Currencies find breathing space as dollar eases slightly

Aug 8 (Reuters) – Emerging market currencies came off session lows on Monday, as the dollar eased slightly after a strong rally spurred by rising bets of the U.S. Federal Reserve staying aggressive with its monetary policy.

With the exception of the Indian rupee and the Taiwan dollar, most Asian currencies cut almost all session losses. The Chinese yuan inched up, with data showing an unexpected pick-up in exports in July aiding sentiment. Export forecasts from China, however, were clouded by worries about weakening global demand.

Elsewhere, Turkey’s beleaguered lira fell 0.2%, while South Africa’s rand ZAR= climbed 0.5%. Russia’s rouble rose to trade around 60 per dollar.

The greenback fell about 0.2%, but stayed at elevated levels after data on Friday showing strong labour demand in the United States saw bets for another 75 basis points hike by the Fed in September rise to around 70%. Focus now turns to U.S. inflation data due later this week. The headline number is seen having cooled in July.

“There’s still this very precarious risk backdrop,” said Simon Harvey, head of FX analysis at Monex.

“We are still seeing volatility in emerging market space this morning, but it’s not necessarily too indicative of an overall trend just yet,” he said, adding that Monex expects a Fed “pivot,” or the easing of its tightening cycle, in the fourth quarter which could then lend some support to emerging markets.

Despite a stronger euro, Hungary’s forint rose 0.4% to stay at two-month highs, while the Polish zloty climbed 0.3%. Both had a strong week last week, but analysts at ING see some pain ahead.

“We expect both currencies to be weaker this week. We see the forint as more vulnerable, with our target at 399 EUR/HUF and the zloty at 4.75 EUR/PLN for the days ahead,” said Frantisek Taborsky, EMEA FX & FI strategist at ING.

Inflation figures from Hungary, the Czech Republic and Romania will also be eyed this week.

Among stocks, MSCI’s index of emerging market equities .MSCIEF snapped a three-day winning run thanks to losses in Chinese blue-chips and Hong Kong stocks .HSI. But strong gains in India, as well as outside Asia, helped cap losses for the broader index.

(Reporting by Susan Mathew in Bengaluru; editing by Uttaresh.V)

European shares bounce back from US jobs report hammering

Aug 8 (Reuters) – European shares rose on Monday, lifted by cyclical and growth stocks, after clocking falls in the previous week when a strong U.S. jobs report rekindled bets of another aggressive rate hike by the Federal Reserve.

The pan-European STOXX 600 index added 0.5%, steadying after snapping two weeks of gains on Friday.

Economically-sensitive sectors including miners, financial services and autos led the gains on Monday. Growth-oriented technology stocks advanced 1.2%.

Focus shifts to a key inflation data from the world’s biggest economy later in the week. Global stock markets were spooked on Friday after data showed a large increase in U.S. employment, denting hopes that the Fed might let up in its series of rate hikes aimed at taming surging inflation.

After ending July with gains of over 7%, the STOXX 600 has struggled this month to extend the momentum on worries over dour economic data, rising geopolitical tensions and fears that higher interest rates could tip the economy into a recession.

“Lower savings by households are supporting consumer spending, the eventual outcome could be a soft landing but the risk remains of a slump,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.

“Against this uncertain backdrop, investors should ensure a robust portfolio that can perform in various outcomes. We prefer defensives such as healthcare as well as quality income, and value stocks.”

Meanwhile, the European healthcare sector missed out the broader rally, up 0.1%, after the U.S. Senate on Sunday passed a bill intended to lower drug prices among other things.

Other defensive stocks, including European utilities and real estate, added around 1% each.

French utility company Veolia rose 1.9% as it confirmed it would sell Suez’s UK waste business to Australia’s Macquarie Group Ltd for around 2.4 billion euros ($2.4 billion).

Siemens Energy, which supplies equipment to the power industry, fell 2.5% as it warned of a deeper-than-previously-expected net loss in 2022 from charges due to the restructuring of its business in Russia.

Richemont asked shareholders to reject a candidate from Bluebell Capital Partners as a representative of ordinary shareholders and against the person’s election to the luxury group’s board at its upcoming annual general meeting. Shares rose 0.7%.

Italian stocks lagged their European peers after global ratings agency Moody’s cut the country’s outlook to “negative” from “stable” on Friday.

(Reporting by Shreyashi Sanyal in Bengaluru; Editing by Sriraj Kalluvila)

Air traffic around Taiwan returning to normal despite new Chinese drills

Aug 8 (Reuters) – Air traffic around Taiwan is gradually returning to normal after airspace surrounding the island reopened, Taiwan’s Ministry of Transportation and Communications said on Monday, although China later announced fresh military drills in the area.

China last week deployed scores of planes and fired live missiles near the island during military exercises sparked by U.S. House of Representatives Speaker Nancy Pelosi’s visit to Taiwan.

The drills led some airlines to cancel flights to Taipei and to alter flight paths between Southeast Asia and Northeast Asia to avoid the affected area.

Beijing-issued notices to airmen (NOTAM) had declared temporary danger areas for airlines to avoid during the exercises that encircled much of Taiwan. The final NOTAM covering a section of airspace east of the island expired on Monday at 0200 GMT and was not extended.

China’s military announced fresh drills in the seas and airspace around Taiwan on Monday, but no specific location was provided, no new NOTAM was issued and there were no signs on flight tracking service FlightRadar24 of airlines adjusting routings.

Taiwan’s transportation ministry earlier said most scheduled flights to and from the island had continued to operate during the Chinese military exercises that began on Aug. 4, averaging around 150 departures and arrivals per day.

The number of flights transiting through the airspace its controllers manage is gradually returning to normal after the final NOTAM was lifted, the ministry added in the statement on its website.

Some foreign airlines that typically used the airspace had instead flown alternative routes through areas managed by Japan and the Philippines during the drills, the ministry said last week.

Korean Air Lines Co. Ltd., which had cancelled flights to Taipei on Friday and Saturday and rerouted others to avoid the affected area, said on Monday that it had resumed normal flight operations.

Philippine Airlines said it would return its flights to and from Taipei to their normal routings after using alternative flight paths during the last four days of drills.

Korean Air and Philippine Airlines said they had not made any changes to their flight plans after the new Chinese announcement.

“However, we are ready to make adjustments to our Taipei operations, if necessary,” Philippine Airlines President Stanley Ng said in a statement.

Japan’s ANA Holdings Inc 9202.T said it had resumed normal routings despite the new Chinese announcement because no fresh NOTAM had been issued.

Temporary airspace closures and route changes during major military exercises occur regularly around the world.

This situation was unusual in that China’s exercises bisect Taiwan’s claimed 12 nautical miles (22 kilometres) of territorial waters – something Taiwanese officials say challenges the international order and amounted to imposing a blockade of its sea and airspace.

(Reporting by Jamie Freed in Sydney and Donny Kwok in Hong Kong; additional reporting by Ben Blanchard in London, Heekyong Yang in Seoul, Satoshi Sugiyama in Tokyo and Neil Jerome Morales in Manila; Editing by Raju Gopalakrishnan and Sam Holmes)

Ukraine faces key test on debt freeze plan in bid to avoid messy default

LONDON, Aug 8 (Reuters) – Ukraine’s creditors vote this week on a government proposal to defer payments on the war-torn country’s international bonds for 24 months as Kyiv hopes to swerve a $20 billion messy default.

Bondholders have until 5 p.m. New York time (2100 GMT) on Tuesday to decide whether to back or vote down the proposal by Ukraine’s government, which faces a $5 billion monthly financing gap and liquidity pressures following Russia’s invasion on Feb. 24. Time is precious: the country has a $1 billion bond maturing on Sept. 1.

Creditors will likely wait until relatively close to the deadline to vote, said a person familiar with Ukraine’s thinking. Investors are expected to support the debt standstill, the person added.

When announcing its proposal, Ukraine’s finance minister Sergii Marchenko said it had “explicit indications of support” from some of the world’s biggest investment funds including BlackRock, Fidelity, Amia Capital and Gemsstock.

Creditors of Ukravtodor and Ukrenergo, two state-owned firms that have government guarantees on their debt, also have until Aug. 9 to vote on a plan similar to the sovereign.

IS THIS A DEFAULT?

The two-year moratorium on external debt payments would allow Ukraine to avoid a contractual or legal default, as any amendment on the bonds’ terms would have the creditors’ backing, Rodrigo Olivares-Caminal, professor of banking and finance law, at Queen Mary University of London, told Reuters.

However, creditors could ask whether a default insurance known as credit default swaps (CDS) should kick in, as a deferral of payments might be considered a credit event by the International Swaps and Derivatives Association (ISDA).

Investors are sitting on about $221 million of insurance on Ukraine’s debt, according to Depository Trust & Clearing Corporation (DTCC) data on the CDS.

Credit rating agencies might also classify this as a “selective default” or “default”.

“A contractual default, a credit event and a credit rating default are three different albeit related concepts,” Olivares-Caminal said. “Incurring any of the three doesn’t mean that the other two will trigger.”

While investors are expected to back the freeze it is unclear whether the country may still need a debt restructuring in the medium term.

“It is just a pause button – we do not know what shape Ukraine will be in a few months or a few years down the line,” said Luiz Peixoto, emerging markets economist at BNP Paribas in London. “Investors are already preparing for a debt restructuring.”

The dollar-denominated bonds trade at deeply distressed, some as low as 17 cents in the dollar.

Battered by the war, which Russia calls a “special military operation”, Ukraine faces a 35%-45% economic contraction in 2022, according to estimates from the government and analysts, and is heavily reliant on foreign financing from its Western partners.

Ukraine aims to strike a deal for a $15 billion-$20 billion program with the International Monetary Fund before the end of the year.

Ukraine restructured its debt in 2015 after an economic crisis linked to a Russia-backed insurgency in its industrial east. The deal left it with a large number of payments due annually between 2019 and 2027, and it returned to international markets in 2017 with a $3 billion hard-currency debt issuance.

For the foreign debt freeze plan to be successful, the so-called consent solicitation requires the support of investors holding two-thirds across the 13 Eurobonds maturing from 2022 to 2033, and at least 50% of the holders of each note.

The government launched a separate proposal on its $2.6 billion of outstanding GDP warrants, a derivative security that triggers payments linked to its economic growth.

In late July, Ukraine’s state-energy firm Naftogaz became the first Ukrainian government entity to default since the start of the Russian invasion. Naftogaz’s bonds are not guaranteed by the sovereign.

(Reporting by Jorgelina do Rosario and Karin Strohecker; Editing by Susan Fenton)

Oil rises nearly 2% on strong economic data but trade choppy

HOUSTON, Aug 8 (Reuters) – Oil prices rose nearly 2% on Monday in volatile trading, bouncing off multi-month lows touched last week, as positive economic data from China and the United States fed hopes for demand despite nagging fears of a recession.

Brent crude futures settled $1.73, or 1.8%, at $96.65 a barrel. U.S. West Texas Intermediate crude was at $90.76 a barrel, up $1.75, or 1.97%.

Last week, fears that a recession could dent energy demand pushed front-month Brent prices down 13.7% to their lowest since February. It was Brent’s biggest weekly drop since April 2020, and WTI lost 9.7%.

Both contracts recouped some losses on Friday after jobs growth in the United States, the world’s top oil consumer, unexpectedly accelerated in July.

“Once again the macro influences have seeped back into this market especially as it relates to Friday’s employment number the economics of that should be giving us much better gasoline demand than we’re seeing,” said John Kilduff, partner at Again Capital LLC in New York.

On Sunday, China also surprised markets with faster-than-expected growth in exports.

China, the world’s top crude importer, brought in 8.79 million barrels per day (bpd) of crude in July, up from a four-year low in June, but still 9.5% less than a year earlier, customs data showed.

In Europe, Russian crude and oil products exports continued to flow ahead of an impending embargo from the European Union that will take effect on Dec. 5.

Last week, the Bank of England warned of a protracted recession in Britain.

In terms of U.S. production, energy firms last week cut the number of oil rigs by the most since September in the first drop in 10 weeks.

Analysts at Goldman Sachs said they believe the case for higher oil prices remains strong, with the market in a larger deficit than they expected in recent months.

(Additional reporting by Shadia Nasralla,, Florence Tan; Editing by Mark Potter, Kirsten Donovan and David Gregorio)

Blinken commits US to defending Philippines against armed attacks

MANILA, Aug 6 (Reuters) – Secretary of State Antony Blinken assured the Philippines on Saturday that the United States would come to its defense if attacked in the South China Sea, seeking to allay concerns about the extent of the US commitment to a mutual defense treaty.

In meetings in Manila dominated by discussion on simmering US-China tensions over the Taiwan visit of US House of Representatives Speaker Nancy Pelosi, Blinken said a 70-year-old defense pact with the Philippines was “ironclad”.

“An armed attack on Philippine armed forces, public vessels and aircraft will invoke US mutual defense commitments under that treaty,” Blinken told a news conference.

“The Philippines is an irreplaceable friend, partner, and ally to the United States.”

Blinken was the most senior US official to meet new President Ferdinand Marcos Jr, the son of the late strongman who Washington helped to flee into exile in Hawaii during a 1986 “people power” uprising that ended his two-decade rule.

In opening remarks to Blinken, Marcos sought to downplay the diplomatic flare-up over Taiwan and said he believed Pelosi’s trip “did not raise the intensity” of a situation that was already volatile.

“We have been at that level for a good while, but we have sort of got used to the idea,” Marcos said.

The Philippines is a fulcrum of the geopolitical rivalry between the United States and China and Marcos faces a tricky challenge in balancing ties between the two major powers.

He will also face domestic pressure to stand up to China in the South China Sea, without angering its leadership.

US-Philippines ties were shaken by predecessor Rodrigo Duterte’s overtures towards China, his famous anti-US rhetoric and threats to downgrade their military ties.

On Saturday, Philippines foreign secretary Enrique Manalo said President Joe Biden had invited Marcos to Washington, and both sides were working on a suitable date.

Marcos has not been to the United States in more than a decade, due largely to a contempt of court order for his refusal to cooperate with a Hawaii court, which in 1995 ordered the Marcos family to return USD 2 billion of missing state wealth to victims of abuses by the state under his father’s rule.

Marcos Jr and mother, Imelda, also face a USD 353 million fine.

The US embassy in Manila has said heads of state have diplomatic immunity.

Manalo said Washington was an important ally, but concerning nearby Taiwan he told Blinken the Philippines “looks at the big powers to help calm the waters”.

“We can ill afford any further escalation of tensions,” he said.

(Reporting by David Brunnstrom; Writing by Karen Lema; Editing by Martin Petty and Mike Harrison)

Philippines top diplomat tells Blinken Asia can ill afford escalation of Taiwan tensions

MANILA, Aug 6 (Reuters) – The Philippines foreign minister on Saturday told US Secretary of State Antony Blinken that the region can ill afford an escalation of regional tensions over the Taiwan Strait.

Blinken, in a virtual meeting with Philippines Foreign Secretary Enrique Manalo, said Washington was determined to avoid a crisis. He also stressed that relations between the two defence treaty allies have never been more important.

(Reporting by David Brunnstrom; Writing by Martin Petty; Editing by Shri Navaratnam)

Inflation data may seal fate of unloved US stock rally

NEW YORK, Aug 5 (Reuters) – A rally in US stocks that has powered on despite skepticism from Wall St faces a reality check in the coming week, as key inflation data threatens to shut the door on expectations of a dovish shift from the Federal Reserve.

The S&P 500 has walked a tightrope this summer, rising 13% from its mid-June lows on hopes that the Fed will end its market-bruising rate increases sooner than anticipated. A blowout US jobs number on Friday bolstered the case for more Fed hikes but barely dented stocks – the S&P fell less than 0.2% on the day and eked out its third straight week of gains.

More upside could hinge on whether investors believe the Fed is succeeding in its fight against soaring consumer prices. Signs that inflation remains strong despite a recent drop in commodity prices and tighter monetary policy could further weigh on expectations that the central bank will be able to stop hiking rates early next year, drying up risk appetite and sending stocks lower once again.

“We’re at the point where consumer price data has reached a Super Bowl level of importance,” said Michael Antonelli, managing director and market strategist at Baird. “It gives us some indication of what we and the Fed are facing.”

UNLOVED RALLY

Rebounds in the midst of 2022’s bear market have been short-lived and three previous bounces in the S&P 500 have reversed course to make fresh lows, fueling doubts that the most recent rally will last.

Investors’ dour outlook was highlighted by recent data from BofA Global Research, which showed the average recommended allocation to stocks by sell-side US strategists slipped to its lowest level in over five years in July, even as the S&P 500 rose 9.1% that month for its biggest gain since November 2020.

Institutional investors’ exposure to stocks has also remained low. Equity positioning for both discretionary and systematic investors remains in the 12th percentile of its range since January 2010, according to Deutsche Bank published last week.

For their part, Fed officials have over the past week opposed the narrative of a so-called dovish pivot, with one of them – San Francisco Fed President Mary Daly – saying she was “puzzled” by bond market prices that reflected investor expectations for the central bank to start cutting rates in the first half of next year.

US rate futures have priced in a 69% chance of a 75 bps hike at its September meeting, up from about 41% before the payrolls data. Futures traders have also factored in a fed funds rate of 3.57% by the end of the year.

Positioning in options markets, meanwhile, shows little evidence of investors rushing to chase further stock market gains.

One-month average daily trading volume in US listed call options, typically used for placing bullish bets, is down 3% from June 16, Trade Alert data showed.

“We are surprised to not see investors start to chase upside calls in fear of underperforming the market,” said Matthew Tym, head of equity derivatives trading at Cantor Fitzgerald. “People are just watching.”

Celia Rodgers Hoopes, portfolio manager at Brandywine Global, believes much of the recent rally has been driven by short covering, especially among many of the high-flying tech names that haven’t done well this year.

“The market doesn’t want to miss out on the next rally,” she said. “Whether or not it’s sustainable is hard to tell.”

Of course, investors aren’t uniformly bearish. Corporate earnings have come out stronger than expected for the second quarter, with some 77.5% of S&P 500 companies beating earning estimates, according to I/B/E/S data from Refinitiv, fueling some of the market’s gains.

Antonelli of Baird also said a cooler than expected inflation number next week could push more investors back into stocks.

“Is there a scenario right now where inflation comes down and the Fed isn’t going to engineer a hard landing? There could be, and nobody is positioned for that.”

Others, however, are more skeptical.

Tom Siomades, chief investment officer of AE Wealth Management, believes the market is yet to see a bottom and has urged investors to avoid chasing stocks.

“The market seems to be engaging in some wishful thinking,” he said. Investors “are ignoring the age-old adage, ‘don’t fight the Fed.'”

(Reporting by Saqib Iqbal Ahmed; Writing and additional reporting by Ira Iosebashvili; Editing by Ira Iosebashvili and Josie Kao)

Dollar eyes 136 vs yen as stellar jobs data affirm Fed’s hawkish guidance

Aug 5 (Reuters) – USD/JPY rallied 1.8% on sharply higher Treasury yields in response to overwhelmingly strong U.S. employment data that buttressed the hawkish forward guidance from the Fed since last week’s 75bp rate hike. A USD/JPY close above 135 can spark a run to resistance by 136 ahead of next week’s CPI report.

Prices already cleared the daily kijun and 50% Fibo of the 139.38-130.40 July-August drop by 135, boosted by the entire Treasury yield curve’s rapid rise in response to NFPs increasing more than twice the forecast.

A close above 135 would target the 61.8% Fibo and 21-day moving average that surround 136. Adding to the lift from the U.S. jobless report were upward revisions to June payrolls, an unexpected drop in the jobless rate nearly to 50-year lows, as well as average hourly earnings rising 0.5% m/m versus 0.3% forecast.

The robust report lifted the fed funds ceiling to 3.62%, with rates staying above 3% throughout 2023, rather than the recent pricing of large rate cuts next year.

Tuesday’s 130.40 EBS correction low held key support that provides a potential base for retesting July’s 24-year 139.38 EBS peak if July CPI and PPI drive Treasury-JGB yield spreads to new trend highs.

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

Gold dips 1% as robust US jobs data eases recession concerns

Aug 5 (Reuters) – Gold prices extended losses to slide more than 1% on Friday as an unexpectedly strong US jobs report eased recession worries and dashed speculation that the Federal Reserve would pivot away from its aggressive monetary policy tightening.

Spot gold fell 0.9% to USD 1,775.09 per ounce by 1:43 p.m. ET (1743 GMT), after falling as much as 1.5% earlier in the day. US gold futures settled down 0.9% at USD 1,791.2.

“Gold had recently rallied on the thought that the Fed will shift from hawkish to dovish. But the jobs data shows the US economy is strong, and this can prompt the Fed to be more aggressive, which is not a good story for gold,” said Bart Melek, head of commodity strategy at TD Securities.

An environment marked by high interest rates hurts bullion as it yields no interest.

US employers hired far more workers than expected in July, with the unemployment rate falling to a pre-pandemic low of 3.5%.

The positive employment picture gives the Fed further scope to raise interest rates without the risk of tipping the economy into recession, and gold’s upside gains are likely to be capped at USD 1,800, Rupert Rowling, market analyst at Kinesis Money, said in a note.

The dollar index was up 0.8%, making gold more expensive for overseas buyers, while US Treasury yields extended their rise after the data.

On the physical side, gold premiums in China rose this week on safe-haven demand driven by rising tensions with the United States over Taiwan.

“If there is a pop-up in geopolitical issues, then this will help gold, but it won’t be a sustained rally … The next catalyst for gold prices will be (the) US CPI print coming out next week,” Melek added, referring to consumer prices data.

Spot silver fell 1.4% to USD 19.87 per ounce, en route to falling for the week.

Platinum rose 0.2% to USD 927.98, on track for its biggest weekly gain since early June.

Palladium rose nearly 3% to USD 2,125.95.

(Reporting by Ashitha Shivaprasad in Bengaluru; Editing by David Holmes and Paul Simao)

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