US yields decline after UK tax turnaround, US data

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

China digs deep into bag of yuan tricks to resist dollar steamroller

SHANGHAI, Oct 3 (Reuters) – Chinese authorities have rolled out an array of tried-and-true manoeuvres in recent weeks to slow the yuan’s slide, showing relative success compared with other battered currencies, but analysts say they face long odds against an unstoppable dollar.

The stepped-up efforts, taken as the yuan tumbled about 7% from mid-August to a 14-year-low around 7.25 per dollar on Sept. 28, range from unusually strong signals to the market – last week the central bank told state-owned banks to prepare to sell dollars – to administrative measures that raise the cost of shorting the yuan.

That helped the yuan to regain some traction against the dollar, which also paused for breath against other currencies, but analysts expect the yuan to weaken further in the months ahead with a risk of volatile gyrations along the way.

“Considering the strength of the dollar, we now expect (the dollar/yuan rate) to trade around 7.40 around October and November,” SEB said in a note.

While that was among the more bearish forecasts, ANZ and Goldman Sachs saw a yuan rate of 7.20 per dollar within the next three months or so, with Goldman also noting upside dollar/yuan risks, and Citi said it could push to 7.3 in a strong dollar environment. The yuan late on Friday was trading around 7.12 per dollar.

In a sign that investors do not foresee the new measures tamping down swings in the yuan, expectations of future volatility priced into one-month yuan options have doubled in the past month.

For Chinese authorities, who were particularly keen to stabilize the yuan rate before a week-long national holiday in China this week, the stakes are high.

This is a a politically sensitive time for China’s ruling Communist Party, which is set to open its once-in-five-years congress on Oct. 16. President Xi Jinping is expected to secure a precedent-breaking third term during the gathering.

A weaker yuan also risks stoking financial instability fueled by capital outflows. Foreign investors cut holdings of Chinese bonds for the seventh straight month in August.

On the monetary policy front, the weaker yuan, fueled by the wide gap between low Chinese interest rates and rising U.S. rates, makes it harder to ease policy to support China’s faltering economy, the world’s second largest.

The yield gap between China’s benchmark 10-year government bonds and the U.S. Treasury for the same tenor is hovering at the widest in 15 years.

NO LINES IN THE SAND

Still, analysts do not expect Beijing to mount a desperate defense of any particular yuan level, in contrast to the last two times the yuan breached the psychologically significant 7 to the dollar level in 2019 and 2020, during the height of China-U.S. trade tensions and the initial outbreak of COVID-19.

“The central bank needs to play a balance between being market-oriented and also ensuring financial stability,” said Ju Wang, head of Greater China FX and rates strategy at BNP Paribas.

“Hence the official line will still be ‘no-lines-in-the-sand-but-two-way-volatility’.”

China’s economy also reaps some benefit from yuan weakness, which bolsters its exports by making them relatively cheaper in dollar terms. The export sector has become a vital pillar for the economy as it struggles with COVID outbreaks and a property crisis.

Further, the yuan has not fallen as sharply against the greenback as have the euro, the yen and other major currencies this year, keeping the yuan comparatively resilient against a basket of currencies of China’s main trading partners, with a fall of only 1.4% year-to-date.

Chinese authorities, who have emphasised that they want to make the yuan more international and market-driven, are aiming not to control the long-term value of the yuan, but to prevent a sudden short-term depreciation that would disrupt its economy and capital flows, analysts said.

“As China goes on a week-long holiday, the threat of intervention in the offshore yuan could keep a lid on near-term depreciation,” said Khoon Goh, head of Asia research at ANZ.

Mainland China’s financial markets are closed for the National Day holiday from Oct. 1, during which there will be no onshore trade or daily guidance through midpoint settings. Trading resumes on Oct. 10.

Goh added, however, that how long thenews threat remains effective will depend on the dollar’s trend.

“While the authorities will want to maintain FX stability into the Party Congress, the widening yield differential between the U.S. and China could still see yuan weakness re-emerge later in the year.”

(Reporting by the Shanghai Newsroom; Editing by Tony Munroe and Edmund Klamann)

Philippines and US kick off naval exercises amid China tension

MANILA, Oct 3 (Reuters) – The armed forces of the United States and Philippines launched two weeks of joint naval exercises on Monday, reinforcing a close military alliance at a time of regional uncertainty over tensions between Washington and Beijing.

KAMANDAG, an acronym in Filipino for “Cooperation of the warriors of the sea”, runs until Oct. 14, will involve 2,550 American and 530 Filipino troops and include island-based exercises in amphibious landings, live fire and humanitarian assistance.

US allies Japan and South Korea are joining the exercises as observers. The Philippines and United States, which are bound by a 70-year-old Mutual Defence Treaty, have been holding exercises for decades.

(Reporting by Karen Lema; Editing by Martin Petty)

Sterling briefly jumps after British government tax U-turn

LONDON, Oct 3 (Reuters) – The pound briefly jumped on Monday on news Britain would reverse plans to cut the highest rate of income tax, one contentious part of a package of financial measures that last month sent sterling and British government bonds tumbling.

“It is clear that the abolition of the 45p tax rate has become a distraction from our overriding mission to tackle the challenges facing our country,” finance minister Kwasi Kwarteng said in a statement.

The pound rose as high as USD 1.128 after news of the U-turn was reported by the BBC, the currency’s highest level since Sept. 22, the day before Kwarteng announced a new “growth plan” that would cut taxes and regulation, funded by vast government borrowing.

Sterling then gave up most of those gains and was last at USD 1.1177 up 0.1%.

The euro was down 0.27% against the pound at 87.61 pence.

“From a markets perspective, it is a good step in the right direction. It will take time for markets to buy the message but it should be ease the pressure, ” said Jan von Gerich, chief analyst, Nordea

“Questions still remain and sterling will likely remain under pressure,” he added.

Philippines rejects all bids at T-bills auction

MANILA, Oct 3 (Reuters) – Following are the results of the Philippine Bureau of the Treasury’s (BTr) auction of T-bills on Monday:

* BTr rejects all bids for 91-day, 182- and 364-day T-bills

* Details are on the BTr’s website

(Reporting by Neil Jerome Morales)

((neiljerome.morales@thomsonreuters.com; +632 8841 8914;))

Gold climbs on weaker dollar even as rate hikes loom

Oct 3 (Reuters) – Gold prices rose on Monday as a softer dollar rekindled some of bullion’s appeal for overseas buyers, although the prospects of sharp interest rate hikes by the US Federal Reserve and other major central banks capped further gains.

Spot gold was up 0.5% at USD 1,667.89 per ounce, as of 0603 GMT. US gold futures GCv1 were 0.2% higher at USD 1,675.30.

The dollar index was down 0.4% against a basket of currencies, making greenback-priced bullion less expensive for overseas buyers. Benchmark US 10-year Treasury yields were also lower after rising for two days.

“Recovery (gold’s) seems to be more of a near-term moderation from oversold technical conditions, as no slack in Fed’s tightening policies may suggest that any upside could potentially be sold into,” IG market strategist Yeap Jun Rong said.

The Federal Reserve’s No. 2 official on Friday added her full endorsement of the US central bank’s higher-for-longer game plan for interest rates to curb inflation.

Last month, the Fed raised its policy interest rate by 75 basis points, its third straight increase of that size, and signalled more large hikes to come this year.

Gold posted its sixth straight monthly decline in September, marking its longest streak of monthly losses in four years.

Though gold is often seen as a hedge against inflation, rising US interest rates increase the opportunity cost of holding the non-yielding asset and boost the dollar.

Meanwhile, euro zone inflation hit a record high last month, reinforcing expectations for another jumbo rate hike this month from the European Central Bank.

On investors’ radar are the US non-farm payrolls data due on Friday and a host of manufacturing PMI data for insight into the health of the global economy.

“A more lukewarm (payrolls) reading may be preferred by gold bulls for a relief rally, but the absence of any pause in Fed’s policies could still suggest that the overall downward trend may remain intact,” IG’s Yeap Jun Rong said.

Spot silver climbed 2.3% to USD 19.44 per ounce, platinum rose 0.6% to USD 864.45 and palladium was up 0.5% at USD 2,169.19.

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

Oil jumps about $4 as OPEC+ weighs biggest output cut since 2020

HOUSTON, Oct 3 (Reuters) – Oil prices jumped nearly USD 4 a barrel on Monday as OPEC+ considered reducing output by more than 1 million barrels per day (bpd) to buttress prices with what would be its biggest cut since the start of the COVID-19 pandemic.

Brent crude futures for December delivery rose USD 3.72 to USD 88.86 a barrel, a 4.4% gain. US West Texas Intermediate crude rose USD 4.14, or 5.2%, to USD 83.63 a barrel.

Oil prices have declined for four straight months since June, as COVID-19 lockdowns in top energy consumer China hurt demand while rising interest rates and a surging US dollar weighed on global financial markets.

The Organization of the Petroleum Exporting Countries (OPEC) and its allies, known collectively as OPEC+, is considering an output cut of more than 1 million bpd ahead of Wednesday’s meeting, OPEC+ sources have told Reuters.

That figure does not include additional voluntary cuts by individual members, one OPEC source added.

Most traders were expecting cuts of about 50,000 bpd, said Dennis Kissler, senior vice president of trading at BOK Financial.

If agreed, it will be the group’s second consecutive monthly cut after reducing output by 100,000 bpd last month.

“After a year of tolerating extremely high prices, missed targets and severely tight markets, the (OPEC+) alliance seemingly has no hesitation when it comes to acting rapidly to support prices amid a deterioration in the economic outlook,” Oanda market analyst Craig Erlam said.

OPEC+ missed its production targets by nearly 3 million bpd in July, two sources from the producer group said, as sanctions on some members and low investment by others stymied its ability to raise output.

US crude oil stockpiles were expected to have increased by around 2 million last week, a preliminary Reuters poll showed on Monday. Inventories at storage hub Cushing, Oklahoma, built by 730,297 barrels to 29.6 million barrels, according to a market source, citing Genscape data.

While prompt Brent prices could strengthen short term, concerns about a global recession are likely to limit the upside, consultancy FGE said.

“If OPEC+ does decide to cut output in the near term, the resultant increase in OPEC+ spare capacity will likely put more downward pressure on long-dated prices,” it said in a note on Friday.

The dollar index fell for a fourth consecutive day on Monday after touching its highest level in two decades. A cheaper dollar could bolster oil demand and support prices.

Goldman Sachs said it believes the OPEC+ supply cut could help remedy large exodus of oil investors that has left prices under-performing fundamentals.

(Reporting by Noah Browning; Additional reporting by Florence Tan and Muyu Xu; Editing by Paul Simao, David Gregorio and Lisa Shumaker)

Japan ready to take ‘decisive’ steps on yen – finance minister

TOKYO, Oct 3 (Reuters) – Japan stands ready to take “decisive” steps in the foreign exchange market if excessive yen moves persist, Finance Minister Shunichi Suzuki said on Monday, in a new warning against investors selling off the currency.

“It’s important for currencies to move stably as sharp and one-sided moves are undesirable,” Suzuki told a news conference after a cabinet meeting, referring to recent sharp falls in the yen.

“We intervened the other day and we have said we would take decisive steps as needed. There’s no doubt this has guarded against speculative moves,” he said.

The remarks did little to prevent the yen from weakening further. The dollar briefly rose to 145.40 yen later on Monday, marking the highest level since Japan intervened in the currency market to prop up the yen on Sept. 22.

“There’s no change to our stance that we will take decisive steps in the currency market as needed,” Suzuki told reporters after the dollar’s rise to the daily high.

Japan spent up to 2.8 trillion yen (USD 19.34 billion) intervening in the foreign exchange market last month to slow the yen’s decline when it fell to a 24-year low near 146 to the dollar.

Excessive currency moves, whether up or down, make it difficult for Japanese firms to plan their business, policymakers say.

The head of Japan’s biggest business lobby, Keidanren, hailed the government’s action against speculative yen moves.

“It was meaningful for the government to show its will, not to leave speculative moves unattended, although such action won’t be taken so frequently,” Keidanren head Masakazu Tokura told reporters.

Asked about the large size of intervention, Suzuki said the amount was decided by taking comprehensive factors into account.

(USD 1 = 144.7700 yen)

(Reporting by Tetsushi Kajimoto
Editing by Shri Navaratnam and Christian Schmollinger)

Global hedge fund launches plunge, liquidations rise amid turmoil

NEW YORK, Sept 30 (Reuters) – New hedge fund launches dove in the second quarter to the lowest level since the 2008 global financial crisis, while fund liquidations spiked, industry data provider HFR said on Friday.

There were 80 hedge fund launches between April and June, down 57% from the first quarter and the lowest number of new funds since the fourth quarter of 2008, when 56 funds were launched, according to HFR.

Another 156 hedge funds closed their doors between April and June, 24% more liquidations than the previous quarter. Overall, the number of hedge funds fell to 9,237 in the second quarter from 9,313.

“Risk-off sentiment drove investor risk aversion, with investors maintaining exposures to established funds through the current volatile market paradigm of unprecedented geopolitical and macroeconomic uncertainty,” said Kenneth J. Heinz, president of HFR.

The data underscores the challenges faced by the hedge fund industry in 2022 amid market turmoil, with USD 7.7 billion in net outflows in the first half of the year.

Still, hedge funds on average have outperformed the S&P 500. The HFRI fund-weighted composite index is down 4% this year through August, while the S&P plunged 17% in the same period.

(Reporting by Carolina Mandl in New York; Editing by Cynthia Osterman)

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