Sterling slips back with euro on persistent UK fiscal angst despite BoE bond-buying

TOKYO, Sept 29 (Reuters) – Sterling retreated again on Thursday from a sharp bounce against the dollar overnight, after the Bank of England announced unlimited bond purchases to shore up Britain’s financial markets battered by the government’s radical plans to cut taxes.

The UK currency jumped the most since mid-June on Wednesday, pulling the euro with it, after the BoE conducted the first of its emergency bond-buyback operations, worth more than 1 billion pounds. It committed to buying as many long-dated gilts as needed until Oct. 14.

Sterling was 0.51% lower at USD 1.0831 as of 1200 GMT, returning some of the previous session’s 1.41% rally. The euro weakened 0.32% to USD 0.97065, following Wednesday’s 1.51% surge, the biggest since early March.

Sterling had plummeted to a record low of USD 1.0327 on Friday as investors delivered a scathing verdict on the new government’s plan for record tax cuts funded by a massive increase in borrowing, at the same time as the BoE is aggressively tightening monetary policy to rein in rampant inflation.

Europe’s shared currency had plunged to a new two-decade low of USD 0.9528.

“The BoE’s bond purchases may temper the UK government’s borrowing costs but have not resolved the tensions between fiscal loosening and monetary tightening,” Carol Kong, a strategist at Commonwealth Bank of Australia, wrote in a client note.

“Concerns about the UK’s fiscal plan and its broader economy suggest GBP will likely stay offered against the USD and other major currencies in the near term.”

The US dollar index, which measures the greenback against sterling, the euro and four other major peers, edged 0.07% higher to 113.11, heading back in the direction of Wednesday’s 20-year high of 114.78.

The dollar added 0.23% to 144.43 yen. The currency pair has kept its head below the 145 line since Japanese officials intervened a week ago, following a surge to a 24-year high of 145.90 that day.

Elsewhere, the risk-sensitive Australian dollar sank 0.38% to USD 0.64995, giving back some of Wednesday’s 1.34% climb.

New Zealand’s currency dropped 0.42% to USD 0.5706, following a 1.7% surge in the previous session.

(Reporting by Kevin Buckland; Editing by Shri Navaratnam)

Oil prices fall amid strong dollar, economic concerns

Sept 29 (Reuters) – Oil prices fell in early Asian trade on Thursday as a strong dollar and economic woes outweighed optimism over consumer demand.

Brent crude futures fell 59 cents, or 0.7%, to USD 88.73 per barrel by 0016 GMT while US crude futures fell by 54 cents, or 0.7%, to USD 81.59. Both benchmarks rebounded in the prior two sessions amid volatile trade after reaching nine-month lows this week.

The dollar trended upward on Thursday morning, after hitting a fresh two-decade peak against a basket of currencies on Wednesday before pulling back. A strong dollar reduces demand for oil by making it more expensive for buyers using other currencies.

The Bank of England said it is committed to buying as many long-dated government bonds, know as gilts, as needed between Wednesday and Oct. 14 to stabilize its currency after the British government’s budgetary plans announced last week caused the sterling to tumble.

As markets tried to digest what the move meant for the pound, the currency whipsawed during Wednesday’s session, jumping as high as USD 1.09165 and falling as low as USD 1.05390. It was last up 1.51% at USD 1.08921.

Goldman Sachs cut its 2023 oil price forecast on Tuesday, due to expectations of weaker demand and a stronger US dollar but said global supply disappointments only reinforced its long-term bullish outlook.

(Reporting by Laura Sanicola)

US recap: BoE’s market stabilizing move hits overdone dollar

Sept 28 (Reuters) – The dollar index fell more than 1% on Wednesday, retreating from 20-year highs after the BoE’s announcement of emergency gilts purchases pushed yields lower globally, improving sentiment among investors fearing rising rates and UK contagion.

The exodus from gilts had lifted yields globally and the sterling selloff sent investors scurrying into the safe-haven dollar, leading to a risk rally and sharp reversal out of the dollar when the BoE stanched the bleeding in the UK government bond market.

The BoE intervention aimed to halt a crisis that developed after the UK’s budget-busting fiscal stimulus plan panicked investors and left UK pensions and mortgage lenders at dire risk.

The bond purchases could buy time for the financial sector to address funding issues and the BoE to hike rates enough to assuage investors’ inflation fears.

It could also give sterling a reprieve after it plunged to record lows, which exacerbated concerns over rising inflation and the clash between monetary and fiscal policy.

With the quarter coming to an end and the dollar nearing its most overbought quarterly RSI readings since the 1985 Plaza Accord that weakened it, a period-end profit-taking pullback fits the bill, with the scale depending on how US core PCE and payrolls data stack up on this and next Friday.

Risk-seeking flows out of the dollar could prove short-lived, however, with the Russian sword of Damocles hanging over energy markets and European economies.

EUR/USD gained 1.4% Wednesday after holding above Monday’s 20-year lows at 0.9528 on EBS. Wednesday’s bullish candlesticks would be bolstered by a close above Monday’s 0.97095 high, with further hurdles near 0.9800/65.

Sterling gained 1.4%, as the incredible 89bp drop in 30-year gilt yields more than erased Monday and Tuesday’s terrifying rise. The BoE is still priced to hike rates by 218bp by December and 335bp by May for a 5.8% policy rate ceiling, versus peak Fed rate pricing now at 4.45%.

A close above the tenkan at 1.0903 and Monday’s 1.0934 high is needed to keep the corrective rally running into quarter-end.

USD/JPY fell 0.5% due to retreating Treasury yields versus static JGB yields. The recovery from Thursday’s Japanese intervention low at 140.31 faltered again ahead of major 145 options expiries, as traders remain wary of getting caught long close to the 145.90 peak that preceded the intervention plunge.

The Australian and Canadian dollars gained 1.3% and 0.8%, but the offshore yuan was still down 0.14% after USD/CNH earlier traded beyond 2019/20 peaks at 7.1960/66.

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

Gold attempts relief rally as dollar decelerates

Sept 28 (Reuters) – Gold rose about 2% on Wednesday as a retreat in the dollar rekindled some of its safe-haven appeal, although prospects of sharp rate hikes kept the non-yielding precious metal near a 2-1/2-year trough.

Spot gold climbed 2% to USD 1,660.62 per ounce by 1:49 p.m. EDT (1749 GMT), to recoup some losses from a slide to its lowest since April 2020 earlier in the day.

US gold futures settled 2.1% higher at USD 1,670.00.

A pullback in the dollar and yields have “seen gold move off those lows,” said David Meger, director of metals trading at High Ridge Futures.

“The factors in regards to Russia and the discussion of annexation… that probably gave a bid to the (gold) market from a safe-haven perspective,” Meger added.

The dollar retreated after scaling a new two-decade high, making bullion less expensive for overseas buyers, while Treasury yields eased.

Moscow was poised on Wednesday to annex a swath of Ukraine, releasing what it called vote tallies showing support in four partially occupied provinces to join Russia, after what Kyiv and the West denounced as illegal sham referendums held at gunpoint.

Moreover, “gold is seeing some relief as the UK’s plan to buy long-end Gilts sees yields weaken,” TD Securities said in a note.

Gold, however, has failed to benefit from the recent rout in equities and faces headwinds from looming rate hikes that would raise the opportunity cost of holding non-yielding bullion.

“This oscillation between dollar headwinds and growth concerns should keep gold in a rangebound market torn between growth fears and higher rates,” Goldman Sachs said in a note.

Meanwhile, silver gained 2.7% to USD 18.92 per ounce, after hitting a three-week low of USD 17.94 earlier in the session.

Platinum advanced 1.5% to USD 861.32 and palladium jumped 3.2% to USD 2,153.51.

(Reporting by Kavya Guduru in Bengaluru; Editing by Shinjini Ganguli, Shailesh Kuber and Krishna Chandra Eluri)

Dollar marches to new 20-year high, sterling under pressure

SINGAPORE/LONDON, Sept 28 (Reuters) – Nervous financial markets propelled the safe-haven dollar to a two-decade peak on Wednesday as rising global interest rates fed recession worries, while sterling drifted lower after the latest warnings about Britain’s radical tax cut plans.

The US dollar index rose around 0.5% to hit a new high of 114.78, its march higher helped by an equally relentless climb from benchmark US 10-year Treasury yields, which rose to 4% for the first time since 2010, climbing as high at 4.013%.

The dollar’s gains were broad based, with the euro down 0.43% to USD 0.956, under-fire sterling down a 0.7% at USD 1.0678 and the Australian dollar, which is particularly sensitive to swings in investors sentiment, down 1%.

“Resistance (to dollar strength) is futile,” ING analysts headlined a morning note.

“Whether it be US data surprising on the upside, the US Administration showing no concern at all with the strong dollar, or new chapters in the energy war in Europe, it looks like all systems are go for the dollar rally.”

“Trying to pick a dollar top in the current climate is an exercise in futility.”

The Federal Reserve has led the global fight against surging inflation, turning even more aggressive recently by signalling further big rate increases on top of super-sized moves in the past few months.

That message was reinforced on Tuesday by Chicago Fed President Charles Evans, St. Louis Fed President James Bullard and Minneapolis Federal Reserve Bank President Neel Kashkari, with Evans saying that the central bank will need to raise interest rates to a range between 4.50% and 4.75%.

The rising borrowing costs have intensified fears of a global recession, adding to the surge in bond yields worldwide.

But the dollar’s gains against the pound have also been driven by British domestic factors after the British government, last week announced a plan to slash taxes and ramp up borrowing.

That sent the pound down as low as USD 1.0327 on Monday, a record low, having held near the USD 1.1300 level before last week’s UK budget.

Bank of England Chief Economist Huw Pill said on Tuesday that the central bank is likely to deliver a “significant policy response” in response to finance minister Kwasi Kwarteng’s huge tax cut plans.

But he added that the central bank wants to wait until its next scheduled meeting in November before making its move, quashing market speculations of a potential inter-meeting interest rate hike.

“For the near-term I think sterling’s going to remain pretty weak from here,” said Carol Kong, senior associate for international economics and currency strategy at the Commonwealth Bank of Australia.

“It’s basically a crisis of confidence. It’ll be up to the UK government to resolve this … rather than Bank of England.”

Elsewhere, the yen last bought 144.53 per dollar, still near its lowest levels in years even after Japan’s intervention to prop up the fragile currency last week.

Still in Asia, another milestone fell on Wednesday, with as Chinese offshore yuan falling as far as 7.249 per dollar, the lowest level since such data became available in 2011.

There are signs policy makers are starting to get concerned. Reuters reported Tuesday that Chinese monetary authorities are asking local banks to revive a yuan fixing tool it abandoned two years ago as they seek to steer and defend the rapidly weakening currency.

(Reporting by Rae Wee; editing by Richard Pullin, Kim Coghill & Shri Navaratnam)

European stocks slide at open on mounting recession worries

Sept 28 (Reuters) – European shares opened lower on Wednesday, in line with a sell-off in Asian markets, as an intensifying energy crisis in the region and the relentless surge in global bond yields fuelled worries about a recession.

The continent-wide STOXX 600 index was down 0.8% by 0707 GMT, extending declines for a fifth-straight session, while Germany’s DAX index lost 0.9%, taking cues from Wall Street, which sank deeper into a bear market overnight.

All the sectoral indexes fell, with the economy-sensitive oil and gas, banks and basic resources sectors down between 1% and 1.5%.

Tech stocks came under pressure as the benchmark 10-year US Treasury yields topped 4%, their highest in 12 years, with markets fearing the Federal Reserve might have to take rates past 4.5% in its crusade against inflation.

London’s blue-chip FTSE 100 index dipped 0.9% after Moody’s warned that unfunded UK tax cuts would be “negative” for the country’s credit standing, deepening a sell-off in gilts.

Meanwhile, geopolitical tensions intensified as Europe investigated what Germany, Denmark and Sweden said were attacks on two Nord Stream pipelines at the centre of an energy standoff.

Reflecting the dour outlook, a survey on Wednesday projected German consumer morale would hit a record low in October as high inflation rates and rocketing energy bills show no signs of relenting.

Among stocks, Commerzbank slipped 2.1% as the German lender said it would take a 490 million euro (USD 469 million) hit to its third-quarter operating profit after its Polish mBank unit booked additional provisions for its Swiss franc loans.

MediaForEurope (MFE) slid 2.2% after Italy’s top commercial broadcaster reported a 44% fall in first-half operating profit on the back of flat advertising sales and rising energy costs.

(Reporting by Devik Jain in Bengaluru; Editing by Subhranshu Sahu and Savio D’Souza)

Philippines rejects all bids for 2039 T-bond re-issue

MANILA, Sept 28 (Reuters) – The Philippines’ Bureau of the Treasury said all bids for a re-issue of 2039 T-bonds were rejected at an auction on Wednesday.

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

Oil prices fall more than 1% as dollar scales new peak

SINGAPORE, Sept 28 (Reuters) – Oil prices fell more than 1% on Wednesday, pressured by a strengthening dollar and crude storage builds that offset support from US production cuts caused by Hurricane Ian.

Brent crude futures fell USD 1.02, or 1.2%, to USD 85.25 per barrel by 0630 GMT, while US West Texas Intermediate (WTI) crude futures were down 97 cents, or 1.2%, at USD 77.53 per barrel. Both contracts had risen over 2% in the previous session.

The dollar hit a fresh two-decade peak against a basket of currencies on Wednesday as rising global interest rates fed recession concerns. A strong dollar reduces demand for oil by making it more expensive for buyers using other currencies.

Asian share markets sank as surging borrowing costs stoked fears of a global recession, spooking investors into the safe-haven dollar.

“With Asian markets tanking due to the surge in bond yields, demand outlooks are darkened amid a possible nearing economic recession,” said Tina Teng, an analyst at CMC Markets.

“Traders’ focus is not on the supply issues right now as the bond market’s turmoil sunk risk assets, along with a stubbornly high US dollar, which pressured oil prices,” Teng added.

US crude oil stocks rose by about 4.2 million barrels for the week ended Sept. 23, while gasoline inventories fell about 1 million barrels, according to market sources on Tuesday, citing figures from industry group the American Petroleum Institute.

Distillate stocks rose by about 438,000 barrels, according to the sources, who spoke on condition of anonymity.

The report comes ahead of official Energy Information Administration data due on Wednesday at 4:30 p.m. EDT.

Goldman Sachs cut its 2023 oil price forecast on Tuesday, due to expectations of weaker demand and a stronger US dollar, but said global supply disappointments only reinforced its long-term bullish outlook.

Producers began returning workers to offshore oil platforms after shutting in output ahead of Hurricane Ian, which entered the US Gulf of Mexico on Tuesday and is forecast to become a dangerous Category 4 storm over the warm waters of the Gulf.

About 190,000 barrels per day of oil production, or 11% of the Gulf’s total were shut-in, according to offshore regulator the Bureau of Safety and Environmental Enforcement (BSEE).

Producers lost 184 million cubic feet of natural gas, or nearly 9% of daily output. Personnel were evacuated from 14 production platforms and rigs, the BSEE said.

Ian is the first hurricane this year to disrupt oil and gas production in the US Gulf of Mexico, which produces about 15% of the United States’ crude oil and 5% of its dry natural gas.

(Reporting by Laila Kearney in New York and Isabel Kua in Singapore; Editing by Leslie Adler, Richard Pullin and Kim Coghill)

China’s oil demand set to recover as COVID curbs ease

SINGAPORE, Sept 28 (Reuters) – China’s economy is recovering from a trough hit in the second quarter, with oil demand expected to rebound next year as Beijing eases COVID-19 restrictions, senior Chinese refining executives said on Wednesday.

The recovery will come on the back of an expected contraction in oil demand in the world’s biggest energy consumer in 2022, the first in two decades, as China’s zero-COVID policy ravaged its economy and restricted movements.

“This year we have seen the decline of imports of crude oil, first time in many, many years in China,” Chen Hongbing, deputy general manager at Rongsheng Petrochemical, told a forum at the 38th Annual Asia Pacific Petroleum Conference (APPEC).

“We have seen output of gasoline and jet fuel is down but the output for diesel is actually up and demand is still healthy,” he said, adding that China’s diesel inventories are currently low.

Beijing is expected roll out more measures to shore up its economy, with a focus on reviving consumption and boosting investment, while easing strict measures to contain the spread of COVID-19 infections.

“We look at high frequency data like airlines bookings, road congestion, consumption, and we see a little better activity in China,” Wu Qiunan, chief economist at PetroChina International said, pointing to better demand growth in the fourth quarter versus the third.

Easing mobility restrictions could lift gasoline consumption next year although strong electric vehicle (EV) sales, which hit 6 million units in the first eight months this year, will affect growth in the motor fuel, he added.

“That’s a big replacement of gasoline consumption,” he said, adding this may lower gasoline demand growth even as consumption is expected to recover when China eases COVID-19 restrictions.

Both executives also expect jet fuel to recover with aviation demand.

However, the recovery in aviation fuel demand may take longer than other fuels because of difficulties in international travel, Rongsheng’s Chen said.

As for fuel exports, the executives said export economics will determine the volume of oil products Chinese refiners ship abroad.

“Even if the government says (refiners) can have the quota to export, they will wait and see when to export, when is the right time,” PetroChina’s Wu said.

Chinese refiners are expecting Beijing to release up to 15 million tonnes worth of oil product export quotas for the rest of the year to support sagging exports in the world’s second-largest economy.

For petrochemical production, China has also become more cost competitive than Europe where electricity prices have surged following a disruption in natural gas supplies from Russia in the wake of the Ukraine war, Sun Xin, director of China’s privately-owned Shenghong Petrochemical said.

“Because of the Ukraine war, the industrial power consumption cost between China and Europe has widened and the gap has been as large as half a dollar per kilowatt hour at one point,” Sun said.

“The basic production cost for raw materials such as ethylene is way below that of Europe’s and I believe this could be in the range of USD 1,200-USD 1,300 per tonne.”

(Additional reporting by Chen Aizhu and Muyu Xu; Editing by Jacqueline Wong)

S&P 500 ends near two-year low as bear market deepens

Sept 27 (Reuters) – Wall Street sank deeper into a bear market on Tuesday, with the S&P 500 recording its lowest close in almost two-years as Federal Reserve policymakers showed an appetite for more interest rate hikes, even at the risk of throwing the economy into a downturn.

The benchmark S&P 500 is down about 24% from its record high close on Jan. 3. Last week, the Fed signaled that high rates could last through 2023, and the index erased the last of its gains from a summer rally and recorded its lowest close since November 2020.

The S&P 500 has declined for six straight sessions, its longest losing streak since February 2020.

Speaking on Tuesday, St. Louis Fed President James Bullard made a case for more rate hikes, while Chicago Fed President Charles Evans said the central bank will need to raise rates by at least another percentage point this year.

“It’s disappointing, but it’s not a surprise,” said Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut. “People are concerned about the Federal Reserve, the direction of interest rates, the health of the economy.”

Analysts at Wells Fargo now see the US central bank taking its target range for the Fed funds rate to between 4.75% and 5.00% by the first quarter of 2023.

Seven of 11 S&P 500 sector indexes fell, with utilities and consumer staples each down about 1.7% and leading declines.

The energy sector index rallied 1.2% after Sweden launched a probe into possible sabotage after major leaks in two Russian pipelines that spewed gas into the Baltic Sea.

Tesla (TSLA) gained 2.5% and Nvidia (NVDA) added 1.5%, with both companies helping keep Nasdaq in positive territory.

Traders exchanged over USD 17 billion worth of Tesla shares, more than any other stock.

The benchmark US 10-year Treasury yield touched its highest level in more than 12 years amid the hawkish comments from Fed officials.

The Dow Jones Industrial Average fell 0.43% to end at 29,134.99 points, while the S&P 500 lost 0.21% to 3,647.29.

The Nasdaq Composite climbed 0.25% to 10,829.50.

Concerns about corporate profits taking a hit from soaring prices and a weaker economy have also roiled Wall Street in the past two weeks.

Analysts have cut their S&P 500 earnings expectations for the third and fourth quarters, as well as for the full year. For the third quarter, analysts now see S&P 500 earnings per share rising 4.6% year-over-year, compared with 11.1% growth expected at the start of July.

Volume on US exchanges was 11.7 billion shares, compared with an 11.3 billion average for the full session over the last 20 trading days.

Declining issues outnumbered advancing ones on the NYSE by a 1.25-to-1 ratio; on Nasdaq, a 1.03-to-1 ratio favored advancers.

The S&P 500 posted no new 52-week highs and 146 new lows; the Nasdaq Composite recorded 28 new highs and 502 new lows.

(Reporting by Ankika Biswas, Shreyashi Sanyal and Susan Mathew in Bengaluru; Editing by Shounak Dasgupta, Arun Koyyur and David Gregorio)

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