Chip stocks slide as Samsung, AMD expect steep fall in demand

Oct 7 (Reuters) – Dire forecasts from Samsung Electronics Co. Ltd. and Advanced Micro Devices Inc. (AMD) sent chip-related shares lower on Friday, sparking fears that a slump in demand for semiconductors could be much worse than expected.

AMD, Nvidia Corp. (NVDA), Intel Corp. (INTC), Qualcomm Inc. (QCOM) and Micron Technology Inc. (MU) were down between 1.2% and 6.0%, weighing on smaller peers such as Marvell Technology Inc MRVL.O and Applied Materials Inc. (AMAT).

Samsung, the world’s top maker of memory chips, smartphones and televisions, is a bellwether for global consumer demand and its disappointing preliminary results add to a flurry of earnings downgrades and gloomy forecasts.

The chip sector has been grappling with weak demand, spurred by decades-high inflation, rising interest rates, geopolitical tensions and pandemic-related lockdowns in China, hitting the PC and smartphone market as businesses and consumers rein in expenses.

Nearly a dozen analysts cut their price targets on AMD’s shares by as much as USD 50 after the US-based chipmaker slashed its third-quarter revenue outlook by about a billion dollars.

“We believe AMD’s warning will have the most negative read-across for PC peer Intel, but also somewhat for Nvidia and related memory and data center peers,” BofA Securities analyst Vivek Arya said.

Memory chip buyers such as smartphone and PC makers are holding off on new purchases and using up existing inventory, leading to lower shipments and ushering in an industry downcycle.

“We still think the industry is heading for its deepest downcycle in a decade, thanks to high supply chain inventories and falling end demand,” Jefferies analysts said.

Global chip sales grew just 0.1% in August, making it the 15th month of a down cycle since June 2021, when sales rose more than 30%, according to Jefferies.

Shares of major US chipmakers have already lost between a third and half of their value so far this year, following huge gains last year when Nvidia was inching closer to a trillion-dollar valuation.

(Reporting by Eva Mathews and Nivedita Balu in Bengaluru; Editing by Shounak Dasgupta)

Risk-averse investors pile into cash at fastest rate since April 2020

LONDON, Oct 7 (Reuters) – Investors piled into cash at the fastest weekly rate since April 2020 in the week to Wednesday, as soaring government borrowing costs, high energy prices and slowing growth fanned risk aversion, BofA Global Research said in a note on Friday.

Investors ploughed USD 88.8 billion into cash, BofA said, citing EPFR data, and sold USD 18.3 billion in bonds – the fastest weekly rate in four months – with the majority of the sell-off comprising investment-grade bonds.

BofA’s “Bull & Bear” indicator, which seeks to track market trends, remained unchanged at the “extreme bearish” level, with this week’s heavy bond outflows cited as the reason.

Investors also shed stocks, with equity funds recording weekly outflows of USD 3.3 billion. US equity outflows resumed, while European equities concluded their 34th week of outflows – the longest streak since 2016.

Emerging market equity funds saw inflows of USD 0.7 billion – the fourth week in a row. Meanwhile investors sold USD 4.4 billion of emerging market debt – the sixth weekly consecutive outflow.

Global stocks have risen this week, with the S&P 500 index .SPX up about 4.4%. European shares were up around 0.2% on Friday ahead of US nonfarm payrolls data due later that could shed light on how much further US rates may rise.

Despite the recent uplift in stocks, BofA analysts remain downbeat, and see risk assets going to new lows in October if the Bank of Japan can’t prevent new highs in dollar-yen and the Bank of England can’t head off new highs in UK gilt yields, they wrote in a note.

(Reporting by Lucy Raitano; Editing by Mark Heinrich and Mark Potter)

Dollar dips in cautious trade ahead of US jobs data

LONDON, Oct 7 (Reuters) – The dollar eased on Friday, ahead of a key employment report later that could offer a litmus test of the strength of the US economic recovery, but with the Federal Reserve’s commitment to fighting inflation, losses could be short-lived.

The euro and the pound pared overnight losses and rose for the first time in three trading sessions, while the Japanese yen clawed back from another break through the key 145 level against the dollar.

Overnight, a slew of Fed officials reinforced the view that the central bank is nowhere near finished with its hiking cycle as it seeks to bring down inflation, and that rates are expected to go up further.

The September non-farm payrolls report comes hot on the heels of a measure of private-sector hiring that beat expectations and an indicator of vacancies that showed an unexpected decline, offering a mixed picture of the jobs market.

Consumer inflation data is due next week and could prove equally influential in setting investors’ expectations for the Fed, according to CIBC head of G10 currency strategy Jeremy Stretch.

“We’re going into a ‘double-header’ next week,” he said.

“Until we see what is effectively almost empirical evidence that either the labour market is materially easing or inflationary pressures are dissipating, dollar dips are going to remain bought into,” he said.

The euro was last up 0.2% on the day at USD 0.9871, having tried twice unsuccessfully to regain parity this week.

Sterling rose 0.4% to USD 1.1202, having fallen 1.4% overnight. It rebounded to a high of USD 1.1493 earlier in the week, after the British government reversed a planned cut to the highest rate of income tax.

The US dollar index eased 0.2% to 111.97, after rising nearly 1% overnight, but was still set for a decline of 0.16% this week.

All eyes now turn to the US nonfarm payrolls report due later on Friday. Economists expect 250,000 jobs to have been added last month, compared with 315,000 in August.

The yen last bought 144.81 per dollar, close to a 24-year low of 145.90 hit last month that prompted an intervention by Japanese authorities to shore up the fragile currency.

“We’ve been long arguing that an intervention is not an effective way of changing the trend in the currency … our sense is that the trigger for a new intervention will be a sudden drastic weakening of the yen,” said Rodrigo Catril, a currency strategist at National Australia Bank.

In another sign that major central banks’ fight against inflation is far from over, accounts from the European Central Bank’s September meeting show policymakers appeared increasingly worried that high inflation could become entrenched, making aggressive policy tightening necessary even at the cost of weaker growth.

(Additional reporting by Rae Wee in Singapore; Editing by Shri Navaratnam and Ana Nicolaci da Costa)

Gold set for best week since March; traders eye US jobs data

Oct 7 (Reuters) – Gold prices held steady on Friday but were on track for their biggest weekly gain since March, with investors keenly awaiting US jobs report to gauge the Federal Reserve’s rate hike plans.

Spot gold was little changed at USD 1,710.09 per ounce, as of 0651 GMT. Prices have risen about 3% so far this week, helped by the dollar and Treasury yields retreating from multi-year peaks.

US gold futures eased 0.2% at USD 1,716.90.

The dollar index was down 0.1% and benchmark US yields steadied after rising overnight.

“US jobs data will shape expectations about how much more tightening is yet to come from the Fed in coming months,” said Ajay Kedia, director at Kedia Commodities in Mumbai.

“A corrective drop towards USD 1,680 is possible for gold after the data.”

The US nonfarm payrolls report is due at 1230 GMT, with economists forecasting 250,000 jobs to have been added last month.

Earlier this week, data showing declines in US job openings and weaker manufacturing, and a smaller-than-expected rate hike by the Australian central bank, stoked expectations of a slowdown in the Fed’s rate-hike pace.

But those hopes faded as Fed officials reiterated their commitment to containing high inflation.

While gold is considered a hedge against inflation, rapid US monetary policy tightening has reduced the non-yielding bullion’s appeal while boosting the dollar.

Silver was flat at USD 20.66 per ounce, bound for its biggest weekly rise since July, up more than 8% so far.

“Short-covering is helping the metal outperform,” with strong demand from India also being supportive, said ANZ commodities strategist Soni Kumari.

However, slowing economic activity and rising rates posed a challenge to silver prices, Kumari added.

Platinum fell 0.2% to USD 919.97, but was on track for its best weekly since June 2021.

Palladium dipped 0.4% to USD 2,251.84, but was up for a second straight week.

(Reporting by Eileen Soreng and Ashitha Shivaprasad in Bengaluru; Editing by Subhranshu Sahu and Uttaresh.V)

Dollar’s gains spell earnings pain for US companies

NEW YORK, Oct 7 (Reuters) – A towering rally in the US dollar is expected to hit third-quarter corporate earnings, potentially presenting another obstacle to stocks in a year that has experienced an already-painful market decline.

The dollar index, which measures the greenback’s performance against a basket of peers, traded an average of 16.7% higher in the quarter that ended Sept. 30 than in the same period a year ago, helped by a hawkish Federal Reserve and turmoil in global financial markets that boosted the dollar’s safe-haven appeal.

That means a wide range of companies will likely cite the dollar’s rise as a headwind to their bottom lines as corporate earnings season kicks into gear this month. A stronger buck makes US exporters’ products less competitive abroad while hurting US multinationals that need to exchange their earnings into dollars.

The stronger dollar is “one of the contributors to the notion that earnings expectations for the S&P 500 need to come down more,” said Erik Knutzen, chief investment officer of Neuberger Berman’s multi-asset class portfolios. “It is one of the factors that leads us to be more cautious on equities.”

Ohsung Kwon, US equity strategist at Bank of America Securities, expects the dollar’s strength to cut between 5% and 6% of earnings for S&P 500 companies, compared to a 2% hit last quarter. The S&P 500’s foreign exposure stands at about 30%, with the technology and materials sectors most vulnerable, BofA estimates.

Earnings estimates have already fallen this year, as analysts account for a darkening US economic outlook amid rising inflation and tightening financial conditions.

Analysts expect third quarter S&P 500 earnings – which will start rolling in as the season kicks off next week – to have increased by 4.5% from a year ago. That is down from the 11.1% rise they were expecting at the start of July, according to IBES data from Refinitiv as of Sept. 30.

A bigger than expected earnings decline could further complicate the picture for US stocks. The S&P 500 is down about 21% this year, with few investors expecting the volatility to end until there are clear signs the Fed is getting the upper hand in its battle against inflation.

“Dollar strength continues to serve as a headwind for equities … and our FX strategists do not see the strong dollar going away any time soon,” analysts at Morgan Stanley wrote.

The stronger dollar has already claimed its share of victims this year. Nike, which receives more than half its revenue from outside North America, last month doubled its estimates for the currency’s headwind on earnings to USD 4 billion, sending its shares down 13% on Sept. 30.

Other companies that have recently warned of the dollar’s impact include IBM Corp., DuPont de Nemours and Procter & Gamble Co.

While companies take steps to guard their profits from big exchange rate moves by using various hedging strategies, including those that employ forwards and options, they typically hedge only about 50% to 75% of their foreign exchange exposure, said John Doyle, vice president of dealing and trading at Monex USA.

To be sure, there is an upside to the greenback’s strength for US stocks, as companies that rely on importing goods will find their buying power increased.

At the same time, expectations of a rising buck make dollar-denominated assets more attractive to foreign investors by assuaging fears of a possible foreign exchange hit when they convert assets back into their home currency.

“It allows (foreign) investors to invest in what they think is a high growth area without worrying too much about the currency,” said Colin Graham, head of multi-asset strategies at Robeco Institutional Asset Management.

Signs of a dollar peak, however, could push investors into currencies they expect to rebound as the dollar falls, analysts said.

That peak is unlikely to come in the near future, according to analysts polled Reuters.

Though the dollar index is down about 2% from its recent high, 85% of analysts polled by Reuters said the dollar’s broad strength against a basket of currencies has not yet reached an inflection point.

Similarly, analysts at UBS Global Wealth Management believe a hawkish Fed, a comparatively strong US economy and weak growth in Europe will keep the dollar elevated for the time being.

“We think it’s too early to call a peak in Fed hawkishness or a top in the greenback,” they wrote in a recent report.

(Reporting by Saqib Iqbal Ahmed; Editing by Ira Iosebashvili and Josie Kao)

Oil heads for weekly gain after OPEC+ cut despite economy headwinds

LONDON, Oct 7 (Reuters) – Oil rose on Friday and was headed for a second consecutive weekly gain supported by OPEC+’s decision to make its largest supply cut since 2020 despite concern about recession and rising interest rates.

The cut from the Organization of Petroleum Exporting Countries and allies including Russia, known as OPEC+, comes ahead of a European Union embargo on Russian oil and will squeeze supply in an already tight market.

Brent crude was up 33 cents, or 0.4%, to USD 94.75 a barrel at 0800 GMT. US West Texas Intermediate or WTI crude also gained 33 cents, or 0.4%, to USD 88.78.

“Among the key ramifications of OPEC’s latest cut is a likely return of $100 oil,” said Stephen Brennock of oil broker PVM. “Gains, however, will be capped by mounting economic headwinds.”

Both benchmarks were heading for a second weekly gain, with that of Brent approaching 8% this week. The global benchmark is still down sharply after coming close to its all-time high of $147 a barrel in March after Russia invaded Ukraine.

“With Brent now firmly back in the USD 90-100 range, the group will likely be pleased with the outcome although substantial uncertainty remains over the economic outlook,” said Craig Erlam of brokerage OANDA, referring to OPEC+.

A stronger US dollar ahead of Friday’s US jobs report, and comments from Federal Reserve policymakers signaling further aggressive policy tightening limited the rally.

Dollar strength makes oil more expensive for other currency holders and tends to weigh on oil and other risk assets.

Investors are looking to the US nonfarm payrolls report due later on Friday for clues on how much further US rates need to rise.

US President Joe Biden expressed disappointment on Thursday over OPEC+’s plans and he and officials said the United States was looking at all possible alternatives to keep prices from rising.

(Additional reporting by Mohi Narayan; editing by Jason Neely)

Oil jumps 4% to 5-week high lifted by OPEC+ output cut

NEW YORK, Oct 7 (Reuters) – Oil prices jumped about 4% to a five-week high on Friday, lifted again by an OPEC+ decision this week to make its largest supply cut since 2020 despite concern about a possible recession and rising interest rates.

Oil rallied for the fifth day in a row even as the dollar moved higher after data showing the US economy was creating jobs at a strong pace gave the Federal Reserve a reason to continue hefty interest rate hikes.

A strong greenback can pressure oil demand, making dollar-denominated crude more expensive for other currency holders.

Brent futures rose USD 3.50, or 3.7%, to settle at USD 97.92 a barrel, while US West Texas Intermediate (WTI) crude rose USD 4.19, or 4.7%, to end at USD 92.64.

That was the highest close for Brent since Aug. 30 and WTI since Aug. 29. The price jump pushed both benchmarks into technically overbought territory for the first time since August for Brent and June for WTI.

Both contracts posted their second straight weekly gains, and their biggest weekly percentage gains since March this week, with Brent was up about 11% and WTI 17% higher.

US heating oil futures jumped 19% this week to their highest close since June, boosting the heating oil crack spread – a measure of refining profit margins – to its highest close on record, according to Refinitiv data going back to December 2009.

The Organization of the Petroleum Exporting Countries and allies including Russia, known as OPEC+, agreed this week to lower their output target by 2 million barrels per day.

“Among the key ramifications of OPEC’s latest cut is a likely return of USD 100 oil,” said Stephen Brennock of oil broker PVM.

UBS Global Wealth Management also projected Brent would “move above the USD 100 bbl mark over the coming quarters.”

The OPEC+ cut comes ahead of a European Union embargo on Russian oil and will squeeze supply in an already tight market.

OPEC Secretary General Haitham al-Ghais said the output target cuts will leave OPEC+ with more supply to tap in the event of any crises.

On Thursday, US President Joe Biden expressed disappointment over the OPEC+ plans. He and US officials said Washington was looking at all possible alternatives to keep prices from rising.

However, the US oil rig count, an early indicator of future production, fell by two this week to 602, according to energy services firm Baker Hughes Co BKR.O, as high inflation forces producers to spend more money to secure workers and equipment.

“Oil futures prices are managing to gain upside traction even though widespread inflation across the US and Europe is threatening the potential for a global recession where demand will likely take a sizeable hit,” analysts at energy consulting firm Gelber & Associates said.

In Europe, divisions between EU leaders over capping gas prices and national rescue packages resurfaced, with Poland accusing Germany of “selfishness” in its response to a winter energy crunch caused by Russia’s war in Ukraine.

(Additional reporting by Mohi Narayan in New Delhi and Alex Lawler in London; Editing by Marguerita Choy and David Gregorio)

US dollar posts steep gains as investors brace for non-farm payrolls

NEW YORK, Oct 6 (Reuters) – The dollar rose on Thursday, climbing for a second straight session, as investors bet on another strong US non-farm payrolls report that should keep the Federal Reserve on an aggressive tightening path for some time.

The dollar index, which measures the greenback against a basket of currencies, surged more than 1% to 112.22 and was up about 17% for the year so far.

“The dollar is on a roll again as stocks slump and recession fears hammer European currencies,” said Joe Manimbo, senior market analyst, at payments company Convera in Washington.

“The buck’s pop also reflects the market betting on another solid jobs report that reinforces the Fed’s hawkish rate path.”

US non-farm payrolls for September are due to be released on Friday, with economists forecasting a headline print of 250,000 new jobs, compared with 315,000 in August.

Chicago Fed President Charles Evans on Thursday said the Fed’s policy rate is likely headed to 4.5%-4.75% by the spring of 2023 as the Fed increases borrowing costs to bring down too-high inflation.

The euro was down 0.9% against the dollar at USD 0.9794, earlier falling after the release of European Central Bank minutes from last month’s meeting that showed policymakers were worried that inflation could get stuck at exceptionally high levels.

Separately, a source told Reuters on Thursday, citing provisional figures, that the German government expects Europe’s largest economy to slide into recession next year, contracting 0.4% as an energy crisis, rising prices and supply bottlenecks take their toll.

Sterling was down 1.5% versus the dollar at USD 1.1151. The euro also firmed against the pound, up 0.7% at 87.83 pence.

Against the yen, the dollar rose 0.3% to 145.05. It hit a session high of 145.135, not far from a 24-year peak of 145.90 yen touched on Sept. 22, which triggered a yen-buying intervention from Japanese authorities.

Against the Swiss franc, the dollar rose 0.8% to 0.9906 francs.

Currency markets have struggled to find a clear direction this week, following a dramatic third quarter. The dollar initially slid against most majors, before regaining ground.

“It’s the calm before the storm – the non-farm payrolls storm,” said Edward Moya, senior market analyst at OANDA in New York.

“Everyone knows the Fed has been consistent with their messaging. The Fed is not done bringing down inflation, and they are locked into this aggressive rate-hiking campaign that will only change once we start to see inflation come down.”

A major factor driving currency markets currently has been changing expectations of how aggressively central banks’ – particularly the Fed – will raise interest rates.

A key question is whether policymakers will pivot from primarily worrying about inflation to also considering slowing economic growth, and possibly leading to more cautious interest rate hikes.

US inflation data next week will be closely watched.

US benchmark Treasury yields whose recent gains had helped drive the greenback higher, were up about 6 basis points at 3.8175%.

The Australian dollar was down 1.12% against the greenback at USD 0.6412, still struggling after an unexpectedly modest 25 bp hike in Australia.

The US dollar was up 0.9% against the Canadian dollar at C$ 1.3743

(Reporting by Caroline Valetkevitch and Gertrude Chavez-Dreyfuss; Additional reporting by Alun John in London and Tom Westbrook in Singapore; Editing by Nick Zieminski and Alistair Bell)

Putting the back in greenback

Oct 7 (Reuters) – The greenback is back.

The dollar chalked up its second straight daily increase of around 1% on Thursday to bring its year-to-date rise up to 17%. This would be the biggest annual appreciation since the era of free-floating exchange rates was introduced half a century ago.

This is ominous for US corporate profits, global financial conditions and central banks around the world battling to prevent historically low exchange rates from weakening further.

Many Asian currencies enjoyed a breather over the past week as the US dollar’s rally lost steam, although the Indian rupee hit a record low on Thursday and the Japanese yen was set for its lowest New York daily close in 24 years around 145 per dollar. Intervention territory? You’d think so.

These pressures look set to dominate Friday’s session, contributing to a more volatile end to the week.

The resurgent dollar is also a suitable backdrop against which China and Japan – the world’s largest FX reserve holders with a combined USD 4.3 trillion, about a third of the global total – release their September reserves data.

They will be closely scrutinized to see how much may have been spent on FX intervention in the month, official or otherwise.

Asian stocks are likely to open lower on Friday, following Wall Street’s slide into the red on Thursday. The dollar’s drag on US and global stocks cannot be underestimated – around a third of S&P 500 firms’ revenues come from overseas.

Morgan Stanley reckons the dollar represents a 10% headwind to US earnings this year and Citi reckons FX effects will have the greatest impact on discretionary retail, the sector S&P Global says is fast becoming the riskiest on Wall Street.

Key developments that could provide more direction to markets on Friday:

South Korea current account (August)

Japan household spending (August)

Japan FX reserves (September)

China FX reserves (September)

Indonesia FX reserves (September)

Australia RBA financial stability review

US non-farm payrolls (September)

Fed’s Williams, Bostic and Kashkari speak

(Reporting by Jamie NcGeever in Orlando, Fla.; Editing by Josie Kao)

US yields move higher with payrolls report on deck

NEW YORK, Oct 6 (Reuters) – The yield on the benchmark US 10-year Treasury rose on Thursday after a reading on the labor market showed unemployment benefit claims rose by the most in four months last week ahead of the monthly payrolls report.

Yields briefly moved lower after the data that said initial jobless claims rose by 29,000 to a seasonally adjusted 219,000 versus expectations of economists polled by Reuters for 203,000 applications. Some of the rise, however, was attributed to Hurricane Fiona as filings surged in Puerto Rico in the wake of the storm.

Investor focus now turns to the September jobs report, with expectations for nonfarm payrolls to increase by 250,000 jobs and the unemployment rate to stay unchanged at 3.7%.

“Everybody is kind of waiting, that’s why we are a little bit rangebound both on stocks and bonds because if that jobs report print is really hot, that could be a big negative for bonds and crush the stock market, or vice versa,” said Jay Hatfield, founder and CEO of Infrastructure Capital Management in New York.

“Claims were pretty weak today and those are leading indicators of employment but notwithstanding that, the employment report is what everybody is waiting for to see whether we head back to the 4% level.”

The yield on 10-year Treasury notes was up 5.9 basis points to 3.818%.

Treasury yields have been sensitive this week to any signs the labor market might be slowing in hopes it would give the US Federal Reserve room to pivot to a less hawkish policy stance and slow its rate of interest rate hikes after three straight increases of 75 basis points (bps).

But Fed officials have been consistent in recent comments that the central bank will take aggressive measures in hiking interest rates to combat rising inflation, raising concerns among investors it could tilt the economy into a recession.

On Thursday, Minneapolis Federal Reserve Bank President Neel Kashkari said the Fed has “more work to do” on bringing down inflation, and is “quite a ways away” from being able to pause its aggressive interest-rate hikes.

Echoing those comments, Federal Reserve Governor Lisa Cook said US inflation remains “stubbornly and unacceptably high” and requires continued interest rate increases ensure it begins falling while Chicago Federal Reserve Bank President Charles Evans said the Fed’s policy rate is likely headed to 4.5%-4.75% by the spring of 2023 as it tries to curb inflation.

The yield on the 30-year Treasury bond was up 2.5 basis points to 3.790%.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as a reliable indicator of a recession when inverted, was at a negative 42.5 basis points, up from the negative 57.85 hit on September 22.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was up 9.1 basis points at 4.241%.

The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.346%, after closing at 2.319% on Wednesday.

The 10-year TIPS breakeven rate was last at 2.215%, indicating the market sees inflation averaging 2.22% a year for the next decade.

(Reporting by Chuck Mikolajczak; editing by Jonathan Oatis and Nick Zieminski)

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