Not so calm before the storm

Sept 20 (Reuters) – Investors do not appear to be waiting for the barrage of central bank meetings this week before making moves.

While holidays in Tokyo and London may have meant global trading was somewhat subdued, that did not stop rates from continuing to ascend to new peaks on Monday.

The yield on the US benchmark 10-year note hit its highest level since 2011, touching 3.518% although it then pulled back. Despite the fresh milestone for bonds, stocks managed gains, with the S&P 500 lodging a 0.7% increase and bouncing back after shedding 4.8% last week.

Euro Zone bond yields also were rising with the German 10-year yield hitting its highest since June.

Investors are girding for central bank action. The Fed’s meeting starts Tuesday, although the big news will come on Wednesday with its statement and Chair Jerome Powell’s press conference. A rate hike of 75 basis points is expected, with markets pricing in roughly one-in-five odds of a full percentage point hike.

Meanwhile in Japan, the BoJ is seen keeping its loose policy when it meets later this week, which could further pressure the weakening yen. The currency has recently slid to 24-year lows against the dollar.

Focus in Asia on Tuesday turns to China, where a decision is due on benchmark lending rates. In a Reuters poll, 75% of market participants predicted no change to either the one-year loan prime rate or the five-year.

Authorities are seen holding off monetary easing in order to avoid more depreciation pressure on the yuan. The currency ended at a fresh 26-month low on Monday and traded below the psychologically critical 7-per-dollar level.

Key developments that should provide more direction to markets on Tuesday:

China 1-yr, 5-yr loan prime rate decision

Japan CPI (August)

Taiwan Export orders (August)

US housing starts (August)

(Reporting by Lewis Krauskopf in New York)

US recap: Dollar firm but rangebound as pre-Fed positioning dominates

Sept 19 (Reuters) – The dollar index rose on Monday but faded slightly into the US close as traders adjusted positions before a widely expected 75bp Fed rate hike in two days’ time after betting on a more aggressive move retreated last week.

After trimming earlier gains of 0.45%, the dollar index remained 0.2% firmer heading into the close.

EUR/USD, the largest component in the dollar index, rose 0.31% off its NorAm low of 0.9976 and was set to end New York trading down 0.07% at 1.0007.

EUR traders are wary of the potential for a jumbo Fed hike on Wednesday, but on a relative basis the ECB is seen moving quickly to narrow the euro zone-US rate gap despite coming late to normalization.

USD/JPY slipped 0.27% to 143.35 in low-liquidity holiday trade.

Tuesday’s Japanese CPI may offer some clues about the country’s policy outlook, though recent the BoJ rhetoric about remaining accommodative should keep rates steady as core CPI is likely to remain weak.

Reuters consensus forecast sees headline August CPI at 2.7% versus 2.4% in July. Core CPI was 1.2% in July. With little in the way of BoJ hike expectations, diverging US-Japan rates are likely to keep dollar bid versus the yen.

GBP/USD saw light trading as markets were closed for the state funeral of Queen Elizabeth II.

Overnight weakness just above the 2022 low was reversed as traders reflexively lightened GBP shorts ahead of the Fed rate announcement on Wednesday and the BoE’s delayed announcement Thursday.

In the near-term, the Fed is seen continuing to hike at a faster rate than the BoE, which should continue to apply downward pressure on GBP/USD.

Higher US Treasury 2- and 10-year yields and a flatter 2s-10s spread, now -47bp, weighed on equities and risk-off trading hit cryptocurrencies.

BTC slipped 2.27% to USD 19k, while ETH continued its post-merge selloff, losing a further 0.52% to USD 1,326.

(Editing by Burton Frierson; Paul Spirgel and Christopher Romano are Reuters market analysts. The views expressed are their own.)

Gold languishes near 29-month low in run-up to Fed meeting

Sept 19 (Reuters) – Gold prices weakened on Monday, back toward a 29-month low hit on Friday, as the dollar and Treasury yields firmed on expectations the US Federal Reserve will deliver a steep interest rate hike when it meets this week.

Spot gold was down 0.3% at USD 1,670.72 an ounce by 1:48 p.m. ET (1748 GMT), holding above its lowest since April 2020 hit on Friday.

US gold futures settled 0.3% lower at USD 1,678.20.

“(Gold) is still hanging around its lows and a big part of this is anticipation of the Fed announcement on Wednesday,” said Daniel Pavilonis, senior market strategist at RJO Futures, adding that higher Treasury yields were also pressuring prices.

The Fed, at the conclusion of its two-day policy meeting on Wednesday, is expected to raise interest rates by 75 basis points to combat stubbornly-high inflation, with markets even seeing a 20% chance for a 100 bps increase.

Concerns about surging inflation have also prompted other central banks to tighten monetary policy.

Although gold is considered a hedge against inflation, higher interest rates lift the opportunity cost of holding zero-yield bullion.

The dollar held close to two-decade highs, making greenback-priced bullion more expensive for overseas buyers.

Benchmark 10-year US Treasury yields rose to their highest in over 11 years.

“What is driving the hesitation for scaling into a long-term position with gold is that investors are not convinced that even when the Fed pauses, that might not guarantee they are done hiking (interest rates),” Edward Moya, senior analyst with OANDA, said in a note.

Elsewhere, silver lost 1.2% to USD 19.32 an ounce, while platinum rose 1% to USD 915.91 and palladium gained 4.1% to USD 2,222.19.

The bullion market in London – the world’s biggest trade center for physical gold – was closed for Queen Elizabeth’s funeral which limited trade volumes on Monday.

(Reporting by Kavya Guduru in Bengaluru; Editing by Jonathan Oatis and Mark Potter)

Dollar off 20-year peak as Fed headlines big central bank week

TOKYO, Sept 19 (Reuters) – The dollar lingered near a two-decade top on major peers on Monday, ahead of a week loaded with market holidays and central bank decisions from Washington to London and Tokyo.

The dollar index, which measures the currency against six counterparts, was 0.2% stronger than Friday at 109.84, consolidating after a volatile couple of weeks that took it as high as 110.79 on Sept. 7 for the first time since mid-2002.

Investors have scrambled to price in higher US interest rates and a stronger dollar, as US consumer price rises have proved stubbornly persistent.

Currently, markets have priced in at least another 75 basis point increase for this week’s Federal Open Market Committee’s meeting, and 19% odds of a super-sized full percentage point bump.

This week is also smattered with holidays that could thin liquidity and result in sharper price moves, with Japan and Britain off on Monday, Australia on Thursday, and Japan again on Friday, among others.

“The dollar can remain elevated as the (Fed) continues to hike aggressively and on growing global recession risks,” and could hit a new cyclical peak above 110.8, Commonwealth Bank of Australia strategists wrote in a client note.

The poor economic outlook will keep the euro, sterling and pro-cyclical currencies like the Australian dollar under pressure, they said.

The dollar was firm at 143.15 yen on Monday, hovering beneath strong resistance at 145 as Japanese policymakers have toughened talk of currency intervention.

The BOJ is widely expected to stick with massive stimulus on Thursday, standing out among developed-nation central banks that are all rapidly tightening policy to tame inflation.

At the same time, a turning point may come sooner than many policy watchers expect after the BOJ recently dropped the word “temporary” for its description of consumer price rises, even though the level is much lower than places like the United States and Britain.

China’s yuan was kept to the weaker side of 7 per dollar as economic worries and the possibility of more benchmark interest rate cuts loom on Tuesday.

Sterling slipped 0.2% to USD 1.1403 GBP, just above a 37-year trough of USD 1.1351 hit on Friday.

Markets are split on whether the Bank of England will raise rates by 50 or 75 basis points on Thursday.

Monetary tightening will clash with new British finance minister Kwasi Kwarteng’s emergency mini-budget, to be delivered on Friday, that will give more details about support to help ease the country’s cost-of-living crisis.

The euro EUR=EBS fell below parity to USD 0.9995, with little for investors to cheer about as an energy crisis seems certain to tip Europe into recession in the winter.

The Aussie dollar fell 0.2% to USD 0.6710 not far from its lowest level since mid-2020 at USD 0.6670, which it hit on Friday.

The New Zealand dollar was parked below USD 0.60 and last bought USD 0.5974.

(Reporting by Kevin Buckland. Additional reporting by Tom Westbrook; Editing by Sam Holmes)

Oil prices climb on weak dollar, supply concerns

SINGAPORE, Sept 19 (Reuters) – Oil prices climbed on Monday as a weaker dollar and supply concerns ahead of the European Union embargo on Russian oil in December offset fears of a global recession that could dampen fuel demand.

Brent crude futures rose 60 cents, or 0.7%, to USD 91.95 a barrel by 0330 GMT after settling up 0.5% on Friday. US West Texas Intermediate crude was at USD 85.50 a barrel, up 39 cents, or 0.5%. The front-month contract expires on Tuesday.

Both contracts, which slid more than 1% last week on concerns that another interest rate hike by the Federal Reserves could slow global growth, were supported by a weaker dollar which came off multi-year highs. A weaker US dollar makes dollar-denominated commodities less expensive for holders of other currencies.

“The market still has the start of European sanctions on Russian oil hanging over it. As supply is disrupted in early December, the market is unlikely to see any quick response from US producers,” ANZ analysts said Monday.

More supply disruptions remain a risk, while easing COVID-19 restrictions in China could also provide some optimism, the analysts said.

China has started easing COVID curbs in Chengdu, a southwestern city of more than 21 million people, which has helped to soothe concerns about demand in the world’s No. 2 energy consumer. China’s gasoline and diesel exports also rebounded, easing high local inventories, after Beijing issued fresh quotas.

Despite questions about the future of the world economy, Kuwait Petroleum Corporation’s (KPC) chief executive said on Sunday its customers still demand the same volumes with no change.

The Gulf state currently produces more than 2.8 million barrels per day of oil in accordance with its OPEC quota.

Elsewhere, oil loading and exporting operations from Iraq’s Basrah oil terminal are back to their normal rates on Saturday, Basrah Oil Company said, a day after being halted due to a spillage which has now been contained.

In Nigeria, Shell’s SHEL.L 200,000 barrels per day Bonga deep water storage and offloading vessel is scheduled for maintenance in October, a spokesperson said on Sunday.

Signalling more supplies from the United States, US energy firms added oil and natural gas rigs for the first time in three weeks last week.

The oil and gas rig count, an early indicator of future output, rose four to 763 in the week to Sept. 16, its highest since August, energy services firm Baker Hughes Co BKR.N said on Friday.

(Reporting by Florence Tan and Jeslyn Lerh; Editing by Lincoln Feast & Shri Navaratnam)

China raises holdings of Treasuries in July, Japan cuts holdings

NEW YORK, Sept 16 (Reuters) – China increased its holdings of Treasuries in July for the first time in eight months, while Japan reduced its U.S. government debt load, data from the U.S. Treasury department showed on Friday.

China’s stash of Treasuries rose to $970 billion in July, from $967.8 billion in June, which was the lowest since May 2010 when it had $843.7 billion.

Japan, on the other hand, reduced its Treasury debt holdings to $1.234 trillion in July from $1.236 trillion the previous month. Japan remains the largest non-U.S. holder of Treasuries.

The fall in Japan’s holdings was more or less in line with moves in the currency market. The yen firmed in July against the greenback, ending the month at 131.6 yen per dollar, from 135.22 yen at the beginning.

The yen’s steep fall against a resurgent dollar this year has raised the prospect of Japan intervening in the market to boost the Japanese currency. Since the beginning of 2022, the yen has fallen 19.5% versus the dollar.

Overall, foreign holdings of Treasuries rose to $7.501 trillion in July, from 7.430 trillion in June.

On a transaction basis, U.S. Treasuries saw net foreign inflows of $23.12 billion in July, down from $58.9 billion the previous month. U.S. Treasuries have posted foreign inflows for a third straight month.

The inflows generally tracked price action in the Treasuries market. The benchmark 10-year Treasury yield started July at 2.904%, and ended the month at 2.642%.

In other asset classes, foreigners sold U.S. equities in July for a seventh straight month amounting to $60.32 billion, from outflows of $25.36 billion in June. July’s outflow was the largest since March.

U.S. corporate bonds posted inflows in July of $8.78 billion, slightly down from $13.99 billion in June. Foreigners were net buyers of U.S. corporate bonds for seven straight months.

The Treasury data also showed U.S. residents once again sold their holdings of long-term foreign securities, with net sales of $27.2 billion, from sales of $50.5 billion in June.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Chris Reese and Jonathan Oatis)

US recap: Inflation expectations clip dollar’s wings as Fed looms

Sept 16 (Reuters) – The dollar index was little changed on Friday, surrendering earlier gains after lower inflation expectations but helped by a decidedly weaker sterling following weak UK retail sales, while markets geared up for next week’s Fed policy meeting.

One- and five-year U.S. inflation expectations fell in the University of Michigan surveys, which lowered the Fed’s terminal rate view slightly.

Front-end U.S. Treasury yields moved lower into the U.S. close, dialing back market-projected chances of an aggressive 100bp Fed rate hike on Sept. 21 to 17% IRPR from around 30% early in the week.

EUR/USD gained 0.09%, holding just above parity, where it remains tethered, and helped by sterling selling versus the euro. EUR/GBP hit a new 19-month high at 0.8783 in the U.S. session.

USD/JPY held just above its session low of 142.83 as it approached the close.

The yen gained as traders remained wary of potential intervention by the BoJ as USD/JPY hovers near 24-year highs by 145. Yen bulls also benefited from the dip in University of Michigan inflation expectations tamping down Fed hike expectations.

GBP/USD hit a 37-year low of 1.1351 and was down 0.53% at 1.1408 in late trade.

August UK retail sales fell 1.6% on a month-over-month basis, missing by a wide margin the Reuters consensus forecast of a 0.5% dip and bolstering suspicions that high inflation is leading the UK economy toward recession.

The U.S. 2-year yield dropped from overnight highs by 3.92% to 3.85% by the New York close and the U.S. 2s-10s spread rose from early lows by -47bp to -41bp.

U.S. equities continued to move lower, with the S&P 500 down 1.17% in late trade. Cryptocurrencies remained weak, with Bitcoin falling 0.77% to $19.5k, while ethereum continued its post-merge slide, falling 3% to $1,428.

(Editing by Burton Frierson; Paul Spirgel and Christopher Romano are Reuters market analysts. The views expressed are their own.)

Sturdy dollar, looming rate hikes push gold to worst week in four

Sept 16 (Reuters) – Gold prices rose on Friday as the dollar stalled, but gains in the greenback over the week and expectations of a sizeable U.S. rate hike kept bullion well below the key $1,700 mark and en route to its worst week in four.

Spot gold was 0.5% higher at $1,672.48 per ounce by 2:08 p.m. ET (1808 GMT). U.S. gold futures settled 0.4% higher at $1,683.50.

“We saw the dollar turn negative… an acceleration lower on U.S. equities, which may have sparked a bit” of buying, said Phillip Streible, chief market strategist at Blue Line Futures in Chicago.

Gold prices were still down about 2.5% so far this week, having earlier slid to their lowest since April 2020.

Gold failed to capitalize on fears of rising U.S. recession risks through the week, and was “not even perceived as a safe-haven” on occasion, Streible added.

Offering some reprieve to gold, the dollar briefly turned negative before stalling. But it was still bound for a weekly gain, making gold more expensive for overseas buyers.

Markets see a 75% chance of a 75-basis-point rate hike by the Federal Reserve next week and a 25% chance of a 100-bps increase.

Although gold is considered a hedge against economic risks, rising interest rates make non-yielding bullion less appealing.

“It’s likely that sudden panic about the potential for 100bps hike after the ugly CPI report contributed to the big drop,” said Tai Wong, a senior trader at Heraeus Precious Metals in New York.

“However, that remains unlikely and gold is seeing physical demand pushing a short market ahead of a semi-long weekend with London out on Monday.”

Meanwhile, physical gold demand picked up in India as domestic prices fell ahead of key festivals, while Chinese premiums climbed.

Silver gained 1.2% to $19.39 per ounce.

Platinum fell 0.2% to $902.50, and palladium dropped 1.1% to $2,112.30.

(Reporting by Kavya Guduru in Bengaluru; Editing by Kirsten Donovan and Shinjini Ganguli)

European shares slide as recession fears grip global markets

Sept 16 (Reuters) – European shares slid 1.6% on Friday as recession warnings from two major global financial institutions and bets of a large interest rate hike from the U.S. Federal Reserve next week knocked sentiment.

The declines sent the continent-wide STOXX 600 to its worst week in three months, down 2.9%.

Except real estate stocks, all major sectoral indexes were in negative territory, with industrials, healthcare and financials dragging the most.

Delivery and logistics firms tumbled after U.S. peer FedEx Corp. (FDX) on Thursday withdrew its financial forecast, fanning fears of a global demand slowdown.

Shares of Deutsche Post, Kuehne & Nagel, DSV Panalpina, and Royal Mail Plc slumped between 4% and 8%.

The World Bank said late on Thursday that the global economy might be inching toward a recession as central banks aggressively tackle sticky inflation. The International Monetary Fund said it expected a slowdown in the third quarter.

“(The World Bank) highlighted that because the new tightening polices are synchronised across a number of countries,” Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, wrote in a note.

“The effects of these interest rates could be compounded and magnified, leading to a steeper-than-expected slowdown in global growth.”

All eyes are now on the U.S. Federal Reserve, which is expected to deliver its third 75-basis-point hike of the year after raising by 225 basis points so far in 2022.

Ailing German gas importer Uniper SE fell 1.7% as it struggled to keep up with costs after the sudden halt of a major natural gas pipeline by Russia earlier in the month.

The STOXX 600 has shed 1.7% in September so far, heading for its second straight monthly decline, as investors fret over soaring prices and an energy crisis in the region.

UK’s FTSE 100 index .FTSE fell 0.6% after data showed retail sales fell much more than expected in August, in another sign that the British economy is sliding into recession. But the exporter-heavy index fell the least across Europe as the pound weakened.

(Reporting by Shreyashi Sanyal and Susan Mathew in Bengaluru; Editing by Subhranshu Sahu, Sriraj Kalluvila and Devika Syamnath)

Dollar resumes rally, yuan weakens past key level

LONDON/SINGAPORE, Sept 16 (Reuters) – The dollar rallied again on Friday, as US Treasury yields rose ahead of a potentially huge Federal Reserve interest rate hike next week, while China’s yuan weakened past the psychologically important threshold of 7 per dollar.

The dollar, measured against a basket of currencies, is headed for a more than 1% rise this week, as investors flocked to the safety of the greenback. The yuan is the latest currency to hit a multi-year low by the dollar’s relentless rise.

The euro was last down 0.5% at USD 0.9945, while sterling fell to a new 37-year low of USD 1.1351, 1% lower on the session.

The dollar index rose 0.5% to 110.26, not far from its two-decade high of 110.79 reached earlier this month.

“With the Fed set to hike by possibly another 175 bps before year-end, we would expect financial conditions to remain unfavourable for assets generally and it clearly points to the U.S. dollar being the primary beneficiary,” said Derek Halpenny, head of research, global markets, MUFG.

The towering dollar pushed the offshore yuan past the critical threshold of 7 per dollar for the first time in more than two years overnight, with the yuan hitting a trough of 7.037.

The onshore unit similarly broke the key level soon after markets opened on Friday.

Data showed China’s economy was surprisingly resilient in August, with factory output and retail sales both growing more than expected. But a deepening property slump weighed on the outlook.

“Growth, policy divergence between the US and China could continue to support the USDCNH in the next few months, even if some pullback is seen intermittently,” said analysts at Maybank, who noted some “upside surprises” in the Chinese data release.

Traders will now shift their focus to a slew of monetary policy meetings by the Federal Reserve, the Bank of Japan (BOJ), and the Bank of England next week, with the Fed in centre stage.

US Treasury yields rose after data released overnight showed US retail sales unexpectedly rebounded in August, while a separate report from the Labor Department showed initial claims for state unemployment benefits fell 5,000.

Fed funds futures point to a 75% chance of a 75-basis-point rate hike at next week’s meeting and a 25% chance of a 100-bps increase.

This could spell further pain for the battered Japanese yen, which has been a victim of the surging greenback and growing interest rate differentials.

But three sources familiar with the thinking of the BOJ said the central bank has no intention of raising interest rates or tweaking its dovish policy guidance to prop up the yen.

The dollar was marginally lower against the yen at 143.43, but remained on track for a fifth straight weekly gain.

(Reporting by Tommy Reggiori Wilkes in London and Rae Wee in Singapore; Editing by Subhranshu Sahu)

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