Japanese stocks fall in worst month since March 2020

TOKYO, Sept 30 (Reuters) – Japanese stocks fell sharply on Friday, posting their biggest monthly drop since the COVID-19 pandemic first rocked markets 2-1/2 years ago, tracking overnight Wall Street losses.

The Nikkei share average closed down 1.83% at 25,937.21, its lowest close since July 1. The index shed 7.669% in September, its biggest monthly decline since March 2020.

The broader Topix fell 1.76% to also record its worst month since March 2020.

All three major US stock indexes fell overnight on heightened fears of a recession and a report that Apple Inc. (AAPL) has cancelled a planned boost in iPhone 14 production.

“Yesterday’s news about Apple suspending its production increase caused the market to factor in a global recession,” Tokai Tokyo Research Institute senior strategist Takashi Nakamura said.

“Even if the economy is expected to improve in Japan, overseas trends will make it difficult for investors to buy Japanese stocks alone.”

“I think the falls in US stocks were an overreaction,” said Eiji Kinouchi, chief technical analyst, Daiwa Securities, adding the same could be true of Japan, citing a gap between supply and demand at the end of the month.

Every sector on the Nikkei fell except real estate, which gained 0.54%. Of the index’s 225 constituents, 186 declined, 35 advanced, and four traded flat.

Unitika Ltd., up 2.41%, and Oki Electric Industry Co Ltd., up 1.84%, were among the best performers on the Nikkei. Both stocks are set to be removed from the index after this week.

Shinsei Bank Ltd. jumped 6.96%, after a report in the Nikkei newspaper’s online edition that SBI Holdings has applied for approval as a bank holding company, allowing it to increase its stake in the bank to more than 50%.

Automakers were among the worst performers, led by Mazda Motor Corp., down 8.17%. Mitsubishi Motors Corp, Nissan Motor Co Ltd., and Subaru Corp. followed suit.

Clothing giant and Uniqlo parent company Fast Retailing Co Ltd. weighed on the index the most, falling 3.58%.

(Reporting by Sam Byford and Tokyo markets team; Editing by Rashmi Aich)

Oil falls but notches weekly gain as OPEC+ considers output cut

HOUSTON, Sept 30 (Reuters) – Oil prices dipped on Friday in choppy trading but notched their first weekly gain in five on Friday, underpinned by the possibility that OPEC+ will agree to cut crude output when it meets on Oct. 5.

Brent crude futures for November, which expire on Friday, fell 53 cents, or 0.6%, to USD 87.96 a barrel. The more active December contract was down USD 2.07 at USD 85.11.

US West Texas Intermediate (WTI) crude futures fell USD 1.74, or 2.1%, to USD 79.49.

Both contracts rose by more than USD 1 during the session but dropped on news that OPEC’s oil output rose in September to its highest since 2020, surpassing a pledged hike for the month, according to a Reuters survey on Friday.

“There is definitely some profit taking from the gains we saw earlier in the week. USD 80 is sort of the pivot point these days,” said John Kilduff, partner at Again Capital LLC in New York.

“Increased worries about financial stability in the UK … are undermining the demand outlook once again,” Kilduff added.

Brent and WTI gained 2% and 1% on a weekly basis, marking the first weekly rise since August and following nine-month lows hit this week.

Money managers cut their net long US crude futures and options positions in the week to September 27, the US Commodity Futures Trading Commission (CFTC) said.

While the dollar has dropped from 20-year highs earlier in the week, it gained through the day =USD. A stronger greenback makes dollar-denominated oil more expensive for buyers holding other currencies, reducing demand for the commodity.

“Price swings have become the norm as market players juggle worries over the global economy and the prospect of tightening oil supplies,” said Stephen Brennock of oil broker PVM.

The market has seen support from the prospect of the Organization of the Petroleum Exporting Countries (OPEC) and its allies considering cutting production quotas by between 500,000 and 1 million barrels per day (bpd) at their Oct. 5 meeting.

“A deteriorating crude demand outlook won’t allow oil to rally until energy traders are confident that OPEC+ will slash output,” senior OANDA analyst Edward Moya said.

Analysts expect a production cut because demand fears linked to a possible global economic slowdown and rising interest rates have weighed on crude prices.

US energy firms this week added two oil rigs for a third week in a row, but growth in the third quarter slowed due to recession fears and nagging supply shortages.

Top White House officials are also set to meet with oil executives on Friday to discuss Hurricane Ian and low gasoline inventories as President Joe Biden warns the industry not to price-gouge consumers, according to two sources familiar with the matter.

Brent and WTI prices finished the third quarter with chunky 23% and 25% declines respectively.

(Reporting by Rowena Edwards; additional reporting by Sonali Paul in Melbourne and Emily Chow in Singapore; editing by Jason Neely, Elaine Hardcastle, Marguerita Choy and David Gregorio)

US pension rebalancing could boost bonds, international stocks, banks say

NEW YORK, Sept 29 (Reuters) – US fixed income and international equities could benefit from quarter-end rebalancing as pension funds square their books after a brutal three months for most asset classes, according to estimates from several Wall Street banks.

Overall, Credit Suisse expects pension funds to buy USD 30 billion worth of developed market equities and another USD 15 billion in emerging markets while trimming US large-cap consumer discretionary stocks.

“September has been rough on most asset classes, but on a relative basis, the US has fared better than its international peers,” analysts at the firm wrote in a Thursday report.

Wells Fargo, meanwhile, expects pensions to move USD 10 billion into US fixed income as the group’s mean funded ratio – a projection of the gap between a fund’s assets and its future liabilities – rises to 107%, near its peak for the year.

Wall Street pays close attention to quarter-end moves by pension funds given their potential outsized market influence. Overall, US state and local pension funds have USD 5.12 trillion in assets under management, according to data from the Federal Reserve, and often rebalance each quarter to maintain consistent asset allocations.

This year’s market swings have presented a challenge to asset managers looking to square their portfolios against a benchmark or return to their long-maintained allocation of stocks versus bonds. The S&P 500 is down 4.6% in the third quarter and has lost 24.2% year to date, while the US bond market – as measured by the USD 80.3 billion Vanguard Total Bond Market Index fund – is down 3% over the quarter and 14% for the year.

The twin declines in US stocks and bonds this quarter will dampen the overall market effect of investor rebalancing compared to prior periods given that allocations are likely stable, said Marko Kolanovic, chief global market strategist at JPMorgan, in an email to Reuters.

“Stocks are underperforming bonds and other assets – e.g. alternatives – so there could be a bounce 1-2% in stocks given the current low liquidity environment,” he said.

(Reporting by David Randall; Editing by Kirsten Donovan)

Vertiginous dollar set for limited correction after 10% Q3 surge

Aug 10 (Reuters) – After a 10% surge in Q3 to Tuesday’s 20-year high of 114.78, the dollar is ripe for a pullback as quarter-end position squaring sets in, with 112.06 the nearest important support amid the broader uptrend.

A retreat would correct monthly RSI levels that have hit their most overbought since Q1 2015 — RSI levels which are not far from 1985’s record highs hit before the Plaza Accord weakened the dollar.

The 50% and 38.2% Fibos of rises from Sept. 20 and 13 swing lows and the daily tenkan are support at 112.06. Prior corrections from less extreme overbought conditions since March all tested the tenkan and the kijun, the latter last at 111.16.

Aggressive Fed rate hikes and expectations have powered the dollar’s advance as the ECB, BoE and BoJ lagged.

And though 2-year Treasury-bund yield spreads are now 74bps below their August peak and Treasury-gilt yield spreads went from -1.37% in August to +0.44% on Tuesday before the BoE announced emergency QE, Europe’s economy and currencies remains more at risk.

Falling US jobless claims and upwardly revised Q2 PCE reinforced Fed tightening and should limit dollar downside.

(Randolph Donney is a Reuters market analyst. The views expressed are his own.)

Gold flat as dollar retreat counters rate-hike fears

Sept 29 (Reuters) – Gold prices were largely flat on Thursday as elevated Treasury yields and concerns over the US Federal Reserve’s aggressive monetary policy pressured bullion, but a drop in the US dollar supported the precious metal.

Spot gold was little changed at USD 1,659.09 per ounce by 2:06 p.m. EDT (1806 GMT), having slid over 1% to USD 1,640.30 earlier.

US gold futures settled 0.1% lower at USD 1,668.60.

“A slightly weaker dollar today might give some relief (to gold)… (but) the key takeaway should still be what’s happening with yields, the short end of the curve is still rising strongly,” said Edward Moya, senior analyst with OANDA.

The dollar retreated, making greenback-priced bullion less expensive for overseas buyers, while Treasury yields rose.

Gold prices had declined after data showed US initial claims for state unemployment benefits dropped to 193,000, versus expectations of 215,000 applications for the latest week.

Investors also took stock of data that US GDP fell at an unrevised 0.6% annualized rate in the second quarter, compared with a much larger contraction of 1.6% in the first quarter.

Several Fed officials have reiterated the US central bank’s commitment to raise interest rates aggressively to battle surging inflation.

“Rates markets are pricing the potential for higher interest rates to persist for some time … gold prices could still have further to fall in the next stage of the hiking cycle,” TD Securities said in a note.

Even though gold is seen as a hedge against inflation, rising interest rates dim its appeal as they increase the opportunity cost of holding the non-yielding asset.

“You’re probably looking at a gold market that’s still going to react to everything about the dollar, everything about Fed expectations,” Moya said.

Meanwhile, spot silver shed 1% to USD 18.71 per ounce.

Platinum fell 0.5% to USD 859.49, while palladium rose 2.5% to USD 2,208.83.

(Reporting by Kavya Guduru in Bengaluru; Editing by Shailesh Kuber and Vinay Dwivedi)

Tech IPO market faces worst year since global financial crisis

Sept 29 (Reuters) – Initial public offerings by US tech companies have sunk to their lowest levels since the global financial crisis of 2008, as stock market volatility, soaring inflation, and interest rate hikes have soured investor sentiment towards new listings.

According to Refinitiv data, only 14 tech companies have floated their shares on stock exchanges so far this year, compared with 12 in 2009. The IPOs this year have raised USD 507 million, the lowest amount that has been raised through flotations since 2000.

Total IPO volumes fell 90.4% in the first nine months of this year, compared with last year.

Analysts interviewed by Reuters said a steep drop in stock market valuations has deterred tech firms from pursuing stock market launches.

The forward P/E (price-to-earnings) ratio of the S&P Information Technology index was trading at 20.18 — the lowest level since April 2020.

“Institutional investors have been shifting capital allocations while retail investors have been licking their wounds,” said James Gellert, chief executive officer at Rapid Ratings.

“This is a terrible backdrop for IPOs, in particular tech IPOs, which rely on bull markets and momentum investors to bolster their market entries.”

The Renaissance IPO index, which captures the largest and most liquid U.S IPOs, has slumped 50.4% this year, compared with the S&P 500 index’s drop of 23%.

Shares of Corebridge Financial Inc. (CRBG), which launched the largest IPO in the US this year, were trading about 4% below its offer price of USD 21 on Wednesday.

Rachel Gerring, Americas IPO leader at Ernst & Young, said the poor after-market performance of 2021 IPOs has dampened investor appetite for new stocks.

“Tech has been impacted in an outsized way by the market-wide drop in valuations. There was significant fundraising throughout 2021 across the sector, providing tech IPO-aspirants with the necessary capital to weather this volatile time in the market,” said Gerring.

Greek yogurt maker Chobani withdrew its plans for a US IPO earlier this month, while several other big names such as Reddit and ServiceTitan have delayed their plans to go public this year.

In the United States, sectors including financials and healthcare were among the bright spots for IPOs, followed by energy & power.

Jennifer Post, partner at Thompson Coburn, said energy markets continue to be active due to disruptions in global supply and distribution channels, while electric vehicle adoption is also driving deals.

“These areas should see IPO candidates in 2023 as the urgency for capital investment will be more pressing and growing commercial and consumer demand should remain strong,” said Post.

(Reporting by Patturaja Murugaboopathy and Gaurav Dogra in Bengaluru; Editing by Anirban Sen, William Maclean)

China’s state banks told to stock up for yuan intervention – sources

HONG KONG, Sept 29 (Reuters) – China’s central bank has asked major state-owned banks to be prepared to sell dollars for the local unit in offshore markets as it steps up efforts to stem the yuan’s descent, four sources with knowledge of the matter said.

State banks were told to ask their offshore branches, including those based in Hong Kong, New York and London, to review their holdings of the offshore yuan and ensure US dollar reserves are ready to be deployed, three of the sources, who declined to be identified, told Reuters.

The simultaneous selling of dollars and buying of yuan could put a floor under the Chinese currency, which has lost more than 11% to the dollar so far this year and looks set for its biggest annual loss since 1994, when China unified its official and market rates.

The scale of this round of dollar selling to defend the weakening yuan will be rather big, one of the sources said.

The People’s Bank of China did not immediately respond to a Reuters request for comment.

China’s offshore yuan immediately bounced about 200 pips after Reuters’ story before last trading at 7.1849 per dollar as of 0935 GMT.

While the yuan’s depreciation has been gradual and in line with the decline in major currencies against a dollar buoyed by aggressive Federal Reserve monetary tightening, its decline to the weaker side of 7-per-dollar has raised concerns about domestic sentiment and potential capital outflows.

The offshore yuan moves in lock-step with the onshore unit, but its trading volumes account for about 70% of all yuan FX trades globally, dwarfing the volumes traded on the mainland.

Chinese authorities have intervened in the past in the offshore yuan market to steer the yuan.

Sources said the intervention plan involved using state lenders’ dollar reserves primarily. But the total amount of dollar selling is yet to be determined as the yuan’s movements are largely dependent on dollar moves and the Fed’s tightening trajectory, the source said.

China burnt through USD 1 trillion of its official FX reserves to prop up the currency after a one-off 2% devaluation in 2015 that roiled global financial markets.

State banks, which usually act as the PBOC’s agents in offshore markets, are scrambling to procure more dollars in offshore markets, one of the sources said.

The People’s Bank of China did not respond immediately when asked by Reuters about state banks stocking up on dollars.

The latest proposal follows other steps authorities have taken to put a floor under the yuan, through persistently setting firmer-than-expected mid-point fixings, verbal warnings and holding off major monetary easing efforts.

The PBOC has also rolled out policy measures this month, such as increasing the cost of shorting the currency by lowering the amount of foreign exchange financial institutions must hold as reserves and reinstating risk-reserve requirements on currencies purchased through forwards.

Earlier this week, Chinese monetary authorities told local banks to revive a yuan fixing tool it abandoned two years ago as they sought to steer and defend the weakening currency.

(Reporting by Julie Zhu in Hong Kong, and Shanghai & Beijing newsrooms; Editing by Vidya Ranganathan and Hugh Lawson)

Oil settles lower after hitting $90/bbl as OPEC+ considers output cut

NEW YORK, Sept 29 (Reuters) – Oil prices settled lower on Thursday in choppy trading, rising above USD 90 per barrel and then retreating as traders weighed a worsening economic outlook against potential OPEC+ output cuts next week.

Brent crude futures settled down 83 cents at USD 88.49 per barrel, after rising as high as USD 90.12 during the session. US crude futures for November settled 92 cents lower at USD 81.23 a barrel.

Leading members of the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, have begun discussions about an oil output cut at their next meeting on Oct. 5, three sources told Reuters.

One OPEC source told Reuters a cut was “likely”, while two other OPEC+ sources said key members had spoken about the topic.

Reuters reported this week that Russia is likely to propose that OPEC+ reduce oil output by about 1 million barrels per day(bpd).

“Right now, the oil market is teetering between the Fed-induced demand destruction and tight oil supplies,” said Ryan Dusek, a director in the Commodity Risk Advisory Group at Opportune LLP.

US stock markets tumbled on worries that the Federal Reserve’s aggressive fight against inflation could hobble the US economy, and as investors fretted about a rout in global currency and debt markets.

“Amid so much uncertainty, seesaw trade may be common over the next week, unless we get more clarity from OPEC+ sources on the likely size of any adjustment and what it means for previous missed quotas,” said Craig Erlam, senior markets analyst at OANDA.

The market also eased as the threat of Hurricane Ian receded with US oil production expected to return in coming days after about 158,000 bpd was shut in the Gulf of Mexico as of Wednesday, according to federal data.

In China, the world’s biggest crude oil importer, travel during the forthcoming week-long national holiday is set to hit its lowest level in years as Beijing’s zero-COVID rules keep people at home while economic woes curb spending.

Crude benchmarks remain on pace to notch weekly gains after a four-week losing streak. Early this week they rebounded from nine-month lows, buoyed by a dip in the US dollar index .DXY and a larger than expected US fuel inventory drawdown.

The dollar index dropped again on Thursday, easing off 20-year highs, indicating some more risk appetite from investors.

Further support for oil prices could come from the United States announcing new sanctions against companies that facilitated Iranian oil sales.

“I think traders have almost given up on a nuclear deal being agreed and this announcement from the US appears to be a make or break move,” said Erlam.

(Additional reporting by Muyu Xu in Singapore and Ahmad Ghaddar in London; Editing by Marguerita Choy and David Gregorio)

Sterling slips back with euro on persistent UK fiscal angst despite BoE bond-buying

TOKYO, Sept 29 (Reuters) – Sterling retreated again on Thursday from a sharp bounce against the dollar overnight, after the Bank of England announced unlimited bond purchases to shore up Britain’s financial markets battered by the government’s radical plans to cut taxes.

The UK currency jumped the most since mid-June on Wednesday, pulling the euro with it, after the BoE conducted the first of its emergency bond-buyback operations, worth more than 1 billion pounds. It committed to buying as many long-dated gilts as needed until Oct. 14.

Sterling was 0.51% lower at USD 1.0831 as of 1200 GMT, returning some of the previous session’s 1.41% rally. The euro weakened 0.32% to USD 0.97065, following Wednesday’s 1.51% surge, the biggest since early March.

Sterling had plummeted to a record low of USD 1.0327 on Friday as investors delivered a scathing verdict on the new government’s plan for record tax cuts funded by a massive increase in borrowing, at the same time as the BoE is aggressively tightening monetary policy to rein in rampant inflation.

Europe’s shared currency had plunged to a new two-decade low of USD 0.9528.

“The BoE’s bond purchases may temper the UK government’s borrowing costs but have not resolved the tensions between fiscal loosening and monetary tightening,” Carol Kong, a strategist at Commonwealth Bank of Australia, wrote in a client note.

“Concerns about the UK’s fiscal plan and its broader economy suggest GBP will likely stay offered against the USD and other major currencies in the near term.”

The US dollar index, which measures the greenback against sterling, the euro and four other major peers, edged 0.07% higher to 113.11, heading back in the direction of Wednesday’s 20-year high of 114.78.

The dollar added 0.23% to 144.43 yen. The currency pair has kept its head below the 145 line since Japanese officials intervened a week ago, following a surge to a 24-year high of 145.90 that day.

Elsewhere, the risk-sensitive Australian dollar sank 0.38% to USD 0.64995, giving back some of Wednesday’s 1.34% climb.

New Zealand’s currency dropped 0.42% to USD 0.5706, following a 1.7% surge in the previous session.

(Reporting by Kevin Buckland; Editing by Shri Navaratnam)

Oil prices fall amid strong dollar, economic concerns

Sept 29 (Reuters) – Oil prices fell in early Asian trade on Thursday as a strong dollar and economic woes outweighed optimism over consumer demand.

Brent crude futures fell 59 cents, or 0.7%, to USD 88.73 per barrel by 0016 GMT while US crude futures fell by 54 cents, or 0.7%, to USD 81.59. Both benchmarks rebounded in the prior two sessions amid volatile trade after reaching nine-month lows this week.

The dollar trended upward on Thursday morning, after hitting a fresh two-decade peak against a basket of currencies on Wednesday before pulling back. A strong dollar reduces demand for oil by making it more expensive for buyers using other currencies.

The Bank of England said it is committed to buying as many long-dated government bonds, know as gilts, as needed between Wednesday and Oct. 14 to stabilize its currency after the British government’s budgetary plans announced last week caused the sterling to tumble.

As markets tried to digest what the move meant for the pound, the currency whipsawed during Wednesday’s session, jumping as high as USD 1.09165 and falling as low as USD 1.05390. It was last up 1.51% at USD 1.08921.

Goldman Sachs cut its 2023 oil price forecast on Tuesday, due to expectations of weaker demand and a stronger US dollar but said global supply disappointments only reinforced its long-term bullish outlook.

(Reporting by Laura Sanicola)

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