US recap: EUR/USD consolidates rally driven by Fed pivot hopes

Nov 18 (Reuters) – The dollar index rose on Friday for a second day after becoming oversold in its tumble following last week’s softer US CPI, consolidating above supports as Fed speakers pushed back against the market pricing a dovish policy pivot.

The dollar shrugged off data showing US existing home sales fell to their lowest since 2012, outside of the pandemic plunge, and leading indicators dropping by twice the 0.4% decline forecast.

EUR/USD fell 0.3% regardless of ECB speakers affirming rates need to rise further to become restrictive, as there was some relief Germany’s biggest union agreed to wage increases well below currently record-high euro zone inflation.

The ECB, and other central banks, are wary of wages trending sharply higher, exacerbating inflation and requiring even more policy tightening.

Sterling rose 0.2%, but like the EUR/USD, its recent recovery highs remained capped just below the 50% Fibo of this year’s downtrend, in sterling’s case at 1.2038.

The highly anticipated UK budget announcement Thursday was followed by a rebound in gilts yields, partly because the risk premia caused by September’s mini budget had already been shed and also because the new budget plan reveals how difficult it will be to lower rising debt servicing costs.

USD/JPY was nearly flat in a tight range below the 100-day moving average it broke bearishly below last week, now at 140.98. Friday’s 139.63 EBS low was the third consecutive higher low, as bulls try to keep prices from closing below the cloud base, last at 140.42, for the first time in 14 months.

Because the base rises above 141 next week, a bearish close is becoming harder to fend off.

Wednesday’s US durable goods and S&P Global’s November PMI are the last data points before Thursday’s Thanksgiving Day holiday.

(Editing by Burton Frierson; Randolph Donney is a Reuters market analyst. The views expressed are his own.)

Gold falls on Fed rate hike prospects, on track for weekly dip

Nov 18 (Reuters) – Gold prices fell on Friday and were bound for a weekly dip following indications from US Federal Reserve officials that more interest rate hikes were due as the bank seeks to lower inflation.

Spot gold fell 0.7% to USD 1,748.84 per ounce by 2:08 p.m. ET (1908 GMT), set for a weekly decline of about 1.3%, its biggest since mid-October.

US gold futures settled down 0.5% at USD 1,754.4.

The slight pullback in gold after the recent rally has been through a technical retracement in the gold market, said David Meger, director of metals trading at High Ridge Future.

The pullback could continue going into next week’s December option expiration, which could cause a further consolidation in gold, Meger said, adding that the market overall seems focused on interest rate expectations from the Fed.

Federal Reserve Bank of Boston leader Susan Collins said on Friday the central bank has more rate rises ahead of it as it seeks to lower inflation, adding that a 75-basis point hike was still on the table.

The dollar index steadied, making gold more expensive for other currency holders, while benchmark US Treasury yields also edged higher.

While gold has shed 15% since its March peak after the Fed began tightening monetary policy, it has gained about 7% since the beginning of November as markets started pricing in a slower pace of rate hikes.

Markets currently see an 87% chance of a 50-bps hike at the Fed’s December meeting.

“Gold had been able to hold its own relatively well so far …(yet) a correction was always likely after its big move upward,” Fawad Razaqzada, market analyst at City Index, said.

Spot silver fell 0.3% to USD 20.90 per ounce, en route falling 3.7% for the week.

Platinum fell 0.4% to USD 976.67, seeing its biggest weekly fall since mid-September, while palladium dropped 3.3% to USD 1,940.14, also falling for the week.

(Reporting by Seher Dareen in Bengaluru; Editing by Shailesh Kuber, Shounak Dasgupta and Krishna Chandra Eluri)

China issues rules to lure foreign investors into bond market

BEIJING, Nov 18 (Reuters) – China’s central bank issued new rules on Friday to make the country’s bond market more attractive to foreign institutional investors, expanding currency hedging channels and making it easier for them to repatriate funds.

China will unify its rules on cash accounts and cash payments for foreign investors and improve the way it manages foreign exchange sales and purchases for foreign investors, according to the rules published on the central bank’s website.

The rules “will be conducive to further facilitating foreign institutional investors’ investment in China’s bond market,” the central bank said, announcing the latest of several steps taken over the past few months to make the bond market more attractive to foreign investors.

China will encourage foreign institutional investors to use the yuan in cross-border settlements, and complete deals through China’s Cross-Border Interbank Payment System (CIPs), according to the rules that will take effect from Jan. 1, 2023.

The changes will allow institutional investors to transfer funds held in their special accounts under the Qualified Foreign Institutional Investor (QFII) scheme and its yuan-denominated sibling, RQFII, and funds in their bond market special accounts.

In July, China said it would facilitate foreign investment in its bond market, pledging to cut service fees, improve overseas access to foreign exchange hedging, and streamline the process of opening accounts.

(Reporting by Beijing newsroom, Ellen Zhang and Kevin Yao; Editing by Raissa Kasolowsky & Simon Cameron-Moore)

Philippine central bank: October balance of payments at USD 711-million surplus

MANILA, Nov 18 (Reuters) – The Philippines’ overall balance of payments (BOP) position was a surplus of USD 711 million in October, lower than the USD 1.1 billion surplus recorded in the same month last year, the central bank said on Friday.

The BOP surplus for October reduced the cumulative BOP deficit in January-October to $7.1 billion from a deficit of USD 7.8 billion in the first three quarters of the year, it said in a statement.

(Reporting by Enrico Dela Cruz; Editing by Christopher Cushing)

Philippine central bank has to raise rates along with Fed to support peso

MANILA, Nov 18 (Reuters) – The Philippine central bank will have to raise interest rates if the US Federal Reserve tightens policy further to support the peso and prevent the currency’s weakness from further stoking inflation, its governor said on Friday.

Bangko Sentral ng Pilipinas has raised interest rates by 300 basis points this year to curb inflation, running near 14-year highs, and support the peso which has fallen sharply against the dollar, underpinned by aggressive US monetary tightening.

The Federal Reserve is expected to deliver a smaller rate hike in December, but economists polled by Reuters see a longer period of tightening and a higher policy rate peak as risks to the current outlook.

“If the Fed does 50, we cannot have zero, right? So, the question is whether it’s 25 or 50,” BSP Governor Felipe Medalla told Reuters in an interview in Manila.

“If you have a scenario (where) the Fed will not hike any more then I can tell you flat out, neither are we.”

BSP raised interest rates by 75 basis points on Thursday, largely to match the Fed’s three-quarter point hike this month and is expected to hike again in December.

The Fed will likely raise rates by 50 basis points next month after four consecutive 75-bp increases, according to the Reuters poll.

Medalla reiterated the rate differentials between the United States and the Philippines should not be allowed to narrow sharply, lest the weakness in the peso would persist and push up already elevated prices of imported food and fuel.

BSP’s rate hike on Thursday brought the rate on its overnight reverse repurchase facility to 5.0%, the highest in nearly 14 years. That compares with the Fed’s policy rate of 3.75%-4%.

A shrinking rate gap has spurred an 11% decline in the peso against the dollar this year, putting the currency at the forefront of the BSP’s policy decisions. Medalla says the weak currency has become a price “shock generator.”

“If inflation is a huge problem, you don’t want the weakening of the peso to add to that further,” Medalla said.

The central bank wants to bring inflation, currently running at 7.7%, back to its 2%-4% target by the second half of next year, Medalla said.

Medalla said the economy, which grew by a faster-than-expected 7.6% in the third quarter, is strong enough to withstand the series of rate hikes, thanks largely to pent-up demand.

“The postponed spending on the capex side plus the pent-up demand on (the) consumer side means we will have fairly strong demand despite the rate increases,” Medalla said.

(Reporting by Karen Lema; Editing by Ana Nicolaci da Costa)

Oil retreats as demand concerns weigh, tracking for steep weekly losses

MELBOURNE, Nov 18 (Reuters) – Oil pared early gains and was on track for a steep weekly decline on concerns about weakening demand in China and further interest rate rises by the US Federal Reserve.

Brent crude futures had edged lower by 13 cents or 0.1% to USD89.65 a barrel by 0737 GMT, and were not far off four-week lows of USD89.53 hit in the previous session.

US West Texas Intermediate (WTI) crude futures rose 13 cents, or 0.2%, to USD81.77 a barrel, but held near a six-week low. WTI is down 8% so far this week, while Brent is down more than 6%.

The dollar index inched lower on Friday, making oil cheaper for buyers holding other currencies.

“I hate using the lame short-covering mantra, but there is little other than the slightly weaker greenback to trigger a bid under oil so far,” said Stephen Innes, managing partner at SPI Asset Management.

Analysts said concerns about potential lockdowns in China to curb a surge in COVID cases, which hit their highest level since April, and worries that more interest rate hikes will drive the US economy into recession cast a pall over the market.

Remarks from US Federal Reserve officials this week and stronger-than-expected retail sales data have dashed some hopes for the moderation of aggressive interest rate hikes in the United States.

The Fed is expected to raise rates by a smaller 50 basis points in December after four consecutive 75 bp hikes, according to a Reuters poll.

“In the near term sentiment is likely to remain negative given the deteriorating macro picture and signs of physical weakness,” said Warren Patterson, head of commodities strategy at ING.

China, the world’s biggest oil importer, reported 25,353 new COVID-19 infections on Nov. 17 up from 23,276 new cases a day earlier, the National Health Commission said on Friday.

“The policy settings in the city of Guangzhou in southern China, where COVID‑19 cases have surged significantly, will be important to watch,” Commonwealth Bank commodities analyst Vivek Dhar said in a note. Guangzhou, a key manufacturing hub in China, is home to 19 million people.

Recession concerns have dominated this week even with the European Union’s ban on Russian crude looming on Dec. 5 and the Organization of the Petroleum Exporting Countries and allies, together known as OPEC+, tightening supply.

The premium for front-month WTI futures over barrels loading in six months was pegged at USD2.42 a barrel, the lowest level in three months, indicating less worry about future supply.

(Reporting by Sonali Paul in Melbourne and Muyu Xu in Singapore; Editing by Ana Nicolaci da Costa and Bradley Perrett)

Investors ignore China Covid spike at their peril

The author is a Reuters Breakingviews columnist. The opinions expressed are his own. Updates to add chart.

By Pete Sweeney

HONG KONG, Nov 18 (Reuters Breakingviews) – The blistering relief rally underway in Chinese equities is understandable. President Xi Jinping had implemented a mixture of harsh policies targeting Covid-19, technology entrepreneurs and real estate developers that kept equity indexes in the basement and aggravated capital flight – roughly $101 billion was pulled out the country, reading between the lines of official balance of payments data for the first six months of the year. Tentative relaxations on all the main fronts have investors cheering; the Golden Dragon index .HXC of New York-listed Chinese companies is up 37% since late October. Yet biology could ruin this party yet.

Most of China’s trading partners have moved on to living with the virus, but Xi still aspires to keep it out. Unfortunately, highly contagious new strains took advantage of the travel surge during the October national holiday week to go on a tour around the country. Surveys by consultancy Dragonomics logged over 200 cities per day reporting outbreaks in November, more than double the number seen during the traumatic lockdown in Shanghai in April. New cases have officially multiplied from roughly 1,000 per day in October to 25,353 on Thursday. There are reasons to suspect the real numbers are higher. Some cities reported suspiciously low case figures which were belied by severe quarantine polices. Others want to accelerate away from zero-Covid to relieve their local economies, as the city of Shijiazhuang in Hebei tried to do, which could lead to underreporting.

Unfortunately state propaganda organs have invested two years in terrifying citizens about the virus, which means not everyone is relaxed about relaxing epidemic controls. Local media catered to conspiracy theories about foreign vaccines while pandering to the local traditional medicine industry. As a result many elderly declined to get jabbed. Partial success at containment has slowed development of herd immunity while vaccination rates have flattened.

Unless infections get tied down quickly with existing methods, there are three ugly scenarios worth considering. In the first, Beijing quarantines even more tightly. In the second, Covid-19 finally runs wild in China, killing the unvaccinated elderly as it did in Hong Kong earlier this year. Alternatively, current virus strains could turn out to be less lethal, keeping the ultimate death rate low, but having no way to know this in advance, many Chinese people would probably sequester themselves in panic anyway.

Economically, any of these scenarios could re-enact the first quarter of 2020, when GDP contracted 6.8%, wreck any relief rally and further squeeze earnings at consumer-facing companies like Alibaba and Starbucks. They will fuel unrest that has erupted on the streets and hobbled production lines at iPhone maker Foxconn 2317.TW. It was past time to revise Beijing’s approach to the pandemic, to its companies and its economy. It may also be too late.

CONTEXT NEWS

China logged 25,353 new Covid-19 infections on Nov. 17, per National Health Commission data published on Nov. 18, compared to roughly 1,000 new cases per day in mid-October. That is comparable to the high national contagion rates in April when Shanghai was forced into a draconian lockdown from the beginning of April through June.

Beijing announced minor relaxations of the country’s pandemic policy on Nov. 11, including shorter quarantine periods and more narrowly targeted lockdowns.

The Hang Seng China Enterprises Index in Hong Kong has risen nearly 30% in the past 14 trading days, Refinitiv data show, while the onshore benchmark CSI300 index gained 9%. The yuan has also firmed slightly against the dollar after an extended period of decline.

(Editing by Una Galani and Katrina Hamlin)

Gold faces weekly dip as recent rally subsides on hawkish Fed

Nov 18 (Reuters) – Gold was headed for a weekly fall on Friday as the recent rally fizzled after several US Federal Reserve officials suggested that interest rates would continue to rise, pouring cold water on market expectations that the US central bank would pivot.

FUNDAMENTALS

* Spot gold was steady at USD 1,761.29 per ounce, as of 0017 GMT. US gold futures were flat at USD 1,763.40 per ounce.

* Bullion is on track for a weekly decline of about 0.6%, despite surging to its highest level since mid-August on Tuesday.

* After months of decline, prices of bullion shot up as markets bet that US interest rate hikes will slow, but analysts said institutional investors are wary and further gains could be elusive.

* Even under a “generous” analysis of monetary policy, the Fed needs to keep raising interest rates given that its tightening so far “had only limited effects on observed inflation,” St. Louis Fed President James Bullard said on Thursday.

* Minneapolis Fed Bank President Neel Kashkari said the US central bank should not stop rate hikes until it’s clear that inflation has peaked.

* High interest rates discourage investing in gold, which does not bear any interest.

* Swiss gold exports to China and Turkey remained strong in October while shipments to India fell, Swiss customs data showed on Thursday.

* Nornickel is looking for alternative ways to deliver Russian raw materials to its Finnish Harjavalta plant starting from 2023 as Finnish railway operator VR is due to stop providing this service to it in six weeks. Nornickel is the world’s largest palladium producer.

* Spot silver rose 0.2% to USD 20.98 per ounce, platinum gained 0.5% to USD 985.41 and palladium added 0.5% to USD 2,015.12. All were, however, on course to end the week lower.

DATA/EVENTS (GMT)

0700 UK Retail Sales MM, YY

0700 UK Retail Sales Ex-Fuel MM

1500 US Existing Home Sales

(Reporting by Swati Verma in Bengaluru; Editing by Sherry Jacob-Phillips)

Australia shares jump on boost from financials, energy stocks

Nov 18 (Reuters) – Australian shares rose marginally on Friday, with banks leading the gains, even as hawkish comments from US Federal Reserve officials and a persisting tight labour market raised fears of a prolonged monetary policy tightening.

The S&P/ASX 200 index was up 0.2% at 7,147.50 by 2358 GMT. The benchmark ended 0.2% higher on Thursday. It was, however, set to end the week 0.2% lower, snapping a three-week gaining streak.

Hawkish comments from Fed officials to continue raising rates by at least another full percentage point as data indicates tightness in the labour market cast a shadow on hopes of a pivot in Fed’s aggressive stance.

Data also showed Australia’s net employment rose better-than-expected in October, raising speculation that the Reserve Bank of Australia might continue with rate hikes.

Miners were down 0.5%, even as iron ore prices inched higher on hopes that China will roll out more measures to support its economy.

Copper-gold miner OZ Minerals jumped 3.8% on receiving a hiked buyout offer of AUSD 9.60 billion (USD 6.43 billion) from global miner BHP Group.

Also, Rio Tinto edged down after it said it will proceed with acquiring the remaining 49% in Turquoise Hill Resources for USD 3.3 billion.

Financials jumped 0.4% with the “Big Four” banks gaining between 0.1% and 1%.

Shares of Perpetual Ltd. fell 20.7% this week, as an Australian court on Thursday said fund manager Pendal Group could enforce Perpetual to honor its AUSD 2.34 billion takeover deal.

Local energy stocks gained 0.1% despite oil prices falling amid demand concerns over rising COVID-19 cases in China. O/R

Santos gained 0.3%, while Woodside Energy fell 0.2%.

In New Zealand, the benchmark S&P/NZX 50 index .NZ50 rose 0.2% to 11,319.58.

Fonterra Co-operative Group jumped 0.8% after it said it was selling its dairy operations in Chile to Peru’s Gloria Foods for USD 641.4 million.

(USD 1 = 1.4939 Australian dollars)

(Reporting by Echha Jain in Bengaluru; Editing by Rashmi Aich)

Bankrupt FTX’s new CEO outlines fund abuses, untrustworthy records

Nov 17 (Reuters) – The executive hired to steer FTX Group through bankruptcy offered his first findings of improper fund transfers and poor accounting at the collapsed crypto exchange on Thursday, describing it as a “complete failure” of controls.

John Ray, who was named FTX’s chief executive after the company filed for bankruptcy on Nov. 11, said in a court filing that the lapses in oversight, security, and corporate governance he identified were greater than in any other process he has managed in his 40 years as a bankruptcy specialist, including at Enron.

“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” Ray said in the filing, with the District of Delaware bankruptcy court.

FTX collapsed after its founder Sam Bankman-Fried used USD 10 billion in client funds to prop up his hedge fund Alameda Research, which had suffered losses when its bets on crypto ventures soured, Reuters has previously reported. That left FTX with insufficient funds to cover withdrawals when a plunge in the value of one of its currencies, FTT, triggered a bank run.

While Ray’s filing does not provide a full account of FTX’s demise, it details several lapses that contributed to the downfall.

An Alameda entity had lent USD 2.3 billion to an FTX entity, while Bankman-Fried and FTX co-founders and top executives Nishad Singh and Ryan Salame had collectively borrowed USD 1.6 billion from Alameda, according to the filing. More such “related party” transactions are listed in the filing, though details are not offered.

Bankman-Fried, Singh and Salame did not respond to requests for comment on Thursday.

FTX funds were also used to buy homes and other personal items for employees and advisors, Ray wrote. Some of this money transfers were not documented as company loans, while the homes were registered under the names of the employees, Ray added.

Proper checks and balances were absent, according to the filing. Employees submitted payment requests through an on-line “chat” platform and supervisors approved them with personalized emojis, the filing states.

Bankman-Fried often communicated through applications that were set to auto-delete after a short period of time and encouraged employees to do the same, Ray wrote.

Most of the financial statements Ray reviewed were not audited. He said he harboured “substantial concerns” for statements he found that were audited because they relied on Prager Metis, an accounting firm operating in the virtual world, in metaverse platform Decentraland.

Ray also wrote that Bankman-Fried had made “erratic and misleading public statements,” citing an exchange with a reporter on Twitter.

Vox on Wednesday published an interview with Bankman-Fried in which he said he regretted his decision to file for bankruptcy protection and criticized regulators.

He later attempted to backtrack, saying he was “venting” and thought his exchange of messages with the reporter that made the basis of the interview were private.

FTX had 1 million users in the United States and many more across the world, according to the filing. It’s unclear how many will be able to recover their funds through the bankruptcy.

‘MISPLACED’

Singapore state investor Temasek Holdings, an FTX investor, also criticized Bankman-Fried on Thursday as it announced it would write down the value of its USD 275 million stake.

“It is apparent from this investment that perhaps our belief in the actions, judgment and leadership of Sam Bankman-Fried … would appear to have been misplaced,” Temasek said.

Other investors including Softbank Group’s Corp’s vision fund and Sequoia Capital have also written down their investments in the exchange to zero, as ripples from FTX’s bankruptcy continue to be felt around the world.

Major crypto player Genesis Global Capital suspended customer redemptions in its lending business on Wednesday, in response “to the extreme market dislocation and loss of industry confidence caused by the FTX implosion”.

Financial and markets authorities around the world scrambled on Thursday to draft responses to FTX’s failure, with Singapore’s finance minister saying that its collapse has raised “very serious allegations that amount to potential fraud”.

Indonesia ordered crypto exchanges to stop trading FTX tokens. Brazilian crypto advocates cited FTX’s implosion in a push to persuade lawmakers to give final approval on a bill to boost oversight of the cryptocurrency industry.

(Reporting by Niket Nishant in Bengaluru and John McCrank in New York, additional reporting by Alun John in London and Hannah Lang in Washington; Editing by Shinjini Ganguli, Anil D’Silva and Alexander Smith and Anna Driver)

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