Biden, Philippines’ Marcos discuss tensions in South China Sea

NEW YORK, Sept 22 (Reuters) – US President Joe Biden and his Philippine counterpart, Ferdinand Marcos, underscored their support for freedom of navigation and overflight in the South China Sea on Thursday, in response to China’s efforts to exert its influence there.

Biden and Marcos held their first face-to-face talks on the sidelines of the United Nations General Assembly. Marcos, son of the late Philippine President Ferdinand Marcos, took power in June.

“The leaders discussed the situation in the South China Sea and underscored their support for freedom of navigation and overflight and the peaceful resolution of disputes,” the White House said in a statement after the talks.

Biden said as the two men began their talks that he wanted to talk about the South China Sea, COVID-19 and renewable energy. He thanked Marcos for opposing Russia’s war in Ukraine.

The United States has accused China of increased “provocations” against rival claimants to territory in the South China Sea and other countries operating there.

“The role of the United States in maintaining the peace in our region is something that is much appreciated by all the countries in the region and the Philippines especially,” Marcos said.

The Philippines is a key ally in of the United States and vital strategically in case of any US need to defend Taiwan militarily from Chinese attack, given its geographical position.

The United States is keen to arrange greater access to bases in the Philippines given the need to prepare for that contingency.

“The leaders reflected on the importance of the US-Philippines alliance. President Biden reaffirmed the United States’ ironclad commitment to the defense of the Philippines,” the White House said.

Manila’s ambassador to the United States, a relative of Marcos, told Japan’s Nikkei newspaper this month the Philippines would let US forces use the Southeast Asian nation’s military bases in the event of a Taiwan conflict only “if it is important for us, for our own security.”

The meeting with Biden underlines the stunning turnaround in fortunes for the disgraced former first family of the Philippines, 36 years after Marcos’s father was driven into exile by a “people power” uprising.

The new president is on his first trip to the United States in 15 years. He is the subject of a US contempt-of-court order for refusing to cooperate with a Hawaii court that ruled the Marcos family must pay USD 2 billion of plundered wealth to victims of abuses during his father’s martial law era.

He has rejected allegations his family stole from the treasury and has diplomatic immunity as head of state.

(Reporting by Steve Holland in New York and David Brunnstrom in Washington; Writing by Doina Chiacu; Editing by Jonathan Oatis)

Gold subdued on strong dollar, yields; hawkish Fed clouds outlook

Sept 22 (Reuters) – Gold prices edged lower in choppy trading on Thursday, pressured by a stronger dollar and higher Treasury yields, while the US Federal Reserve’s hawkish policy stance clouded the outlook for the non-yielding bullion.

Spot gold was down 0.2% at USD 1,671.20 per ounce by 1:46 p.m. EDT (1746 GMT), after shedding more than 1% earlier in the session.

US gold futures settled 0.3% higher at USD 1,681.10.

“(Gold’s) weakness is coming because the dollar’s stronger (and) yields are a little higher… the overall outlook for the Fed is more rate hikes, which is going to put a limit on gold,” said Bob Haberkorn, senior market strategist at RJO Futures.

The dollar gained 0.5%, making greenback-priced bullion more expensive for overseas buyers. Benchmark 10-year US Treasury yields hit an 11-year high.

“Overall, the trend will continue to be negative for gold as the Federal Reserve told us yesterday that they’re quite determined to increase rates,” said Bart Melek, head of commodity strategy at TD Securities.

The US central bank, as widely expected, hiked its benchmark overnight interest rate by 75 basis points on Wednesday, and projected the policy rate would rise to the 4.25%-4.50% range by the end of 2022, and to a range of 4.50%-4.75% by the end of 2023.

Interest rate hikes to fight soaring inflation tend to raise the opportunity cost of holding zero-yield bullion.

“That, ultimately, gets gold below USD 1,600 – probably in the not too distant future,” Melek added.

Investors also took stock of US data showing initial claims for state unemployment benefits rose to 213,000 versus expectations for 218,000 applications for the latest week.

In other metals, spot silver was unchanged at USD 19.58 per ounce, platinum lost 0.8% to USD 900.68, while palladium added 0.6% to USD 2,166.82.

(Reporting by Kavya Guduru in Bengaluru; Editing by Paul Simao and Shailesh Kuber)

Philippines central bank to ensure monetary policy consistent with targets

MANILA, Sept 22 (Reuters) – The Philippines’ central bank is determined to make sure its monetary policy is consistent with its targets and inflation falls to within target by the second half of next year, its governor said on Thursday.

Though it is missing its inflation targets at the moment, the central bank is doing everything it can to combat high consumer prices, Bangko Sentral ng Pilipinas Governor Felipe Medalla told a briefing of some of the country’s cabinet ministers currently gathered in New York.

The Bangko Sentral ng Pilipinas earlier in the day raised its benchmark interest rates by half a percentage point, as expected, to combat elevated inflation and support a sagging peso.

(Reporting by Neil Jerome Morales; Editing by Hugh Lawson)

Philippine central bank hikes rates again, raises inflation forecast

MANILA, Sept 22 (Reuters) – The Philippine central bank hiked its benchmark interest rates by half a percentage point on Thursday, and said it was ready to take further action as it raised its inflation forecasts for this year and next, and as the peso sank to a record low.

The Bangko Sentral ng Pilipinas (BSP) raised the overnight reverse repurchase facility rate to 4.25%, as predicted by most economists in a Reuters poll. It was the fifth rate hike this year, bringing the total increase to 225 basis points (bps).

The interest rates on the overnight deposit and lending facilities were hiked to 3.75% and 4.75%, respectively.

The BSP said it was ready to make adjustments as the situation evolves and said inflation would breach its target range for this year and next. It said it had no contemplated off-cycle meetings ahead.

“The monetary board noted that price pressures continue to broaden. The rise in core inflation indicates emerging demand-side pressures on inflation,” the BSP said in a statement.

“Given elevated uncertainty and the predominance of upside risks to the inflation environment, the monetary board recognised the need for follow-through action to anchor inflation expectations and prevent price pressures from becoming further entrenched.”

The BSP is likely to raise rates by another 75 bps this year, said Gareth Leather, senior Asia economist at Capital Economics.

“But we think the tightening cycle will come to a finish before the end of 2022,” he said, while noting most other analysts expect the BSP to continue tightening policy in 2023.

Earlier on Thursday, the Philippine peso sank to a record low against the surging US dollar, taking its losses to more than 12% this year, the worst performer among currencies of Southeast Asia’s five major economies. It was largely unchanged after the BSP announcement.

The BSP said Thursday’s adjustment would help alleviate pressure on the peso, and said it stood ready to participate in the forex market to reduce volatility but had no intention of targeting a particular exchange rate level.

The central bank’s move followed the US Federal Reserve’s hefty rate hike of 75 bps announced hours earlier.

The BSP raised its average inflation forecast to 5.6% from 5.4% for 2022, still above the full-year target range of 2% to 4%, and said it expected to see inflation start to decelerate by the fourth quarter of this year.

It raised the forecast for next year to 4.1% from 4.0%. For 2024, average inflation was seen at 3.0%, lower than the previously projected 3.2%.

(Reporting by Neil Jerome Morales and Enrico Dela Cruz; Editing by Martin Petty and Kim Coghill)

Dollar hits new 24-year peak to yen as BOJ stays dovish; BOE looms

TOKYO, Sept 22 (Reuters) – The US dollar surged to a new 24-year high against the yen after the Bank of Japan stuck to ultra-easing stimulus on Thursday, just hours after the Federal Reserve surprised markets with hawkish interest-rate projections.

The greenback had already pushed to a new 37-year peak to sterling ahead of the Bank of England’s policy announcement later in the day, and to a two-decade top versus the euro.

It also notched new highs against regional currencies from the Australian and New Zealand dollars to the offshore Chinese yuan and the Korean won, as well as the Singapore dollar and Thai baht.

The yen went for a wild ride in the immediate aftermath of the BOJ’s decision to keep short-term rates negative and continue to pin the 10-year government bond yield near zero, reinforcing market expectations that Japan’s central bank will continue to swim against a global tide of monetary tightening, despite a weaker currency.

The dollar leapt as high as 145.405 yen for the first time since August 1998, but then swung sharply back to as low as 143.50, before last trading 0.45% higher than Wednesday at 144.75.

“There could be concern about intervention, or even a rate check by the BOJ,” said Tohru Sasaki, head of Japan market research at J.P. Morgan in Tokyo. “It could also just be the result of market illiquidity.”

“The market will be nervous, there will be some volatility for a while, but eventually, over the medium term, the weak yen trend will continue,” Sasaki said. “The 1998 peak was at 147.60, so the market will be looking at that level.”

Japan’s top currency diplomat said later that officials had not intervened in the market.

The dollar index – which measures the greenback against a basket of six counterparts including the yen, euro and sterling – had earlier risen as high as 111.79 for the first time since mid-2002.

On Wednesday, the Fed issued new projections showing rates peaking at 4.6% next year with no cuts until 2024. It raised its target interest rate range by another 75 basis points (bps) overnight to 3.00%-3.25%, as was widely expected.

The dollar was already supported by demand for safe-haven assets after Putin announced he would call up reservists to fight in Ukraine and said Moscow would respond with the might of all its vast arsenal if the West pursued what he called its “nuclear blackmail” over the conflict there.

“Both the Fed projections and the Russia headlines contributed to the dollar’s strength, which was particularly acute against the euro and other European currencies,” said Shinichiro Kadota, a senior FX strategist at Barclays in Tokyo.

“Commodity currencies also took a big hit due to the deterioration in risk sentiment.”

The euro EUR=EBS weakened to a new 20-year trough of USD 0.9807, before trading 0.11% down on Wednesday at USD 0.98265.

Sterling GBP=D3 fell to a fresh 37-year low of USD 1.1221, and last changed hands at USD 1.12425, a 0.24% decline from the previous session.

The market currently sees 80% odds for a 75 bps rate hike by the BOE, and 20% probably of a half point increase.

The Aussie dropped 0.47% to USD 0.6602 after having touched USD 0.6583, its lowest since mid-2020. Liquidity in the currency may be thin with Australia observing a public holiday.

(Reporting by Kevin Buckland; Editing by Edwina Gibbs, Ana Nicolaci da Costa and Kim Coghill)

No relief for bruised markets as Fed signals higher rates for longer

NEW YORK, Sept 22 (Reuters) – A Federal Reserve dead-set on fighting inflation is leaving little hope that this year’s rocky markets will end anytime soon, as policymakers signal rates rises faster and higher than many investors were expecting.

The Fed lifted rates by an expected 75 basis points and signalled that its policy rate would rise by 4.4% by year end and top out at 4.6% by the end of 2023, a steeper and longer trajectory than markets had priced in.

Investors said the aggressive path suggests more volatility in stocks and bonds in a year that has already seen bear markets in both asset classes, as well as risks that tighter monetary policy will plunge the US economy into a recession.

“Reality is setting in for the markets as far as the messaging from the Fed and the continuation of this program to move rates higher to get rates into restrictive territory,” said Brian Kennedy, a portfolio manager at Loomis Sayles. “We don’t think we’ve seen the peak in yields yet given that the Fed will continue to move here and the economy is continuing to hold up.”

Kennedy’s funds continue to focus on short-term Treasuries and are holding “elevated” levels of cash as he expects yields on both short- and longer-dated bonds will rise between 50-100 basis points before peaking.

Stocks plunged following the Fed’s meeting, with the S&P 500 falling 1.7%. Bond yields, which move inversely to prices, shot higher with the two-year yield surging above 4% to its highest since 2007 and 10-year yields hitting 3.640%, the highest since February 2011. That left the yield curve even more inverted, a signal of looming recession.

The S&P 500 is down 20% this year, while US Treasuries have had their worst year in history. Those declines have come as the Fed has already tightened rates by 300 basis points this year.

“Riskier assets are probably going to continue to struggle as investors are going to hold back and be a bit more defensive,” said Eric Sterner, chief investment officer of Apollon Wealth Management.

Rising yields on US government bonds are likely to continue dulling the allure of stocks, Sterner said.

“Some investors may look at the equity markets and say the risk is not worth it, and they may shift more of their investments on the fixed income side,” he said. “We might not see as strong returns in the equity markets going forward now that interest rates have been somewhat normalized.”

Indeed, the average forward price-to-earnings multiple on the S&P 500 stood at around 14 in 2007, the last time the Fed funds rate was at 4.6%. That compares with a forward P/E of just over 17 today, suggesting stocks may have further to fall as rates rise.

“Powell is drawing a line in the sand and staying very committed to fighting inflation and is not as worried about spillover effects to the economy at this point,” said Anders Persson, chief investment officer of global fixed income at Nuveen. “We have more volatility ahead of us and the market will have to reset to that reality.”

THINKING ‘VERY CONSERVATIVELY’

Investors have piled into assets such as cash this year as they seek refuge from market volatility while also seeing opportunity to buy bonds after the market rout.

Many believe high yields are likely to make those assets attractive to income seeking investors in coming months. The shape of the Treasury yield curve, where short-term rates stand above longer-term ones, supports caution as well. Known as an inverted yield curve, the phenomenon has preceded past recessions.

“We’re trying to essentially determine where the curve is going,” said Charles Curry, managing director, senior portfolio manager of US Fixed Income at Xponance, who said his fund has been thinking “very conservatively” and owns more Treasuries than in the past.

Peter Baden, CIO of Genoa Asset Management and Portfolio Manager of US Benchmark Series, a collection of US Treasury ETF products, said higher yields at the short end of the Treasury yield curve were attractive. At the same time, rising recession risks also raised the allure of longer-dated bonds.

He likened Powell’s stand on inflation with that of former Fed Chairman Paul Volcker, who tamed higher consumer prices in the early 1980s by drastically tightening monetary policy.

“(Powell’s) saying we will do what it takes. They need to put the brakes on demand and put that back in line with supply. This is their Paul Volcker moment,” he said.

(Reporting by Davide Barbuscia and David Randall; Additional reporting by Megan Davies and Chuck Mikolajczak; Writing by Ira Iosebashvili; Editing by Megan Davies and Sam Holmes)

Oil edges higher on Russian supply concerns in volatile trade

Sept 22 (Reuters) – Oil settled nearly 1% higher on Thursday, paring earlier gains as the market focused on Russian oil supply concerns, rebounding Chinese demand, and as the Bank of England hiked interest rates less than some had expected.

Brent crude futures settled up 63 cents, or 0.7%, at USD 90.46 after rising by more than USD 2 earlier in the session.

US West Texas Intermediate (WTI) crude settled up 55 cents, or 0.7%, at USD 83.49, after rising by more than USD 3 earlier in the session.

Russia pushed ahead with its biggest conscription since World War Two, raising concerns an escalation of the war in Ukraine could further hurt supply.

“(Russian President Vladimir) Putin’s bellicose rhetoric is what’s propping up this market,” said John Kilduff, partner at Again Capital LLC in New York.

Supply constraints from the Organization of the Petroleum Exporting Countries (OPEC) added further support, analysts said.

“OPEC crude exports have leveled off from a strong increase at the start of this month,” said Giovanni Staunovo, commodity analyst at UBS.

The European Union is considering an oil price cap, tighter curbs on high-tech exports to Russia and more sanctions against individuals, diplomats said, responding to what the West condemned as an escalation in Moscow’s war in Ukraine.

The European Securities and Markets Authority (ESMA) is also considering a temporary break on energy derivatives as prices have risen following Russia’s invasion of Ukraine in February.

The parameters of such a mechanism should be set at the EU level to apply to all platforms that trade energy derivatives, it said.

Crude oil demand in China, the world’s largest oil importer, is rebounding, having been dampened by strict COVID-19 restrictions.

The Bank of England raised its key interest rate by 50 basis points to 2.25% and said it would continue to “respond forcefully, as necessary” to inflation.

The rate hike was “less than markets had been pricing and defying some expectations that UK policymakers might be forced into a larger move,” ING bank said.

Turkey’s central bank unexpectedly cut its policy rate by 100 basis points to 12%, when most central banks around the world are moving in the opposite direction.

Following the US Federal Reserve’s hefty 75 bps rise on Wednesday, rate increases also came thick and fast from the Swiss National Bank, Norges bank and Indonesia’s central bank, and the South African Reserve Bank.

Interest rate hikes to quell inflation have weighed on equities, which often move in tandem with oil prices. Rate increases can curb economic activity and demand for fuel.

“This just shows how synchronized this current tightening cycle is,” Deutsche Bank said.

(Additional reporting by Rowena Edwards in London, Muyu Xu in Singapore; Editing by Kirsten Donovan, David Gregorio and Marguerita Choy)

Wall Street slumps as investors absorb hawkish Fed rate message

Sept 21 (Reuters) – Wall Street’s main indexes see-sawed before slumping in the final 30 minutes of trading to end Wednesday lower, as investors digested another supersized Federal Reserve hike and its commitment to keep up increases into 2023 to fight inflation.

All three benchmarks finished more than 1.7% down, with the Dow posting its lowest close since June 17, with the Nasdaq and S&P 500, respectively, at their lowest point since July 1, and June 30.

At the end of its two-day meeting, the Fed lifted its policy rate by 75 basis points for the third time to a 3.00-3.25% range. Most market participants had expected such an increase, with only a 21% chance of a 100 bps rate hike seen prior to the announcement.

However, policymakers also signaled more large increases to come in new projections showing its policy rate rising to 4.40% by the end of this year before topping out at 4.60% in 2023. This is up from projections in June of 3.4% and 3.8% respectively.

Rate cuts are not foreseen until 2024, the central bank added, dashing any outstanding investor hopes that the Fed foresaw getting inflation under control in the near term. The Fed’s preferred measure of inflation is now seen slowly returning to its 2% target in 2025.

In his press conference, Fed Chair Jerome Powell said US central bank officials are “strongly resolved” to bring down inflation from the highest levels in four decades and “will keep at it until the job is done,” a process he repeated would not come without pain.

“Chairman Powell delivered a sobering message. He stated that no one knows if there will be a recession or how severe, and that achieving a soft landing was always difficult,” said Yung-Yu Ma, chief investment strategist at BMO Wealth Management.

Higher rates and the battle against inflation was also feeding through into the US economy, with the Fed’s projections showing year-end growth of just 0.2% this year, rising to 1.2% in 2023.

“Markets were already braced for some hawkishness, based on inflation reports and recent governor comments,” said BMO’s Ma.

“But it’s always interesting to see how the market reacts to the messaging. Hawkishness was to be expected, but while some in the market take comfort from that, others take the position to sell.”

The Dow Jones Industrial Average fell 522.45 points, or 1.7%, to 30,183.78, the S&P 500 lost 66 points, or 1.71%, to 3,789.93 and the Nasdaq Composite dropped 204.86 points, or 1.79%, to 11,220.19.

All 11 S&P sectors finished lower, led by declines of more than 2.3% by Consumer Discretionary and Communication Services.

Volume on US exchanges was 11.03 billion shares, compared with the 10.79 billion average for the full session over the last 20 trading days.

The S&P 500 posted two new 52-week highs and 70 new lows; the Nasdaq Composite recorded 44 new highs and 446 new lows.

(Reporting by Medha Singh, Devik Jain and Ankika Biswas in Bengaluru and David French in New York; Editing by Marguerita Choy)

Keep your hiking boots on

Sept 22 (Reuters) – Investors in Asia could be waking up to more volatility after the Federal Reserve’s latest jumbo rate increase and message about future hikes.

The US central bank on Wednesday raised rates by 75 basis points for a third straight meeting as it is bent on taming the steepest surge in inflation in 40 years. That action was largely expected but may have offered some relief after markets had priced in a small chance of a mammoth 100-basis point hike.

Instead, it was what comes next that appeared to seize the market’s attention. Another 125 basis points in hikes are now signalled for the last two meetings of 2022, with investors bracing for more to come early next year. New Fed projections show its policy rate topping out at 4.60% in 2023.

In his press conference following the Fed’s statement, Chair Jerome Powell said achieving a soft landing for the economy is “very challenging.” Policymakers see the need to lift the policy rate to a “restrictive level” and “keep it there for some time,” Powell added.

Already-harried markets had trouble agreeing on a direction in the hours following the Fed’s decision and Powell’s ensuing comments.

Two-year US Treasury yields burst well above 4% in the immediate aftermath of the Fed’s statement but then eased closer to that level. Stocks dove, recovered, and then slid again, with the benchmark S&P 500 ending down 1.7%. The dollar index hit a fresh two-decade high, then edged back.

Digesting the Fed may take longer, as initial reactions to the central bank’s meetings can be misleading. What’s more, investors on Thursday will have other central bank actions to contend with, including in Japan, England and Switzerland.

Key developments that could provide more direction to markets on Wednesday:

Bank of Japan monetary policy decision

Taiwan, Indonesia central bank meetings

Bank of England policy decision

Swiss National Bank monetary policy meeting

(Reporting by Lewis Krauskopf in New York; Editing by Sandra Maler)

Once-bitten markets are ignoring Putin’s warnings again at their own peril

LONDON, Sept 21 (Reuters) – Earlier this year, markets were complacent as Russia massed troops on the Ukraine border. Now, they’re once again largely shrugging off Vladimir Putin’s signal that he could be prepared to use nuclear weapons.

World shares weathered an early knock to risk appetite on Wednesday after Putin mobilized more troops for Ukraine and threatened to use all of Russia’s arsenal against what he called the West’s “nuclear blackmail” over the war there.

It was Russia’s first such mobilization since World War Two and signified a major escalation of the war, now in its seventh month.

And while safe-haven assets such as the dollar, which hit a two-decade high against other major currencies, and government bonds in Germany and the United States rallied, stock markets appeared not to be too disturbed.

European stocks pared earlier falls and mostly rose, while the main indexes on Wall Street — already bracing for another aggressive hike in US interest rates later in the day — opened higher on Wednesday.

“Back in January and February when Russian troops were mobilized, market participants wrongly interpreted it as a bluff to increase Putin’s negotiating leverage, but then Putin exceeded expectations by going for a full invasion of Ukraine,” said Tina Fordham, an independent geopolitical strategist and founder of Fordham Global Foresight.

“The most significant aspect of what markets are not pricing in now is the potential for Russia to use an unconventional weapon, meaning a tactical chemical or a nuclear weapon,” she adding, noting that Putin had made some menacing remarks to this effect about the “wind blowing”.

Fordham said that while Putin would likely stop short of a full blown unconventional attack, it was very much in his “playbook” to cause maximum instability.

The MSCI World Stock Index is down 21% this year and Europe STOXX 600 index has lost 16% — both are poised for their worst year since 2008, when the global financial crisis unfolded.

Russia’s invasion of Ukraine, initially perceived as an outlier event, has dealt an extra blow to world markets that are still adjusting to a period of decades-high inflation and a sharp rise in borrowing costs from the likes of the Federal Reserve and European Central Bank.

Europe in particular has suffered, as Russia has choked off gas supplies, driving energy prices up in a squeeze on consumers and companies that has raised the risk of recession.

Germany’s and Italy’s reliance on Russia has made their stock markets among the world’s worst performers this year. Those close to the fighting, including Poland and Hungary, have also seen their local markets pummeled. Investors have ditched the bonds of countries with high gas or wheat import bills too.

Chris Weafer, chief executive of Macro-Advisory, a consultancy that advises companies on doing business in Russia, said Moscow was preparing for a long conflict, including continued throttling of energy supplies, and that it could better afford the confrontation than Europe.

“There had been a sense in Europe that Russia would look for a compromise. Today’s announcement makes it clear that is incorrect,” he said. “Russia is digging in for the long haul. They are prepared to tough it out.”

Arne Petimezas, a senior analyst at AFS Group in the Netherlands, said Putin was being underestimated.

“He has escalated every time. For him, it is life and death. I don’t see why his next move will be de-escalation unless he wins,” Petimezas said.

(By Dhara Ranasinghe and John O’Donnell; Additional reporting by Yoruk Bahceli in Amsterdam and Marc Jones in London, Editing by William Maclean)

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