US SEC proposes clearing reforms to boost Treasury market

WASHINGTON, Sept 14 (Reuters) – The US Securities and Exchange Commission (SEC) on Wednesday proposed draft rules to boost the use of central clearing in the USD 24 trillion Treasury market in a bid to boost its resilience.

The proposals, which would apply to cash Treasury and repurchase agreements traded by a range of firms including broker dealers and hedge funds, follow liquidity crunches in recent years which have raised regulatory concerns about the Treasury market’s ability to function during times of stress.

Most notably, Treasury market liquidity all but evaporated in March 2020 as COVID-19 pandemic fears gripped investors, prompting the Federal Reserve to prop up the market. Traders say they continue to see liquidity problems with some securities, Reuters reported last month.

The SEC and other US regulators have been exploring reforms to boost the market’s resilience. If finalized, the SEC’s reforms would mark the most significant changes to the Treasury market, the world’s largest bond market which is used to benchmark assets globally, in decades.

The proposal stops short, however, of imposing a general clearing mandate. Instead, it imposes new rules on clearing houses that would require their members – typically big banks and trading firms – to push their clients’ trades, such as those of other dealers, hedge funds and principal trading firms through the clearing house.

Principal trading firms and hedge funds have accounted for an increasing proportion of trading in the Treasury market over the past decade, but do not typically clear their trades.

Central clearers sit in the middle of the market as the buyer to every seller and the seller to every buyer. Central clearers net positions across the market and then require counterparties to put up margin, such as cash or stocks, to guarantee the trade’s execution in the event either defaults.

The proposal would also change the rules around how clearing house members treat their clients’ margin, requiring them to pass on margin they gather from clients to the clearing house.

SEC Chair Gary Gensler has advocated expanding central clearing on the basis it increases resilience by bringing additional capital into the market during times of stress.

“These rules would reduce risk across a vital part of our capital markets, both in normal and stress times,” Gensler said in a statement during an SEC open meeting to vote on the rule on Wednesday.

Overall, just 13% of Treasury cash transactions are centrally cleared, while 68% are cleared bilaterally, firm-to-firm, according to estimates in a 2021 Treasury Department report.

In a statement, Bryan Corbett, CEO of the Managed Funds Association which represents hedge funds, said the group supported measures to boost market integrity, but was concerned about “arbitrarily singling out hedge funds” for clearing “which could impact market competition and lead to increased costs borne by institutional investors.”

While the changes would apply to any clearing house that clears Treasuries, they effectively target the Depository Trust and Clearing Corporation (DTCC) whose Fixed Income Clearing Corp. subsidiary is currently the chief clearer of Treasuries.

“While the risk mitigation and transparency benefits of central clearing are well documented, we recognize the impact the proposal will have on a market structure where bilateral activity has been the ongoing practice for various market participants,” a DTCC spokesman said in a statement.

All five of the SEC’s commissioners voted to propose the rule change, which is now subject to industry feedback.

The SEC is also working on rules to boost the resilience of platforms where Treasuries are traded and to ensure proprietary trading firms are registered as dealers and subject to capital requirements and other checks. But the clearing rules changes are the “core resiliency piece” Gensler told reporters on Wednesday.

(Reporting by Michelle Price; Editing by Jonathan Oatis, Andrea Ricci and Diane Craft)

Gold dips below $1,700/oz as rate hike bets cloud outlook

Sept 14 (Reuters) – Gold prices slipped below the key USD 1,700 per ounce level on Wednesday, as expectations for steep rate hikes from the US Federal Reserve took some sheen off the non-yielding precious metal.

Spot gold fell 0.3% to USD 1,696.83 per ounce by 2:36 p.m. ET (1836 GMT), after marking its biggest one-day percentage decline since July 14 on Tuesday, driven by the dollar’s rally following a surprise rise in US inflation.

US gold futures settled 0.5% lower at USD 1,709.10.

“We saw today some follow through technical selling pressure after yesterday’s stronger losses,” said Jim Wyckoff, senior analyst at Kitco Metals.

Markets are now pricing in a rate hike of at least 75 basis points by the Fed at its Sept. 20-21 policy meeting, following an unexpected rise of 0.1% in the US consumer price index for August.

“Tighter monetary policies are going to slow global economic growth, which in turn is gonna reduce producer and consumer demand for the (precious) metals,” Wyckoff added.

Gold is considered a hedge against inflation, but higher rates to tame rising prices dim appetite for the asset since it bears no interest.

Meanwhile, the dollar fell 0.2%, making greenback-priced bullion less expensive for overseas buyers.

“Gold could be vulnerable to a tumble towards USD 1,650 and possibly much lower if the Fed signals more aggressive rate hikes remain on the table,” Edward Moya, senior analyst with OANDA, said in a note.

Spot silver rose 1.2% to USD 19.56 per ounce, platinum gained 3% to USD 904.45, and palladium added 2.7% to USD 2,160.62.

“The PGMs (platinum group metals) are likely to bounce back in the coming months as auto production recovers but we remain cautious given the risk of recession that is likely to cap the upside,” Standard Chartered said in a note dated Tuesday.

(Reporting by Kavya Guduru in Bengaluru; Editing by Krishna Chandra Eluri, Vinay Dwivedi and Maju Samuel)

Oil rises 1% on supply concerns, expectations for fuel switching

NEW YORK, Sept 14 (Reuters) – Oil edged up 1% on Wednesday as an international energy watchdog expects an increase in gas-to-oil switching due to high prices this winter, even though the outlook for demand remains gloomy.

Brent crude futures settled up 93 cents, or 1%, at USD 94.10 a barrel, while US West Texas Intermediate crude ended USD 1.17, or 1.3%, higher at USD 88.48.

The International Energy Agency (IEA) expects the deepening economic slowdown and a faltering Chinese economy to cause global oil demand to grind to a halt in the fourth quarter of the year. That has kept prices under pressured of late, and may inhibit further rallies.

“I think we’re going to stay in a range,” said Eli Tesfaye, senior market strategist at RJO Futures in Chicago. “I don’t think USD 70 per barrel is in the cards, but anything over USD 100 is not justified.”

The IEA also said it expects widespread switching from gas to oil for heating purposes, saying it will average 700,000 barrels per day (bpd) in October 2022 to March 2023 – double the level of a year ago. That, along with overall expectations for weak supply growth, helped boost the market.

Global observed inventories fell by 25.6 million barrels in July, the IEA said.

In the United States, however, crude inventories rose last week for a second week in a row, once again boosted by the ongoing releases from the Strategic Petroleum Reserve (SPR), latest government data showed. Commercial stocks rose by 2.4 million barrels as 8.4 million barrels were released from the SPR, part of a program scheduled to end next month.

“The crude number suggests that once we wind down the clock on the Strategic Petroleum Reserve release, we’re going to see substantial drawdowns in inventories so that’s keeping oil high,” said Phil Flynn, an analyst at Price Futures Group in Chicago.

Traders also said the lack of certainty around a possible US rail stoppage due to an ongoing labor dispute is adding a bit of support to the market. Three unions are negotiating for a new contract that could affect rail shipments, which are important for crude and product deliveries.

The Organization of the Petroleum Exporting Countries (OPEC) on Tuesday said global oil demand in 2022 and 2023 will come in stronger than expected, citing signs that major economies are faring better than expected despite challenges such as surging inflation.

(Reporting by David Gaffen; Additional reporting by Stephanie Kelly and Rowena Edwards; Editing by Marguerita Choy and David Gregorio)

Japan signals chance of yen intervention; market unconvinced

TOKYO, Sept 14 (Reuters) – The Bank of Japan conducted a rate check with banks on Wednesday in apparent preparation to step in to tame sharp yen falls, providing what analysts said would only be a brief respite for the currency, given the low chance of actual yen-buying intervention.

The yen rose by more than 1% on news of the rate check, reported earlier by local media and confirmed by Reuters, in a sign of rising market nerves amid the currency’s recent sharp declines. At 1036 GMT, the currency stood at 143.07 per dollar, well above a 24-year low near 145 per dollar hit last week.

Finance Minister Shunichi Suzuki said authorities would make no advance announcement of plans to intervene, and usually would not confirm they had stepped into the market after doing so.

“Yen moves have been quite rapid over the past few days,” Suzuki told reporters. “If we were to step in, we will do so swiftly without any interruption.”

News of the rate check underscores growing concern among policymakers over the yen’s sharp pace of fall, which not only hurts consumption by inflating the cost of imported raw material but heightens uncertainty for firms in making business decisions.

But analysts said the move would give only brief support for the currency, as Tokyo would likely struggle to gain consent from G7 counterparts to actually conduct yen-buying intervention.

“Never say never. They have been stepping up the rhetoric lately. But I would be cautious about the inevitability of their intervening. Japan is a signatory to the G20 and they have got policies about not intervening,” said Rob Carnell, head of ING’s Asia-Pacific research.

The yen has depreciated nearly 30% this year, as the Bank of Japan (BOJ) has kept policy super-loose while many of its global peers, such as the US Federal Reserve, have aggressively raised interest rates to combat surging inflation.

Data issued on Tuesday showing unexpectedly strong US inflation for August prompted bets the Fed would keep hiking rates for longer, adding downward pressure on the yen.

A rate check by the BOJ, a practice in which central bank officials call up dealers and ask for the price of buying or selling yen, is seen in markets as a possible precursor to action.

The BOJ acts as an agent of the Ministry of Finance (MOF), which has jurisdiction over currency policy and decides whether and when to intervene in the market.

While many traders remained doubtful that intervention was imminent, the timing of the rate check suggests that 145 per dollar will be an important level for markets.

“My feeling is that the MOF won’t intervene at this stage and will leave it at verbal warnings,” said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo.

“There’s still a week before the Fed’s rate-setting meeting. I don’t think markets believe the ministry will intervene at current dollar/yen levels.”

With finance minister Suzuki saying the government will “coordinate closely with the BOJ,” market attention is turning to what the bank could decide at its Sept. 21-22 policy meeting, which will follow the Fed’s rate-setting meeting on Sept. 20-21.

Sources familiar with its thinking have told Reuters earlier the BOJ has no intention of raising interest rates or tweaking its dovish policy guidance to prop up the yen.

While the BOJ is widely expected to keep interest rates ultra-low, it may issue a warning against the yen’s sharp move after its meeting, either in its regular policy statement or in Governor Haruhiko Kuroda’s briefing, analysts say.

Once welcomed for giving exports a boost, the yen’s weakness is becoming a cause for headaches for Japanese policymakers, because it hurts households and retailers by inflating the already rising prices of imported fuel and food.

(Reporting by Kantaro Komiya, Leika Kihara and Tetsushi Kajimoto; Additional reporting by Daniel Leussink; Writing by Kim Coghill; Editing by Neil Fullick and Bradley Perrett)

Wall Street tumbles to biggest loss in two years following CPI data

NEW YORK, Sept 13 (Reuters) – A broad sell-off sent US stocks reeling on Tuesday after a hotter-than-expected inflation report dashed hopes that the Federal Reserve could relent and scale back its policy tightening in the coming months.

All three major US stock indexes veered sharply lower, snapping four-day winning streaks and notching their biggest one-day percentage drops since June 2020 during the throes of the COVID-19 pandemic.

Surging risk-off sentiment pulled every major sector deep into negative territory, with interest-rate-sensitive tech and tech-adjacent market leaders, led by Apple Inc. (AAPL), Microsoft Corp. (MSFT) and Amazon.com Inc. (AMZN) weighing heaviest.

“(The sell-off) is not a surprise given the rally running up to the data,” said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago.

The Labor Department’s consumer price index (CPI) came in above consensus, interrupting a cooling trend and throwing cold water on hopes that the Federal Reserve could relent after September and ease up on its interest rate hikes.

Core CPI, which strips out volatile food and energy prices, increased more than expected, rising to 6.3% from 5.9% in July.

The report points to “very persistent inflation and that means the Fed is going to remain engaged and raise rates,” Nolte added. “And that’s an anathema to equities.”

Financial markets have fully priced in an interest rate hike of at least 75 basis points at the conclusion of the FOMC’s policy meeting next week, with a 32% probability of a super-sized, full-percentage-point increase to the Fed funds target rate, according to CME’s FedWatch tool.

“The Fed has increased (interest rates) by three full percentage points in the last six months,” Nolte said. “We have not yet felt the full impact of all those increases. But we will feel it.”

“We are at recession’s doorstep.”

Worries persist that a prolonged period of policy tightening from the Fed could tip the economy over the brink of recession.

The inversion of yields on two- and 10-year Treasury notes, regarded as a red flag of impending recession, widened further.

The Dow Jones Industrial Average fell 1,276.37 points, or 3.94%, to 31,104.97, the S&P 500 lost 177.72 points, or 4.32%, to 3,932.69 and the Nasdaq Composite dropped 632.84 points, or 5.16%, to 11,633.57.

All 11 major sectors of the S&P 500 ended the session deep in red territory.

Communications services, consumer discretionary and tech shares all plummeted more than 5%, while the tech subset semiconductor sector sank 6.2%.

Declining issues outnumbered advancing ones on the NYSE by a 7.76-to-1 ratio; on Nasdaq, a 3.64-to-1 ratio favored decliners.

The S&P 500 posted 1 new 52-week high and 16 new lows; the Nasdaq Composite recorded 29 new highs and 163 new lows.

Volume on US exchanges was 11.58 billion shares, compared with the 10.33 billion average over the last 20 trading days.

(Reporting by Stephen Culp in New York; Additional reporting by Devik Jain, Ankika Biswas in Bengaluru and Sinead Carew in New York; Editing by Matthew Lewis)

US recap: US inflation surprise resuscitates dollar dominance

Sept 13 (Reuters) – The dollar index soared on Tuesday, coming back from initial losses after a highly anticipated US CPI report showed more inflation than markets expected.

Core CPI rose to 6.3% year-on-year, above the Reuters consensus forecast of 6.1% and headline inflation slipped to 8.3%, versus expectations for 8.1%, lifting the dollar index from losses of 0.4% prior to the data to gains of 1.37% before the US close.

Traders had been reducing long dollar positions ahead of the report, expecting that the recent slide in oil would tamp down inflation.

Instead, shorts scrambled to cover positions after the report ratcheted Fed rate expectations higher, with futures markets now pricing in a terminal fed funds rate around 4.34% by April 2023.

EUR/USD opened NorAm at 1.1079 and fell nearly two big figures after the CPI print as markets bet with increasing conviction that the Fed could deliver an exceptionally aggressive 100bp hike on Sept. 21 meeting, overshadowing recent hawkish ECB rate expectations.

USD JPY gained 2% from its pre-CPI low of 141.61, trading at 144.45 in late-US dealings. With the BoJ sticking to its accommodative monetary policy, diverging rates are having a deleterious affect on the yen.

Though Japanese officials have warned about the pace of currency weakness, yen buyers are likely to be overrun as traders take out 2022 highs by 145 on the way to more significant big-figure resistance by 150, if US data continue to point to a more hawkish Fed rate path.

GBP/USD has its own date with inflation data on Wednesday. UK CPI is expected to have risen to 10.2% from 10.1% the previous month.

Sterling bulls had lifted the pound, hoping a rise in UK inflation coupled with falling US price growth might boost GBP/USD further.

Instead, cable cratered following the US report, giving sterling bears the impetus to test 2022 lows by 1.1407. A larger-than-expected rise in UK inflation may weigh further on the pound given the BoE’s reluctance so far to match supersized Fed hikes for fear of deepening UK recession risks.

Risk markets fell hard, with equities plummeting around 3%. The higher Fed rate path saw the US 2s-10s inversion move to -32bps.

Gold fell 1.17% to 1,704, with higher rates a weight on the return-less asset. Cryptos also came under intense pressure as risk was broadly retreated.

Bitcoin fell 7.4% to USD 20.7k, ETH dropped 6.1% to USD 1,615.

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

Gold dips as dollar gains on sharp rate-hike bets after US CPI data

Sept 13 (Reuters) – Gold prices fell more than 1% as the dollar jumped after an unexpected rise in August consumer prices cemented bets for aggressive rate hikes from the US Federal Reserve.

Spot gold prices fell 1.2% to USD 1,703.80 per ounce by 1:45 p.m. ET (1745 GMT).

US gold futures settled 1.3% lower at USD 1,717.40.

“Gold has gapped lower on higher-than-expected CPI, with 75 basis points now definitely confirmed. The USD is surging and may continue to pressure gold,” said Tai Wong, a senior trader at Heraeus Precious Metals in New York.

“Gold is likely to hold the USD 1,690-1700 range in the short term with the USD unlikely to make new highs unless there’s a very hawkish Fed result next week. It’s likely though they will wait and see as the meeting after that is in November,” Wong said.

Monthly U.S consumer prices unexpectedly rose in August as declining gasoline prices were offset by gains in the costs of rent and food.

The dollar index rose 1.3%, making gold more expensive for overseas buyers.

“The headwinds that (are) coming now from dollar strength and yields will create some short challenges once again,” said Ole Hansen, head of commodity strategy at Saxo Bank.

Markets now see an 81% chance of a 75-basis-point rate hike by the Fed at its Sept. 20-21 meeting.

Although gold is considered a hedge against inflation, rising US rates increase the opportunity cost of holding bullion.

Spot silver fell 1.4% to USD 19.51 per ounce, having recorded its biggest one-day percentage gain since February 2021 on Monday.

“Following a ferocious short squeeze in silver, with 54% of silver’s demand tied to fabrication, silver also remains highly sensitive to our deteriorating gauge of commodity demand,” TD Securities said in a note.

Spot platinum fell 2.1% to USD 887.94, while palladium dropped 6.4% to USD 2,120.16.

(Reporting by Kavya Guduru and Arundhati Sarkar in Bengaluru; Editing by Mark Porter, Vinay Dwivedi and Maju Samuel)

European markets slide after US inflation data

LONDON, Sept 13 (Reuters) – European shares and the euro slid on Tuesday, and European bond yields jumped, after data showed monthly U.S consumer prices unexpectedly rose in August.

The consumer price index gained 0.1% last month after being unchanged in July, the Labor Department said on Tuesday. Economists polled by Reuters had forecast the CPI dipping 0.1%.

European stocks turned sharply lower, pushing the pan-regional STOXX 600 equity benchmark into negative territory. The index was down 0.3% by 1246 GMT, having risen as much as 0.6% before the data.

The dollar index, which tracks the greenback against six peers, rallied 0.7% to 109.0, heading back towards last week’s two-decade peak of 110.79, as the euro, pound GBP=D3 and yen all declined.

German borrowing costs extended their rise with the 10-year Bund yield up 6 bps to 1.7%.

(Reporting by London Markets Team; Editing by Tommy Reggiori Wilkes)

Asian stocks extend winning run on optimism inflation peaking

SINGAPORE, Sept 13 (Reuters) – Asian stocks advanced on Tuesday and the dollar steadied below a recent peak ahead of US inflation data that some strategists said could offer another signal that inflation has peaked.

S&P 500 futures and Nasdaq futures held firm, while European stock futures dipped, setting the stage for a subdued start for European markets.

MSCI’s broadest index of Asia-Pacific shares ex-Japan rose 0.8%, led by a 2.6% jump for South Korea’s KOSPI and Japan’s Nikkei put on 0.2%.

The MSCI gauge has risen for four days in a row, bouncing back from two-year lows.

Analysts, however, warned that US core inflation is likely to march on and that the near-term rate implications are unclear.

“It’s too early to be celebrating the end of inflation, as some market participants seem already to be doing,” said ING economist Rob Carnell.

US crude is hovering below USD 90 a barrel, down nearly 30% since the middle of June and roughly where it traded before Russia’s invasion of Ukraine.

Interest rate futures imply a 90% chance that the Federal Reserve lifts its benchmark interest rate by 75 basis points at next week’s policy meeting – a position that is perhaps most vulnerable to a downside CPI surprise.

“A further cooling in inflation would support the case for a step down in the pace of policy tightening to a 50 basis points rate hike at the FOMC meeting next week,” said Kristina Clifton, a senior economist at CBA.

“Nevertheless, an upside surprise to inflation will easily cement market expectations of another outsized 75 basis points rate hike.”

US inflation figures are due at 1230 GMT and the consensus is for the core inflation rate last month to have risen 0.3% month-on-month, the same as in July.

On Monday, Wall Street indexes posted a fourth straight session of gains.

DOLLAR BELOW RECENT PEAK

Asia data out on Tuesday offered a cloudy picture of regional economies. A 9% year-on-year jump in Japanese wholesale prices points to pressure on corporate margins, yet a slowdown in gains for August holds some hope of relief.

In New Zealand, rate hikes which began a year ago are starting to bite, sending home prices down 6% since last August.

The investment banking world is also offering a counterpoint to stock markets’ enthusiasm. Goldman Sachs is mulling job cuts, a person familiar with the plans told Reuters.

A KKR-led consortium has told Australia’s Ramsay Health Care it will not improve its USD 14.5 billion cash-and-stock offer for the hospital operator, a move that will likely put a deal on ice.

In currency markets the dollar is off recent peaks. Its index against major peers was steady at 108.16, after falling 0.7% overnight, the largest daily decline since August.

Tailwinds from last week’s European rate hike have the euro extending a bounce and above parity at USD 1.0127.

Even the battered Japanese yen is having a breather at 142.5 per dollar – a bit stronger than last week’s 24-year low at 144.99 with some investors closing bets on a further slide as risks of official intervention increase.

US Treasury yields rose overnight after some lacklustre auctions. Selling was heaviest at the very long end, with the 30-year yield up about 6 bps to around 3.5%.

Benchmark 10-year yields steadied at 3.3425% in Tokyo trade on Tuesday, beneath the two-year yield of 3.5489%.

Gold was steady at USD 1,722 an ounce.

(Editing by Shri Navaratnam and Jacqueline Wong)

Philippines 10-year T-bond fetches 6.75% coupon rate

MANILA, Sept 13 (Reuters) – Following are the results of the Philippine Bureau of the Treasury’s (BTr) auction of a new issue of 2032 T-bonds on Tuesday:

* BTr fully awards 35 billion pesos (USD 615.66 million) offer

* Coupon rate at 6.75%

* Tenders total 99.311 billion Philippine pesos

* Details on the BTr’s website www.treasury.gov.ph

($1 = 56.8500 Philippine pesos)

(Reporting by Enrico Dela Cruz)

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