Dollar backs away from post-data brink but remains at risk

Aug 10 (Reuters) – The dollar index weakened on Thursday after PPI and jobless claims data and remained at risk of further losses even though it survived a test of its post-CPI low at 104.63 by the 23.6% Fibo of the 2021-22 uptrend at 104.55.

Rebounding Treasury yields trimmed the dollar’s losses, but it remained below this year’s uptrend line and pivotal 50-day moving average.

Though longer-term Treasury yields have rebounded amid unwinding of previous curve flattening and inversion flows, perhaps skewed by today’s 30-year Treasury auction, the July CPI and PPI reports lend support to the view U.S. inflation may be peaking, which may diminish expectations for dollar-supportive Fed rate hikes.

The dollar’s enormous 22.5% rally off the pandemic lows to its highest in 20-years left it extremely overbought and it hit a thicket of long-term technical resistance before Wednesday’s first close below this year’s uptrend line and 50-day moving average, last at 105.59, and at risk of a broader retracement.

A close below 104.55, the 23.6% Fibo of 2021-22’s advance, would target supports by the 100-DMA that’s rising toward the 38.2% Fibo of this year’s rise at 103.69, close to the post-June Fed hike lows.

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

Gold inches lower on rate hike expectations by Federal Reserve

Aug 11 (Reuters) – Gold prices edged lower on Thursday, weighed down by prospects of more rate hikes by the US Federal Reserve even as data pointed to signs of inflation peaking.

Spot gold fell 0.1% to USD 1,789.83 per ounce by 1741 GMT. US gold futures settled down 0.4% at USD 1,807.2.

“Gold’s been lingering near the key USD 1,800 level as the market has toned down rate hike expectations, which has also weakened the dollar,” although most Federal Reserve commentary continues to hint at more rate increases, said David Meger, director of metals trading at High Ridge Futures.

“The bulk of the rate hikes are already priced into the gold market and what we’re trading on is the differences in expectations moving forward.”

Investors took stock of data showing US producer prices unexpectedly fell in July amid a drop in the cost for energy products, with underlying producer inflation appearing to be on a downward trend.

“Overall, the sentiment remains positive and the path of least resistance remains to the upside for precious metals for now as investors look forward to the end of aggressive rate hikes,” said Fawad Razaqzada, market analyst at City Index.

Gold, which yields no interest, got a slight fillip on Wednesday as relatively tame July US CPI numbers toned down bets for aggressive rate hikes from the Federal Reserve.

But some of that optimism faded after Fed policymakers noted that they would continue to tighten monetary policy until price pressures were fully broken.

Meanwhile, US weekly jobless claims rose for a second straight week, the Labor Department said on Thursday, indicating some softening in the labor market.

Spot silver XAG= fell 1.2% to USD 20.32 per ounce, platinum rose 1.7% to USD 957.54, while palladium was up 2.3% to USD 2,291.78.

(Reporting by Ashitha Shivaprasad and Arundhati Sarkar in Bengaluru; Editing by Shailesh Kuber and Krishna Chandra Eluri)

US high-yield bond funds draw cash as recession fears ebb

Aug 11 (Reuters) – U.S high-yield bond funds are attracting heavy investments, a turnaround from the selloffs of the first half of this year, as investors bet that the Federal Reserve will limit future interest rate hikes to try to avert an economic slowdown.

Fund managers are also increasing their investments in junk bonds to take advantage of widening yield spreads, as bonds trade at steeper discounts than at the start of the year.

Refinitiv data shows U.S. high-yield bond funds received an inflow of $4.8 billion in July, the first monthly inflow in 2022.

So far in August, U.S. high-yield bond ETFs increased by $2.18 billion, the data showed.

“High-yield bond funds are getting inflows due to enthusiasm that the U.S. economy will avoid a recession or, if it does have one, that it will be mild,” Thomas Samuelson, chief investment officer at Vineyard Global Advisors, said.

“Less severe recessions cause less stress on corporate cash flows and thus fewer defaults of riskier high-yield bonds.”

U.S. high-yield bond funds witnessed a cumulative outflow of $52.25 billion in the first half of this year, as the U.S. central bank raised its interest rates aggressively to tame soaring price pressures.

But a drop in commodity prices in recent weeks has reduced expectations of higher inflation.

The ICE BofA U.S. High Yield Index, a benchmark for the junk bond market, has risen by more than 7% since July, after declining 14% in the first half of this year.

The yield spread between the junk bond index and U.S. Treasuries stood at 452 basis points on Thursday, much higher than 285 basis points at the start of the year.

TOO SOON FOR ‘ALL-CLEAR’ SIGN

Some fund managers said high-yield bonds also helped to diversify portfolios and had provided some safety meaning many firms issuing junk bonds had stronger balance sheets.

CreditSights data found the U.S. high-yield distress ratio, a measure of risk in the bond market, declined to 10.6% in July, from 15.2 in June, suggesting default rates are moderating.

“Structurally, we are seeing high-yield asset allocators being more dynamic on how they are allocating using core/satellite approaches which is common in equity, but was not common in high-yield bonds,” said Manuel Hayes, senior portfolio manager at Insight Investment.

Some investors are still wary.

“We think it’s too soon to plant the ‘all-clear’ sign ..” said Vineyard’s Samuelson.

“We are maintaining our underweight position on high-yield bonds until we see more evidence that the Fed is closer to the end of its tightening cycle and the risk of a recession subsides.”

(Reporting By Patturaja Murugaboopathy; additional reporting by Gaurav Dogra in Bengaluru; Editing by Vidya Ranganathan and Barbara Lewis)

Dollar slides further after US inflation surprise

LONDON, Aug 11 (Reuters) – The dollar lost further ground versus other major currencies on Thursday, after traders reined in bets on an aggressive interest rate hike by the Federal Reserve after softer-than-expected US inflation data the previous day.

The dollar index remained on the back foot in early European trading hours, slipping 0.2% to 105.010, after recording its biggest daily fall in five months, of 1%, the previous day.

Data on Wednesday showed US consumer prices were unchanged in July, month on month, after advancing 1.3% in June.

“Yesterday’s data gave hope that inflation has peaked and the Fed will need to raise rates less sharply to keep inflation under control,” currency analysts at Commerzbank said in a note.

Traders pared bets the Fed would raise rates by 75 basis points for a third straight time at its September policy meeting, and now see a half-point increase as the more likely option.

Fed policymakers sought to temper any expectations of significantly looser policy, with Neal Kashkari telling a conference on Wednesday that the central bank was “far, far away from declaring victory” on inflation.

“While yesterday’s data clearly reduces the risk of further aggressive Fed action (+75bps) and therefore helps curtail US dollar demand, we equally see it as unlikely that this data alone will prompt much further US dollar selling from here,” currency analysts at MUFG said in a note.

The euro and Japanese yen were among the currencies to benefit from the dollar’s weakness and both added to the previous day’s gains.

The euro was last up a quarter of a percent at USD 1.03255.

The yen gained 0.2% to 132.615 yen per dollar.

Sterling was broadly flat versus the dollar at USD 1.22250, after gaining more than 1% the previous day.

(Reporting by Iain Withers; Editing by Toby Chopra)

European shares tick higher; Aegon leads gains among insurers

Aug 11 (Reuters) – European shares edged higher on Thursday after a strong rally in the previous session on signs of US inflation cooling, while Aegon climbed after the Dutch insurer raised its full-year forecast.

The pan-European STOXX 600 index rose 0.1%, after clocking its best session in nearly two weeks on Wednesday on bets that the softer-than-expected inflation reading will encourage the Federal Reserve to become less aggressive on interest rates hikes.

“The markets are riding higher on the fact that the peak has been passed in terms of inflation in the United States,” said Sebastian Paris-Horvitz, head of research at La Banque Postale Asset Management.

Gains were limited by losses in miners, down 0.7% and the top sectoral decliner on weak results from Antofagasta (ANTO). The company’s shares fell 1.3% and dragged peer Rio Tinto (RIO) down 3.8%.

The STOXX 600 is down about 9% so far this year, compared with a more than 11% decline for Wall Street’s S&P 500 index. US equities are heavily dependent on moves in big technology stocks, which fell sharply in the first half of the year on worries over rising interest rates.

“The big decline in global markets in the first quarter was associated with these big growth stocks in the US falling, and therefore Europe, which is less heavy on those, outperformed,” Paris-Horvitz added.

Still, Europe is struggling with the fallout of the war in Ukraine as it looks to source energy from non-Russian sources.

Germany, often referred to as the European Union’s economic engine, is also struggling with scant rainfall. Low water levels on the Rhine, Germany’s commercial artery, have disrupted shipping and pushed freight costs up more than five-fold.

Among other stocks, Aegon (AEGN) jumped to the top of the STOXX 600 with an 8.2% gain after raising forecasts for full-year operating capital generation and 2021-2023 free cash flow.

The European insurance sector index advanced 0.8% in early trading, and was among the top gainers.

Zurich Insurance Group (ZURN) also added 1.7% as it reported a better-than-expected rise in operating profit in the first half.

Siemens (SIEGn) dropped 1.5% after the engineering and technology group said a writedown at Siemens Energy (ENR1n) resulted in its first quarterly loss in nearly 12 years.

Deutsche Telekom DTEGn.DE gained 0.9% as it lifted its annual outlook for the second time and posted quarterly core profit above estimates.

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

Strong will to sell dollars but little supply

Aug 11 (Reuters) – There is a strong will to sell dollars following softer US inflation data with the greenback falling a long way in short period, but because bets on a rise are modest there is a limited supply of dollars to sell before traders must turn short.

This is an issue because conditions that warrant profit taking (long liquidation) do not support establishing short positions which would require a more dramatic bigger change in either techs or fundamentals which continue to support dollar’s long-term appreciation.

On Aug. 2 traders were long 17.27 billion dollars with roughly 4 billion bet against JPY, EUR, GBP and AUD. A big bet for EUR/USD would mean at least 20 billion dollars or 15 billion for USD/JPY.

GBP and AUD bets are larger compared to prior extremes and given the boost for risk appetite evidenced by stocks after CPI, a bigger unwind of AUD shorts and outperformance for Australia’s currency is possible.

The net bet on USD rising at 17 billion is less than one third of longs established during Fed’s last tightening cycle in 2015, it’s quite small.

Bets against Asia currencies were significantly reduced before yesterday’s data.

(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)

Relief across stocks, currencies as aggressive Fed hike bets cool

Aug 11 (Reuters) – Emerging market stocks hit six-week highs on Thursday after softer-than-expected US inflation growth saw markets scale back bets about the Federal Reserve’s aggressive pace of tightening.

Currencies of the developing world also found some support, with an MSCI index extending gains to a third straight session.

Denting the dollar, data on Wednesday showed US consumer prices were unchanged in July due to a sharp drop in the cost of gasoline. Markets now expect the Fed to hike by a smaller magnitude after two 75 basis point hikes.

“When Fed Funds eventually peaks, it should provide some relief for EM countries via less upward pressure on the USD — especially with the USD overvalued,” said Mike Gallagher, director of research at Continuum Economics.

“However, global commodity prices and the domestic inflation fight are the key issues for large EM policy. With more labor market slack than the US, large EM (central banks) can navigate a more gradual course of interest rate hikes.”

Several emerging market central banks had embarked on aggressive tightening cycles aimed at taming surging inflation in a post-pandemic world struggling with the fallout of the Russian-Ukraine war. The Fed’s interest rate hiking cycle added to woes as monetary authorities tried to keep their currencies attractive for carry trade.

China’s yuan, however, eased from four-week highs on Thursday, slipping 0.2% as fresh lockdowns due to rising COVID-19 infections added to worries about the sustainability of a recovery in the world’s second-largest economy.

But Chinese blue-chips and Hong Kong stocks jumped 2%, leading gains across the emerging market universe on Thursday.

Elsewhere, South Africa’s rand fell 0.3%, to around 16.21 to the dollar, after surging 2.7% in the risk-on rally on Wednesday.

Gains in the rand will prove short-lived until it trades back below the 16.20 per dollar level, said Shaun Murison, senior market analyst with IG.

For Hungary and the Czech Republic, the resumption of Russian oil pipeline flows after a six-day halt further bolstered sentiment. Hungary’s forint rose 0.4%, while the Czech crown firmed 0.3%.

In war-ravaged Ukraine’s debt market, overseas creditors have backed Kyiv’s request for a two-year freeze on payments on almost USD 20 billion in international bonds, a regulatory filing showed on Wednesday, a move that will avoid a messy default.

Turkeys lira fell 0.4%, inching closer to all-time lows. Turkey’s central bank said on Thursday the country’s current account deficit in June narrowed to USD 3.458 billion, slightly more than expected.

(Reporting by Susan Mathew in Bengaluru; Editing by Kim Coghill)

Fed doesn’t see enough swallows for summer

Fed policymakers surged out of the traps last night, telling markets not to get too excited by the cooler-than-expected inflation reading, but to little avail.

The Nasdaq closed up 20% from its June low, the dollar tumbled after the data, and even bitcoin – remember that? – is back above USD 24,000 and testing a two-month high.

The Fed is “far, far away from de claring victory” on inflation, said Minneapolis Federal Reserve Bank President Neel Kashkari, despite noting the “welcome” news in the CPI report.

Inflation was flat in July, month on month, after advancing 1.3% in June, though was still up 8.5% compared to a year ago.

Chicago Fed President Charles Evans joined in the chorus, saying inflation was still “unacceptably” high.

Nonetheless, Asian shares kept the rally going – MSCI’s broadest index of Asia Pacific shares outside Japan was up 1.3% to a six week high – and European futures are also pointing to a higher open,

Whether Europe will end up in the same goldilocks scenario as across the Pacific remains to be seen. British GDP data on Friday seems unlikely to offer as positive a lead into next week’s inflation data, as last week’s US jobs data did for the US numbers.

Major European earnings on Thursday’s agenda come with a German accent, with Zurich Insurance, Deutsche Telekom, Siemens all due, followed by U.S listed Chinese tech giant Baidu later in the day.

(Reporting by Alun John; Editing by Vidya Ranganathan)

Oil edges lower as supply disruption concerns ease

SINGAPORE, Aug 11 (Reuters) – Oil prices slipped in Asia on Thursday after gaining more than USD 1 in the previous session, as concerns over supply disruptions eased and markets looked for evidence of improving fuel demand.

Brent crude futures dipped 18 cents, or 0.2%, to USD 97.22 a barrel by 0419 GMT, while US West Texas Intermediate crude futures fell 22 cents, or 0.2%, to USD 91.71.

Oil is struggling to find direction, suggesting investors have not reached consensus on the outlook for supply and demand, analysts from Haitong Futures said.

US crude oil stocks rose by 5.5 million barrels in the most recent week, the US Energy Information Administration said, more than the expected increase of 73,000 barrels.

Gasoline product supplied rose in the most recent week to 9.1 million barrels per day, though that figure still shows demand down 6% over the past four weeks compared with the year-ago period.

The premium for front-month WTI futures over barrels loading in six months’ time was pegged at USD 4.38 a barrel on Thursday, the lowest in four months, indicating easing tightness in prompt supplies.

The resumption of flows on the Russia-to-Europe Druzhba pipeline further calmed market worries over global supplies.

Russian state oil pipeline monopoly Transneft restarted oil flows via the southern leg of the Druzhba oil pipeline. Ukraine had suspended Russian oil pipeline flows to parts of central Europe since early this month because Western sanctions prevented it from receiving transit fees from Moscow, Transneft said on Tuesday.

Meanwhile, physical oil prices around the world have begun to sag alongside futures, reflecting easing concerns over Russian-led supply disruptions and heightened worries about a possible global economic slowdown.

Monthly oil reports from the International Energy Agency (IEA) and the Organization of the Petroleum Exporting Countries (OPEC) are expected later on Thursday.

(Editing by Michael Perry and Jacqueline Wong)

Gold slips as Fed officials hint at more rate hikes

Aug 11 (Reuters) – Gold prices fell on Thursday, as the US dollar and Treasury yields rebounded after comments by Federal Reserve officials pointed towards further interest rate hikes, despite signs of slowing inflation in the world’s largest economy.

Spot gold was down 0.3% at USD 1,786.17 per ounce, as of 0422 GMT, after hitting its highest since July 5 at USD 1,807.79 on Wednesday.

US gold futures dipped 0.6% to USD 1,802.10.

“Following US inflation numbers, the dollar sold off very sharply and yields also dropped, but by the end of the day, the bond yields came back up and the dollar is slightly stronger now, which is hurting gold,” said Edward Meir, an analyst with ED&F Man Capital Markets.

“Also, Fed officials said they still need to raise rates, which are bearish for gold. We could see a pullback in gold prices in the short-term towards USD 1,780.”

The dollar regained some footing to trade up 0.2% at 105.420, after falling to its lowest since June 29 at 104.630 on Wednesday. Benchmark US 10-year Treasury yields also rebounded to 2.7910%.

Data showed US consumer prices did not rise in July due to a sharp drop in the cost of gasoline, lifting hopes that the Fed would be less aggressive on its tightening plans going forward.

However, Fed policymakers noted that they would continue to tighten monetary policy until price pressures were fully broken.

Gold is highly sensitive to rising US interest rates, as these increase the opportunity cost of holding non-yielding bullion.

On the technical front, spot gold may test a support zone of USD 1,767-USD 1,773 per ounce, a break below which could open the way towards USD 1,756, according to Reuters technical analyst Wang Tao.

Elsewhere, spot silver fell 0.5% to USD 20.46 per ounce, platinum rose 0.3% to USD 944.27, and palladium gained 0.2% to USD 2,244.35.

(Reporting by Brijesh Patel in Bengaluru; Editing by Rashmi Aich, Sherry Jacob-Phillips and Subhranshu Sahu)

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