10 low at 1.1358.

Sterling gains will be hard-fought, with the 200-DMA at 1.2019 and multiple highs ahead of 1.21 providing resistance.

Traders will focus on U.S. CPI data on Jan. 12 next, which could bolster bears if progress toward lower price growth falters.

(Paul Spirgel is a Reuters market analyst. The views expressed are his own)

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