Traders scramble for protection after Fed spooks markets

NEW YORK, Nov 3 (Reuters) – Investors rushed to guard against further declines in US stocks on Thursday, a day after the Federal Reserve dashed hopes for a downshift in the central bank’s inflation-fighting rate hikes.

Trading in S&P 500 put options, typically used as a play in defensive positions, outnumbered calls, usually employed for upside wagers, 1.5-to-1 on Thursday afternoon, the most defensive the measure has been since mid-October, according to Trade Alert data.

The rush for protection comes after Fed Chair Jerome Powell signaled that while interest rates may rise by smaller increments in the months ahead, the central bank will likely take its policy rate higher than previously expected to fight surging consumer prices.

The hawkish message was a disappointment to investors following a rally that saw the S&P 500 .SPX gain around 8% since mid-October through Tuesday on hopes that the Fed was close to a shift in the aggressive monetary policy that has bruised stocks this year. The index is down about 3% since Tuesday’s close and is down around 22% so far in 2022.

“This caught a lot of people by surprise,” said Steve Sosnick, chief strategist at Interactive Brokers. “I am definitely seeing a bit more risk aversion to the downside.”

The more defensive tone of trading is in contrast with some bullish activity in the options market prior to the Fed meeting as investors worried about missing out on a rally.

On Thursday afternoon, with the S&P 500 index-tracking SPDR S&P 500 ETF Trust’s SPY.P shares down 0.6% to USD 372.56, the most heavily traded SPY contracts were those that would guard against the ETF’s shares slipping below USD 370 by Friday.

SPY puts expiring at the end of next week, struck at the USD 350 mark, just above the ETF’s mid-October intra-day low of USD 348.11, were the fourth most actively traded SPY options on Thursday.

At the single stock level, near-term put options on battered megacaps such as Tesla (TSLA), Amazon.com Inc. (AMZN) and Apple Inc. (AAPL) were among Thursday’s most heavily traded contracts.

While investors appear anxious about more near-term volatility, expectations for a big market crash remain muted. For instance, Nations TailDex, which measures the cost of hedging against a 3-standard deviation move in the SPY ETF, was on pace to close the session at a multi-year low, down sharply over the last six months.

Still, history suggests investors may have good reason to be wary.

“Recent ‘Fed meeting volatility’ has not necessarily been confined to the Fed day itself,” Christopher Jacobson, a strategist at Susquehanna Financial Group, said in a note.

“Over the six prior Fed meetings year-to-date, the SPY has seen an average move of +/- 2.8% from the close on Wednesday (Fed day) to Friday’s close,” he said.

Though the Fed meeting is now in the rear view mirror, other events with the potential to roil markets lay ahead, including October’s employment report, scheduled for release on Friday. According to a Reuters survey of economists, non-farm payrolls likely increased by 200,000 in October.

Next week also brings the US mid-term elections on Tuesday, with S&P 500 Index options implying a +/-2.9% move the day after the election, nearly double the index’s daily average move this year, according to Goldman Sachs.

For now, “the potential for divergent returns driven by the election is clearly under-appreciated by the options market,” the bank’s analysts wrote.

(Reporting by Saqib Iqbal Ahmed; Editing by Ira Iosebashvili and Leslie Adler)

US recap: Fed view drives EUR/USD to lowest since Oct. 21

Nov 3 (Reuters) – The dollar rose on Thursday, extending Wednesday’s Fed-inspired gains and helped by dovish guidance provided by the BoE following its 75bp hike and comments from ECB officials suggesting that they couldn’t match US monetary tightening.

EUR/USD and GBP/USD fell 0.67% and 1.8%, respectively, with losses slightly cushioned by underwhelming US layoffs, jobless claims and ISM non-manufacturing data.

Investors preparing for Friday’s non-farm payrolls report will have noticed that the ISM employment gauge tumbled back into contraction territory, though it has done that several times this year amid dislocations in the labor market.

The unexpected rise in still historically high job openings in September reported Monday suggests demand for labor continues to outstrip supply.

The rise in the ISM prices paid index to 70.7 from 68.7 in September fits with the Fed’s extended tightening guidance.

USD/JPY rose 0.2%, extending the Fed-led recovery from late Wednesday, but with gains slowing on the approach to 150 and 152, where previous yen-selling interventions took place.

Traders also appear wary ahead of this week’s 148.845 swing highs before Friday’s US jobs report. Solid payrolls data would reinforce the new cycle highs in the implied Fed terminal rate well above 5%, enhancing carry trade demand.

Higher yields in the US and beyond also weakened riskier assets, strengthening the dollar bid. The yen benefited on the crosses from related repatriations flows, but the currency is currently less of a haven due to Japan’s massive trade deficit and negligible current account surplus.

Risk proxy AUD/USD fell 0.87% amid broad de-risking, lower commodity prices and dashed hopes China would work away from its zero-COVID policy.

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

Gold dips as hawkish US Fed lifts dollar, yields

Nov 3 (Reuters) – Gold prices fell to a more than one-month low on Thursday as the dollar and US Treasury yields jumped after hawkish remarks from Federal Reserve Chair Jerome Powell, denting the non-yielding metal’s appeal.

Spot gold was down 0.3% at USD 1,629.97 per ounce by 1:49 p.m. ET (1749 GMT), after falling more than 1% earlier, hitting its lowest since Sept. 28.

US gold futures settled 1.2% lower at USD 1,630.9.

“I don’t see the tide turning for gold and it gathering bullish momentum again until after the Fed is done raising rates, probably not till March of 2023,” said Phillip Streible, chief market strategist at Blue Line Futures in Chicago.

The US central bank raised interest rates by 75 basis points on Wednesday as expected. Powell said it was “very premature” to think about pausing and that the peak for rates would likely be higher than previously expected.

Gold is highly sensitive to rising US interest rates as these increase the opportunity cost of holding non-yielding bullion.

The dollar rose 1.4%, making gold more expensive for overseas investors. Benchmark US 10-year Treasury yields were close to their recent peak.

“We could see further losses (in gold) towards the September lows and a possible break of the USD 1,600 level, if yields continue to rise,” said Michael Hewson, chief market analyst at CMC Markets UK.

Focus now shift to US non-farm payrolls data for October due on Friday, which could offer more clarity on the Fed’s rate-hike trajectory.

Offering some respite to gold, data showed the US services industry grew at its slowest pace in nearly 2-1/2 years in October, suggesting the Fed’s rate hikes are slowing demand in the overall economy.

Spot silver rose 0.9% to USD 19.45 per ounce, platinum fell 0.5% to USD 925 while palladium fell 2.4% to USD 1,811.15.

(Reporting by Seher Dareen in Bengaluru; Editing by Maju Samuel and Shinjini Ganguli)

Oil falls as Fed rate hike raises fuel demand concerns

SINGAPORE, Nov 3 (Reuters) – Oil slipped on Thursday as a US interest rate hike pushed up the dollar and increased fears of a global recession that would crimp fuel demand, although losses were capped by concerns over tight supply.

Brent crude dropped 85 cents, or 0.9%, to USD 95.30 a barrel at 0750 GMT, while US West Texas Intermediate (WTI) crude futures fell USD 1.01, or 1.1%, to USD 88.99.

Both benchmarks settled up more than $1 on Wednesday, aided by another drop in US oil inventories, even as the Fed boosted interest rates by 75 basis points and Chair Jerome Powell said it was premature to think about pausing rate increases.

A strong dollar is dragging down oil, with some market participants also likely booking profits following recent gains, CMC Markets analyst Tina Teng said.

A strong dollar reduces demand for oil by making the fuel more expensive for buyers using other currencies.

“With the Fed confirming a higher peak in rates, a darkened global economic outlook could continue to pressure the oil futures markets,” Teng added.

Stephen Innes, managing partner of SPI Asset Management, said that it was surprising oil had proved so resilient after the move by the Federal Reserve, but he noted there were a couple of fundamental factors putting a floor under prices.

The European Union’s embargo on Russian oil for its invasion of Ukraine is set to start on Dec. 5 and will be followed by a halt on oil product imports in February.

Also likely to keep supply tight in coming months, producers from the Organization of the Petroleum Exporting Countries (OPEC) may struggle to hit previously set output quotas, ANZ analysts said in a note.

OPEC production fell in October for the first time since June. OPEC and its allies, including Russia, also decided to cut their targeted output by 2 million barrels per day (bpd) from November.

The market is also expecting demand from China to pick up with hopes that Beijing will ease off on its zero-COVID policies. Chinese policymakers pledged on Wednesday that growth was still a priority and they would press on with reforms.

Any indication of a reopening in China following COVID-19 restrictions could be a “monster pivot”, said Innes.

(Reporting by Arpan Varghese and Muyu Xu; Editing by Himani Sarkar and Richard Pullin)

Oil slips 2% on China demand worries, US rate hikes

NEW YORK, Nov 3 (Reuters) – Oil prices slid about 2% on Thursday as China stood by its zero-COVID policy and an increase in US interest rates pushed up the dollar, raising fears of a global recession that would crimp fuel demand.

Losses, however, were limited by concern over tight supply.

Brent futures were down USD 1.49, or 1.5%, to settle at USD 94.67 a barrel, while US West Texas Intermediate (WTI) crude fell USD 1.83, or 2.0%, to settle at USD 88.17.

Both benchmarks had gained more than USD 1 on Wednesday, aided by another drop in US oil inventories, even as the Federal Reserve boosted interest rates by 75 basis points and US central bank chief Jerome Powell said it was premature to consider pausing rate increases.

That sent the dollar higher on Thursday, with Powell indicating that US rates are likely to peak above current investor expectations.

A strong dollar reduces demand for oil by making it more expensive for buyers using other currencies.

“Oil is battling both a weakening global economic outlook and a surging dollar. It seems these bearish drivers won’t be easing up anytime soon,” said Edward Moya, senior market analyst at data and analytics firm OANDA.

The number of Americans filing new claims for unemployment benefits unexpectedly fell last week, suggesting the labor market remains strong despite slowing domestic demand amid the Fed’s hefty rate hikes to tame inflation.

The United States is not the only country tightening policy.

The Bank of England raised interest rates by the most since 1989 but also warned Britain faced a long recession.

“Rising anxiety about stalling growth will inevitably impact global oil demand and another downward revision in the next set of forecasts is not a far-fetched idea,” said PVM Oil analyst Tamas Varga.

STRICT COVID CONTAINMENT

In China, meanwhile, COVID-19 cases hit their highest level in two and a half months after the health authority stuck by its strict containment policy, dampening investor hopes for an easing of curbs battering the world’s second-largest economy.

In addition, China’s natural gas consumption may post the first decline in 2022 in two decades amid a struggling economy, with demand this winter set to rise more modestly than in previous years, state energy officials said.

Chinese policymakers pledged on Wednesday that growth was still a priority.

Oil price losses, however, were limited by expectations the market is set to tighten in the coming months.

The European Union’s (EU) embargo on Russian oil over its invasion of Ukraine is set to start on Dec. 5 and will be followed by a halt on oil product imports in February.

Lower output from the Organization of the Petroleum Exporting Countries (OPEC) also lent price support, with a Reuters survey finding the producer group’s output fell in October for the first time since June.

OPEC and its allies including Russia, known collectively as OPEC+, decided in early October to cut targeted output by 2 million barrels per day from this month.

(Additional reporting by Arpan Varghese and Muyu Xu in Singapore, and Ahmad Ghaddar in London; Editing by David Goodman, Mark Potter and Paul Simao)

Gold subdued as Fed’s Powell sours pivot hopes

Nov 3 (Reuters) – Gold prices were flat on Thursday, following a volatile session, as hopes of a pivot dissipated after US Federal Reserve Chair Jerome Powell signalled further rise in borrowing costs.

Spot gold was flat at USD 1,635.42 per ounce, as of 0637 GMT, after falling 0.8% on Wednesday.

US gold futures shed 0.8% to USD 1,636.20.

The Fed raised interest rates by 75 basis points on Wednesday, as expected, and signalled it may be nearing an inflection point.

However, Powell soured sentiments by saying the Fed has “ways to go with interest rates before we get to the level that’s sufficiently restrictive” and that it is “premature to discuss pausing.”

“Sentiments are still weak after the hawkish takeaway from the FOMC meeting,” said IG market strategist Yeap Jun Rong.

With the continued shift in landscape towards a higher-for-longer rate, it seems difficult for gold to gain significant traction and the downward trend for prices remains intact, Yeap added.

Gold rose as much as 1.3% after the release of the policy statement at the end of the two-day meet. However, it later gave up gains on Powell’s remarks.

Although gold is considered a hedge against inflation, higher US interest rates increase the opportunity cost of holding the non-yielding asset and boosts the dollar.

The dollar index was slightly lower after touching its highest level since Oct. 24 earlier at 112.19.

Attention now shifts to Friday’s US nonfarm payrolls data, which could provide more cues on the resilience of the labour market.

“If the jobs numbers reinforce this combative rhetoric that we heard from Powell, gold can take out the range floor (at USD 1,615 an ounce) and try to extend downward in a more meaningful way,” said DailyFX currency strategist Ilya Spivak.

Elsewhere, spot silver was steady at $19.27 per ounce, platinum was flat at USD 929.80 and palladium rose 0.7% to USD 1,867.93.

(Reporting by Eileen Soreng in Bengaluru; Editing by Rashmi Aich and Uttaresh.V)

Philippine c.bank to match Fed’s 75 bps rate hike on Nov. 17

Nov 3 (Reuters) – The Philippine central bank signalled on Thursday it planned a 75 basis point hike in its key interest rates later this month to match the latest monetary tightening by the US Federal Reserve.

“(The Fed hike) supports the BSP’s stance to hike its policy rate by the same amount in its next policy meeting on Nov. 17,” Bangko Sentral ng Pilipinas Governor Felipe Medalla said in a statement.

“The BSP deems it necessary to maintain the interest rate differential prevailing before the most recent Fed rate hike, in line with its price stability mandate and the need to temper any impact on the country’s exchange rate of the most recent Fed rate hike,” he said.

Ruling out an off-cycle policy move, Medalla said the hike would be effective after the Nov. 17 meeting.

Inflation in January to September averaged 5.1%, well outside the central bank’s 2%-4% target for 2022, partly because of a weaker peso that has further aggravated the cost of importing food and fuel.

By matching the Fed’s rate hike, Medalla said the BSP reiterated its strong commitment to maintaining price stability by aggressively dealing with inflationary pressures stemming from local and global factors.

He cited the BSP’s preparedness to “take necessary policy actions to bring inflation toward a target-consistent path”, as he projected it to return to the 2%-4% target band in the second half of 2023 and full-year 2024.

Economists welcomed the rate hike signal, viewing it as intended to reassure markets.

“Reaction from BSP was timely and should be able to temper market reactions, namely from the foreign exchange side,” said Robert Dan Roces, an economist at Security Bank in Manila.

Roces expects rate increases of 75 bps this month and 50 bps on Dec. 15, the last policy meeting this year.

Medalla last month said interest rates could rise by more than 100 basis points before the year-end to ease pressure on the peso, Southeast Asia’s worst-performing currency that has lost 12.5% against the US dollar so far this year.

The BSP has so far raised rates five times this year, amounting to a total of 225 bps and bringing the overnight reverse repurchase facility rate to 4.25%.

“The rate hikes so far this year have merely normalised our policy settings and aren’t likely to pare growth by much,” said Emilio Neri, lead economist at Bank of the Philippine Islands.

(Reporting by Enrico Dela Cruz and Neil Jerome Morales; Editing by Ed Davies)

Asia shares slip, Fed flags higher rates for longer

SYDNEY, Nov 3 (Reuters) – Asian share markets slid on Thursday after the US Federal Reserve laid the groundwork for a protracted tightening campaign that torpedoed market hopes for a pause, sank bonds and lifted the dollar.

Investors were initially cheered that the Fed opened the door to a slowdown in the pace of hikes after raising interest rates 75 basis points to 3.75-4.0%, by noting that policy acted with a lag.

But Chair Jerome Powell soured the mood by saying it was “very premature” to think about pausing and that the peak for rates would likely be higher than previously expected.

“The Fed is now more comfortable with taking smaller rate increases for a longer period than delivering larger increases now,” said Brian Daingerfield, an analyst at NatWest Markets.

“The tightening cycle is officially now a marathon, not a sprint.”

Futures were now split on whether the Fed would move by 50 or 75 basis points in December, and nudged up the top for rates to 5.0-5.25% likely by May next year. They also imply little chance of a rate cut until December 2023.

“Higher for longer” was not what the equity markets wanted to hear and Wall Street fell sharply after Powell’s comments. Early Thursday, S&P 500 futures were off another 0.3%, while Nasdaq futures fell 0.2%.

MSCI’s broadest index of Asia-Pacific shares outside Japan shed 0.9%, with South Korea down 1.5%.

Japan’s Nikkei was closed for a holiday, but futures were trading around 350 points below Wednesday’s cash close.

Two-year Treasury yields popped up to 4.63% as the curve bear flattened, with the spread to 10-year notes near its most inverted since the turn of the century.

Attention now turns to the US ISM survey of services later Thursday and Friday’s payrolls report where any upside surprise will likely reinforce the Fed’s hawkish outlook.

BoE TAKES THE STAGE

Also taking centre stage will be the Bank of England where the market is fully priced for a rate hike of 75 basis points to its highest since late 2008 at 3.0%.

“There will be interest in the BoE’s new CPI and GDP forecasts, with the latter likely to show a deeper and more protracted recession in 2023 and 2024,” said Ray Attrill head of FX strategy at NAB.

A gloomy outlook could put more pressure on the pound, which was pinned at USD 1.1374 after retreating from a top of USD 1.1564 overnight.

The US dollar was broadly bid on Powell’s hawkish take, leaving the dollar index at 112.190 after an overnight bounce from a 110.400 low.

The euro was flat at USD 0.9810, having toppled from a high of USD 0.9976 overnight, while the dollar climbed to 147.87 yen from a trough of 145.68.

The bounce in the dollar and yields was a drag for gold, which was stuck at USD 1,633 an ounce after being as high as USD 1,669 at one stage overnight.

Oil prices also disliked the dollar rally with Brent down 88 cents at USD 95.28 a barrel, while US crude fell USD 1.02 to USD 88.98.

In good news for bread lovers, wheat futures plummeted overnight after Russia said it would resume its participation in a deal to export grain from war-torn Ukraine.

(Reporting by Wayne Cole; Editing by Lincoln Feast)

Dollar regains strength as Powell dashes hope of a Fed pause

NEW YORK, Nov 2 (Reuters) – The dollar regained some strength on Wednesday after Federal Reserve Chair Jerome Powell said it was premature to discuss a pause in its hiking of interest rates to battle rising consumer prices, as there is “no sense that inflation is coming down.”

The Fed, as markets had expected, raised its key lending rate by 75 basis points for the fourth straight time after a two-day meeting of policy-makers.

Markets initially read the Fed’s statement at the end of the meeting as dovish and a signal that future rate increases to tame high inflation could be made in smaller increments.

Yet Powell made clear at the press conference after the statement that a mistake in not tightening monetary policy enough would risk dealing with entrenched inflation.

“If you undertighten, it is a year or two down the road you realize you haven’t got inflation under control,” he said.

A change in pace in rate hikes could come at the Fed’s next meeting in December, Powell said. But he cautioned extensive uncertainty remains about how high rates need to go and that they could end up higher than policymakers previously thought.

“There are still a lot of missing pieces in terms of Fed policy and where the dollar goes from here because we’re going to have a pair of jobs reports and inflation surveys before we next hear from the Fed,” said Joe Manimbo, senior market analyst at Convera in Washington.

Equities and other risk assets at first rose after the Fed statement was released, but stocks on Wall Street closed sharply lower after Powell spoke, as hopes the Fed would ease its hiking campaign quickly dissipated.

“We have not seen a pivot, a pivot is looking further over the horizon,” Manimbo said.

“The near-term outlook calls for the dollar staying strong and resilient because even if the Fed is nearing the finish line for rate hikes, it’s not expected to pivot to rate cuts for a very long time yet,” he said.

The euro initially rose against the dollar but later turned lower, down 0.5% at USD 0.9825. The Japanese yen strengthened 0.31% versus the greenback at 147.79 per dollar.0.3

The Fed’s battle against inflation running at four-decade highs has unleashed the most aggressive hiking campaign in more than a decade.

Future markets were divided on how high the Fed will increase rates at its next meeting on Dec. 13-14. The CME Group’s FedWatch tool showed a 56.8% probability of a 50 basis point increase, and a 43.2% chance of a 75 bps increase.

Growing expectations that the Fed would dial down the aggressiveness of its rate hikes have weighed on the dollar in recent weeks.

Sterling fell, last down 0.82% on the day at USD 1.1389. The Bank of England on Thursday also is expected to announce a 75-basis-point rate increase.

The yen has slipped about 22% against the dollar this year, leading traders to be on alert for a possible intervention.

Japanese authorities are widely considered to have intervened in FX markets several times since September to pull the yen back from 32-year lows.

Japan’s currency interventions have been stealth operations in order to maximize the effects of its forays into the market, Finance Minister Shunichi Suzuki said on Tuesday, after the government spent a record USD 43 billion supporting the yen last month.

(Reporting by Herbert Lash, additional reporting by Saqib Iqbal Ahmed in New York and Joice Alves in London; Editing by Mark Potter, Alex Richardson, Leslie Adler, William Maclean)

Wall Street drops as Powell signals Fed not close to done

NEW YORK, Nov 2 (Reuters) – US stocks ended sharply lower on Wednesday, as comments from Fed Chair Jerome Powell shattered initial optimism over a Fed policy statement that raised interest rates by 75 basis points but signaled that smaller rate hikes may be on the horizon.

In a volatile trading session, equities initially moved higher in the wake of the hike by the Fed, the fourth straight increase from the central bank of that magnitude as it attempts to bring down stubbornly high inflation.

The target federal funds rate was set in a range between 3.75% and 4.00%, but the impact of the hike was initially tempered by new language that suggested the central bank was mindful of the effect its outsized rate hikes have had on the economy.

Investors had been widely anticipating a 75-basis point rate hike, while hoping the Fed would signal a willingness to begin downsizing the rate hikes at its December meeting.

However, comments from Fed Chair Jerome Powell that it was “very premature” to be thinking about pausing rate hikes sent stocks sharply lower.

“It is one speech, maybe it is a moment of frustration. I don’t think he should have done it the way he did this. But I understand why he did it, and in the big picture of things, he is doing the right thing right now,” said Stephen Massocca, senior vice president at Wedbush Securities in San Francisco.

“Ultimately this will be good for the economy and good for the market.”

The Dow Jones Industrial Average fell 505.44 points, or 1.55%, to 32,147.76, the S&P 500 lost 96.41 points, or 2.50%, to 3,759.69 and the Nasdaq Composite dropped 366.05 points, or 3.36%, to 10,524.80.

After a strong rally in October that saw the Dow Industrials post their biggest monthly percentage gain since 1976 and the S&P rally about 8%, the three major indexes on Wall Street have no fallen for three straight session. Wednesday’s decline was the largest percentage drop for the S&P 500 since October 7.

The S&P 500 had been modestly lower prior to the policy announcement, as the ADP National Employment report showed US private payrolls increased more than expected in October, giving more reason to the Fed to continue an aggressive path of rate hikes.

The private payrolls report came on the heels of data on Tuesday that showed a jump in US monthly job openings, indicating labor demand remained strong.

Investors will get more looks at the labor market in the form of weekly initial jobless claims on Thursday and the October payrolls report on Friday that will help drive expectations for interest rate hikes.

Volume on US exchanges was 12.80 billion shares, compared with the 11.57 billion average for the full session over the last 20 trading days.

Declining issues outnumbered advancing ones on the NYSE by a 3.38-to-1 ratio; on Nasdaq, a 2.81-to-1 ratio favored decliners.

The S&P 500 posted 22 new 52-week highs and 20 new lows; the Nasdaq Composite recorded 108 new highs and 203 new lows.

(Reporting by Chuck Mikolajczak; Editing by Cynthia Osterman)

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