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)

Stocks hit 2-year low as central banks step up the war on inflation

LONDON/SYDNEY, Sept 23 (Reuters) – Stocks hit two-year lows on Friday and bonds faced an eighth weekly loss, as investors digested the prospect of a far more aggressive rise in US interest rates, while currency markets remained volatile after Japan’s intervention to prop up the yen.

Interest rates rose sharply this week in the United States, Britain, Sweden, Switzerland and Norway – among other places – but it was Federal Reserve’s signal that it expects high US rates to last through 2023 that set off the latest sell-off.

MSCI’s world stocks index fell to its lowest since mid-2020 on Friday, having lost about 12% in the month or so since Fed Chair Jerome Powell made clear that bringing down inflation would hurt.

The euro fell for a fourth straight day after data showed the downturn in the German economy has worsened in September, as consumers and businesses face an unprecedented energy crunch and spiralling inflation.

European stocks were a sea of red for a second day, under pressure from losses in everything from bank stocks to natural resources and technology shares.

The pan-regional STOXX 600 was down about 0.5% in early trade, while Frankfurt’s DAX lost 0.6%, ranking it as one of Europe’s worst-performing indices. London’s FTSE lost 0.1%, against a backdrop of the pound tumbling to another 37-year low.

“Pretty much anything besides inflation data and central bank policy decisions is just noise at the moment, with the market firmly, and almost solely, focused on how high rates will rise across developed markets, and how long they will remain at those peaks,” CaxtonFX chief strategist Michael Brown said.

“The Fed’s message on Wednesday was clear, that rates are going higher than the market was pricing, and policy will remain restrictive for a prolonged time to come, likely throughout 2023 – in that environment, it’s almost impossible to be long stocks, or to want to buy Treasuries, hence the sell-off in both is no surprise, and should continue.”

S&P emini futures ESc1 fell 0.3%, suggesting a weaker start on Wall Street later.

With US rates set to rise faster and stay high for longer, the dollar hit its highest in two decades this week, while yields on the benchmark 10-year US Treasury have soared as investors have ditched inflation-sensitive assets like bonds.

The 10-year yield was trading down 2 basis points on the day at 3.68%, but has risen by almost a quarter of a percentage point this week alone and is on course for its eighth consecutive weekly increase.

“The 10-year was playing catch up to the newly calibrated cash rate,” said Westpac’s head of rates strategy, Damien McColough, in Sydney.

“If you believe the front-end is going to peak at 4.60% can you really sustain 10-year bond yields at 3.70%?” he said.

“It’s very skittish price action … I think that this volatility continues in all markets in the near term (until) the rates market settles.”

The euro and yen fell to 20-year lows on Thursday, until Japanese authorities stepped in to the market for the first time since 1998 to buy yen and arrest its long slide.

The yen was last steady at 142.29 per dollar and on course for its best week in more than a month, but few believe this strength will last.

Meanwhile, two-year gilt yields headed for their worst week in 13 years after the Bank of England delivered an interest-rate rise that was smaller than some currency traders had hoped for.

Later on Friday, new finance minister Kwasi Kwarteng will announce a fiscal plan that is probably inflationary and even more bad news for gilts.

Gold, which pays no interest, has come under pressure, particularly over the course of this quarter, as yields have risen. It was last down 0.1% on the day around USD 1,667 an ounce, at its weakest in two years.

Yen buoyant after intervention, dollar powers ahead

SINGAPORE, Sept 23 (Reuters) – The yen was heading on Friday to its first weekly gain in more than a month after Japanese authorities intervened in markets to support the yen for the first time since 1998, while a towering dollar kept other currencies pinned near multi-year lows.

The yen was up about 0.1% at 142.22 per dollar in Asia, after a more than 1% rally in the previous session on news that Japan had bought yen to defend the battered currency, although trading was thin on Friday with the country’s markets closed for a public holiday.

The intervention, conducted late in Asia trading hours on Thursday, came after the Bank of Japan stuck with its ultra-low rate policy, which prompted a drop in the yen past 145 per dollar to a 24-year low.

“Given that (the BOJ) runs … against the grain of rising interest rates, in order to have any chance of success, they’re going to have to be in this for the long haul,” said Ray Attrill, head of FX strategy at National Australia Bank.

“My sense is that the law of diminishing returns will set in, as far as intervention is concerned.”

Sterling lost 0.27% to USD 1.12285, uncomfortably close to a 37-year low of USD 1.1213 hit in the previous session and little helped by a 50 basis-point rate hike by the Bank of England overnight.

The euro, Aussie and kiwi were likewise languishing near fresh lows on Friday in the face of a surging greenback, which received a boost from a very hawkish Federal Reserve policy announcement and rising Treasury yields that kept the dollar in demand.

The benchmark 10-year Treasury yield hit an 11-year high of 3.718% overnight, while the two-year yield remained well above 4%.

“Ironically, I do think that the rise in US Treasury yields overnight, particularly the 10-year area, is a direct result of the view that the Bank of Japan is going to have to be selling Treasuries, to supply the dollars in order to intervene,” said Attrill. “Outside of dollar/yen, it will make the dollar even more attractive against other currencies.”

The US dollar index rose 0.16% to 111.40, hovering near a two-decade high of 111.81 hit in the previous session, and is on track for a weekly gain of 1.5%.

The euro fell 0.11% to USD 0.9823, close to a 20-year trough of USD 0.9807 hit overnight.

Flash September purchasing managers’ indexes for the euro zone, the UK and the United States, due later on Friday, will provide a better overview regarding the darkening global outlook.

The risk-sensitive Aussie dropped 0.38% to USD 0.66165, while the kiwi fell 0.31% to USD 0.5828. Both had fallen to their lowest since 2020 in the previous session.

Westpac chief economist Bill Evans said in a note on Friday that he has lowered his forecast for the Aussie to USD 0.65 by the end of this year, from USD 0.69 previously.

(Reporting by Rae Wee; Editing by Sam Holmes and Edmund Klamann)

Gold range-bound on firm dollar, Fed rate hike jitters

Sept 23 (Reuters) – Gold prices held a narrow range on Friday as the dollar steadied near a 20-year peak, while the likelihood of more aggressive interest rate hikes by the US Federal Reserve going forward also weighed on the non-yielding bullion’s appeal.

Spot gold was flat USD 1,670.19 per ounce by 0658 GMT, while US gold futures fell 0.2% to USD 1,678.20.

“I expect prices to remain choppy in the near-term, as the market has already discounted the (75 bps) rate hike, that is why we are not seeing a big fall in the prices,” said Ajay Kedia, director at Kedia Commodities, Mumbai.

“We see USD 1,650 as support and USD 1,720 as resistance… The expectations of further rate hike is capping gold’s upsides.”

A number of central banks, from Indonesia to Norway, raised their interest rates on Thursday, following the US central bank’s third straight 75-basis-point hike.

The actions by major central banks have stoked concerns of a global recession.

Though gold is seen as a hedge against inflation and economic uncertainties, rising rates dull bullion’s appeal since it yields no interest.

Gold prices have fallen nearly 20% since scaling above the key USD 2,000 per ounce mark in March.

“The dominant drift in the minds of global investors is currently toward the realisation that the economies of Europe and the US are in serious trouble,” said Clifford Bennett, chief economist at ACY Securities.

“Should the situation begin to look more like economic collapse, gold will be catapulted to surprising levels.”

The dollar index was around its highest level since 2002 touched on Thursday and benchmark 10-year US Treasury yield hit a 11-year peak buoyed by the Fed’s hawkish outlook.

Spot silver fell 0.3% to USD 19.60 per ounce and palladium was down 1% at USD 2,148.01.

Platinum shed 0.7% to USD 894.27 and was down 1.8% for the week, its first weekly decline in three.

Oil prices edge down, recession fears back in focus

SINGAPORE, Sept 23 (Reuters) – Oil prices fell on Friday amid recession fears and a stronger US dollar, though losses were capped by supply concerns after Moscow’s new mobilisation campaign in its war with Ukraine and an apparent deadlock in talks on reviving the Iran nuclear deal.

Brent crude futures fell 46 cents, or 0.5%, to USD 90.00 per barrel at 0630 GMT, while US West Texas Intermediate (WTI) crude futures were also down 46 cents, or 0.55%, to USD 83.03.

Front-month Brent and WTI contracts were down 1.4% and 2.4%, respectively, for the week so far.

“In the wake of accelerating rate hikes by the major central banks, the risk of a global economic recession overshadows supply issues in the oil markets, despite the recent escalation in the Russia-Ukraine war,” said CMC Markets analyst Tina Teng.

“However, a sharp fall in the US SPR and drawdown in inventories may still keep oil prices supported at some point as there is still an inevitable undersupply issues in the physical markets, while Iran’s nuclear deal is in stalemate,” she said, referring to crude oil in the US Strategic Petroleum Reserve which dropped last week to its lowest since 1984.

Following the US Federal Reserve’s hefty 75-basis-point increase on Wednesday for a third time, central banks around the world also followed suit in hiking interest rates, raising the risk of economic slowdowns.

“Crude prices remain volatile as energy traders grapple with a deteriorating demand outlook that is still vulnerable to shortages,” said Edward Moya, senior market analysts at OANDA, in a note.

“Supply risks and tight market conditions should give oil some support above the $80 level, but a quicker tumble to a global recession will keep prices heavy.”

A senior US State Department official said that efforts to revive the 2015 Iran nuclear deal have stalled due to Tehran’s insistence on the closure of the UN nuclear watchdog’s investigations, easing expectations of a resurgence of Iranian crude oil.

(Reporting by Laila Kearney in New York and Emily Chow in Singapore; Editing by Leslie Adler, Kim Coghill and Ana Nicolaci da Costa)

Oil plunges to eight-month low on strong dollar, recession fears

NEW YORK, Sept 23 (Reuters) – Oil prices plunged about 5% to an eight-month low on Friday as the US dollar hit its strongest level in more than two decades and on fears rising interest rates will tip major economies into recession, cutting demand for oil.

Brent futures fell USD 4.31, or 4.8%, to settle at USD 86.15 a barrel, down about 6% for the week. US West Texas Intermediate (WTI) crude fell USD 4.75, or 5.7%, to settle at USD 78.74, down about 7% for the week.

It was the fourth straight week of declines for both benchmarks, the first time this has happened since December. Both were in technically oversold territory, with WTI on track for its lowest settlement since Jan. 10 and Brent for its lowest since Jan. 14.

US gasoline RBc1 and diesel futures were also down more than 5%.

The US Federal Reserve raised interest rates by a hefty 75 basis points on Wednesday. Central banks around the world followed suit with their own hikes, raising the risk of economic slowdowns.

“Oil tanks as global growth concerns hit panic mode given a chorus of central bank commitments to fight inflation. It seems central banks are poised to remain aggressive with rate hikes and that will weaken both economic activity and the short-term crude demand outlook,” aid Edward Moya, senior market analyst at data and analytics firm OANDA.

The US dollar was on track for its highest close against a basket of other currencies since May 2002. A strong dollar reduces demand for oil by making the fuel more expensive for buyers using other currencies.

“We had the dollar exploding higher and pushing down dollar-denominated commodities like oil and growing fears over the looming global recession that is coming as the central banks raise interest rates,” said John Kilduff, partner at Again Capital LLC in New York.

The euro zone’s downturn in business activity deepened in September, a survey showed, suggesting a recession looms as consumers rein in spending and as governments urge energy conservation following Russia’s moves to cut off European supply.

Wall Street’s main indexes slid more than 2% on Friday as investors feared the US Federal Reserve’s hawkish policy actions to quell inflation could trigger a recession and dent corporate earnings. The dollar index reached its highest in over two decades, pressuring oil prices.

Russia launched referendums aimed at annexing four occupied regions of Ukraine, raising stakes of the war in what Kyiv called a sham.

On the supply side, efforts to revive the 2015 Iran nuclear deal have stalled as Tehran insists on closure of the U.N. nuclear watchdog’s investigations, a senior US State Department official said, easing expectations of a resurgence of Iranian crude oil exports.

(Additional reporting by Emily Chow in Singapore and Julia Payne in London; Editing by Louise Heavens, Paul Simao, David Gregorio and Chizu Nomiyama)

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