Xi bangs the drums

Oct 13 (Reuters) – After a wild day on world markets on Thursday – the long-awaited turnaround or yet another bear market rally? – the focus in Asia turns to China.

Beijing releases a raft of key economic data on Friday including the latest snapshots of inflation and trade, while the country gears up for the 20th Communist Party Congress which opens on Sunday.

Chinese President Xi Jinping is widely expected to clinch his third five-year stint in charge – a mandate that would secure his stature as the country’s most powerful ruler since founding leader Mao Zedong.

China’s economic and financial challenges are mounting. Growth is slowing significantly and the huge property sector is in crisis. The yuan last month hit its weakest level in almost 15 years, and the offshore yuan the weakest since it was launched in 2010.

Investors will be looking for signals from Xi on how he intends to tackle these issues, not to mention the domestic, social and international political problems he also faces.

Asian markets will open with a spring in their step on Friday after the huge ‘risk-on’ rally Thursday. That was despite punchy US inflation data that not only strengthened market expectations for another 75 basis point rate hike from the Fed, but opened the door to a 100 bps move.

They will be on FX intervention alert too, after the dollar’s spike to a 32-year high of 147.67 yen. The bullish whoosh across markets on Thursday pulled the dollar back a bit, but it remains above 147.00.

A G7 statement late on Thursday reaffirming policymakers’ commitment that excessive FX moves are undesirable seems to have barely registered among FX traders. If the dollar doesn’t come down further, the BOJ may have to act again.

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

IMF/World Bank meetings in Washington

India wholesale inflation (September)

Japan money supply (September)

South Korea import, export prices (September)

South Korea unemployment (September)

China producer price inflation (September)

China consumer price inflation (September)

China trade (September)

Singapore GDP (Q3, flash estimate)

Singapore interest rate decision

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

Gold eases as US inflation data fans fears of sharp rate hikes

Oct 14 (Reuters) – Gold prices fell on Thursday as a higher-than-expected rise in US September inflation cemented bets the Federal Reserve will persist with aggressive interest rate hikes.

Spot gold dropped 0.3% to USD 1,666.77 per ounce by 12:42 p.m. EDT (1642 GMT). US gold futures settled almost flat at USD 1,677.00.

The US consumer price index (CPI) rose 0.4% last month after gaining 0.1% in August, the Labor Department said. In the 12 months through September, the CPI rose 8.2% after gaining 8.3% in August.

The data signals the Fed will be more aggressive in fighting inflation by raising interest rates at a faster pace, pressuring gold, said David Meger, director of metals trading at High Ridge Futures.

Following the data, benchmark US 10-year Treasury yields climbed. Higher interest rates and bond yields lower the appeal of non-yielding gold.

“There was some optimism going into the report that we had seen consumer prices abate and with the news coming out that was not the case, we saw the obvious result of that,” Meger said.

Traders of US interest-rate futures had all but priced in a fourth straight 75-basis-point hike at the close of the Fed’s Nov. 1-2 meeting, after the inflation data they began pricing about a one-in-10 chance of a full percentage-point rate hike next month.

Fed officials reiterating their aggressively hawkish stance on monetary policy has kept the market uneasy due to fears of a “pending US and/or global recession,” Jim Wyckoff, senior analyst at Kitco Metals, said in a note.

“Today’s CPI report suggests the Fed is correct regarding its belief that inflation is still not under control.”

Spot silver dropped 0.9% to USD 18.87 per ounce, platinum firmed 1.9% to USD 897.00, and palladium dipped 1.3% to USD 2,107.78.

(Reporting by Bharat Govind Gautam in Bengaluru; editing by Barbara Lewis and Vinay Dwivedi)

Fragile yen tests 1998 low, sterling holds its breath

SINGAPORE, Oct 13 (Reuters) – The yen languished near a fresh 24-year low on Thursday, while sterling pared some overnight gains as investors nervously awaited an impending deadline for the end of the Bank of England’s emergency bond-buying programme.

Investors also were on edge in Asia trade ahead of a key inflation reading in the US later in the day for possible clues on how much higher the Federal Reserve will push interest rates.

The yen hit a trough of 146.98 per dollar overnight and last traded at 146.87.

It is a whisker away from its August 1998 low of 147.64 per dollar, and well past last month’s low of 145.90 per dollar which prompted Japanese authorities to intervene to buy the yen.

“It has lost its safe haven appeal,” said Rodrigo Catril, a senior currency strategist at National Australia Bank.

“There’s been this sense of cautiousness around that previous high (for dollar/yen) … now they’ve punched through it, and therefore it feels like you have a little bit more room to keep going, because there hasn’t been any intervention.”

Sterling eased 0.13% to USD 1.10845, following a 1.25% rebound in the previous session after the Financial Times reported that the BoE had signalled privately to lenders that it was prepared to extend its emergency bond-buying programme beyond Friday’s deadline if market conditions demanded it.

However, the central bank later reiterated that its programme of temporary gilt purchases will end on Oct. 14.

At the same time, Britain’s new government said on Wednesday that it would not reverse its vast tax cuts or reduce public spending – a plan which has wreaked havoc in the country’s financial markets.

UK pension schemes are racing to raise hundreds of billions of pounds to shore up derivatives positions before the BoE’s Friday deadline.

Elsewhere, the euro gained 0.02% to USD 0.97035, while the antipodean currencies were nursing losses after having fallen to fresh multi-year lows earlier in the week.

The Aussie was up 0.02% at USD 0.6279, after sliding to a 2-1/2-year low of USD 0.62355 in the previous session.

The kiwi gained 0.10% to USD 0.5613, not far from its trough of USD 0.5536 hit on Tuesday, the lowest level since March 2020.

Core inflation in the US is projected to rise 6.5% year-on-year in September. Overnight, data showed that US producer prices increased more than expected last month.

The US dollar index firmed to 113.29.

“In some ways, the US CPI is still looking back in the rearview mirror. You need to look at the component parts and see if there’s any interesting momentum that can be inferred,” said Saktiandi Supaat, regional head of FX research and strategy at Maybank.

Minutes from the Federal Reserve’s policy meeting last month showed that officials agreed they needed to raise interest rates to a more restrictive level – and then keep them there for some time – to meet their goal of lowering “broad-based and unacceptably high” inflation, even as the minutes contained a hint of a downshift in the pace of future monetary tightening.

(Reporting by Rae Wee; Editing by Ana Nicolaci da Costa and Kim Coghill)

China companies rush to currency derivatives as yuan bounces lower

SHANGHAI, Oct 13 (Reuters) – A record number of listed firms in China are embracing currency derivatives and fuelling a boom in onshore trade of the instruments, the latest data shows, as companies and investors rush for protection from the yuan’s sharp drop against the dollar.

That should please Chinese regulators who have for years been pushing companies to pursue risk-neutral hedging, but the derivatives rush has proved a double-edged sword with bearish bets on the yuan also threatening to add unwelcome pressure on China’s currency.

“In reality, it’s difficult to be risk-neutral: Most company executives have their views on currency trends,” said Chen Hongting, an options trading advisor.

He said the dollar’s strength seems “unstoppable” and it would be natural for companies to act in line with that trend. If they end up making sizeable bearish bets via derivatives, he added, that could drag the yuan’s spot price down further.

The yuan has tumbled more than 11% this year against a surging US dollar and at one point hit its lowest since the 2008 global financial crisis, weighed down by US monetary tightening and China’s economic slowdown.

Rising global uncertainty and higher yuan volatility have spurred corporate demand for risk-hedging, said Liu Wencai, founder of risk management consultancy D-Union.

According to D-Union data, 814 China-listed companies announced transactions in foreign exchange forwards, swaps or options in the first nine months of this year, a jump of 26% from a year earlier.

A number of companies, including industrial equipment maker Suzhou Mingzhi Technology Co 688355.SS and commodities trader Fujian Sanmu Group Co 000632.SZ, unveiled plans in recent weeks to start or increase foreign exchange derivatives trading, citing rising currency risks.

“Currency fluctuations have become more frequent, adding to operational uncertainty,” Mingzhi Technology said in an exchange filing.

Companies’ derivatives trading, however, appears biased towards the greenback.

Corporate dollar purchases have been exceeding dollar sales in newly signed forward contracts since April, indicating outflow pressure worth USD 35.7 billion amassed in the April-September period and reversing a three-year pattern of inflows.

Currency forward contracts set an exchange rate for future transactions, but the depreciation pressure is felt in the spot market.

In the first half of this year, foreign exchange risk-hedging by Chinese companies totalled USD 755.8 billion, up 29% from a year ago, China’s central bank said on Tuesday.

That hedging may have accelerated further since then, as market swings became more extreme.

Yuan derivative trading in the interbank, or wholesale, market is also active, with yuan currency options trading hitting a monthly record in September.

Regulators have been pushing for companies to be risk neutral by fully hedging their net foreign currency exposure, rather than seeking to profit from currency movements in a particular direction.

In a brochure promoting yuan derivative products, the State Administration of Foreign Exchange, China’s currency market regulator, said: “Having a rational view of forex volatility, and properly managing currency risks, have become a mandatory course for companies” with foreign exchange exposure.

Some have taken this guidance to heart, including Jin Shengrong, finance manager at importer Nanjing Golden Chemical Co, who said he is adopting risk neutrality in hedging because he’s not sure where the yuan is heading.

While the yuan may fall further against a buoyant dollar, continued weakness could also invite central bank intervention, he said.

(USD 1 = 7.1767 Chinese yuan renminbi)

(Reporting by Samuel Shen and Vidya Ranganathan; Editing by Edmund Klamann)

Oil prices lose ground as market jittery over demand risks

Oct 13 (Reuters) – Oil prices struggled to find a footing on Thursday after easing in the previous session on a weakening global demand outlook.

Brent crude futures fell 7 cents, or 0.1%, to USD 92.38 a barrel by 0650 GMT. US West Texas Intermediate crude was down 21 cents, or 0.2%, at USD 87.06 a barrel.

Both OPEC and the US Energy Department have cut their demand outlooks, while a flare-up in COVID-19 cases in China has sparked fresh concerns over fuel consumption in the world’s top crude importing-country.

“This week has placed growth risks back into the spotlight for oil prices, as the initial enthusiasm over OPEC+ production cuts has proved to be short-lived and gains are seen fading off,” said Jun Rong Yeap, market strategist at online trading platform IG.

“While the OPEC+ production cuts may provide somewhat of a floor for oil prices, upside may seem limited as economic conditions will run the risks of further moderation as a trade-off to further Fed’s tightening process,” Yeap said.

Last week, the producer group comprising the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia pushed prices higher when it agreed to cut supply by 2 million barrels per day (bpd).

But OPEC on Wednesday cut its outlook for demand growth this year by between 460,000 bpd and 2.64 million bpd, citing the resurgence of China’s COVID-19 containment measures and high inflation.

“Growing demand fears and intensifying supply issues are likely to keep commodity prices volatile,” said ANZ Research analysts.

“There has not been any relief from China either, as authorities are stepping up with lockdown measures amid rising cases in Shanghai,” the analysts said.

The US Energy Department lowered its expectations for both production and demand in the United States and globally. It now sees just a 0.9% increase in US consumption in 2023, down from a previous forecast for a rise of 1.7%.

Worldwide, the department sees consumption rising just 1.5%, down from a previous forecast for 2% growth.

Worsening demand for crude oil is contributing to inventory builds. US crude oil stockpiles rose by about 7.1 million barrels for the week ended Oct. 7, according to market sources citing API data.

The energy market is under pressure as well from the US dollar, which has rallied broadly, including against low-yielding currencies like the yen.

The Federal Reserve’s commitment to keep raising interest rates to stem high inflation has boosted yields, making the US currency more attractive to foreign investors.

(Reporting by Jeslyn Lerh in Singapore; Additional reporting by Laura Sanicola in Washington; Editing by Shri Navaratnam, Richard Pullin and Tom Hogue)

Gold in tight range as investors brace for US inflation data

Oct 13 (Reuters) – Gold prices flitted in a tight range on Thursday as market participants maintained a cautious stance ahead of a key US inflation reading that could influence the size of the Federal Reserve’s next interest rate hike.

Spot gold fell 0.2% to USD 1,668.59 per ounce, as of 0646 GMT. US gold futures dipped 0.2% to USD 1,674.80.

Although traditionally considered an inflation hedge, interest rate hikes to combat soaring prices have reduced bullion’s appeal since it yields no interest.

“Inflation is going to remain very sticky for a while and will keep gold under pressure … In the near-term, trading range for gold prices will be USD 1,620 to USD 1,740” said Edward Meir, an analyst with ED&F Man Capital Markets.

The US Consumer Price Index data is due at 1230 GMT and is forecast to come in at a hot 8.1% year-on-year in September, which could cement expectations of another big rate hike from the Fed.

A stronger print would be negative for gold, ANZ wrote in a note.

Wednesday’s readout of the Fed’s last policy meeting showed policymakers agreed they needed to move to a more restrictive policy stance, and then maintain that for some time to lower inflation.

Gold still looks weak on the charts and any rally in prices will be short-term as the Fed is still concerned about inflation and remains very hawkish, Meir added.

Market participants also took stock of new COVID-19 infections reported from top gold consumer China, which imposed restrictions in some regions.

Spot silver fell 0.5% to USD 18.97 per ounce.

“We expect silver prices to fall to USD 17 – USD 18/oz over the next six months before rising to USD 22 as the Fed returns to rate cuts and quantitative easing and as China eventually strengthens,” Citi said in a note.

Platinum lost 0.6% to USD 875.12 and palladium was flat USD 2,136.41.

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

Saga of Wall Street’s pandemic darlings ends with tears

Oct 12 (Reuters) – Think about something novel you started doing two-and-a-half years ago to make life easier during the COVID lockdown and chances today are that there is a related story about a stock market casualty.

Add investor worries about soaring inflation and an economic slowdown that tipped Wall Street into a bear market this year, and you will find a bleak picture for the companies that became hugely popular during the pandemic.

Connected stationary bike maker Peloton Interactive (PTON) told employees last week that its fourth round of job cuts this year is a bid to save the company. Its problems put a spotlight on other pandemic hot-shots like Zoom Video Communications (ZM), Nautilus Inc. (NLS), DocuSign Inc. (DOCU) and DoorDash Inc. (DASH).

Growth investors pushed Peloton stock to a USD 171.09 record in early 2021. Demand was so strong for its bikes that restless consumers had to wait out long delivery delays. But Peloton shares are now down 95% from their peak, closing at USD 8.53 on Wednesday. The S&P 500 by comparison is down about 25% from its record high in January this year.

Others bought exercize gear from Nautilus during the pandemic, sending its stock up to USD 31.30 in early 2021. It last traded at USD 1.65.

Zoom became synonymous with online meetings as many people worked remotely and even turned to video conferences for social gatherings. But Zoom’s shares were last at USD 75.22 versus its USD 588.84 peak, reached in October 2020.

Other stay-at-home favorites were online retailer Amazon.com (AMZN) and food delivery service DoorDash (DASH). People also flocked to consumer-friendly brokers like Robinhood Markets (HOOD) while stuck at home with no sports to bet on. But after scaling USD 85 in August 2021, Robinhood last traded at USD 10.66.

“These are companies with good enough ideas that they get enough funding. They catch a wave like COVID, their use explodes,” said Kim Forrest, chief investment officer at Bokeh Capital Partners in Pittsburgh. But once that growth slows, investors lose interest.

“They kind of used up all the air in their universe, and they have nowhere to grow. So, while people might still be using the Peloton, not enough people are buying the Peloton,” said Forrest.

Daniel Morgan, portfolio manager at Synovus Trust in Atlanta, Georgia, says Peloton may appear cheap, but he is wary because it is not profitable. Its price-to-sales multiple has fallen to 0.8, on a trailing 4-quarter basis, from an average multiple of 6.6 since it went public in Sept. 2019, Morgan said.

Wall Street expects Peloton to report an adjusted loss per share of USD 2.07 for its fiscal year ending in June compared with a loss of USD 7.69 in its fiscal year 2022, according to Refinitiv.

Zoom has been making money and its valuation also appears cheap at 35 times earnings per share versus an average multiple of 135 since its April 2019 debut, Morgan said.

Still, he is concerned about its profit decline. Zoom’s adjusted earnings per share is expected to fall 27% for its fiscal year ending in January versus 2022 growth of 55.5%, according to Refinitiv.

Morgan also pointed to a growth slowdown for DoorDash and retail giant Amazon.com as they are also being hurt by soaring inflation and economic uncertainty.

“Each company is going to have to see how their particular business model can execute in a normalized environment,” he said.

Carol Schleif, deputy chief investment officer at BMO’s family office in Minneapolis, cautioned against investing in companies that look cheap and have loyal customers. It’s all about management, balance sheets and projected income, she said.

While one possible outcome for pandemic favorites with slowing growth could be a buyout by a larger company, Schleif is wary of making this bet.

“Buying a stock because you think it’s going to get taken out, that’s a risk. I wouldn’t be willing to do it with any money I wasn’t willing to lose,” she said. “It’s not really investing. It’s more opportunistic.

(Reporting By Sinéad Carew, Lance Tupper and Chuck Mikolajczak; Editing by Alden Bentley and Richard Pullin)

US recap: EUR/USD slips on firm US PPI, while sterling rebounds

Oct 12 (Reuters) – The dollar index held firm on Wednesday as the US currency surged to 24-year highs against the yen and firmed against the euro with the help of above-forecast US PPI, but it stood aside as sterling rebounded 1% on hope that BoE emergency bond-market support would remain intact

Investors were keeping some powder dry, however, ahead of Thursday’s US CPI and Friday’s retail sales reports, which will refine Fed rate-hike expectations.

The market is pricing in roughly 160bp of hikes and a terminal fed funds rate at 4.67%, right by the Fed’s median 2023 dot plot, where most policymakers have been guiding since the last meeting.

Minutes from that meeting reinforced their higher-for-longer message but also acknowledged that risks would become more two-sided the further policy ventured into restrictive territory.

In contrast, Governor Haruhiko Kuroda reaffirmed the BOJ’s negative interest rate policy, fueling USD/JPY gains.

Meanwhile, markets expect the BoE will hike rates a full percentage point at each of its next two meetings and by roughly 350bp by May in a frantic attempt to tackle inflation, while putting out fires in the financial markets.

The ECB is priced hiking another 230bp, with rates seen peaking just shy of 3% next year.

Europe’s much higher cost and lower ability to mitigate dwindling energy supplies from Russia remain a hindrance for the euro and sterling.

Though well off this year’s peaks, European nat gas prices are 670% higher than in the US gas, compared to pre-COVID ranges of 150-300%.

If US CPI, particularly core, remains high and retail sales don’t slump, EUR/USD’s 0.9528 September lows could be revisited.

Sterling found support by the 50% Fibo of its rebound from record lows, but may need further BoE risk mitigation confirmed Friday to sustain that.

USD/JPY has 1998’s 147.64 peak in play on the assumption the BOJ won’t intervene again before there, as it’s the speed of the advance that threatens more action.

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

Gold gains as US Fed minutes pressure dollar

Oct 12 (Reuters) – Gold prices firmed on Wednesday, drawing support from a drop in the dollar and US Treasury yields in the wake of minutes from the Federal Reserve’s last policy meeting.

Spot gold rose 0.5% to USD 1,673.59 per ounce by 2:40 p.m. ET (1840 GMT). US gold futures settled down 0.5% at USD 1,677.50.

Fed policymakers agreed they needed to move to a more restrictive policy stance, and then maintain that for some time, to meet the US central bank’s goal of lowering inflation, a readout of last month’s two-day meeting showed on Wednesday.

That said, several participants in the discussion said it would be important to “calibrate” the pace of further policy tightening with the aim of mitigating the risk of significant adverse effects on the economic outlook.

“The market is grasping for any sign of dovishness and are looking at the word ‘calibrate’, hence the dip in the US dollar and pop in gold,” said Tai Wong, a senior trader at Heraeus Precious Metals in New York, adding that the minutes should, however, still be read as hawkish.

The dollar weakened, making gold less expensive for other currency holders. Benchmark US 10-year Treasury yields also eased.

Higher interest rates increase the opportunity cost of holding non-yielding bullion.

US consumer price index data is due on Thursday, which is expected to remain stubbornly elevated.

“Gold and silver look set to benefit from the eventual turnaround in the dollar and yields, hence the continued focus on inflation and economic data for sign of any weakness to support a shift in the hawkish stance being signalled by the Federal Reserve,” Ole Hansen, head of commodity strategy at Saxo bank, said in a note.

Spot silver XAG= fell 0.8% to USD 19.03 per ounce, platinum firmed 0.2% to USD 886.94, and palladium edged 0.2% higher to USD 2,144.68.

(Reporting by Bharat Govind Gautam and Brijesh Patel in Bengaluru; Editing by Maju Samuel and Shounak Dasgupta)

Dollar at 24-year top on yen after US yields jump; sterling choppy

TOKYO, Oct 12 (Reuters) – The dollar scaled new 24-year heights on the yen on Wednesday, breaching levels that prompted intervention by Japanese officials last month, while investors in sterling were scratching their heads about the Bank of England’s plans.

The dollar reached as high as 146.39 yen in early Asia trade, the first time at that level since August 1998. It was last up 0.2% at 146.18.

Japanese authorities staged their first yen-buying intervention since 1998 on Sept. 22, when the yen weakened to 145.90 per dollar.

Officials have reiterated they remain ready to take appropriate steps to counter excessive currency moves, though whether they wish to defend particular levels is less clear.

“Given the overriding strong dollar trend in place, it’s possible that instead of defending the yen at a particular level, the Bank of Japan would try to slow down the pace of the dollar-yen’s rise by defending at a higher level” than previously, said Alvin Tan, head of Asia currency strategy at RBC Capital Markets.

The Japanese currency is particularly sensitive to the gap between U.S. and Japanese long-term bond yields. The benchmark 10-year Treasury yield jumped to the cusp of a 14-year high overnight at 4.006%, while the equivalent Japanese government bond yield is pinned near zero by the Bank of Japan.

The other main focus of the day was sterling, which slipped to a new two-week trough of USD 1.0925 in early Asia trade after Bank of England (BoE) Governor Andrew Bailey reiterated that the central bank would end its emergency bond-buying programme on Friday and told pension fund managers to finish rebalancing their positions within that time frame.

It rebounded slightly after a report in the Financial Times said the BoE has signalled privately to lenders that it was prepared to prolong its bond purchases, and was last at USD 1.1015, up 0.5% on the day.

“Confusing much?” Jordan Rochester, executive director of FX strategy summarised the situation in emailed comments.

“Either way it’s a stop gap and eventually will come to an end, it has allowed GBP some respite but it’s not a reason in itself to go long GBP. It’s simply a matter of time before the support for the long end is reduced and GBP heads lower with it,” Rochester added.

The emergency programme was a response to turmoil in Britain’s government bond market following a mini-budget that also sent the pound to a record low of USD 1.0327.

Wednesday data showing Britain’s economy shrank by 0.3% in August, hit by weakness in manufacturing and maintenance work in North Sea oil and gas fields just, to the confusion.

Elsewhere, the euro slumped to its weakest since Sept. 29 overnight at USD 0.9670 and remained not far from that level, trading flat on the day at USD 0.9715.

Traders are watching European Central Bank President Christine Lagarde’s speech at the IIF annual meeting in Washington for any signals about euro zone rate increases.

The risk-sensitive Australian dollar sank to a 2 1/2-year low of USD 0.62395.

(Reporting by Kevin Buckland and Georgina Lee; Additional reporting by Vidya Ranganathan, Alun John
Editing by Shri Navaratnam, Robert Birsel)

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