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)

US bond funds gain biggest weekly inflow in 11-months

Aug 5 (Reuters) – US bond funds recorded their biggest weekly purchase in eleven months in the week to Aug. 3 on expectations that slowing growth would prompt the Federal Reserve to slow down the pace of its rate hikes to aid the economy.

According to Refinitiv Lipper data, US bond funds obtained a net USD 9.37 billion in purchases, the biggest weekly inflow since Sept. 1.

The US gross domestic product fell at a 0.9% annualized rate in the second quarter, while the growth in US factory activity weakened to a two-year low in July, data released during the reported week showed, casting worries about the economy.

Due to those concerns, the 10-year benchmark yield hit a four-month low of 2.516% earlier this week.

US government and municipal bond funds obtained USD 2.83 billion in inflows after a weekly outflow, while high yield and general domestic taxable fixed income funds received a net USD 3.7 billion and USD 2.61 billion, respectively.

US equity funds recorded outflows of USD 6.84 billion, which compares with purchases of USD 688 million in the previous week.

Investors sold US large- and mid-cap funds of USD 8.95 billion and USD 152 million, respectively, but small-cap funds gained USD 1.17 billion in inflows.

Both equity growth and value funds witnessed disposals of about USD 1.7 billion each.

US sector specific funds, however, witnessed some purchases with consumer discretionary and financials attracting USD 790 million and USD 541 million, respectively.

Meanwhile, investors withdrew USD 9.4 billion out of money market funds after four straight weeks of net purchases.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Shailesh Kuber)

Stocks seen ending higher for third straight week

Aug 5 (Reuters) – Emerging market stocks rallied on Friday, looking to end a third straight week higher, while Romania was seen capping off a busy central bank week with a 1 percentage point hike in interest rates.

MSCI’s index of emerging market stocks hit a one-month high, and was last up 0.9% with the gains largely broad-based.

Focus now turns to US non-farm payrolls data for July as the US Federal Reserve tries to cool labour demand to tame inflation. The number is seen rising to a lesser extent than last month.

Taiwan shares closed up 2.3%, while Chinese blue-chips added 1.4%. With the exception of Turkish and Russian stocks, most other bourses in emerging Europe, Middle East and Africa gained.

In a week marred by geopolitical worries over Taiwan, and downbeat PMIs fueling growth worries, Beijing’s promise of more support to the local market and economy, as well US data that allayed some fears of the world’s biggest economy slipping into recession, helped assets of the developing world.

Stocks were seen ending the week up about 1%, while currencies up 0.1%.

“We expect emerging market stocks to deliver mid-single-digit positive total returns this year… given attractive valuations, still-constructive earnings growth prospects, and easing macroeconomic policy in China,” Alejo Czerwonko, CIO emerging markets Americas at UBS Global Wealth Management, said in a note.

Ahead of a decision by Romania’s central bank later in the day, the leu was flat.

Five out of seven analysts polled by Reuters expect policymakers to raise Romania’s benchmark interest rate by one percentage point again to 5.75%. This would be the bank’s eighth consecutive monthly hike since October.

This comes after the Reserve Bank of India raised its key rate by 50 basis points to 5.40%, the third increase in the current cycle. The rupee was flat.

“We expect the RBI to follow up with more moderate tightening ahead,” said Mitul Kotecha, head of EM strategy at TD Securities, expecting the next hike in September. “We maintain our terminal rate expectation of 6.0% by Q1 2023.”

Most emerging market central banks, bogged by stubbornly high inflation and the Fed on a tightening path, have embarked upon tightening cycles.

On Thursday, the Czech rate was kept steady at 7%. Some analysts suggest that another rate hike in September may be needed to assuage investors. Late on Wednesday, Brazil’s central bank signalled a ‘residual’ smaller hike at its next meeting after raising by 1,225 bps since March last year.

(Reporting by Susan Mathew in Bengaluru; Editing by Shailesh Kuber)

European shares fall as energy stocks weigh; focus on US jobs data

Aug 5 (Reuters) – European shares edged lower on Friday as crude prices continued to weigh on energy stocks, with all eyes on US jobs data expected later in the day.

The pan-European index STOXX 600 was down 0.1% amid worries that the US Federal Reserve’s aggressive pace of rate hikes would slow economic growth in the world’s largest economy.

The oil and gas sector fell 1% as crude prices languished near their lowest since the start of the conflict in Ukraine, with markets juggling concerns of supply shortage and slower demand.

Company results were mixed on Friday, with Deutsche Post DPWGn.DE up 6.4% on posting double-digit growth in revenue and earnings.

London Stock Exchange Group (LSEG) gained 2.6% on saying costs and savings targets for integrating its USD 27 billion acquisition of data company Refinitiv remain unchanged and it was launching a 750 million pound (USD 910.65 million) share buy-back.

German insurer Allianz (ALVG) fell 2.1% on reporting a worse-than-expected 23% fall in second-quarter net profit.

“It is quite understandable that investors, especially institutional, are rethinking their portfolios and fundamentals are likely to drive investment decisions over the near-to-medium term,” Kunal Sawhney, chief executive officer at Kalkine Group, said.

Credit Suisse (CSGN) fell 1.1% in early trading after Fitch Ratings downgraded the bank and a local media report said it was among the lenders at big risk from Mexican finance company Credito Real’s bankruptcy.

The embattled Swiss bank’s shares are down 41% so far this year, compared with a 15.5% decline in the European banking index.

(Reporting by Bansari Mayur Kamdar in Bengaluru; Editing by Shounak Dasgupta)

Dollar edges higher ahead of US jobs data

LONDON, Aug 5 (Reuters) – The US dollar edged higher on Friday, attempting to recoup some losses after its sharpest daily drop in more than two weeks, as traders turned their attention to US jobs data for further clues about the strength of the economy.

The US dollar index, which measures the greenback against a basket of currencies, was up 0.21% to 105.92, after sliding 0.68% on Thursday, the largest fall since July 19. It remains around 3% below its mid-July high.

Investors await the key US nonfarm payrolls report due at 1230 GMT, which will provide hints of how the US economy is faring. Economists expect an increase of 250,000 jobs for the month of July, after 372,000 were added in June.

However, signs of softening in the labour market could already be underway, as data on Thursday showed that the number of Americans filing new claims for unemployment benefits increased last week.

“A far stronger than expected jobs report together with a considerable upside surprise in the average hourly earnings data in particular could see the USD broadly stronger,” said John Hardy, head of FX strategy at Saxo Bank.

The euro was down 0.17% against the greenback to USD 1.02285, within in its relatively narrow range of USD 1.01-USD 1.03 that its been trading in since July 19, as concerns about an European energy crisis are offset by fears of a slowing US economy.

A stand-off over the return of a turbine that Russia says is holding back gas supplies to Europe showed no sign of being resolved on Thursday, as Moscow said it needed documentation to confirm the equipment was not subject to sanctions.

Meanwhile, sterling was little changed at USD 1.2156, a day after the Bank of England (BoE) raised rates by the most in 27 years to fight surging inflation, but warned a long recession was coming, beginning in the fourth quarter of this year.

“Ultimately, that’s one of the most dovish 50 basis point hikes I’ve seen,” said Justin McQueen, FX strategist at DailyFX.

“The BoE said we’re going to have a recession for five quarters, it highlights the bleak outlook for the UK economy and the pound.”

Elsewhere, the US dollar rose 0.24% against the Japanese yen to 133.27 per dollar, after tumbling 0.69% on Thursday.

The risk-sensitive Aussie and kiwi remained little changed at USD 0.69605 and USD 0.6299, respectively.

In cryptocurrencies, bitcoin was up 2.9% to USD 23,272.80.

(Reporting by Samuel Indyk in London and Rae Wee in Singapore, editing by Ros Russell)

Philippine central bank ready to act as inflation seen below 4% in 2023

MANILA, Aug 5 (Reuters) – The governor of the Philippine central bank on Friday reiterated its readiness to act to combat inflation, which it said could fall below 4% next year.

At a business forum, Felipe Medalla said there was a chance for inflation to return within the central bank’s 2-4% target next year despite data showing the consumer price index rose to a near four-year high in July.

(Reporting by Neil Jerome Morales and Karen Lema; Editing by Martin Petty)

Oil prices rise from multi-month lows on supply concerns

LONDON, Aug 5 (Reuters) – Oil prices rose slightly on Friday, bouncing off their lowest levels since February, as concern over supply shortages was countered by expected declines in fuel demand.

Brent crude rose 39 cents, or 0.4%, to USD 94.51 a barrel by 0900 GMT. US West Texas Intermediate crude was up 27 cents, or 0.3%, at USD 88.81.

Prices have come under pressure this week as the market has fretted over the impact of inflation on economic growth and demand, but signs of tight supply kept a floor under prices.

The OPEC+ producer group agreed this week to raise its oil output goal by 100,000 barrels per day (bpd) in September, but this was one of the smallest increases since such quotas were introduced in 1982, OPEC data shows.

“OPEC’s meagre supply hike highlights the limited capacity the market has to handle further shortages,” ANZ Research analysts said.

The global crude oil markets remained firmly in backwardation, where prompt prices are higher than those in future months, indicating relatively tight supplies.

Supply concerns are expected to ratchet up closer to winter, with European Union sanctions banning seaborne imports of Russian crude and oil products set to take effect on Dec. 5.

“With the EU halting seaborne Russian imports, there is a key question of whether Middle Eastern producers will reroute their barrels to Europe to backfill the void,” said RBC analyst Michael Tran.

“How this Russian oil sanctions policy shakes out will be one of the most consequential matters to watch for the remainder of the year.”

For now, signs of an economic slowdown capped price recovery. Recession worries have intensified since the Bank of England’s warning of a drawn-out downturn after it raised interest rates by the most since 1995.

“If commodities are not pricing in an imminent economic recession, they might be preparing for a ‘stagflation’ era when the unemployment rate starts picking up and inflation stays high,” said CMC Markets analyst Tina Teng.

(Reporting by Noah Browning; Editing by David Goodman)

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