US recap: Energy drop, Fed puzzle boost EUR/USD before ECB

Sept 7 (Reuters) – The dollar index slipped from new 20-year highs that were led by gains against the yen to a 24-year peak, as energy prices tumbled after weak Chinese data and traders lightened long trades in the US currency before Thursday’s ECB meeting.

Brent fell 5%, while US and Dutch natgas prices tumbled 3.9% and 12%, respectively, shrugging off Russian President Vladimir Putin’s threat to cut off energy supplies if the EU pursued its proposed price-cap plan.

Those falls on global demand doubts trimmed the premium markets have assigned to the dollar based on the US status as an energy exporter versus the euro zone and Japan being heavy importers.

Fed speakers affirmed the need to keep raising rates until inflation has been defeated, though the pace of tightening will become more data-dependent.

In contrast, the Fed’s beige book pointed to a weakening outlook, mixed August activity and some moderation in labor tightness, which kept Treasury yields and the dollar near their lows.

The broad dollar pullback was accelerated by a New York Fed report showing the decline in global supply chain pressures since December 2021 persisted in August and was broad-based.

Following US jobs and ISM services data also suggesting slightly less supply-side tightness, the supply-chain report will keep markets on alert for further such data, as it would suggest progress toward the Fed’s inflation-defeating goal and perhaps less upside in Treasury yields and the dollar.

EUR/USD’s 0.93% gain followed another shallow dip below 0.9900 but now faces resistance above parity. Thursday’s ECB meeting, seen yielding a 75bp hike that the Fed is expected to match on Sep. 21, could be pivotal, as will the durability of the recent drop in energy prices.

USD/JPY’s 144.99 peak on EBS ran into 145 offers by a Fibo target and worries about Japan’s FX warnings as prices near 146.

USD/JPY’s 11.2% surge from August’s lows and nearing 1998’s 147.63 peak is alarming, but overt FX intervention within the G7 isn’t allowed without the group’s consent.

Unless the BoJ ends QE needed to cap JGB yields, any unofficial intervention would fail unless driven by dollar weakness.

Sterling shed early losses to a 37-year low at 1.1407, but the tiny breach of 2020’s 1.1413 low left shorts in squaring mode amid broader dollar long trimming.

The BoC’s 75bp hike reversed early USD/CAD gains to a modest loss, limited by tumbling energy prices and helped, along with the Aussie and other high betas, by rebounding Treasuries and equities.

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

Bargain hunters bolster gold as rate hike headwinds persist

Sept 7 (Reuters) – Gold bounced back on Wednesday helped by the dollar’s slight retreat from a two-decade high and as bargain hunters took advantage of recent losses, but the precious metal’s outlook was still clouded by prospects of aggressive rate hikes.

Spot gold rose 0.9% to USD 1,716.59 per ounce by 2:02 p.m. ET (1801 GMT). US gold futures settled 0.9% higher at USD 1,727.80.

The dollar index hit a fresh 20-year high, making greenback-priced gold less attractive for overseas buyers. But a slight pullback from the peak late in the session seemed to offer some respite for gold.

David Meger, director of metals trading at High Ridge Futures, attributed gold’s moves to “a combination of a bit of safe haven demand and buying on dips,” while headwinds from the dollar and an aggressive Fed persisted.

“Gold recently has acted as a risk asset than a safe-haven. The question is when will we see gold take on more of a safe-haven role as we begin to see economies slow due to these rising rate hike policies.”

Gold prices have fallen over USD 300 since rising above USD 2,000 per ounce in March.

Data on Tuesday showed US services industry picked up last month, providing ammunition to the US Federal Reserve to deliver another 75-basis-point rate hike.

Higher rates increase the opportunity cost of holding non-yielding bullion.

Spot silver rose 1.9% to USD 18.40 per ounce.

Silver represented a buying opportunity since the price had fallen so far below its true value, with the demand outlook for the metal used in key sectors of the energy transition such as batteries still positive, Kinesis Money analyst Rupert Rowling said in a note.

Platinum gained 1.6% to USD 866.43 and palladium climbed 1.9% to USD 2,044.09.

(Reporting by Brijesh Patel and Arpan Varghese in Bengaluru; Editing by Maju Samuel and Shounak Dasgupta)

US Fed’s new supervision chief to lay out vision for Wall Street oversight

WASHINGTON, Sept 7 (Reuters) – The US Federal Reserve’s new regulatory chief Michael Barr will on Wednesday outline his plan for overseeing Wall Street banks and reviewing regulations, in his first public remarks since joining the central bank in July.

Nominated by Democratic President Joe Biden as the Fed’s Vice Chair of Supervision, Barr is expected to take a much more aggressive stance on Wall Street than his Republican predecessor Randal Quarles. As a former senior Treasury Department official, Barr helped craft the 2010 Dodd-Frank law that created the Fed Supervision role and imposed a host of new rules on lenders in the wake of the 2007-09 financial crisis.

Barr is due to speak at 2:00 p.m. EDT (1800 GMT) at the Brookings Institution. The Washington think tank said his remarks will focus on making the financial system “safer and fairer.”

Barr’s to-do list includes potentially reviewing bank capital and trading rules that were relaxed by Quarles, overhauling how the Fed handles large bank mergers, and stepping up scrutiny of risks posed by climate change, cryptocurrencies and fintech firms, according to analysts and policy experts.

With Barr in place, all the major financial regulatory agencies are now filled with Biden picks, meaning other joint reform efforts, such as overhauling fair lending rules and the US Treasury market structure, can also be accelerated.

“It is just so important to have this position filled with a Biden appointee,” said Todd Phillips, director of financial regulation at the Center for American Progress, a liberal think tank. “Having Barr allows the Biden bank regulatory agenda to kick into high gear.”

Barr’s role gives him extensive powers to supervise the country’s largest lenders, including by setting their capital levels via a number of rules and annual “stress tests” of their balance sheets. Some Democratic critics say the annual stress tests have become too easy and the industry is keen to glean Barr’s views on whether those should be stricter.

Banks are also anxious to get Barr’s view on Basel III global capital requirements, and the “supplementary leverage ratio,” which banks say has limited their ability to provide liquidity to the Treasury markets.

Barr is also expected to tackle oversight of large regional banks, which have dramatically grown following several high-profile mergers in recent years. He could suggest a number of ways to ramp up safeguards for such lenders, including additional capital requirements, said analysts.

“This first speech should provide valuable insight into his actual priorities and the agenda for his tenure,” said Isaac Boltansky, director of policy research for brokerage BTIG.

(Reporting by Pete Schroeder; Editing by Michelle Price and Andrea Ricci)

Euro zone bond yields rise as markets add back to 75 bps ECB hike bets

Sept 7 (Reuters) – Benchmark euro zone bond yields rose on Wednesday as markets raised their bets on a 75 basis-point rate hike from the European Central Bank when it meets on Thursday.

The ECB is this week expected to deliver a second big rate hike to tame record-high inflation just as a halt to Russian energy supply fans further inflation and recession fears in the bloc.

Having factored in a more than 90% chance that the ECB would hike by 75 bps earlier this week, euro zone money markets lowered those bets on Tuesday in reaction to several media reports, including one that said a 50 bps rate hike remained on the table.

But on Wednesday, markets had added some of those bets back and now price in a 75% chance of such a move, versus below 70% on Tuesday, according to Refinitiv data.

“The bottom line is that the decision remains open and even the ECB council members themselves probably cannot guess what the outcome will be,” said Christoph Rieger, head of rates and credit research at Commerzbank in Frankfurt.

Germany’s 10-year yield, the benchmark for the euro zone, was up 1 basis point to 1.62% by 0739 GMT, after rising to the highest since late June at 1.645% at the start of the session.

Yields on German shorter-dated maturities, more sensitive to interest rate expectations, were down 1-3 bps on the day.

In Italy, which has come into particular focus given talk of a faster pace of ECB hikes and an election looming in late September, the 10-year yield was up less than one bp to 3.97%, keeping the closely watched risk premium over German peers at 234 bps.

In the primary market, Germany will raise 1.5 billion euros from the re-opening of a 15-year bond.

(Reporting by Yoruk Bahceli; Editing by Jan Harvey)

BSP chief says has policy room to combat inflation

Sept 7 (Reuters) – The Philippine central bank “has much room” to tighten policy to combat inflation, its governor said on Wednesday.

Bangko Sentral ng Pilipinas Governor Felipe Medalla also said in an economic briefing in Singapore the central bank, which meets on Sept 22 to review policy, “cannot not react” if the US Federal Reserve keeps hiking rates by 75 basis points.

(Reporting by Neil Jerome Morales and Karen Lema in Manila)

Emerging stocks sink to fresh 27-month low on China data

LONDON, Sept 7 (Reuters) – Emerging market stocks fell as much as 1.3% to hit a fresh 27-month low on Wednesday as disappointing Chinese trade data cast a pall over markets.

The MSCI benchmark touched USD 956.26 – its lowest level since June 2, 2020 when the index was recovering from its COVID-rout low of USD 751.76 hit, in mid-March 2020.

By 0649 GMT, the index had clawed back some of the losses and was down 1% at USD 955.98.

The index is down nearly 23% since the start of the year.

Data on Monday showed China’s exports and imports lost momentum in August with growth significantly missing forecasts as surging inflation crippled overseas demand and fresh COVID curbs and heatwaves disrupted output, reviving downside risks for the shaky economy.

(Reporting by Karin Strohecker, editing by Alun John)

King dollar crushes yen as aggressive Fed bets ramp up

TOKYO, Sept 7 (Reuters) – The dollar hit a 24-year high against the yen on Wednesday after US economic data reinforced the view that the Federal Reserve will continue aggressive policy tightening.

The Chinese yuan sank to a two-year trough, closing in on the psychologically important 7 per dollar mark despite steps by authorities to stem its decline. The Philippine peso slid to a record low.

The euro languished not far from Tuesday’s two-decade low, well below parity, as European Union ministers prepare to meet on Friday to discuss the energy crisis that is hammering industry and squeezing households.

A report overnight showed the US services industry unexpectedly picked up last month, reinforcing the view that the economy is not in recession and giving the Fed leeway for another super-sized 75 basis-point rate rise on Sept. 21.

Markets currently give that scenario 75% probability, with 25% odds for a half-point hike.

The dollar soared as high as 144.38 yen for the first time since August 1998. Japan’s currency is extremely sensitive to moves in long-term US rates, and the yield on the 10-year Treasury note climbed as high as 3.365% in Tokyo trading, a level not seen since June 16.

Japan’s top government spokesperson, Chief Cabinet Secretary Hirokazu Matsuno, told a news briefing that the administration would like to take necessary steps if “rapid, one-sided” moves in currency markets continue, ratcheting up the rhetoric to describe the yen’s nearly 9% month-long decline.

Earlier in the day, Japanese Finance Minister Shunichi Suzuki was quoted using the same language by Jiji news agency.

“The speed at which the dollar is appreciating against the yen is getting out of control and is at risk of becoming unanchored,” said Davis Hall, head of capital markets at Indosuez Wealth Management Asia.

“Right now you’re drawing in everybody to stop out by throwing in the towel,” he said. “We could reach 148 without MOF (Ministry of Finance) action.”

However, many analysts see intervention as difficult with the momentum behind the yen’s decline against the dollar driven by a widening divergence in monetary policy. Unilateral action would be even less effective, they say.

“Foreign central banks are prioritizing dealing with inflation, and cannot afford to worry about exchange rate fluctuations,” said Rikiya Takebe, senior strategist at Okasan Securities.

“Currency intervention or policy revisions by the Bank of Japan are likely to be difficult, and it will not be easy to stop the yen from falling.”

The dollar will remain a force to reckon with over the remainder of this year and into the next as US interest rates rise and the economy outperforms its peers, according to currency strategists in a Reuters poll.

The euro wallowed below 99 cents, after dipping as low as $0.9864 overnight.

The European Central Bank is seen likely to deliver a 75 bps rate hike on Thursday, but traders seem more focused on Russia’s decision to keep the key Nord Stream 1 gas pipeline shut indefinitely.

Sterling shed 0.32% to USD 1.1480, approaching the 2 1/2-year low of USD 1.1444 reached on Monday, with Britain also entangled in the energy crisis, despite new prime minister Liz Truss’s plans for a massive support package.

The US dollar index, which measures the greenback against six major peers, hit a fresh 20-year high of 110.69.

The onshore yuan weakened to a low of 6.9808, the softest level since August 2020, even after the central bank continued to set the currency’s official guidance firmer than market forecasts. Disappointing Chinese trade data further dented sentiment.

The Philippine peso sank to a record-low 57.32 per dollar.

The New Zealand dollar dropped to the lowest since May 2020 at USD 0.5997, and the Singapore dollar declined to the weakest since June 2020 at 1.4107 per greenback.

Cryptocurrency bitcoin slumped to the lowest since June 19 at $18,540, extending a 5% tumble from Tuesday.

(Reporting by Kevin Buckland and Tom Westbrook; Additional reporting by Daiki Iga; Editing by Ana Nicolaci da Costa and Kim Coghill)

Oil slides to 7-month low on renewed demand fears, rate hike expectations

SINGAPORE, Sept 7 (Reuters) – Oil prices fell more than USD 1 on Wednesday to their lowest since before Russia invaded Ukraine as COVID-19 curbs in top crude importer China and expectations of more interest rate hikes spurred worries of a global economic recession and lower fuel demand.

Brent crude futures fell USD 1.08, or 1.2%, to USD 91.75 a barrel by 0644 GMT after slipping 3% in the previous session. The contract hit a session low of USD 91.20, the lowest since Feb. 18.

US West Texas Intermediate crude futures shed $1.20, or 1.4%, to USD 85.68. The benchmark fell to a session low of USD 85.08, the lowest since Jan. 26.

Oil pared strong gains made on Monday after the Organization of the Petroleum Exporting Countries (OPEC) and their allies, a group known as OPEC+, decided to cut output by 100,000 barrels per day in October.

“Fading the OPEC+ production cut bounce wasn’t that hard to do given a laundry list of global economic challenges,” said Edward Moya, a senior market analyst at OANDA, in a note.

“Despite some better-than-expected US services data, global growth isn’t looking good at all and that is trouble for crude prices.”

A strong US dollar, aggressive rate hikes, a spike in bond yields, and a slowdown in China’s growth are factors pressuring oil prices, said Tina Teng, an analyst at CMC Markets.

“In short, oil futures markets are pricing in ‘stagflation’ in the global economy,” Teng added.

China’s stringent zero-COVID policy has kept cities such as Chengdu, with 21.2 million people, under lockdown, curbing mobility and oil demand in the world’s second-largest consumer.

The country’s exports and imports lost momentum in August with growth significantly missing forecasts. Crude oil imports fell 9.4% in August from a year earlier, customs data showed on Wednesday, as outages at state-run refineries and lower operations at independent plants amid weak margins capped buying.

Investors are also watching for further interest rate hikes to curb inflation. The European Central Bank is widely expected to lift rates sharply when it meets on Thursday. After the ECB’s meeting, a US Federal Reserve meeting will follow on Sept. 21.

The dollar hit a 24-year high against the yen on Wednesday after US economic data reinforced the view that the Federal Reserve will continue aggressive policy tightening.

Lending some support to prices, however, were expectations of tighter oil inventories in the United States.

US crude stockpiles are expected to have fallen for a fourth consecutive week, declining by an estimated 733,000 barrels in the week to Sept. 2, a preliminary Reuters poll showed on Tuesday.

Crude inventories in the US Strategic Petroleum Reserve (SPR) fell 7.5 million barrels in the week to Sept. 2 to 442.5 million barrels, their lowest since November 1984, according to data from the Department of Energy.

Weekly US inventory reports from the American Petroleum Institute and Energy Information Administration will be released on Wednesday and Thursday respectively, a day later than usual, because of a public holiday on Monday.

(Reporting by Isabel Kua in Singapore; Editing by Christian Schmollinger and Kim Coghill)

Gold prices fall as US rate-hike bets lift dollar, bond yields

Sept 7 (Reuters) – Gold prices fell on Wednesday, as the US dollar and Treasury yields jumped after upbeat economic data bolstered expectations that the Federal Reserve will maintain its stance to hike interest rates aggressively.

Spot gold fell 0.2% to USD 1,698.56 per ounce by 0743 GMT, having dropped to its lowest level since Sept. 1.

US gold futures dipped 0.3% to USD 1,708.60.

“ISM services reading reminded investors that there is still some underlying momentum for this economy and it really kind of opens the door for the Fed to be even more aggressive with fighting inflation,” said Edward Moya, senior analyst with OANDA.

“The move in Treasuries is rather concerning and it could really keep the pressure on gold.”

The US services industry picked up again in August for a second straight month amid stronger order growth and employment, survey by the Institute for Supply Management showed on Tuesday.

The data boosted the greenback, with the dollar index scaling a fresh 20-year peak, making gold more expensive for overseas buyers.

Benchmark US 10-year Treasury yields rose to their highest level since June 16.

The Fed is largely expected to deliver a 75 basis point rate increase on Sept. 21. The US central bank has raised its benchmark overnight interest rate by 225 basis points in total since March to fight soaring inflation.

Higher US interest rates and yields increase the opportunity cost of holding bullion, which is also used as a hedge against inflationary pressures.

“If gold breaches USD 1,680 level we can expect a move towards $1,620… We are expecting another low for gold and silver in the coming days,” said Vandana Bharti, assistant vice-president, commodity research at SMC Global Securities.

Indicative of sentiment, holdings of SPDR Gold Trust GLD, the world’s largest gold-backed exchange-traded fund, fell 0.21% to 971.05 tonnes on Tuesday from Friday.

Spot silver fell 0.2% to USD 18.02 per ounce, platinum rose 0.4% to USD 856.21 and palladium was 0.4% lower at USD 1,998.06.

(Reporting by Eileen Soreng and Arundhati Sarkar in Bengaluru; editing by Uttaresh.V and Jason Neely)

Stocks fall, yields rise as investors weigh rate hike expectations

NEW YORK, Sept 6 (Reuters) – Global stock markets were mostly lower on Tuesday while benchmark US Treasury yields jumped to their highest levels since June as a US services industry report underscored expectations the Federal Reserve will need to keep hiking interest rates.

The US dollar strengthened, while the Japanese yen hit a fresh 24-year low.

Wall Street’s three major indexes ended lower, led by losses in the Nasdaq, in the market’s first session after the US Labor Day holiday.

A survey from the Institute for Supply Management (ISM) showed the US services industry picked up in August for the second straight month amid stronger order growth and employment, while supply bottlenecks and price pressures eased.

The ISM non-manufacturing PMI edged up to a reading of 56.9 last month, beating economists’ expectations.

The European Central Bank is widely expected to lift rates sharply when it meets later this week. The next US Fed rate decision comes on Sept. 21.

The Fed is expected to raise the fed funds rate by another 75 basis points then, which would bring the range to between 3.0% and 3.25%. That is up from the zero to 0.25% band in March.

Benchmark 10-year note yields were last at 3.336%, the highest since June 16. They have risen from a four-month low of 2.516% on Aug. 2.

“You have all this fear that more rate increases are going to happen at the central bank level, inflation is not going to dissipate and then you’ve got the quantitative tightening that’s coming pretty rapidly,” said Tom di Galoma, managing director at Seaport Global Holdings in New York.

The Dow Jones Industrial Average fell 173.14 points, or 0.55%, to 31,145.3; the S&P 500 lost 16.07 points, or 0.41%, to 3,908; and the Nasdaq Composite dropped 85.96 points, or 0.74%, to 11,544.91.

The pan-European STOXX 600 index rose 0.24% and MSCI’s gauge of stocks across the globe .MIWD00000PUS shed 0.47%.

The dollar index rose 0.6%, while the euro was sliding again, having failed to get back above parity against the dollar /FRX. The euro was last down 0.27% to USD 0.9899.

The Japanese yen weakened 1.53% versus the greenback to 142.80 per dollar. JPY=

Sterling, which has been one of the world’s weakest major currencies over the last month, edged up as Liz Truss’s installation as new UK prime minister fed expectations of a big energy relief package there.

Sterling was last trading at USD 1.1516, up 0.03% on the day.

In energy, oil prices fell as concerns resumed about the prospect of more rate hikes.

Brent crude settled at USD 92.83 a barrel, losing USD 2.91, or 3%. US West Texas Intermediate (WTI) fell from Monday’s trading to settle at USD 86.88 a barrel, up 1 cent from Friday’s close.

Spot gold dropped 0.6% to USD 1,700.37 an ounce.

(Additional reporting by Marc Jones in London and Karen Brettell in New York; Editing by Susan Fenton, Tomasz Janowski, Andrea Ricci and Jonathan Oatis)

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