Gold drops below $1,700 on stronger dollar, rate-hike bets

Sept 1 (Reuters) – Gold prices fell below the key USD 1,700 level on Thursday for the first time since July, as a rising dollar and expectations for aggressive interest rate hikes eroded its appeal.

Spot gold was down 0.8% at USD 1,696.76 per ounce by 13:58 p.m. ET, having dropped to its lowest since July 21 earlier in the session.

US gold futures settled 1% lower at USD 1,709.3.

Gold is considered a safe store of value during times of economic uncertainty, but a higher rate environment tends to take the shine off the asset as it does not pay any interest.

“If the Fed sticks to its inflation mandate and keeps rates elevated and refrains from cutting rates even in a recession, it will not bode well for gold,” said Daniel Ghali, commodity strategist at TD Securities.

“If gold breaks below the USD 1,675 range, we expect substantial selling pressure to emerge.”

Mirroring investors’ sentiment, holdings in the SPDR Gold Trust GLD, the world’s largest gold-backed exchange-traded fund, fell to 31,294,673 ounces on Wednesday, the lowest since January.

The dollar index surged to its highest in 20 years, after data showing growth in US manufacturing in August and a dip in Americans filing new claims for unemployment benefits last week gave the Federal Reserve more room to aggressively raise interest rates.

A higher dollar makes bullion more expensive for overseas buyers. US Treasury yields also advanced, increasing the opportunity cost of holding non-yielding bullion.

Spot silver fell 1% to USD 17.99, after hitting its lowest level in more than two years.

Platinum dipped 2.4% to USD 825.61 per ounce while palladium fell 3.5% to USD 2,011.48.

“As we are staring down the barrel of recession, industrial metal prices are particularly vulnerable,” Ghali added.

Asia’s factory activity slumped in August as lockdowns in China and cost pressures continued to hurt businesses, surveys showed.

(Reporting by Ashitha Shivaprasad, Seher Dareen and Rahul Paswan in Bengaluru; Editing by Krishna Chandra Eluri and Vinay Dwivedi)

China, HK stocks fall on dismal economic outlook, COVID woes

Sept 1 (Reuters) – China and Hong Kong stocks ended lower on Thursday, tracking lacklustre performances in other Asian markets, as fresh COVID-19 cases in the mainland worsened an already grim global economic outlook.

China’s blue-chip CSI300 index fell 0.9% to 4,043.74 points, while the Shanghai Composite Index ended 0.5% lower at 3,184.98 points.

In Hong Kong, the Hang Seng index dropped 1.8% to 19,597.31 points.

MSCI’s broadest index of Asia-Pacific shares outside Japan slumped 1.9%, following overnight losses on the Wall Street, amid fresh signs of economic weakness.

Regional purchasing managers’ indexes from South Korea, Japan and China all pointed to slowing global economic activity as stubborn inflation, rising interest rates and the war in Ukraine took a heavy toll.

Although inflation in China is modest and the country’s interest rates keep falling, COVID-19 cases and a deteriorating property crisis threaten nascent economic recovery.

The southern Chinese tech hub Shenzhen tightened COVID-19 curbs, as cases continued to mount on Thursday.

Chinese stocks rose earlier in the day on hopes of fresh economic stimulus, but were knocked down following news reports that Chengdu – the capital city of southwestern Sichuan province – will conduct mass COVID-19 testing from Thursday to Sunday.

“With virus disruptions spreading again, foreign demand cooling, the property sector still in a downward spiral and stimulus failing to gain traction there are few reasons to expect a near-term turnaround,” wrote Julian Evans-Pritchard, senior China economist at Capital Economics.

China’s CSI Tourism Index tumbled 4%, the most in two months, on fears that the worsening COVID situation will continue to damp appetite for travel.

Banking stocks also fell after China’s biggest lenders signalled wounds from the country’s property debt crisis.

Hong Kong shares fell across the board, with consumer .and industrial firms leading the losses.

(Reporting by the Shanghai Newsroom; Editing by Sherry Jacob-Phillips)

Oil drops on fears over weaker demand, China’s COVID restrictions

TOKYO, Sept 1 (Reuters) – Oil prices dropped on Thursday, as investors were worried that aggressive interest rate hikes from global policymakers would slow economies and dent fuel demand, while renewed restrictions to curb COVID-19 in China also added pressure.

Brent crude futures fell 53 cents, or 0.6%, to USD 95.11 a barrel by 0454 GMT. US West Texas Intermediate (WTI) crude futures slid 58 cents, or 0.7%, to USD 89.97 a barrel.

“Growing fears over weakening fuel demand due to aggressive rate hikes by the US and European central banks outweighed concerns over tight global supply,” said Hiroyuki Kikukawa, general manager of research at Nissan Securities.

Recent signs of weakness in China’s economy and the country’s stronger pandemic restrictions also weighed on sentiment, he added.

“The tug-of-war market reflecting sluggish demand outlook and tight supply estimates is expected to continue going forward,” Kikukawa said.

China’s factory activity contracted for the first time in three months in August amid weakening demand, while power shortages and fresh COVID-19 flare-ups disrupted production, a private sector survey showed.

Southern Chinese tech hub Shenzhen tightened COVID-19 curbs as cases continued to mount, with large events and indoor entertainment suspended for three days in the city’s most populous district, Baoan.

Recent oil market volatility has followed concerns about inadequate supply in the months after Russia sent military forces into Ukraine and as OPEC struggles to increase output.

However, production in both the Organization of the Petroleum Exporting Countries (OPEC) and the United States has risen to its highest level since the early days of the coronavirus pandemic.

OPEC’s output hit 29.6 million barrels per day (bpd) in the most recent month, according to a Reuters survey, while US output rose to 11.82 million bpd in June. Both are at their highest levels since April 2020.

Still, the oil market will have a small surplus of just 0.4 million bpd in 2022, much less than forecast earlier, according to OPEC and its partners – known as OPEC+ – due to underproduction of its members, OPEC+ sources said.

Meanwhile, US crude stocks fell by 3.3 million barrels, the US Energy Information Administration said on Wednesday, while gasoline stocks were down 1.2 million barrels.

Finance ministers from the Group of Seven club of wealthy nations will discuss the US Biden administration’s proposed price cap on Russian oil when they meet on Friday, the White House said.

(Reporting by Yuka Obayashi and Laura Sanicola; Editing by Richard Pullin and Christopher Cushing)

Sri Lanka gains IMF’s provisional agreement for USD 2.9 billion loan

COLOMBO, Sept 1 (Reuters) – Sri Lanka has reached a preliminary agreement with the International Monetary Fund (IMF) for a loan of about USD 2.9 billion, the global lender said on Thursday, as the country seeks a way out its worst economic crisis in decades.

The agreement, which Reuters first reported on Wednesday, is subject to approval by IMF management and its executive board, and is contingent on Sri Lankan authorities following through with previously agreed measures.

“This staff-level agreement is only the beginning of a long road ahead for Sri Lanka to emerge from the crisis,” senior IMF official Peter Breuer told reporters in Colombo.

“The authorities have already begun the reform process and it will be important to continue on this path with determination.”

IMF conditions for the loan also include receiving financing assurances from Sri Lanka’s official creditors and efforts by the country to reach an agreement with private creditors.

Its programme, spread over four years, will aim to boost government revenue, encourage fiscal consolidation, introduce new pricing for fuel and electricity, hike social spending, bolster central bank autonomy and rebuild depleted foreign reserves.

The country’s reserves stood at USD 1.82 billion as of July, according to central bank data.

“Starting from one of the lowest revenue levels in the world, the programme will implement major tax reforms. These reforms include making personal income tax more progressive and broadening the tax base for corporate income tax and VAT,” the statement said.

“The programme aims to reach a primary surplus of 2.3 percent of GDP by 2024,” it added.

Once the IMF package is approved, Sri Lanka is also likely receive further financial support from other multilateral creditors.

The country’s CSE All-Share index .CSE finished 2% higher, building on a 17% gain last month.

AUSTERITY AND JOB CUTS

Sri Lanka’s current financial turmoil, its worst since the country’s independence from Britain in 1948, stems from economic mismanagement as well as the COVID-19 pandemic that has wiped out the country’s key tourism industry.

Sri Lankans have faced acute shortages of fuel and other basic goods for months, stoking unprecedented protests that forced a change in government.

Ranil Wickremesinghe, a veteran lawmaker who took over as president in July, has faced an uphill battle to stabilise the economy, which has been buffeted by runaway inflation that is now at almost 65% year-on-year.

Udeeshan Jonas, chief strategist at Sri Lankan investment bank CAL Group, said the IMF’s comments were largely positive.

“They said the revenue measures that we’ve taken have been substantial (and) they’re happy with what we’ve done from a fiscal perspective,” he said.

Although welfare budgets for Sri Lanka’s poorest would be protected, Jonas expects significant austerity measures and job cuts at loss-making state-owned enterprises.

“Privatisation is on the cards,” he said, “and I think it will happen probably by next year.”

Wickremesinghe, who also serves as the country’s finance minister, on Tuesday presented an interim budget aimed at clinching the deal with the IMF.

The budget revised Sri Lanka’s deficit projection for 2022 to 9.8% of the gross domestic product from 8.8% earlier, while outlining fiscal reforms, including a hike in value-added taxes.

CREDITOR COLLABORATION

IMF’s Breuer said the preliminary agreement highlighted the commitment of Wickremesinghe’s government to comprehensive and significant reforms.

“This is a credible device to show to creditors that Sri Lanka is serious about engaging in reforms,” he said.

Sri Lanka needs to restructure nearly USD 30 billion of debt, and Japan has offered to lead talks with its other main creditors, including regional rivals India and China.

“If creditors are not willing to provide these assurances, that would indeed deepen the crisis here in Sri Lanka and would undermine its repayment capacity,” Breuer said.

Sri Lanka will also need to strike a deal with international banks and asset managers that hold the majority of its usd 19 billion worth of sovereign bonds, which are now classified as in default.

Sri Lanka’s debt had soared to unsustainable levels in the run up to the crisis. Years of populist tax cuts had depleted finances, which were further hammered by the pandemic.

The damage was compounded by a ban on chemical fertilisers that hit the farming industry, followed by soaring oil and food prices driven by the conflict in Ukraine.

“From our perspective, it is important to move expeditiously,” Breuer said, referring to the need for creditors to work together.

“That really is the key here. Because we want to avoid the crisis becoming worse.”

(Reporting by Uditha Jayasinge, Additional reporting by Alasdair Pal, Aftab Ahmed and Krishna N. Das, Writing by Devjyot Ghoshal; Editing by Raju Gopalakrishnan and Edwina Gibbs)

Yen hits 24-year low, 140 level beckons as hike bets buoy dollar

SINGAPORE/TOKYO, Sept 1 (Reuters) – The dollar rose broadly on Thursday, particularly against the yen, as investors braced for higher US interest rates while expecting anchored Japanese rates to go nowhere anytime soon.

The greenback hit a 24-year high of 139.69 against the yen in early Asia trade, a gain of about 0.5% on the previous day’s close. It was last up 0.42% at 139.55.

“The main driver remains rate differentials between Japan and the US, and even today’s price action just follows the overnight move higher in US rates. And we think the path ahead is going to depend on how US rates behave,” said Sosuke Nakamura, a strategist at JPMorgan in Tokyo.

Expectations for a 75-basis-point US rate hike at next month’s Federal Reserve meeting are rising on the back of solid economic data, with Fed funds futures last pointing to a 75% chance of such an increase.

“So long as expectations for the peak in the Fed funds rate keep ratcheting higher while the Bank of Japan remains on hold, dollar/yen will be a buy on dips. Anywhere in the low 140s now looks plausible,” said Sean Callow, a currency strategist at Westpac in Sydney.

However, a senior finance ministry official said on Thursday that Japan was watching currency moves with a “high sense of urgency”.

The surging dollar also pinned other major currencies down in Asia trade, with sterling GBP falling about 0.4% to a new 2-1/2 year low of USD 1.1570 as clouds gathered over the British economy. The pound lost 4.6% in August, its steepest monthly decline since October 2016.

The risk-sensitive Australian and New Zealand dollars likewise hit their lowest levels since July, with the Aussie AUD down 0.7% to USD 0.67925, while the kiwi NZD fell 0.7% to USD 0.6077.

The euro EUR slipped 0.4% but was clinging on above parity at USD 1.0014, as red-hot inflation stoked interest rate expectations in Europe.

Euro zone inflation rose to a record high at 9.1% in August, data released on Wednesday showed, solidifying the case for further big European Central Bank rate hikes to tame it.

Markets have priced in about a 40% chance the ECB will increase rates by 75 basis points next week, even as risks of a painful recession rise along with gas prices.

“The high inflation and (the) gas supply are still major issues in both the euro zone and the UK, and I think it’s going to keep downward pressure on both those currencies,” said Joseph Capurso, head of international economics at Commonwealth Bank of Australia.

“I can see the euro going back below parity again quite soon.”

The US dollar index, which measures the greenback against a basket of currencies, was up 0.2% at 109.08, not far off its two-decade high of 109.48 hit on Monday.

“The US dollar has a bit more upside, partly because we think the market is underestimating how high the Federal Reserve could take the funds rate,” said CBA’s Capurso.

Yields on US Treasuries rose accordingly. The two-year Treasury yield hit a peak of 3.516%, the highest since late 2007, while expectations for the peak in the Fed funds rate crept closer to 4%.

(Reporting by Rae Wee in Singapore and Kevin Buckland in Tokyo; Editing by Ana Nicolaci da Costa and Bradley Perrett)

Gold prices slip to 6-week low on robust dollar, rate-hike view

Sept 1 (Reuters) – Gold prices hit a six-week trough on Thursday, as sentiment was weighed down by a firmer US dollar and prospects of aggressive interest rate hikes by major central banks to tame inflation.

Spot gold was down 0.3% at USD 1,706.40 per ounce. Earlier in the day, bullion hit its lowest level since July 21 at USD 1,701.10.

US gold futures shed 0.5% to USD 1,717.40 per ounce.

“I recognise it (gold) is likely to languish for some time,” said Clifford Bennett, chief economist at ACY Securities.

“The long-term outlook for gold is positive, but first it will experience the same general deleveraging as stocks. Gold could fall as low as USD 1,600 in the meantime.”

Gold prices marked a fifth monthly drop in August, their longest run of monthly losses since 2018, as the US Federal Reserve signalled to keep borrowing costs as high as needed to quell inflation even if it means some pain to households and businesses.

Euro zone inflation rose to a record high last month, solidifying the case for further aggressive rate hikes by the European Central Bank.

Even though gold is seen as a hedge against inflation and economic uncertainties, higher interest rates increase the opportunity cost of holding bullion while boosting the dollar.

Making bullion more expensive for buyers holding other currencies, the dollar held firm close to a two-decade peak scaled earlier this week.

Spot silver, down 1% at USD 17.79 per ounce, hit its lowest level in more than two years.

Silver has industrial and jewellery uses, and these sectors have not picked up yet, said Brian Lan, managing director at Singapore-based dealer GoldSilver Central, adding that the metal had been overdone a little and might see a consolidation.

Platinum fell 0.6% to USD 841.45 per ounce, having earlier hit a low since July 14. Palladium rose 0.4% to USD 2,091.93.

(Reporting by Eileen Soreng in Bengaluru; Editing by Rashmi Aich, Subhranshu Sahu and Sherry Jacob-Phillips)

S.Korea revised Q2 GDP rises 0.7% q/q, in line with earlier estimate

SEOUL, Sept 1 (Reuters) – South Korea’s economy grew in the second quarter by a seasonally adjusted 0.7% from the previous quarter, revised central bank data showed on Thursday, matching the advance estimate released earlier.

That was slightly faster than a 0.6% growth in the first quarter but slower than 1.3% in the last quarter of 2021, according to the Bank of Korea data.

By expenditure, private consumption advanced 2.9%, while construction and facilities investment grew 0.2% and 0.5%, respectively. Exports shrank 3.1%.

The country’s gross domestic product expanded by 2.9% on a year-on-year basis, also unchanged from the earlier estimate.

(Reporting by Jihoon Lee; Editing by Christian Schmollinger)

((jihoon.lee@thomsonreuters.com;))

Australia shares set to open lower; NZ flat

Sept 1 (Reuters) – Australian shares are likely to open lower on Thursday, tracking selling on Wall Street overnight as fears about aggressive rate hikes from the Federal Reserve persist, while weak underlying prices are expected to weigh on domestic commodity stocks.

The local share price index futures YAPcm1 fell 2.1%, a 147.8-point discount to the underlying S&P/ASX 200 index .AXJO close. The benchmark settled 0.2% lower on Wednesday.

New Zealand’s benchmark S&P/NZX 50 index .NZ50 was little changed at 11,599.59 points in early trading.

(Reporting by Riya Sharma in Bengaluru
Editing by Matthew Lewis)

((Riya.Sharma@thomsonreuters.com;))

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Dollar eases, but remains near 2-decade highs

NEW YORK, Aug 31 (Reuters) – The dollar eased against a basket of currencies on Wednesday, but remained near the 2-decade high hit on Monday, as traders braced for more interest rate hikes from the US Federal Reserve.

The dollar index, which measures the greenback against a basket of six currencies, was last down 0.1% at 108.66, after earlier coming within a whisker of Monday’s two-decade peak of 109.48.

The index is on track for a rise of around 2.6% in August, its third-straight monthly gain.

A steady line of Fed officials have reiterated support for further rate hikes to quell decades-high inflation, the latest being Cleveland Fed President Loretta Mester, who said on Wednesday that rates will have to rise to “somewhat above 4%” by early next year and then be held there for some time.

The comments followed a hawkish speech from Fed Chair Jerome Powell at the Jackson Hole central banking symposium in Wyoming last week that slammed the door shut on the idea that the Fed might pivot and begin lowering rates by mid-2023.

“We’re still trading on Jackson Hole,” said Joseph Trevisani, senior analyst at FXStreet.com. “The idea that they’re going to do a 180 and reverse again if we end up with negative growth in the third quarter just doesn’t seem possible.”

Traders are now pricing in about a 68.5% chance of a 75 basis point Fed rate hike next month, according to data from Refinitiv.

“All of these bets that came in late July about the Fed potentially pivoting have to unwind, and so that’s meant we’ve got to buy dollars again because the Fed is not done,” said Erik Bregar, director of FX & precious metals risk management at Silver Gold Bull.

“The only real change we’ve had now is that we have an ECB (European Central Bank) that looks like it’s desperate to catch up and so the rate spreads are helping euro-dollar kind of hang in there,” he said.

The euro rose back above parity with the dollar on Wednesday, but the outlook for the common currency remained mired in uncertainty amid a burgeoning energy crisis and recession fears.

On Wednesday, Russia halted gas supplies from the Nord Stream 1 pipeline, intensifying an economic battle between Moscow and Brussels and raising the prospects of a recession and energy rationing in some of the world’s richest countries.

“The narrative that has helped the euro at the start of the week, which is an improvement in the gas story, is fading now, which we think will put a cap on euro-dollar,” said ING currency strategist Francesco Pesole.

The euro was last up 0.31% at USD 1.0047.

Inflation in the euro zone rose to another record in August, beating expectations and solidifying the case for further big European Central Bank (ECB) rate hikes.

A growing number of ECB officials have been calling for oversized rate hikes to combat surging inflation, which could exceed 10% in the coming months. nL1N3061S0

Elsewhere, Norway’s krone fell about 1.5% against the dollar after the country’s central bank said it would buy more foreign currency for its sovereign wealth fund.

Sterling was down 0.3% at USD 1.16185 and on pace for its worst month since October 2016 against the dollar with a drop of 4.6% as investors worry the British economy is slowing sharply just as inflation gathers pace.

Bitcoin was up 0.73% to 19,963, but gains were capped as investors remained wary of risky assets.

(Reporting by John McCrank and Saqib Iqbal Ahmed in New York; additional reporting by Samuel Indyk in London; Editing by Jonathan Oatis, Kirsten Donovan)

US recap: EUR/USD up on record inflation

Aug 31 (Reuters) – EUR/USD rose on Wednesday as record euro zone inflation nL1N3070JH boosted bets on ECB rate hikes and short-term bund yields, while a below-forecast debut for the revamped ADP let the dollar down.

With 9.1% euro zone inflation favoring further ECB tightening, 2-year bund-Treasury yield spreads added about 6bp to their swift rebound from August’s -2.79% low to their -2.357% high near July’s peak, as month-end flows sapped Treasury yields along with the uncertainty ADP injected ahead of US non-farm payrolls.

EUR/USD was up 0.36%, slightly off its high of 1.0079 on EBS.

The rally stalled below last week’s rebound highs at 1.0090 and offers seen into 1.0100. The seemingly soft ADP reading for August at 132,000 played into the early EUR/USD gains, but non-farm payrolls — forecast at 300,000 — will be key.

Waning angst about European natural gas supplies before winter also helped the euro’s macro outlook a bit, though the dollar’s policy underpinnings received support this week after Fed speakers said real rates need to go positive.

With the real fed funds rate at -6.0%, either inflation has to tumble or more rate hikes than those already priced in will be needed.

French ECB policymaker Francois Villeroy de Galhau said the ECB rate hike expected next week should be “orderly and predictable”, which sounded like a vote for a 50bp increase rather than the 75bp slightly favored by markets.

Sterling was down 0.32% after hitting a new 2022 low, with EUR/GBP’s 0.65% rise on newly aggressive ECB rate hike expectations overshadowing the BoE’s more staid rate hiking path amid an even more daunting UK inflation outlook.

USD/JPY was cloistered in a tight 138.28-88 range and near flat, just below July’s 24-year peak at 139.38 on EBS that could well be displaced if Friday’s payrolls reinforce the hawkish Fed scenario and negate weak ADP concerns. If so, the next major hurdles will be by 140.

The dollar was modestly firmer against the Australian and Canadian dollars as risk acceptance remained restrained and commodities struggled with the prospect of tightening central banks hurting demand.

Thursday features S&P Global’s August manufacturing PMIs, ISM and US jobless claims.

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

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