Foreign outflows from EM Asian equities exceed 2008 outgo

Oct 4 (Reuters) – Foreigners resumed selling in Asian equities ex-China stocks in September as investors were deterred by U.S. interest rate hikes, a firmer greenback and a weaker regional growth outlook.

Data from stock exchanges in South Korea, India, Taiwan, the Philippines, Vietnam, Indonesia, and Thailand showed that foreigners sold equities worth a net $8.83 billion last month – their first monthly selling since June.

The regional equities have so far faced total outflows of $69.7 billion in the first three quarters of the year, a massive jump in outflows of $47.63 billion faced in 2008, when the global financial crisis occurred.

Last month, the U.S. Federal Reserve raised its benchmark interest rate by 75 basis points, marking the third such hike in a row. Analysts expect the U.S. central bank to keep hiking rates to tame rising inflationary pressures.

The region grapples with mounting inflationary pressures, interest rate hikes, and slowing economic growth, said Mark Haefele, chief investment officer, UBS Global Wealth Management, and added that aggressive U.S. rate hikes have also hurt the region’s currencies and its export markets.

Goldman Sachs cut the region’s 2022 and 2023 EPS growth by 2 percentage points (pps) and 3 pps respectively at the end of last month, citing the negative impact of rising rates, a stronger dollar, and slower growth on earnings.

Outflows from tech-reliant South Korea and Taiwan last month jumped to a three-month high of $1.8 billion and $5.3 billion, respectively.

India and Thailand witnessed outflows worth $903 million and $653 million, respectively, after each seeing inflows in the previous two months.

Foreigners were also net sellers of equities in the Philippines and Vietnam markets last month. On the other hand, Indonesian equities gained small inflows of $209 million.

“The cloudy outlook on economic conditions and firm policy stance from the Fed, risk sentiments may still lean towards some caution, which may lead to a lukewarm inflow for Asian equities in the near term at best,” said Yeap Jun Rong, a market strategist at IG.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Sherry Jacob-Phillips)

UK gilt market resilient despite ‘major repricing’ – debt office head

LONDON, Oct 4 (Reuters) – Britain’s bond market is undergoing “a major repricing”, but should comfortably absorb the extra 62 billion pounds (USD 69 billion) of debt announced after finance minister Kwasi Kwarteng’s Sept. 23 mini-budget, the head of the UK Debt Management Office (DMO) said on Monday.

Robert Stheeman – the man tasked with overseeing Britain’s 2.1-trillion-pound government bond market – saw a parallel between the high volatility over the past 10 days and that in March 2020 early in the COVID-19 pandemic, when the Bank of England also intervened to calm markets.

But overall the situation in recent days felt different, as bond dealers had generally been better able to keep trading, “albeit in very difficult conditions”, compared with early 2020, Stheeman told Reuters in an interview.

Ten-year British government bonds recorded their biggest calendar-month fall since at least 1957 in September, as concerns about Kwarteng’s unfunded 45 billion pounds of tax cuts added to fears of a sharp rise in interest rates by the Bank of England (BoE) and other major central banks.

Ten-year yields rose to their highest since 2008 on Sept. 28 at 4.582%, up 70 basis points from before Kwarteng’s mini-budget. They were just under 4% on Monday.

“Gilts and other sovereign bond markets are all having to undergo some major repricing,” Stheeman said.

“There are so many uncertainties … in terms of not just the fiscal picture, but the potential monetary policy response. That is what is causing … a very large part of the market volatility,” he added.

The DMO increased its 2022/23 financing target by 72 billion pounds to 234 billion pounds after Kwarteng’s mini-budget, 62 billion pounds of which would be funded by gilts.

“I am confident that it can be digested reasonably smoothly,” Stheeman said.

British government bond prices rallied on Monday after Kwarteng announced a U-turn on one of his flagship measures, saying he would no longer scrap the top rate of tax paid by the highest 1% of earners.

But Stheeman said the market was more focused on the government’s broad fiscal stance, and crucially how that would affect the pace at which the BoE will raise rates.

BoE Chief Economist Huw Pill last week warned the Bank would probably need to make a significant adjustment to interest rates on Nov. 3, when it is next scheduled to make a policy decision. The next day, the BoE stepped in to buy billions of pounds of 20- and 30-year gilts to stem a market slide.

Stheeman – whose wife sits on a BoE committee involved with the decision – said the central bank’s purchase announcement had come as a “major surprise”, in the middle of a DMO operation to sell 4.5 billion pounds of government debt.

While the timing of the announcement may have made life trickier for bond dealers, Stheeman said its unexpected nature did highlight the BoE’s independence.

CLIFF-EDGE FOR GILTS?

The BoE has said it will stop buying bonds on Oct. 14 – long enough, it believes, for pension funds hit by falling bond prices to get their houses in order – and plans to restart its postponed gilt sales programme on Oct. 31.

Asked if he was worried about these potential cliff edges, Stheeman said: “I am not unduly anxious. I think it is in the nature of the market in which we operate, that there is always potential for uncertainty, and that clearly applies now.”

Failed auctions, where the DMO is unable to raise the amount of money it is seeking on a given day, could never be ruled out, he added. The last was in 2009.

Most of the increase in debt issuance over the rest of the financial year will come from short-dated, and to a lesser extent medium-dated, gilts. Stheeman said this reflected greater liquidity in that part of the market.

Wide bid-offer spreads for gilts – which on Monday were around 10 basis points for two-year gilts GB2YT=TWEB, according to Tradeweb data – would hopefully narrow as market volatility reduced, Stheeman said.

Regulators also needed to look at how liability-driven investment (LDI) funds in the pension industry used derivatives, he added.

(USD 1 = 0.8929 pounds)

(Reporting by David Milliken; Editing by Mark Potter)

Philippines raises USD 388 million via 2025 T-bond re-issue

MANILA, Oct 4 (Reuters) – Following are the results of the Philippine Bureau of the Treasury’s (BTr) auction of re-issued 2025 T-bonds on Tuesday:

* BTr fully awards PHP 22.85 billion (USD 388.61 million) offer

* Tenders total PHP 39.144 billion

* Avg yield 5.746%

* Bonds were originally issued on April 12, 2018

(USD 1 = PHP 58.80)

Gold scales 3-week peak as dollar, yields retreat

Oct 4 (Reuters) – Gold hit a three-week high on Tuesday, spurring gains for all precious metals, as the dollar and US Treasury yields moved further from multi-year highs and revived appeal for the zero-yielding bullion.

Spot gold rose 0.5% to USD 1,707.20 per ounce by 0725 GMT, having earlier touched its highest since Sept. 13 at USD 1,710.39.

US gold futures were up 0.9% to USD 1,717.60.

The dollar index fell by 0.5%, making gold cheaper for overseas buyers, and the US 10-year Treasury yields also retreated.

The weakening dollar index and worries over a recession in the US and Europe are driving interest back into gold, said Sugandha Sachdeva, vice president of commodity and currency research at Religare Broking, adding renewed inflows into gold exchange-traded funds (ETF) show revived confidence.

Holdings of SPDR Gold Trust GLD, the world’s largest gold-backed ETF, saw its biggest one-day inflow since June on Monday.

The focus has turned to US non-farm payrolls due later this week for signals on the Federal Reserve’s rate-hike path.

Economic data on Monday showed a slowdown in manufacturing activity, hinting at the impact of the Fed’s aggressive policy tightening. “The (gold) market may stabilise anywhere between $1,685 and $1,705 ahead of the jobs data,” Stephen Innes, managing partner at SPI Asset Management, said.

Although gold is seen as a hedge against economic uncertainties, US rate hikes increased the opportunity cost of holding bullion that pays no interest.

Spot silver climbed 1% to USD 20.96 per ounce, having earlier hit a peak since June.

“Silver was very undervalued for a long time and now, as risk sentiment is returning to the market, we are seeing a lot of buying interest coming back,” Religare’s Sachdeva said, adding green energy initiatives are expected to support demand for the metal.

Palladium jumped as much as 4.2% and was last up 3.3% at USD 2,294.79, while platinum was 1.2% higher at USD 912.85.

(Reporting by Eileen Soreng in Bengaluru; Editing by Sherry Jacob-Phillips and Barbara Lewis)

Oil jumps more than 3% ahead of OPEC+ meeting on supply cuts

NEW YORK, Oct 4 (Reuters) – Oil rose by nearly USD 3 a barrel on Tuesday on expectations of a large cut in crude output from the OPEC+ producer group and as a weaker US dollar made oil purchases less expensive.

The Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, look set to cut output when they meet on Wednesday. The move would squeeze supply in an oil market that energy company executives and analysts say is already tight due to healthy demand, a lack of investment and supply problems.

Brent crude settled at USD 91.80 a barrel, up USD 2.94, or 3.3%. US West Texas Intermediate (WTI) crude closed USD 2.89, or 3.5%, higher at USD 86.52 a barrel.

Sources from the group have said OPEC+, which includes Russia, is discussing output cuts in excess of 1 million barrels per day (bpd). Oil extended gains after Bloomberg reported that OPEC+ was considering a 2 million-bpd cut.

“We expect a substantial cut to be made, which will not only help to tighten the physical fundamentals but sends an important signal to the market,” Fitch Solutions said in a note.

Kuwait’s oil minister said OPEC+ would make a suitable decision to guarantee energy supply and to serve the interests of producers and consumers.

PRODUCTION TARGET

OPEC+ has boosted output this year after record cuts implemented in 2020 when the pandemic slashed demand.

In recent months, the group has failed to meet its planned output increases, missing in August by 3.6 million bpd.

The production target cut being considered is justified by the sharp decline in oil prices from recent highs, said Goldman Sachs, adding that this reinforced its bullish outlook on oil.

Also boosting oil prices, the US dollar was headed for a fifth daily loss against a basket of currencies as investors speculated that the US Federal Reserve might slow its interest rate hikes.

“There’s no doubt that there’s underlying support from a weak dollar and the potential for a Fed pivot,” said Bob Yawger, director of energy futures at Mizuho in New York.

The Fed’s potentially easing its rate hikes would relieve some worries of a US economic recession that could dampen crude demand.

Meanwhile, a senior US Treasury official said G7 sanctions on Russia will be implemented in three phases, first targeting Russian oil, then diesel and then lower-value products such as naphtha.

Sanctions from the G7 and the European Union, which is opting for a two-phase ban, are set to begin on Dec. 5.

Swiss lender UBS said it sees several factors that could send crude prices higher toward year-end, including “recovering Chinese demand, OPEC+ further supply cut, the end of the US Strategic Petroleum Reserve (SPR) release and the upcoming EU ban on Russian crude exports.”

Top oil traders also said at the Argus European Crude Conference in Geneva on Tuesday that economic headwinds have not yet caused significant erosion of global oil demand.

US crude oil and fuel stockpiles fell by about 1.8 million barrels for the week ended Sept. 30, according to market sources citing American Petroleum Institute figures.

Gasoline inventories fell by about 3.5 million barrels, while distillate stocks fell by about 4 million barrels, according to the sources, who spoke on condition of anonymity. Official inventory data is due on Wednesday.

(Additional reporting by Bozorgmehr Sharafedin in London and Isabel Kua in Singapore; Editing by Marguerita Choy, David Gregorio and Jonathan Oatis)

Oil prices inch higher ahead of OPEC+ meeting to discuss supply cuts

SINGAPORE, Oct 4 (Reuters) – Oil prices inched higher in early Asian trade on Tuesday, on expectations that OPEC+ may agree to a large cut in crude output when it meets on Wednesday but concerns about the global economy capped gains.

Brent crude futures rose 43 cents, or 0.5%, to USD 89.29 per barrel by 0108 GMT after gaining more than 4% in the previous session.

US crude futures rose by 22 cents, or 0.3%, to USD 83.85 a barrel. The benchmark gained more than 5% in the previous session, which marked its largest daily gain since May.

Oil prices rallied on Monday on renewed concerns about supply tightness. There are expectations that the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known collectively as OPEC+, will cut output by more than 1 million barrels per day (bpd) at their first in-person meeting since 2020 on Wednesday.

Voluntary cuts by individual members could come on top of this, making it their largest cut since the start of the COVID-19 pandemic, OPEC sources said.

“Despite everything going on with the war in Ukraine, OPEC+ has never been this strong and they will do whatever it takes to make sure prices are supported here,” said Edward Moya, a senior analyst with OANDA, in a note.

OPEC+ has boosted output this year after record cuts put in place in 2020 due to demand destruction caused by the COVID-19 pandemic. But in recent months, the organisation has failed to meet its planned output increases, missing in July by 2.9 million bpd.

The production cut being considered was justified by the sharp decline in oil prices from recent highs, said Goldman Sachs, adding that this reinforced its bullish oil view.

Concerns about the global economy could cap the upside, said Tina Teng, an analyst at CMC Markets, as investors also look to take profit on gains made in the previous session.

“Uncertainties remain in the global markets, such as bond market turmoil, the sell-off in risk assets, and a skyrocketing US dollar,” said Teng.

Oil prices have dropped for four straight months as COVID-19 lockdowns in top oil importer China curbed demand while interest rate hikes and a soaring US dollar pressured global financial markets. Major central banks have embarked on the most aggressive round of rate rises in decades, sparking fears of a global economic slowdown.

US crude oil stocks were estimated to have increased by around 2 million barrels in the week to Sept. 30, a preliminary Reuters poll showed on Monday.

(Reporting by Isabel Kua; Editing by Ana Nicolaci da Costa)

Sterling climbs after tax plan reversal, dollar also weaker against other major currencies

NEW YORK/LONDON, Oct 3 (Reuters) – Sterling jumped against the dollar on Monday after Britain reversed a plan to cut the highest rate of income tax, and the dollar was also down against other major currencies.

The pound rose against the dollar after media reports of the u-turn to its highest level since Sept. 22, the day before British Finance Minister Kwasi Kwarteng roiled markets with a new “growth plan” to cut taxes and regulation, funded by vast government borrowing.

Sterling was last up 1.4% at USD 1.1320.

“Sterling is getting a boost as the UK tries to reverse some of its tax cuts,” Amo Sahota, director at Klarity FX in San Francisco, said.

British finance minister Kwasi Kwarteng said he would publish details “shortly” on how he planned to bring down public debt as a share of economic output over the medium term.

The dollar, which is up sharply for the year, weakened also against other major currencies.

But, “the big macroeconomic themes have not changed, so take this for what it is, it’s a new quarter and a opportunity for a bounce in equities and a little unwinding of the US dollar,” Sahota said.

Elsewhere, the Japanese yen weakened past the 145 mark for the first time since Sept. 22, when authorities intervened to prop up the currency.

The dollar was last just slightly lower at 144.69 yen.

Monday’s fall came as finance minister Shunichi Suzuki said Japan stood ready for “decisive” steps in the foreign exchange market if excessive yen moves persisted.

The yen has been weakening due to Japan’s policy of keeping interest rates pinned down at a time when they are rising elsewhere. After much speculation, authorities last month intervened in markets, spending a record of 2.8 trillion yen (USD 19.7 billion) to prop up the currency.

“The central banks are getting more active in trying to defend their currencies,” Klarity’s Sahota said.

The greenback was down against China’s offshore yuan and hit a low for the day of 7.0901.

“I think the yuan has strengthened enough that it will give some peace to the People’s Bank of China at this time,” Sahota said.

The euro rose 0.3% to USD 0.9825. Data earlier showed manufacturing activity across the euro zone declined further last month.

Reports that the OPEC+ group of oil producers is discussing potential output cuts of more than 1 million barrels per day also weighed on the currency, given Europe’s precarious energy situation.

The Australian and New Zealand dollars gained ground ahead of expected rate hikes by their central banks this week with the Aussie up 1.6% at USD 0.6515 and the kiwi 2% higher at USD 0.5717.

Investors were watching for more news on Credit Suisse, whose shares slid on Monday, reflecting market concerns ahead of a restructuring plan due to come with third-quarter results at the end of October.

(Additional reporting by Rae Wee; editing by Jason Neely, Andrew Heavens, David Evans and David Gregorio)

A market sweet spot?

Oct 4 (Reuters) – Whisper it, but markets may be in something of a sweet spot right now, opening the potential for a few weeks of respite and decent-sized rebounds.

Ok, maybe a few days until the next crisis rears its head and 2022 normal service is resumed. But there is a glimmer of hope.

It’s a new quarter, and after three quarters of misery, if ever there was a time for investors to pause and even put some chips back on the table, this is it. Financial assets are (relatively) cheap.

A lot of bad news is priced in. For example, the United States entering recession within the next 12-18 months is now overwhelming consensus. Citi’s economic surprises indices, with the exception of EM, are mostly back in positive territory at around three-month highs.

Ditto central bank tightening. Broadly speaking, the balance of risks now must surely be that policymakers are less aggressive relative to market expectations rather than more.

Up to 50 basis points of Fed tightening has been taken out of the 2023 US futures curve in recent days – the implied rate for December next year dipped as low as 4.03% on Monday.

Key to this is a steep decline in inflation expectations. Breakeven rates on the US two-, five- and 10-year horizons fell to around 2.15% on Monday, the lowest in 18 months and very close to the Fed’s 2% target.

That’s not to say the coast is clear. Far from it. And liquidity in Asia this week will be light due to China’s Golden Week break and Hong Kong’s public holiday on Tuesday.

But market waves are a little less choppy, and from Wall Street to Brazilian assets to sterling, investors have started Q4 on the offensive.

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

Japan inflation (September)

Australia interest rate decision (50 bps hike expected)

South Korea PMI (September)

Fed’s Williams, Logan, Mester, Jefferson, Daly speak

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

US yields decline after UK tax turnaround, US data

NEW YORK, Oct 3 (Reuters) – The yield on the benchmark US 10-year Treasury note fell on Monday, after British Prime Minister Liz Truss was forced to abandon a tax cut plan while US economic data showed a slowdown in manufacturing.

Truss had planned to eliminate a tax of 45% on the top rate on income before backing down, part of a plan that led the Bank of England to step in and announce plans to purchase government debt to support the market that had been rattled by the economic plans in recent days.

“What was happening overseas and specifically in the UK and their fiscal policy changes, that was the piece that added an extra leg of volatility, specifically to the fixed income markets here,” said Jim Barnes, director of fixed income at Bryn Mawr Trust in Berwyn, Pennsylvania.

“This morning with what appears to be the UK stepping things back a bit, the market is taking its cue from some of the bond activity happening overseas.”

The yield on 10-year Treasury notes was down 13.4 basis points to 3.670%. The yield had hit a 14-year high of 4.109% last week before tumbling after the BoE’s intervention.

The yield on the 30-year Treasury bond was down 4.3 basis points to 3.721%.

Yields extended declines following the Institute for Supply Management’s (ISM) survey which showed manufacturing activity in September was the slowest in nearly 2-1/2 years as new orders contracted, with a measure of inflation at the factory gate decelerating for a six consecutive month, hinting the rising interest rates being used to combat inflation by the Fed may have softened demand for goods.

“Looking at ISM prices paid versus inflation and that stat alone says inflation should be in the fours, not the eights, we’ll see, obviously a lot depends on rents,” said Jack Ablin, chief investment officer at Cresset Capital in Chicago.

“Our risk is that the economy slows and interest rates drop, not that rates rise because inflation spikes up, and that is good news.”

Investors will eye a flurry of data this week, including several reports on the labor market culminating with Friday’s US payrolls report. Signs of a softening in the jobs data would likely be welcomed by investors as it could signal the US Federal Reserve’s attempts to slow the economy and tamp down inflation may be starting to have an effect.

Fed officials have been in sync as they have vowed to take aggressive measures in hiking interest rates to combat rising inflation. Federal Reserve Bank of New York President John Williams said on Monday that while there have been early signs that inflation is easing, the central bank still must continue fighting high prices.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as a reliable indicator of an economic recession, was at -45.2 basis points, up from -57.85 hit two weeks ago.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was down 8.9 basis points at 4.120%.

The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.317%, after closing at 2.147% on Friday, which marked its lowest close in about 20 months.

The 10-year TIPS breakeven rate was last at 2.244%, indicating the market sees inflation averaging 2.2% a year for the next decade.

(Reporting by Chuck Mikolajczak; Editing by Andrea Ricci and Jonathan Oatis)

Gold rallies as dollar, yields retreat; silver soars over 8%

Oct 3 (Reuters) – Gold prices jumped more than 2% on Monday boosted by a dip in the US dollar and bond yields, as recent lows enticed investors and also sparked a rally in silver in potentially its best day since late-2008.

Spot gold rose 2.3% to USD 1,698.48 per ounce by 3:39 p.m. ET (1939 GMT), which could be its biggest daily rise since March 8. US gold futures settled 1.8% higher at USD 1,702.

Silver surged 8.8% to USD 20.67 per ounce, its highest since mid-August.

“For the whole of September everything took it on the chin,” and was over-sold, said Michael Matousek, head trader at US Global Investors. Now people are looking for opportunities, especially non-long-term term holders of these metals, who buy dips and sell rallies, he added.

The dollar eased, helping demand for the greenback-priced bullion among overseas buyers. Benchmark US 10-year Treasury yields fell to an over one-week low, supporting demand for zero-yield gold.

A retreat in the safe-haven currency has afforded gold some respite, with bullion prices staging a mini-recovery since sliding to their lowest since April 2020 last week.

Gold has found support as it has recently declined less than the overall market, Matousek said, adding there were some market participants now thinking the US Federal Reserve might ease interest rate hikes, which would support gold.

Supporting safe-haven demand for metals, US manufacturing activity grew at its slowest pace in nearly 2-1/2 years in September, likely as rising interest rates to tame inflation cooled demand for goods.

“You’re going to have to see a close back above USD 1,700 to get the (gold) bulls revived a little bit, and even that, really doesn’t change the technical posture a whole lot… the bears are still in pretty firm technical control,” said Jim Wyckoff, senior analyst at Kitco Metals.

Palladium rose 2.9% to USD 2,219.83. Platinum jumped nearly 5% to USD 901.52 per ounce.

(Reporting by Bharat Govind Gautam in Bengaluru; Editing by Andrea Ricci, Sandra Maler and Krishna Chandra Eluri)

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