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.)

Rate hike rush pushes gold to losing streak

Aug 31 (Reuters) – Gold slipped on Wednesday and was on track for its longest run of monthly losses since 2018, pressured by aggressive rate hikes by major central banks across the world.

Spot gold fell 0.6% to USD 1,712.56 an ounce by 0203 p.m. ET. Bullion has lost about 3% so far in August, and was set for its fifth straight month of declines.

US gold futures settled 0.6% lower at USD 1,726.2.

It’s getting much clearer that central banks are going to be aggressive with tightening due to unprecedented inflationary pressure, which is not good for gold, said Edward Moya, senior analyst with OANDA.

The US Federal Reserve’s Loretta Mester said the central bank would need to raise interest rates somewhat above 4% by early next year.

Meanwhile, Euro zone inflation jumped to another record high and will soon enter double-digit territory, heralding a string of big rate hikes.

Gold is known as a safe investment during economic and geo-political crisis, but a high-interest rate environment makes the non-yielding asset less attractive to investors.

Bullion’s reaction as it approaches the key USD 1,700 level will demonstrate the amount of support that remains for the metal amid fears of a global recession and the Ukraine war, Kinesis Money analyst Rupert Rowling said in a note.

Investors also took stock of data that showed US private payrolls increased by 132,000 jobs in August after rising 270,000 in July.

Spot silver fell 2.6% to USD 18.00 an ounce. It was down 11% this month and on track for its biggest monthly drop since September 2020.

Platinum dipped 0.6% to USD 842.30. Palladium edged 0.7% lower to USD 2,072.53.

China’s factory activity in the coming months is going to be key to industrial metal demand, OANDA’s Moya added.

(Reporting by Ashitha Shivaprasad and Rahul Paswan in Bengaluru; Editing by Shailesh Kuber)

UPDATE 2-U.S. oil output rises 1.7% June to highest since April 2020 -EIA

Adds oil and products demand data

By Stephanie Kelly

NEW YORK, Aug 31 (Reuters) – U.S. crude oil production rose in June by 1.7% to its highest since April 2020, according to a monthly report from the U.S. Energy Information Administration on Wednesday.

Oil production rose to about 11.8 million barrels per day in June from about 11.6 million bpd the month prior, the report showed. Producers cut back drastically on output in 2020 after pandemic lockdowns slashed demand, and companies have been gradually boosting production.

Production in North Dakota rose 3.4% to about 1.1 million barrels per day in June, highest since March, the report showed.

New Mexico output rose 2% to 1.5 million barrels per day in June, highest on record. Output in Texas fell 0.1% to just under 5 million barrels per day in June, lowest since February.

Monthly gross natural gas production in the U.S. Lower 48 states rose to a record 109.3 billion cubic feet per day (bcfd) in June, the EIA said in the monthly report.

In top gas producing states, monthly output rose 0.4% to a record 31.1 bcfd in Texas, and fell 0.5% in Pennsylvania to about 20.6 bcfd.

Demand for U.S. crude and petroleum products rose in June to about 20.8 million bpd, the highest since August 2019, according to the EIA.

Demand for motor gasoline rose to 9.1 million bpd, the highest since August 2021, the EIA said.

(Reporting by Stephanie Kelly; Additional reporting by Arathy Somasekhar; Editing by David Gregorio and Jonathan Oatis)

((Stephanie.Kelly@thomsonreuters.com; 646-223-4471; Reuters Messaging: stephanie.kelly.thomsonreuters.com@reuters.net))

Stock-picking hedge funds poised for worst performance in 10 years

Aug 31 (Reuters) – Hedge funds that actively buy and sell stocks are set for their worst performance in 10 years, based on new data from Preqin, suggesting that the tide may be turning against stock picking strategies.

Globally, funds that buy and sell stocks have seen their cumulative returns drop 12.24% in the 12 months ending July 31, investment data provider Preqin said. Year to date cumulative returns for 2022 were down 11.42%.

Growing global recession risks, rising interest rates and an inflation surge not seen in decades threatens to reverse a 10-year run-up in the US S&P 500 index.

The S&P 500 stock index is down 16% so far this year and set for its worst year since 2008.

Stock picking, where a portfolio manager actively decides when to buy and sell a stock, traditionally has been one of the most commonly used trades among hedge funds.

But this approach faces an increasingly uncertain market backdrop. Equity hedge funds in general are down 10% for the year, while credit funds which trade bonds have fared better and are down around 2%, Preqin said.

“Stock picking has become difficult in a world of high inflation and rising interest rates,” said London-based hedge-fund manager Crispin Odey.

Odey, whose fund manages USD 4.7 billion in assets, said it was difficult to find opportunities to short or bet against a stock, when inflation has eroded the value of money but not the nominal value of companies. Odey said his hedge fund is up 130% year-to-date and up 15% in August.

Choppy markets have hit profits from other hedge fund trading strategies.

Systematic equity hedge funds that code their trading ideas into computer programmes had a negative 3.68% return cumulatively in the 12-months ending in July, the Preqin data showed.

Bond funds managed actively and by computers had negative cumulative returns of 1.06% and 1% respectively for the same period, Preqin said.

“This has been a year when the tide has gone out and we can see who is swimming with no shorts on,” Mark Dowding, the chief investment officer of BlueBay Asset Management said, referring to comments made by billionaire investor Warren Buffett.

BlueBay’s hedge funds, which trade bonds, are up between 5-17% in 2022, Dowding said.

In contrast, macro trading hedge funds which buy and sell financial instruments based on the economic outlook are having the strongest year so far, the Preqin data showed.

Actively managed macro hedge funds were up 6.39%, a bit more than those managed systematically, which have brought in cumulative returns around 3.08%.

(Reporting by Nell Mackenzie; editing by Dhara Ranasinghe and Jane Merriman)

Philippines open to new oil exploration talks with China -minister

MANILA, Aug 31 (Reuters) – The Philippines is open to new talks with China on oil and gas exploration, the Southeast Asian country’s foreign minister said on Wednesday.

A deal with China or any other country on joint oil and gas exploration, however, should comply with Philippine laws, Foreign Affairs Secretary Enrique Manalo, said during a congressional hearing on his department’s 2023 budget.

Talks over joint energy exploration between Manila and Beijing in the South China Sea had been terminated, Manalo’s predecessor said in June, citing constitutional constraints and issues of sovereignty. nL1N2YA0N7

President Ferdinand Marcos Jr, who took power in June, said last month he would try to “find ways to work to resolve the conflicts that we have” with China, so ties could normalise after years of maritime disputes.

Manalo told lawmakers that future activities related to oil and gas cooperation in the South China Sea “will be anchored on the Philippine constitution and with the national interest as the primordial consideration”.

China’s embassy in Manila did not immediately respond to a request for comment on Manalo’s remarks.

A 2016 international arbitration ruling made clear the Philippines had sovereign rights to exploit energy reserves inside its 200-mile Exclusive Economic Zone. But China, which claims about 90% of the South China Sea as its territory, has refused to recognise that decision.

(Reporting by Enrico Dela Cruz
Editing by Bernadette Baum)

((enrico.delacruz@thomsonreuters.com))

European shares bounce back ahead of inflation data

Aug 31 (Reuters) – European shares edged higher on Wednesday, supported by strong performances in tech stocks following a three-day selloff, with focus on regional inflation figures due later in the session.

The continent-wide STOXX 600 was up 0.4%, snapping three consecutive days of losses. But the index was set for a monthly loss of nearly 4%.

Rate-sensitive tech stocks, down for three straight days on expectations of aggressive interest rate hikes globally, climbed 2.1%.

Among stocks, Italian luxury group Brunello Cucinelli fell 3.9% after posting its half-year results.

Dormakaba Holding slipped 2% after the Swiss security group forecast organic growth slightly above its target range, but added that the outlook applied only to the first half of the 2022/23 financial year.

Gains were also capped as Russia began halting gas flow via a major pipeline to the continent’s largest economy on Wednesday.

Focus in now on euro zone inflation reading for August due at 0900 GMT.

(Reporting by Anisha Sircar in Bengaluru; Editing by Sherry Jacob-Phillips)

Gold set for fifth monthly fall as investors brace for more US rate hikes

Aug 31 (Reuters) – Gold prices were set on Wednesday for a fifth straight monthly drop, as solid US economic data and hawkish Federal Reserve comments pointed to more interest rate increases, denting the non-yielding metal’s appeal.

Spot gold fell 0.1% to USD 1,721.59 per ounce, having hit its lowest level since July 27 at USD 1,718.70 earlier in the session. Bullion has lost 2.5% so far in August.

US gold futures dipped 0.2% to USD 1,733.10.

“The Fed does not have intentions to significantly ease in the near term. Their focus is on inflation and what they want to do is perhaps even create some two-way risks around policy expectations where they’re giving a bit less explicit forward guidance,” said Ilya Spivak, a currency strategist at DailyFX.

This contributes to gold’s weakness and the US dollar’s strength, Spivak added.

New York Fed chief John Williams said on Tuesday the US central bank will be likely to need to get its policy rate “somewhat above” 3.5% and keep it there through the end of 2023.

Even though gold is seen as a hedge against inflation, rate hikes raise the opportunity cost of holding bullion while boosting the dollar.

Latest data showing US job openings increased in July and a bigger-than-expected rebound in consumer confidence in August bolstered expectations that the Fed will maintain its aggressive policy stance.

The dollar index steadied close to a two-decade peak reached on Monday.

A number of European Central Bank policymakers have also called for swift rate rises.

Spot gold may test a support at USD 1,710 per ounce, a break below which could open the way towards USD 1,680-USD 1,698 range, according to Reuters technical analyst Wang Tao.

Spot silver fell 0.7% to USD 18.37 per ounce and was down more than 9% for August, its biggest monthly drop since September 2020.

Platinum was flat at USD 847.45, but was headed for a more than 5% drop for the month. Palladium gained 1.6% to USD 2,121.27 per ounce.

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

Rate hike bets buoy euro and bolster US dollar

SINGAPORE, Aug 31 (Reuters) – The dollar was firm on Wednesday as stronger-than-expected US economic data and hawkish Federal Reserve comments pointed to higher interest rates, while rate-hike bets in Europe also have the common currency clinging on above parity.

German inflation running at its highest in nearly 50 years and a growing chorus of European Central Bank officials calling for big rate hikes has markets pricing a better-than-even chance of a 75 basis point (bps) rate hike next week.

The euro rose 0.16% to USD 1.0032 in the Asia trade, which if sustained would make for a third session of gains in a row, though it is still nearly 2% down for the month. Eurozone inflation data is due at 0900 GMT.

“The story in Europe is really not any better. The only thing that is kind of holding the euro just around parity is this hawkish rhetoric coming from ECB speakers,” said Rodrigo Catril, a currency strategist at National Australia Bank.

“The inflation numbers we got from Germany are kind of setting expectations for a strong number as well coming for the euro zone today.”

The US dollar index, which measures the greenback against a basket of currencies, hovered at 108.64, just below a two-decade peak of 109.48 made on Monday. It has climbed about 2.7% for the month, and is on track for a third straight month of gains.

Meanwhile, sterling GBP gained 0.21% to USD 1.1679, after hitting a fresh 2-1/2-year low of USD 1.1622 overnight. The sliding yen JPY steadied at 138.61 per dollar.

Chinese data out on Wednesday showed that factory activity in the world’s second-largest economy contracted again in August, as new COVID infections, the worst heatwaves in decades and a property sector crisis weighed on production.

Commodity currencies such as the Aussie were little fazed by the weak China data, however, having been battered by a strong US dollar overnight. The Australian dollar was up 0.31% to USD 0.68755, though that is after a 0.7% overnight fall.

The kiwi was up 0.19% to USD 0.6140, after having slid 0.43% overnight.

Likewise, the Chinese offshore yuan was kept under pressure at 6.9029 per dollar .

All eyes remain on the US nonfarm payrolls data due on Friday, with a robust job openings data released overnight potentially foreshadowing a strong showing at the end of the week, making the case for more aggressive rate hikes.

New York Fed chief John Williams told the Wall Street Journal that it will “take some time” before interest rates would be cut, while Atlanta Fed President Raphael Bostic said: “I don’t think we are done tightening.”

Traders are now pricing in about a 72.5% chance of a 75 bps Fed funds rate hike next month.

Cryptocurrencies were staging a rebound on Wednesday, with Bitcoin up 2.86% to USD 20,385, and Ether, the coin linked to the ethereum blockchain network, up 5.45% to USD 1,606.3.

(Reporting by Rae Wee; Editing by Sam Holmes and Kim Coghill)

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