Hedge funds strike it right on dollar, yield curve: McGeever

ORLANDO, Fla., Aug 15 (Reuters) – Hedge funds slashed their long dollar positions and bet harder on a flatter yield curve, two macro trades that have come up trumps.

The dollar last week fell to its lowest level on a broad basis since June, while the yield curve inversion reached levels not seen in over 20 years.

The question now for currency and bonds speculators is whether they buy into the notion that inflation has peaked, the economy will achieve a soft landing, and the Federal Reserve won’t tighten monetary policy so aggressively.

That’s a scenario that could keep the dollar under pressure, but re-steepen the curve and get the 10-year yield back above the two-year yield.

The latest Commodity Futures Trading Commission report shows that funds cut their net long dollar position against G10 currencies in the week ending August 9 by USD 4.4 billion to USD 13 billion.

That is the biggest reduction since January, and net longs now are the lowest since April.

The move was driven by USD 1.7 billion shifts in both sterling and the Japanese yen. Funds’ net long dollar position against the yen is now just USD 2.3 billion, the smallest since March last year, and their net short sterling position is down to USD 2.6 billion.

The dollar weakened almost 1% last week and is down 4% in the last month. The dollar’s outlook now is certainly more balanced.

“Our sense remains that the dollar rally will resume before too long. It will take a lot more good news on inflation before the Fed changes tack,” Capital Economics strategists wrote on Friday.

INFLATION PEAK?

In bonds, the trend remains funds’ friend as the 10-year Treasury yield fell as much as 50 basis points below the two-year yield, resulting in the most inverted curve since 2000.

CFTC data shows that speculators increased their net short two-year Treasuries position for a third week, by more than 70,000 contracts to 172,221. That is now their biggest bet against two-year Treasuries since July last year.

In the same week, they trimmed their net short 10-year bond position by just over 9,000 contracts to 286,478 contracts.

A short position is essentially a bet that an asset’s price will fall, and a long position is a bet it will rise. In bonds, yields fall when prices rise, and move up when prices fall.

Hedge funds’ hawkish view on the Fed was also clearly reflected in their rates futures trades.

In the week to Aug. 9 they increased their net short position in three-month ‘SOFR’ rates futures to a record 797,342 contracts. The net short has doubled in less than three months.

This suggests speculators are betting heavily on the Fed keeping its foot on the rate-hiking pedal, perhaps pushing the fed funds policy rate well into ‘restrictive’ territory to make sure it gets inflation back down.

But consumer and producer price inflation figures for July released after the cutoff for the latest CFTC report showed a notable easing in price pressures. It’s only one month, but some investors’ outlook is changing.

“In the near term, risk assets should trade well, as we’re getting past peak inflation worry,” Citi strategists wrote on Friday.

(The opinions expressed here are those of the author, a columnist for Reuters.)

Oil sheds more than $1 as China data disappoints

SINGAPORE, Aug 15 (Reuters) – Oil prices dropped for a second session on Monday as weak China economic data triggered concerns about demand at the world’s largest crude importer while the head of the world’s top exporter, Saudi Aramco, said it was ready to ramp up output.

Brent crude futures fell USD 1.14, or 1.2%, to USD 97.01 a barrel by 0631 GMT after settling 1.5% lower on Friday. US West Texas Intermediate crude was at USD 91.03 a barrel, down USD 1.06, or 1.2%, after a 2.4% drop in the previous session.

China’s economy unexpectedly slowed in July, while refinery output slipped to 12.53 million barrels per day, its lowest since March 2020, government data showed.

“The official data suggests that oil demand is weakening as domestic logistics and consumer demand are deterred by the record high oil pump prices,” said Heron Lin, an economist at Moody’s Analytics.

Oil demand could stay on the downtrend for the rest of the year as the threat of COVID-19 restrictions encourages precautionary savings and reduces oil consumption, he added.

Saudi Aramco stands ready to raise crude oil output to its maximum capacity of 12 million bpd if requested to do so by the Saudi Arabian government, Chief Executive Amin Nasser told reporters on Sunday.

“We are confident of our ability to ramp up to 12 million bpd any time there is a need or a call from the government or from the ministry of energy to increase our production,” Nasser said. He added that China’s easing of COVID-19 restrictions and a pickup in the aviation industry could add to demand.

Oil prices rebounded more than 3% last week after a damaged oil pipeline component disrupted output at several offshore Gulf of Mexico platforms and as investors pared back expectations for interest rate increases in the United States.

Producers had moved to reactivate some of the halted production after repairs were completed late Friday, a Louisiana official said.

Energy services firm Baker Hughes Co. (BKR) reported on Friday that US oil rig count rose by 3 to 601 last week. The rig count, an early indicator of future output, has been slow to grow with oil production only seen recovering from pandemic-related cuts next year.

Global oil markets remained supported by tight supplies in the run-up to EU sanctions on Russian crude oil and refined product supplies this winter.

More supplies could come if Iran and the United States accept an offer from the European Union to revive the 2015 nuclear deal, which would will lift sanctions on Iranian oil exports, analysts said.

(Reporting by Florence Tan; Editing by Kenneth Maxwell and Muralikumar Anantharaman)

Gold slips on firmer dollar, Fed rate-hike fears

Aug 15 (Reuters) – Gold prices slipped on Monday as the dollar rebounded, with expectations of sharp interest rate hikes from the Federal Reserve further pressuring the yellow metal.

Spot gold was down 0.6% at USD 1,791.33 per ounce, as of 0704 GMT, after rising about 1.6% last week. US gold futures fell 0.5% to USD 1,807.30.

The dollar erased earlier losses to strengthen 0.2% against its rivals, making gold more expensive for buyers holding other currencies.

“Gold looks like in some consolidation here for a week or two before resuming the upward march towards USD 2,000 yet again. There may be even some who will feel the need to take profits to offset property portfolio weakness,” said Clifford Bennett, chief economist at ACY Securities.

“Gold is likely to be supported around USD 1,785. A slip to USD 1,760 cannot be ruled out, but this would represent a fantastic long-term buying opportunity.”

Meanwhile, Richmond Fed Bank President Thomas Barkin said on Friday he wanted to raise interest rates further to bring inflation under control.

Investors will be watching out for minutes from the Fed’s last monetary policy meeting due on Wednesday for more clues on future rate hikes.

Traders were pricing in around a 44.5% chance of a 75-basis-point rate hike by the Fed in September and a 57.5% chance of a 50 bps increase.

Although gold is seen as a hedge against inflation, rising US interest rates dim non-yielding bullion’s appeal.

“Gold recorded its fourth consecutive weekly gain amid easing inflationary pressures. However, those same issues may ultimately be a negative,” ANZ analysts said in a note.

On the technical front, spot gold is biased to retest a support USD 1,784 per ounce, a break below which may cause a fall into a range of USD 1,767-USD 1,773, according to Reuters technical analyst Wang Tao.

Elsewhere, spot silver dropped 1.2% to USD 20.57 per ounce, platinum fell 1.3% to USD 950.37 and palladium was steady at USD 2,222.23.

(Reporting by Brijesh Patel in Bengaluru; Editing by Subhranshu Sahu and Vinay Dwivedi)

China may spook the market with unexpected rate cuts

Aug 15 (Reuters) – China unexpectedly lowered two of its benchmark lending rates on Monday but the policy-easing move could have unintended effects on sentiment. The yuan slipped in reaction while Chinese stocks reversed mild opening losses.

The one-year medium-term lending facility (MLF) rate was lowered by 10 basis points, as was the 7-day reverse repo rate, while some maturing loans were allowed to expire. All analysts polled by Reuters had expected the MLF to be held.

Chinese policymakers have been reluctant to ease monetary conditions, in light of decades-high inflation threatening developed economies. China’s July consumer prices rose at their fastest annual pace in two years.

Monday’s sudden rate cuts, in the wake of very weak bank lending data Friday and forecast-missing retail sales, might make markets nervous. It suggests Beijing is getting more worried about the economic impact of maintaining its zero-COVID strategy amid a languishing property market.

Yuan investors might be fretting too. The rally sparked by China’s rate cuts has sent USD/CNH to 6.7627 and out of the daily Bollinger downtrend channel. If it ends Monday above 6.7715, the uptrend channel will be engaged. That signal could inspire USD bulls to add to bets for the 6.8000 barrier to be reclaimed and for May’s 20-month high of 6.8391 to be challenged soon.

(Ewen Chew is a Reuters market analyst. The views expressed are his own.)

China unexpectedly cuts 2 key rates, withdraws cash from banking system

SHANGHAI, Aug 15 (Reuters) – China’s central bank unexpectedly cut key interest rates for the second time this year and withdrew some cash from banking system on Monday, in an attempt to revive credit demand to support the COVID-hit economy.

The People’s Bank of China (PBOC) said it was lowering the rate on 400 billion yuan (USD 59.33 billion) worth of one-year medium-term lending facility (MLF) loans to some financial institutions by 10 basis points (bps) to 2.75%, from 2.85% previously.

In a poll of 32 market watchers conducted last week, all respondents forecast the MLF rate would be kept steady, while 29 predicted there would be a partial rollover.

With 600 billion yuan worth of MLF loans maturing on Monday, the operation resulted a net 200 billion yuan fresh fund withdrawal from the banking system.

The central bank also injected 2 billion yuan through seven-day reverse repos while cutting the borrowing cost by the same margin of 10 bps to 2.0% from 2.1% previously, according to an online statement.

The PBOC lowered both rates by 10 bps in January.

(Reporting by Winni Zhou and Brenda Goh; Editing by Kim Coghill)

Oil prices ease as Aramco says ready to boost crude output

SINGAPORE, Aug 15 (Reuters) – Oil prices dropped for a second session on Monday after the head of the world’s top exporter, Saudi Aramco, said it is ready to ramp up output while production at several offshore US Gulf of Mexico platforms is resuming after a brief outage last week.

Brent crude futures fell 27 cents, or 0.3%, to USD 97.88 a barrel by 0034 GMT after settling 1.5% lower on Friday. US West Texas Intermediate crude was at USD 91.87 a barrel, down 22 cents, or 0.2%, following a 2.4% drop in the previous session.

Saudi Aramco stands ready to raise crude oil output to its maximum capacity of 12 million barrels per day (bpd) if requested to do so by the Saudi Arabian government, Chief Executive Amin Nasser told reporters on Sunday.

Investors are looking ahead to China economic data later on Monday for demand cues at the world’s top crude oil importer.

Oil prices rebounded more than 3% last week after a damaged oil pipeline component disrupted output at several offshore Gulf of Mexico platforms.

Producers had moved to reactivate some of the halted production after repairs were completed late Friday, a Louisiana official said.

Global oil markets remained supported by tight supplies in the run-up to EU sanctions on Russian crude oil and refined product supplies this winter.

(Reporting by Florence Tan; Editing by Kenneth Maxwell)

Gold steadies near $1,800/oz on lower dollar, yields

Aug 15 (Reuters) – Gold prices held steady near the key psychological level of USD 1,800 per ounce on Monday, supported by a pullback in the dollar and US Treasury yields.

FUNDAMENTALS

* Spot gold was little changed at USD 1,800.09 per ounce, as of 0033 GMT, after rising 1.6% last week.

* US gold futures were flat at USD 1,815.10.

* Benchmark US 10-year Treasury yields edged lower to 2.8421% after hitting a three-week peak on Friday, decreasing the opportunity cost of holding non-interest-bearing gold.

* The dollar slipped 0.1% against its rivals, making gold less expensive for other currency holders.

* Richmond Federal Reserve Bank President Thomas Barkin said on Friday he wants to raise interest rates further to bring inflation under control.

* Data showed US import prices fell for the first time in seven months in July, helped by a strong dollar and lower fuel and nonfuel costs, while consumers’ one-year inflation outlook ebbed in August, the latest signs that price pressures may have peaked.

* Although gold is seen as a hedge against inflation, rising US interest rates dull non-yielding bullion’s appeal.

* Asian shares inched higher with investors anxious to see if Wall Street can sustain its rally as hopes US inflation has peaked will be tested by likely hawkish commentary from the Fed this week.

* Japan’s economy expanded for the third straight quarter on solid private consumption, data for April-June showed.

* High domestic prices restrained physical gold demand in India last week, while uncertainty surrounding Taiwan-related developments prompted bullion importers in China to hold off on big purchases.

* SPDR Gold Trust GLD, the world’s largest gold-backed exchange-traded fund, said its holdings fell 0.15% to 995.97 tonnes on Friday.

* Spot silver eased 0.2% to USD 20.78 per ounce, platinum fell 0.3% to USD 959.69, and palladium was steady at USD 2,223.83.

DATA/EVENTS (GMT)

0200 China Urban Investment (YTD) YY

0200 China Retail Sales YY

0200 China Unemp Rate Urban Area

1100 EU Reserve Assets Total

(Reporting by Brijesh Patel in Bengaluru; Editing by Rashmi Aich)

Philippines sugar imports still possible, president says

MANILA, Aug 14 (Reuters) – Philippines President Ferdinand Marcos Jr said the country’s doors remain open to additional sugar imports, though volumes are likely to be much less than a previously proposed 300,000 tonnes.

Marcos last week rejected the proposal to import up to 300,000 tonnes of raw and refined sweetener, purportedly approved recently by the Sugar Regulatory Administration (SRA), of which he is board chairman.

But in a vlog posted on the Office of the President’s Facebook page on Sunday, Marcos assured the public that the country has sufficient sugar supplies.

SRA officials had warned of a domestic sugar shortage before Marcos took power on June 30 and retail prices of the sweetener have risen substantially in the Philippines this year.

“Before we import sugar, let us use the supply that we have. Maybe by October the supply in the Philippines will almost be used up. Maybe then we may need to import,” Marcos said in the vlog.

“Probably, 150,000 tonnes is enough for the rest of the year.”

The SRA has estimated that raw sugar output in the crop year ending Aug. 31 will be 1.8 million tonnes, down 16% from the previous season because of crop damage from a typhoon and unfavorable weather.

The Philippines is not a regular sugar importer, but when necessary it usually buys from Thailand, the world’s second-largest sugar exporter behind Brazil.

(Reporting by Enrico Dela Cruz; Editing by David Goodman)

Philippine bourse sees firms raising $3.6 billion on capital markets

MANILA, Aug 13 (Reuters) – The Philippine stock exchange operator expects companies to raise 200 billion pesos (USD 3.6 billion) on the capital markets this year on a robust pipeline of listings and share sales, despite market volatility, its president said on Saturday.

Philippine firms, including renewable energy companies, are pursuing expansion plans this year, banking on an economic recovery from the COVID-19 pandemic.

“At the moment, we cannot hit the same record we did last year,” Philippine Stock Exchange president and CEO Ramon Monzon told reporters. “We are hoping that we can at least reach the 200 billion pesos level.”

Last year, a record 234.5 billion was raised through IPOs, including the record USD 1 billion listing of food maker Monde Nissin Corp. (MONDE), and the sale of existing shares, more than double the 104 billion pesos in 2020.

By the end of July, companies had raised 76 billion pesos on the stock market, with six initial public offerings (IPO) and follow-on share sales in the pipeline, PSE data show.

But the PSE is closely watching a potential postponement of share sales, as market volume and performance remain tepid, Monzon said.

The Philippines’ broader index .PSI has fallen 5.9% this year, weighed down by a weak peso and elevated inflation, making it the region’s second-worst performer, following Vietnam.

(Reporting by Neil Jerome Morales; Editing by William Mallard)

Stronger dollar set for weekly loss as traders adjust rate hike bets

NEW YORK, Aug 12 (Reuters) – The dollar rallied on Friday but was set for a weekly drop as traders weighed improving US inflation data against comments from Federal Reserve officials who cautioned the battle against rising prices is far from over.

US import prices declined for the first time in seven months in July on lower costs for both fuel and non-fuel products, data showed on Friday, in the third report this week to hint inflation may have peaked.

Another two key inflation measures, for consumer prices and producer prices, cooled in July, data on Wednesday and Thursday showed, prompting traders to pare back views that the Fed will raise interest rates by 75 basis points for a third consecutive time when it meets in September.

The dollar dropped more than 1% after Wednesday’s consumer price index data, but has reversed some of those losses and is on track for a 0.8% decline for the week.

“While the improvement in inflation dealt the dollar a setback this week, conviction in a less aggressive Fed remains highly fluid, so consequently, it’s been tough to keep the dollar down for meaningful stretches,” said Joe Manimbo, senior market analyst at Convera.

At 10:35 a.m. Eastern time (1435 GMT), the dollar index was up 0.533% at 105.68 =USD.

The greenback’s turnaround followed a steady drumbeat from Fed officials who made clear they would continue to tighten. San Francisco Federal Reserve Bank President Mary Daly said on Thursday she was open to the possibility of another 75 basis point hike in September.

“The Fed is going to be inclined to push back against the notion of a premature policy pivot,” said Manimbo. “That would threaten to unravel all of the hard work they’ve done to bring down inflation.”

Traders were pricing in around a 36.5% chance of a 75 bps Fed rate hike in September and a 63.5% chance of 50 bps.

The dollar was up 0.4% against Japan’s currency, with the greenback at 133.51 yen.

Kit Juckes, head of FX strategy at Societe Generale, said dollar trading was likely to remain “choppy”.

“It’s not going to be going significantly weaker in a straight line because there’s still a danger than the market has to reprice terminal Fed funds higher, given there’s still plenty of inflation,” Juckes said.

The British pound fell 0.745 to USD 1.2124 versus the dollar. Data showed UK GDP contracted by less than forecast in June, even though an extra public holiday had been expected to cause a big drag.

The euro was down 0.54% at USD 1.0262. French inflation was up 6.8% year-on-year in July, while for Spain it was 10.8%, the highest since 1984, data showed. nS8N2Z706I

The euro has been weighed down by Europe’s struggles with the war in Ukraine, the hunt for non-Russian energy sources and a hit to the German economy from scant rainfall.

Commerzbank said in a note it had revised its euro-dollar forecast lower, as it expects a euro-area recession as a base scenario, having previously been a “risk scenario”.

The bank said it expects the euro to fall to USD 0.98 in December and to not recover until later in 2023.

The New Zealand dollar was lifted by expectations of a Reserve Bank of New Zealand rate rise next week.

(Reporting by John McCrank in New York; additional reporting by Elizabeth Howcroft in London; Editing by Mark Potter, David Holmes and Alexander Smith)

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