Lowered profit forecasts raise concerns on shaky Wall Street

NEW YORK, Sept 26 (Reuters) – Recent profit warnings from bellwether companies like Ford Motor Co, may signal more challenges ahead for corporate America, increasing wariness for investors as the stock market deepens its sell-off.

Investors are increasingly pricing in a US economic downturn next year. The US Federal Reserve raised interest rates by three-quarters of a percentage point for a third straight time on Wednesday in its fight to combat inflation, and some analysts think the aggressive hikes could tip the economy into recession.

With that, concern about earnings has been rising as companies face higher inflation and possibly weakening demand.

Ford Motor (F) warned last Monday that inflation-related supplier costs will run about USD 1 billion higher than expected in the current quarter, while FedEx Corp. (FDX) outlined on Thursday cost cuts of up to USD 2.7 billion after falling demand hammered first-quarter profits.

The announcements are “very important, especially if there is a spate of future warnings,” said Quincy Krosby, chief global strategist, LPL Financial in Charlotte, North Carolina.

“The market is most worried about demand slowing in the US and demand slowing globally,” she said.

Analysts have cut their S&P 500 earnings estimates for the third and fourth quarters, and for all of 2022.

For the third quarter, analysts expect overall S&P 500 earnings to have increased just 4.6% over the year-ago period, compared with growth of 11.1% expected at the start of July, while they see earnings for all of 2022 growing by 7.7% versus 9.5% seen on July 1, according to IBES data from Refinitiv as of Friday.

“Really up until maybe a month or two ago, we didn’t see much in the way of earnings downgrades. That is now changing, and it is playing catch-up,” said Paul Nolte, portfolio manager at Kingsview Investment Management in Chicago. “It is more fallout, and it is expected.”

Third-quarter results start coming by mid-October, marking one of the next big events for stock investors.

Upbeat corporate earnings had helped support the rebound in US stocks over the summer.

But the respite appears over, with the Dow Jones industrial average .DJI dropped below its June low to its lowest since November 2020 on Friday, narrowly missing a close more than 20% below its Jan. 4 record all-time closing peak of 36,799.64 points.

That would have confirmed a bear market that began from Jan. 4, according to a conventional definition. The Dow is the only one of the three major indexes not to have bear market status. The S&P 500 is down 23% for the year so far, while the Nasdaq is down 31%. Both are also within close reach of the bottoms reached in June.

Rick Meckler, partner at Cherry Lane Investments, a family investment office in New Vernon, New Jersey, said US companies have a tendency to surprise Wall Street with earnings that are stronger than expected.

“Companies have shown an ability to navigate these kinds of situations before,” he said. “There will be a surprise as to how well earnings can hold up.”

Companies are being hit with a wide range of issues right now. On top of inflation and rising rates, there is Russia’s invasion of Ukraine.

“For now, as an investor, you’re getting hit on every side,” Meckler said. Estimates for earnings “are being reduced at the same time that the multiple is being reduced, and that’s part of what’s causing such a big sell-off.”

The S&P 500’s forward 12-month price-to-earnings ratio is now at 16.3, down from 22 at the end of December and near its long-term average of about 16, according to Refinitiv data.

(Reporting by Caroline Valetkevitch; Editing by Alden Bentley and Nick Zieminski)

Gold hovers near 2-1/2-year low on interest rate fears

Sept 26 (Reuters) – Gold prices hovered near a 2-1/2-year low on Monday, on higher Treasury yields and a stronger dollar, while jitters over rising US interest rates dented appeal for non-yielding bullion.

Spot gold fell 1.2% to USD 1,623.79 per ounce by 2:35 p.m. EDT (1835 GMT), after dropping to USD 1,620.85, its lowest price since April 2020.

US gold futures settled 1.3% lower at USD 1,633.40.

“Gold is not the only game in town when it comes to safety. Money is also going into US Treasuries,” said Bob Haberkorn, senior market strategist at RJO Futures.

The outlook for gold is contingent on the Federal Reserve, Haberkorn said, adding that “it’s kind of a storm that you have to weather right now if you’re a gold investor.”

Higher US interest rates dull zero-yielding bullion’s appeal, while bolstering the dollar and bond yields.

Gold has lost more than USD 400, or over 20%, since scaling above the key USD 2,000 per ounce level in March as major central banks raised interest rates.

Making gold more expensive for overseas buyers, the dollar hit its highest level since 2002.

“The move in the dollar is not over and that should keep the pressure on bullion,” Edward Moya, senior analyst with OANDA, said in a note.

While the prospect of more rate increases dampens sentiment towards gold in the present, some analysts say bullion still remains supported by recession risks and geopolitical tensions.

“We’ve got dollar strength and an increase in the US Treasury yields, which typically would push gold lower. However, broadly speaking, gold isn’t doing too badly in the scheme of things,” said Ross Norman, an independent analyst.

In the physical market, China’s net gold imports via Hong Kong jumped nearly 40% to more than a four-year high in August, data showed on Monday.

Elsewhere, spot silver shed 2.5% to USD 18.37 per ounce.

Platinum fell 0.4% to USD 850.43 and palladium lost 0.8% to USD 2,050.79.

(Reporting by Arundhati Sarkar and Kavya Guduru in Bengaluru; Editing by Paul Simao, Shailesh Kuber and Krishna Chandra Eluri)

Sterling’s drop is worse than a flash crash

Sept 26 (Reuters) – Sterling’s drop is worse than a flash crash, two of which have been seen since the term “Brexit” first spread in 2015 and were followed by rapid recoveries. It’s unlikely pound will sustain any recovery in the near-term with a drop below parity set to exacerbate bearish sentiment exponentially.

Flash crashes occur in thin liquidity, and it is the reaction of traders and investors who are largely absent during the crash that matters.

They have been present throughout sterling’s current decline, however, which is happening under normal conditions. There won’t be a rebound until the factors undermining sterling change.

The pound’s rapid decline in the last few days followed the UK’s mini budget but has its roots in the changing US monetary policy which triggered a drop from 1.4250 last year when taper talk first emerged.

The drop in sterling’s value will fuel fears about the extent of the damage Brexit and COVID-19 have wreaked on the economy but have been masked by massive spending during the pandemic.

The extent of sterling’s drop will force anyone with interest in its value to adjust to hedge for a deeper fall and there is a high probability of enduring weakness.

(Jeremy Boulton is a Reuters market analyst. The views expressed are his own.)

Oil prices slide $2/bbl; settle at 9-month lows on dollar strength

Sept 26 (Reuters) – Oil prices fell USD 2 a barrel on Monday, settling at nine-month lows in choppy trade, pressured by a strengthening dollar as market participants awaited details on new sanctions on Russia.

Brent crude futures for November settled down USD 2.09, or 2.4%, to USD 84.06 a barrel, plunging below levels reached on January 14.

US West Texas Intermediate (WTI) crude for November delivery dropped by USD 2.06, or 2.3% to USD 76.71, the lowest since Jan. 6.

Both contracts had risen early in the session after slumping about 5% on Friday.

The dollar index hit a two-decade high, pressuring demand for oil which is priced in the US currency. The impact of a strong dollar on oil prices is at its most pronounced in more than a year, Refinitiv Eikon data shows.

“It’s hard for anyone to expect oil will recover in the wake of a greenback this expensive,” said Bob Yawger, director of energy futures at Mizuho.

Disruption from the Russia-Ukraine war also hit the oil market, with European Union sanctions banning Russian crude set to start in December along with a plan by G7 countries for a Russian oil price cap looking set to tighten supply.

Interest rate increases by central banks in numerous oil-consuming countries have raised fears of an economic slowdown that could squeeze oil demand.

“With more and more central banks being forced to take extraordinary measures no matter the cost to the economy, demand is going to take a hit which could help rebalance the oil market,” said Craig Erlam, senior market analyst at Oanda in London.

Attention is turning to what the Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia, together known as OPEC+, will do when they meet on Oct. 5, having agreed at their previous meeting to cut output modestly.

However, OPEC+ is producing well below its targeted output, meaning that a further cut may not have much impact on supply.

“Odds would appear quite high for a downward adjustment in production by the OPEC + organization,” said Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois.

Data last week showed OPEC+ missed its target by 3.58 million barrels per day in August, a bigger shortfall than in July.

(Additional reporting by Noah Browning, Mohi Narayan in New Delhi and Sonali Paul in Melbourne; Editing by Kirsten Donovan and David Gregorio)

Japan warns against speculative yen moves, markets wary of further intervention

TOKYO/OSAKA, Sept 26 (Reuters) – Japanese Finance Minister Shunichi Suzuki said authorities stood ready to respond to speculative currency moves, a fresh warning that comes days after Tokyo intervened in the foreign exchange market to stem yen falls for the first time in more than two decades.

Suzuki also told a news conference on Monday the government and the Bank of Japan (BOJ) were on the same page in sharing concerns about the currency’s sharp declines.

“We are deeply concerned about recent rapid and one-sided market moves driven in part by speculative trading,” Suzuki told the news conference. “There’s no change to our stance of being ready to respond as needed” to such moves, he added.

Japan likely spent a record around 3.6 trillion yen (USD 25 billion) last Thursday in its first dollar-selling, yen-buying intervention in 24 years to stem the currency’s sharp weakening, according to estimates by Tokyo money market brokerage firms.

BOJ Governor Haruhiko Kuroda said on Monday the central bank was likely to retain its ultra-loose monetary policy for the time being, but added that its commitment to keep interest rates at “present or lower levels” may not necessary stay unchanged for years.

At last week’s news conference, Kuroda had said the BOJ was unlikely to change its guidance on interest rates for “two to three years”.

But on Monday he retracted that.

“It won’t be that long, such as two to three years,” Kuroda told a briefing in Osaka, western Japan, signalling that the guidance could change depending on how long the economy took to fully emerge from the effects of the COVID-19 pandemic.

Still, Kuroda warned of heightening risks to Japan’s economy and stressed his resolve to maintain the ultra-low rates blamed by analysts for accelerating the Japanese currency’s declines.

“If risks to the economy materialise, we will obviously take various monetary easing steps without hesitation as needed,” he told a meeting with business executives in Osaka, western Japan.

The remarks came after the government’s decision on Thursday to intervene in the currency market to stem yen weakness by selling dollars and buying yen for the first time since 1998. Analysts, however, doubted whether the move would halt the yen’s prolonged slide for long.

Kuroda said the government’s intervention was an appropriate move to deal with “rapid, one-sided” yen moves. He countered the view Japan was chasing contradictory goals by propping up the yen with intervention, while helping drive down the currency by maintaining ultra-low interest rates.

“Monetary policy and currency policy have different goals and effects,” he said.

BOJ POLICY CONUNDRUM

The yen’s recent sharp declines, which have pushed up households’ living costs by boosting imported fuel and food prices, have been driven in part by widening divergence between the US Federal Reserve’s aggressive monetary tightening and the BOJ’s ultra-loose monetary policy.

The dollar added 0.54% to 144.175 yen on Monday, continuing its climb back towards Thursday’s 24-year peak of 145.90. It tumbled to 140.31 that same day after Japanese authorities stepped into the market.

In a meeting Kuroda held with business executives in Osaka, Masayoshi Matsumoto, head of the region’s business lobby Kansai Economic Federation, praised Japan’s decision to intervene in the market.

“It was a meaningful move that showed Japan’s determination it won’t leave unattended sharp market volatility,” he said.

Yoshihisa Suzuki, an executive of trading house Itochu Corp., called on the BOJ to adopt a “balanced” policy approach that took into account not just the demerits of a weak yen but the potential risks of a sharp yen rise that hurt exports.

“People talk a lot about the demerits of a weak yen. But a strong yen is also painful,” Suzuki said.

While government officials’ jawboning may keep markets nervous of the prospects of further intervention, stepping in repeatedly in the currency market and selling huge sums of dollars could be difficult due to the criticism Japan may face from its G7 counterparts.

The US Treasury Department said last week it “understood” Japan’s intervention was aimed at reducing volatility, but stopped short of endorsing the move.

“It’s unlikely Japan will continue intervening to defend a certain line, such as 145 yen to the dollar,” former top Japanese currency diplomat Naoyuki Shinohara told Reuters.

(Reporting by Tetsushi Kajimoto in Tokyo and Leika Kihara in Osaka; Additional reporting by Daiki Iga; Writing by Leika Kihara; Editing by Sam Holmes, Shri Navaratnam and Alex Richardson)

Interest rate jitters, recession worries crush Latam FX

Sept 23 (Reuters) – Brazil’s real and Chile’s peso dropped over 2.5% each on Friday, leading a sell-off across emerging market currencies as investors were gripped by fears about a global recession, driving the safe-haven dollar to 22-year highs.

Data showed a drop in business activity across the euro zone and Britain feeding fears of a global economic downturn that followed interest rate hikes and hints of more by the Federal Reserve and other central banks this week.

Risk-off sentiment prompted a sell-off of Brazil’s real a day after the central bank intervened to support the currency, selling USD 2 billion in the spot market with a repurchase agreement. The real was on track for its sharpest daily fall in five months.

Crude oil and metal prices slid on worries about weaker demand. Mexico’s currency fell 1.2% and Colombia’s fell 1.7%. Top copper exporter Chile’s peso marked its third straight week in the red.

“Over the next couple of weeks, long-term investors may hesitate buying into weakness because it doesn’t seem like any economic data release or Fed speak will convince markets that a downshift from this aggressive tightening campaign will be happening anytime soon,” said Edward Moya, senior markets analyst, the Americas at Oanda.

Latam currencies have fared better than broader emerging market peers as regional central banks started their hiking cycles early and went big, staying ahead of the Fed.

Regional assets also benefited from the rise in commodity prices earlier this year. The Brazilian real has seen volatility in the run-up to elections in October, but is still up 6% for the year.

“(Brazil’s) fiscal revenues have consistently surprised on the upside over the past 12 months,” said Elizabeth Johnson, managing director of Brazil research at TS Lombard.

“The outlook for 2023 remains much more challenging, largely because of the massive increase in election-related government spending,” she warned.

Among stocks, Argentina’s main index plunged 4.2%, while Colombia’s COLCAP lost 3.4%. Brazil and Mexican indexes lost well more than 2% each.

After a central bank heavy week, investors will be watching for more decisions next week, including from monetary authorities in Hungary, Mexico and Colombia, with all expected hike rates.

In Colombia, analysts are split, with eight of the 17 analysts polled forecasting a 100 basis points hike, taking the key interest rate to 10%, while another eight expect a 150 bps rise.

(Reporting by Amruta Khandekar and Susan Mathew; Editing by Andrea Ricci and David Gregorio)

US recap: Dollar surges as sterling implodes, hard-landing fears abound

Sept 23 (Reuters) – The dollar vaulted higher on Friday as sterling wilted 3% on UK fiscal fears and dismal euro zone PMI data heightened worries about the withering global economy after the Fed piled on another aggressive rate hike this week and signaled more to come.

Unfunded UK fiscal stimulus plans suggested the BoE’s underwhelming 50bps hike this week left it further behind the suddenly steeper inflation curve.

EUR/USD’s fell to fresh 20-year lows after euro zone September composite PMI from S&P global slid to a more contractionary 48.2 from 48.9, while the US composite improved to 49.3 from 44.6.

The data coupled with the hawkish Fed and yield-seeking safe-haven flows propelled the dollar index 1.65% higher to 20-year highs, while EUR/USD tumbled 1.52%.

USD/JPY rallied 0.6%, extending its recovery from Thursday’s dive on Japanese intervention to support the yen, with fears of further forex forays by the MOF likely to slow rather than reverse the dollar’s uptrend in the absence of BoJ tightening.

With another 75bp Fed rate hike almost fully priced in for the November meeting, charts show scope for the dollar index to rise 7% before running into crucial long-term resistance.

At that point, global unease about dollar gains worsening the global inflation and growth outlooks might provide resistance as well.

Highlighting macro risks, 2-year gilt yields surged more than 40bps to 4.005%, its highest since 2008, as sterling hit its lowest since 1985, prompting talk of a new Plaza Accord to weaken the dollar following Japan’s intervention to support the beleaguered yen on Thursday.

The threat of hard landing sent stocks and riskier assets sharply lower, and a the 2-10-year Treasury yield curve inverting a further 10bps to -50.7bps.

Illustrating European concerns was the 15bps widening of 2-year bund-BTP yields spreads ahead of Saturday’s Italian election.

The S&P 500’s slide now threatens June’s 2022 lows, with the DJIA already below its June lows Friday.

Global recession fears crushed commodity prices. Crude fell about 5% to 8-month lows and metals prices, including gold, were down sharply as well. Oil’s drop comes amid Russia’s attempts to annex four regions within Ukraine.

Bitcoin losses kept it close to June’s nadir, while ether still has a bit of room before reaching its summer trough.

Next week’s data calendar is pretty light on top-tier releases until Friday’s inflation updates from the euro zone and US

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

Gold drops to 2-1/2-year lows as dollar extends rally, yields firm

Sept 23 (Reuters) – Gold prices dropped over 1.5% to their lowest since April 2020 on Friday, hurt by an unrelenting rally in the US dollar and Treasury yields as the Federal Reserve adopts a more aggressive stance to check surging inflation.

Spot gold was down 1.6% at USD 1,644.04 per ounce at 1:57 p.m. EDT (1757 GMT), after dropping as much as 1.8% to USD 1,640.20 earlier in the session.

US gold futures settled 1.5% lower at USD 1,655.60.

Bullion was headed for a second straight weekly fall, down about 1.8% so far.

“We’re seeing relentless dollar strength here and that’s going to keep gold vulnerable in the short term,” said Edward Moya, senior analyst with OANDA.

“The economy is clearly heading towards a recession. The risks of a hard landing are elevated, and this has been just continuing to drive flows into the dollar, which has been bad news for gold.”

The dollar touched a 20-year high, dampening demand for greenback-priced bullion, while benchmark 10-year yields jumped to their highest since April 2010.

“This should see (gold) prices trading broadly sideways over the rest of the year,” Fitch Solutions said in a note.

Surging inflation has prompted several central banks to tighten monetary policy, with the US Fed raising its benchmark overnight interest rate by 75 basis points on Wednesday.

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

“Gold and the other semi-investment metals like silver and platinum will likely continue to remain under pressure until the market reaches peak hawkishness,” said Ole Hansen, head of commodity strategy at Saxo Bank, in a note.

Other precious metals also fell sharply and were on pace for weekly losses. Spot silver declined 4.1% to USD 18.84 per ounce, while platinum lost 4.8% to USD 857.46.

Palladium dropped 4.8% to USD 2,065.29.

(Reporting by Kavya Guduru in Bengaluru; Editing by Vinay Dwivedi and Shailesh Kuber)

China stocks fall on foreign outflow concerns, geopolitical risks

SHANGHAI, Sept 23 (Reuters) – China stocks extended losses on Friday, weighed down by foreign fund outflow concerns on overseas rate hikes, COVID-19 woes, and elevated geopolitical tensions, while Hong Kong shares fell towards an 11-year low.

** The blue-chip CSI 300 Index closed down 0.3%, while the Shanghai Composite Index lost 0.7%. Both indexes were down for a third straight session.

** The Hang Seng Index ended lower 1.2% and the Hang Seng China Enterprises Index was down 1.3%.

** For the week, the CSI 300 fell 1.9%, while the Hang Seng Index plunged 4.4% and logged its worst weekly performance in 10 weeks.

** MSCI’s index of Asia shares outside Japan fell 1.6% to its lowest since mid-2020, as the prospect of US interest rates rising further and faster than expected rattled investors.

** “A-share sentiment set a new YTD (year-to-date) low as trading volume declined further and the earnings revision trend continued to worsen,” Morgan Stanley said in a note.

** “Investor sentiment deterioration is driven largely by ongoing COVID outbreaks, rising geopolitical uncertainties and relatively quiet policy direction ahead of the Party Congress.”

** Semiconductor stocks tumbled 2.7% to lead the declines, while shares of consumer discretionary companies, energy suppliers and automobile makers retreated more than 1.5% each.

** Overshadowed by US President Joe Biden’s headline-grabbing vow that American forces would defend Taiwan against a Chinese attack was his hint at possibly shifting US policy to support the island’s right to self-determination.

** Hong Kong said it will scrap its controversial COVID-19 hotel quarantine policy for all arrivals from Sept. 26, in a long-awaited move for many residents and businesses in the financial hub. nL1N30U0D6

** Beijing has sent a team of regulatory officials to Hong Kong to assist the US audit watchdog with onsite audit inspections involving Chinese companies, sources said, as part of a landmark deal between the two countries.

** Tech giants listed in Hong Kong fell more than 2%, with heavyweights Alibaba, Tencent and Meituan shedding between 2.8% and 3%, to become the biggest drags on the Hang Seng benchmark.

(Reporting by Shanghai Newsroom; Editing by Subhranshu Sahu and Uttaresh.V)

European shares routed as recession worries heighten

Sept 23 (Reuters) – European energy and material stocks sank nearly 6% on Friday, pushing a broader index of regional shares to near two-year lows as dismal euro zone data pointed to an economic downturn, adding to worries over hawkish central bank moves.

UK stocks lost 2%, with further losses capped by a 3% plunge in the pound after British finance minister Kwasi Kwarteng announced a series of tax cuts and measures aimed at boosting growth.

The pan-European STOXX 600 index dropped 2.3%, taking weekly losses to 4.4% – its worst week since mid-June.

A survey showed the downturn in business activity across the euro zone deepened this month, likely entering a recession as consumers rein in spending amid a cost of living crisis.

Europe’s biggest economy, Germany, saw its main index hit its lowest since November 2020, down 2.0%.

“Given the downward risks and the high degree of uncertainty, everything is pushing towards a contraction in economic activity in the eurozone over the coming quarters,” said economists at ODDO BHF, adding that Germany may already be in recession as of the third quarter.

Europe is headed for a tough winter as doubts about energy supply paint a bleak outlook for pick-up in economic activity. Add to that the European Central Bank’s clear priority for inflation control, another 75 basis point hike in October is “definitely” on the table, said ING’s Senior Euro zone Economist Bert Colijn.

The STOXX 600 is down 20% for the year. It is also about 20% away from record highs hit in January.

Interest rates were sharply increased through the week, with the Fed delivering its third consecutive 75 basis-point hike and Switzerland exiting the era of negative interest rates on Thursday. The Bank of England raised rates by 50 bps.

As oil prices tumbled 5% on demand fears, BP, TotalEnergies and Shell weighed the most on STOXX 600, down between 4.9% and 7%. The mining index logged its worst session in five months as metal prices dropped.

All major sectors were well in the red. Banks fell 3.6%, with Credit Suisse shedding 12.4% to hit a record low.

The Swiss bank sounded out investors for fresh cash, sources said, approaching them for the fourth time in roughly seven years as it attempts a radical overhaul of its investment bank.

Still, the banking index in Europe was set to sharply outperform the benchmark STOXX 600 in September on bets of the sector benefitting from a high-interest rate environment.

(Reporting by Susan Mathew, Shreyashi Sanyal and Johann M. Cherian in Bengaluru; Editing by Savio D’Souza, Subhranshu Sahu and Angus MacSwan)

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