Dollar creeps lower as large Fed rate hike looms

LONDON, July 27 (Reuters) – The dollar edged further away from recent 20-year highs on Wednesday ahead of the US Federal Reserve policy meeting, at which the central bank is expected to raise rates by another 75 basis points to tame soaring inflation.

But moves in currency markets were modest as traders await the policy announcement at 1800 GMT.

Money markets are betting that the Fed will raise rates by 75 basis points (bps), with an outside chance of a larger 100 bps hike. Traders expect the Fed to take the rate to as high as 3.4% by year-end to help bring inflation back to target.

Bets on oversized rate hikes helped push the dollar index, which measures the dollar against a basket of six currencies, to its highest level in almost 20 years earlier this month at 109.29, with the greenback currently up 2.1% in July.

At 1055 GMT, the dollar index was down 0.2% at 106.93.

“Markets are taking a bit off the table before tonight’s Fed meeting,” said Simon Harvey, head of FX analysis at Monex Europe. “Barring any imminent headlines on European energy or political developments I think we will see very limited ranges.”

The euro edged 0.33% higher to USD 1.0149 but failed to recoup much of Tuesday’s 1.0% slide, its biggest fall in over two weeks, after fears of a European recession escalated when Russia further cut gas supplies to Europe through the Nord Stream 1 pipeline.

Analysts said it remained premature to short the dollar given the gas situation in Europe and rising yields in the European periphery, particularly Italy.

Italy’s yields rose further on Wednesday after rating agency S&P Global revised its outlook on Italy’s rating to stable from positive, pushing the closely watched spread between German and Italian 10-year yields to as wide as 250 bps.

“Most factors are still in favour of the dollar,” said Vincent Manuel, chief investment officer at Indosuez Wealth Management. He cited the macro backdrop between the US and euro zone, peripheral spread widening, the European energy crisis and the relative pace of monetary policy normalization.

The Australian dollar was up 0.12% to USD 0.69455 as Australian inflation sped to a 21-year high in the last quarter, although the figure was not as high as some investors feared and some rate hike bets were pulled back.

Traders are now pricing in an around 86% chance of a 50 bps rate hike by the RBA next week, and a 14% chance of a more modest 25 bps hike.

The dollar was down 0.2% to 136.69 yen. Against the safe-haven Swiss franc, the dollar was also down 0.2% at USD 0.9612.

In cryptocurrencies, bitcoin was steady at USD 21,301.

(Reporting by Samuel Indyk, additional reporting by Sujata Rao; editing by Kim Coghill and Mark Heinrich)

Gold ticks up on softer dollar as investors eye Fed strategy

July 27 (Reuters) – Gold inched up on Wednesday helped by a fall in the dollar, but caution over the Federal Reserve’s policy tightening plan kept bullion prices range-bound.

Spot gold rose 0.2% to USD 1,720.57 per ounce by 1100 GMT. US gold futures were little changed at USD 1,719.60.

The dollar eased, increasing gold’s appeal among buyers holding other currencies.

The US central bank is expected to raise interest rates by another 75 basis points (bps) at the conclusion of its two-day policy meeting later on Wednesday.

More than the rate hike, the focus is on the guidance from Fed chairman Jerome Powell, and gold is likely to retest lows in the absence of a dovish pivot, said Michael Hewson, chief market analyst at CMC Markets UK.

Although considered a hedge against inflation, higher interest rates to tame the rising prices increase the opportunity cost of holding non-yielding bullion.

“Everyone now wants to know what other tools the Fed is going to use to support the economy or if it is just going to be focused on bringing down the high inflation,” said Brian Lan, managing director at dealer GoldSilver Central.

Gold has lost more than USD 300, since climbing past the USD 2,000-per-ounce level in early March, due to the Fed’s rapid rate hikes and the dollar’s recent rally, overshadowing bullion’s appeal as a safe-haven despite recession risks.

The International Monetary Fund cut global growth forecasts on Tuesday, warning downside risks from inflation and the Ukraine war could push the economy to the brink of recession if left unchecked.

Should the Fed chairman acknowledge the headwinds facing the economy and hint at a pause in its tightening drive, the dollar could weaken and offer support to gold, said Ricardo Evangelista, senior analyst at ActivTrades.

Spot silver rose 0.8% to USD 18.75 per ounce, platinum added 0.4% to USD 877.52, while palladium gained 1.1% to USD 2,031.65.

(Reporting by Arundhati Sarkar and Eileen Soreng in Bengaluru; editing by Mark Potter and Jason Neely)

Stocks, currencies sweat as EM growth fears, more US Fed tightening loom

July 27 (Reuters) – Emerging market equities slid on Wednesday as investors braced for a potentially sharp US rate hike later in the day, while regional currencies struggled as the dollar hovered just below a 20-year high on support from safe-have flows.

A 75 basis point (bps) hike by the US Federal Reserve is priced in, with a 13% chance of a super-sized 100 bps raise. The focus will also be on a news conference at 1830 GMT for hints on whether Fed policymakers’ resolve to hike further is waning as growth slows.

“EM (emerging markets) faces weak external demand alongside tighter US monetary conditions – this generates a strong dollar environment, which weighs on global trade, while FX pass-through limits the room for accommodative policies,” said Michel Nies, EM economist at Citigroup.

Stocks have lost 1.5% this month, while currencies are down 1% as rising inflation, political uncertainty and growing concerns about a global recession sapped investor confidence in July.

The International Monetary Fund cut global growth forecasts again on Tuesday, warning that risks from high inflation and the Ukraine war could push the world economy to the brink of recession.

“EM will eventually face a more favourable combination of external demand and US monetary conditions again, but getting there might take longer than usual: the Fed might seek to re-establish its credibility and China’s structural shift towards a less EM-friendly business model is likely to continue,” Nies said.

EM stocks fell 0.3%, with China shares, slipping up to 0.5% amid broader market caution.

China’s industrial firms’ profits bounced back to growth in June after two months in the red, but fears of a COVID-19 resurgence cast a shadow over future factory output.

Currencies were mixed, with the yuan and India’s rupee little changed, while South Africa’s rand and Mexico’s peso added 0.4% and 0.2% respectively, and Turkey’s lira was off 0.2%.

The dollar held at 107.08, not far below mid-July’s 20-year high of 109.

Egypt’s pound traded at 18.87 to the dollar. The IMF said the country needed to make “decisive progress” on fiscal and structural reform as Cairo seeks a new round of support from the fund.

(Reporting by Anisha Sircar and Susan Mathew in Bengaluru)

Philippines scraps Russian helicopter deal – AP

July 27 (Reuters) – The Philippines has scrapped a deal to buy 16 Russian military transport helicopters because of fears of US sanctions, the Associated Press reported on Wednesday, citing Philippine officials.

A former Philippine defence secretary, Delfin Lorenzana, said late on Tuesday the 12.7 billion peso (USD 227 million) deal to acquire the Mi-17 helicopters had been cancelled. The decision to buy the helicopters was approved last month by former President Rodrigo Duterte, before their terms in office ended on June 30, the news agency reported.

“We could face sanctions,” the news agency quoted Lorenzana as saying in an interview.

Philippine government officials were not immediately available for comment.

US security officials were aware of the decision and could offer similar heavy-lift helicopters for the Philippine military, Lorenzana said.

(Reporting by Akriti Sharma in Bengaluru; Editing by Robert Birsel)

Investors gauge US stocks rebound: ‘suckers’ rally’ or market bottom?

NEW YORK, July 27 (Reuters) – As investors await another jumbo-sized rate increase from the Federal Reserve, they are taking the temperature of a weeks-long US stock market rally that followed a vicious first-half selloff.

Even after Tuesday’s sharp fall, the S&P 500 remained up 7% from its June 16 low, buoyed in part by expectations that the Fed will pause its aggressive rate hikes early next year and a recent decline in commodity prices that investors hope will help ease inflation.

So far, the bounce has its share of doubters. Three rallies of comparable magnitude have already wilted this year, with stocks sliding to new lows each time. Blackrock, the world’s largest asset manager, on Monday warned investors that more volatility lay ahead and said it was underweight developed market equities on expectations that inflation will stay tenacious.

“We think this is a bear market suckers’ rally,” said Steve Chiavarone, senior portfolio manager at Federated Hermes, who believes the Fed will remain hawkish longer than expected and has reduced his equity exposure as the S&P pushed higher over the last few weeks.

Expectations that the Fed will end its market-bruising rate hikes sooner than forecast have helped power stocks higher. Nearly two-thirds of investors now believe the Fed funds rate will stand at 3.5% or lower by March 2023, up from just a third a month ago with that view, according to CME.

Investors expect the Fed to deliver another 75 basis points of tightening Wednesday, after already raising rates by 150 basis points so far this year. Hopes for moderation after that could be dashed if consumer prices remain stubbornly high in coming weeks – repeating a scenario that dragged stocks lower this year, Blackrock’s strategists wrote.

“Inflation data could surprise to the upside – and cause markets to rapidly price a higher rate path once again. Result: another equities sell-off,” BlackRock strategists wrote.

Data from the Wells Fargo Investment Institute showed the severity of the current bear market – which saw the S&P 500 fall as much as 23.6% below its January high – may depend on whether the economy is in a recession.

Bear markets accompanied by a recession have lasted an average of 18 months, during which stocks fell an average of 35.8%. Without a recession, bear markets lasted an average of 5.9 months with an average decline of 27.9%, the bank’s data showed.

On Sunday, US Treasury Secretary Janet Yellen acknowledged the risk of a recession but said it was not inevitable. Still, parts of the market have continued to reflect investor unease, even as broader averages have bounced.

More stocks have posted new lows than new highs on the Nasdaq Composite Index for 76 straight days, the longest such stretch in 20 years, said Willie Delwiche, investment strategist at All Star Charts. The index is up nearly 9% from its June low.

“Until that relationship changes, it’s premature to say that a bottom is in place,” Delwiche said.

More optimistic investors point to an array of signals indicating bearish sentiment may have reached a crescendo in recent weeks, potentially exhausting sellers and making it easier for stocks to rebound.

A fund manager survey from BoFA Global Research last week showed expectations for global growth and profits at all-time lows and cash levels at their highest in two decades, two contrarian indicators the banks’ strategists said could indicate greater stock gains ahead.

Short interest in the S&P 500, meanwhile, recently stood at its highest level since the depths of the coronavirus selloff in 2020, a signal that has occurred during past market bottoms, the bank’s strategists wrote.

“We think it’s possible that the S&P 500 has already bottomed, and if it hasn’t, will find a bottom during the third quarter,” said Lori Calvasina, head of US equity strategy at RBC Capital Markets, in a note to investors.

Calvasina recently added stock exposure, betting that a possible recession has already been baked into prices.

Christopher Murphy, co-head of derivatives strategy at Susquehanna International Group, believes this week’s earnings reports – which include results from heavyweights such as Apple Inc and Meta Platforms– could play a key part in determining whether stocks can continue rallying.

For the time being, “the risks to the market are very well known right now” and already reflected in prices, he said.

(Reporting by David Randall; Editing by David Gregorio)

Gold flat as investors mark time ahead of Fed outcome

July 27 (Reuters) – Gold prices were little changed on Wednesday, as investors stayed away from taking big positions ahead of a US Federal Reserve interest rate decision that could influence the outlook for bullion.

Spot gold was nearly flat at USD 1,716.59 per ounce at 0308 GMT. US gold futures dipped 0.2% to USD 1,713.90.

The US central bank is widely expected to raise interest rates by another 75 basis points (bps) at the conclusion of its policy meeting on Wednesday, as it attempts to tame runaway inflation without triggering a recession.

With a 75-bp hike already priced in, bullion could hold ground or trend lower after the Fed meeting, depending on how much short covering takes place, said Michael Langford, director at corporate advisory firm AirGuide.

Higher interest rates and bond yields increase the opportunity cost of holding non-yielding bullion.

Benchmark US 10-year Treasury yields firmed, while the dollar eased after a sharp rise on Tuesday, increasing the greenback-priced gold’s appeal among buyers holding other currencies.

“Interest rate rises will continue for the next three months. This will put downward pressure on gold prices and should see gold break below USD 1,700/oz. The key reason for this is the ongoing flow of funds to the dollar,” Langford said.

Meanwhile, US consumer confidence dropped to the lowest in nearly 1-1/2 years this month amid persistent worries about increasing inflation and higher interest rates, which could undercut spending, pointing to slower economic growth at the start of the third quarter.

The global economy is in the grips of a serious slowdown, with some key economies at high risk of recession and only sparse meaningful cooling in inflation over the next year, according to Reuters polls of economists.

Spot silver dipped 0.1% to USD 18.61 per ounce, platinum fell 0.3% to USD 870.77, and palladium firmed 0.5% to USD 2,019.91.

(Reporting by Bharat Govind Gautam in Bengaluru; editing by Uttaresh.V and Subhranshu Sahu)

Oil steady as demand concerns offset US crude stock drawdown

KUALA LUMPUR, July 27 (Reuters) – Oil prices held steady on Wednesday as concerns about weaker demand offset industry data that showed a larger-than-expected drawdown in US crude stockpiles.

Brent crude futures were at USD 104.35 a barrel at 0250 GMT, down 5 cents, or 0.05%. US West Texas Intermediate (WTI) crude rose 9 cents, or 0.1%, to USD 95.07 a barrel. WTI had climbed nearly USD 1 earlier in the session.

“A sharper decline in inventories should support oil prices, but the rebound was limited by concerns about potential weak demand, and the White House stated that it will further release strategic reserves,” said Leon Li, a Shanghai-based analyst at CMC Markets.

In addition, the prospect the US Federal Reserve will announce an aggressive rate rise later on Wednesday weighed on sentiment and limited the rise in oil prices, he said.

After Tuesday’s settlement, industry group the American Petroleum Institute said crude stocks in the United States fell by 4 million barrels last week.

That was four times bigger than the decline expected by analysts in a Reuters poll.

Gasoline inventories fell by 1.1 million barrels, compared with expectations for a build of 3.5 million barrels, the data showed.

The US government’s Energy Information Administration releases its weekly oil report later on Wednesday.

The Biden administration said on Tuesday it will sell an additional 20 million barrels of oil from the country’s Strategic Petroleum Reserve as part of a previously announced plan to tap the facility to calm oil prices boosted by Russia’s invasion of Ukraine and a recovery in demand following the COVID-19 pandemic.

The administration said in late March it would release a record 1 million barrels of oil per day for six months from the SPR. The United States has already sold 125 million barrels from the reserve with nearly 70 million barrels delivered to purchasers.

Meanwhile, the US Federal Reserve is expected to raise interest rates by 75-basis-points later on Wednesday, underlining concern about the outlook for US demand and the prospect of a stronger dollar, which would make dollar-denominated commodities more expensive for buyers holding other currencies.

(Reporting by Emily Chow in Kuala Lumpur and Laura Sanicola; editing by Richard Pullin and Neil Fullick)

Powerful 7.1 earthquake strikes Philippines; at least 5 dead

VIGAN, Philippines, July 27 (Reuters) – A powerful 7.1 magnitude earthquake struck the northern Philippine island of Luzon on Wednesday killing at least five people, damaging buildings and sending strong tremors through the capital, Manila.

At least 64 people were injured and 173 buildings damaged, officials said, many in Abra province, just 11km (six miles) from the epicentre of the quake. Over 200 aftershocks have been recorded in the area, according to the state seismology agency, and 58 landslides were also reported in the aftermath.

“Despite the sad reports about the damages caused by the earthquake, we are assuring quick response to those in need and affected by this calamity,” President Ferdinand Marcos Jr. said on Facebook.

The quake hit close to the Marcos family’s political stronghold.

A hospital in Abra province was evacuated after the building partially collapsed but there were no casualties reported there, officials said.

Abra’s vice governor, Joy Bernos, posted photos of the damaged Abra hospital on her Facebook account, which showed a gaping hole in its facade.

Other photos showed hospital beds, including one with a patient, being wheeled across a road and evacuated hospital staff.

Two people were killed in Benguet province, one in Abra province, one Kalinga and another in Cagayan Valley.

AFTERSHOCKS

Abra, home to nearly 250,000 people, is a landlocked province in the northern Philippines. Its deep valleys and sloping hills are enclosed by rugged mountains.

The Philippines is prone to natural disasters and is located on the seismically active Pacific “Ring of Fire”, a band of volcanoes and fault lines that arcs round the edge of the Pacific Ocean. Earthquakes are frequent and there are an average of 20 typhoons each year, some triggering deadly landslides.

Eric Singson, a congressman in Ilocos Sur province, also in the north, told DZMM radio station the quake had been felt strongly there and lasted 30 seconds or more.

“I thought my house would fall,” said Singson. “Now, we are trying to reach people …. Right now there are aftershocks so we are outside our home.”

The quake damaged heritage buildings in the northern city of Vigan, known for its old Spanish colonial architecture, on the west coast of Luzon.

Tourist Edison Adducul told radio he was taking photos of the Bantay Church Bell tower in Vigan when the quake struck, shaking the tower for up to three minutes.

Vigan’s normally busy streets were deserted on Wednesday evening and shops, hotels and businesses remained closed. Many of the streets had been cleared of debris.

Senator Imee Marcos said several churches were damaged.

“The antique bricks and coral stones fell down from the Bantay Bell Tower,” she said.

The quake was also felt in Manila where several buildings were evacuated, with some people forced to flee from the 30th floor of one building, and the city’s metro rail systems were halted at rush hour.

(Additional reporting by Enrico dela Cruz and Karen Lema; Writing by Ed Davies: Editing by Michael Perry, Robert Birsel and Kanupriya Kapoor)

Indexes drop as Walmart profit warning spooks investors

NEW YORK, July 26 (Reuters) – US stocks ended sharply lower Tuesday as a profit warning by Walmart dragged down retail shares and exceptionally weak consumer confidence data also fueled fears about spending.

Walmart (WMT) shares sank 7.6% after the retailer cut its full-year profit forecast late on Monday. Walmart blamed surging prices for food and fuel, and said it needed to cut prices to pare inventories.

Shares of Target Corp. (TGT) fell 3.6% and Amazon.com Inc AMZN.O dropped 5.2%, while the S&P 500 retail index declined 4.2%.

On Tuesday, data showed US consumer confidence dropped to nearly a 1-1/2-year low in July amid persistent worries about higher inflation and rising interest rates.

“The majority of companies that reported today beat (on) earnings, and that’s been the case. But of course there have been some warnings, and that’s what the market is focusing on,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

Amazon, which said it would raise fees for delivery and streaming service Prime in Europe by up to 43% a year, was the biggest drag on the Nasdaq and S&P 500, while consumer discretionary fell 3.3% and led declines among S&P 500 sectors.

The Federal Reserve started a two-day meeting, and on Wednesday it is expected to announce a 0.75 percentage point interest rate hike to fight inflation. Investors have worried that aggressive interest rate hikes by the Fed could tip the economy into recession.

The Dow Jones Industrial Average fell 228.5 points, or 0.71%, to 31,761.54, the S&P 500 lost 45.79 points, or 1.15%, to 3,921.05 and the Nasdaq Composite dropped 220.09 points, or 1.87%, to 11,562.58.

A busy week for earnings also included reports from Alphabet Inc. (GOOGL) and Microsoft Corp. (MSFT) after the bell.

Shares of Microsoft were down 0.5% in after-hours trading while Alphabet was up 3% following the companies’ results. Microsoft ended the regular session down 2.7% and Alphabet ended 2.3% lower on the day.

Investors had been looking to see if this week’s earnings news from mega-cap companies might help the stock market sustain its recent rally.

Earnings from S&P 500 companies were expected to have risen 6.2% for the second quarter from the year-ago period, according to Refinitiv data.

Also during the regular session, Coca-Cola Co. (KO) gained 1.6% after the company raised its full-year revenue forecast. McDonald’s Corp. (MCD) rose 2.7% after beating quarterly expectations.

3M Co. (MMM) rose 4.9% after the industrial giant said it planned to spin off its healthcare business. General Electric Co. (GE) gained 4.6% after the industrial conglomerate beat revenue and profit estimates.

In other outlooks, the International Monetary Fund cut global growth forecasts again.

Volume on US exchanges was 9.60 billion shares, compared with the 10.93 billion average for the full session over the last 20 trading days.

Declining issues outnumbered advancing ones on the NYSE by a 1.73-to-1 ratio; on Nasdaq, a 1.72-to-1 ratio favored decliners.

The S&P 500 posted 1 new 52-week highs and 30 new lows; the Nasdaq Composite recorded 39 new highs and 138 new lows.

(Additional reporting by Shreyashi Sanyal and Aniruddha Ghosh in Bengaluru; Editing by Arun Koyyur, Anil D’Silva and David Gregorio)

Gas woes drag euro lower, dollar gains on recession worry

NEW YORK, July 26 (Reuters) – The dollar rose against a basket of major currencies on Tuesday, reversing course after three straight sessions of declines as recession fears grew and investors awaited a Federal Reserve policy statement, while energy supply concerns weighed on the euro.

European Union countries approved a weakened emergency plan to lessen gas demand on Tuesday, after striking compromise deals to limit the cuts for some countries, as they gird for further Russian reductions in supply.

Risk-off sentiment helped boost the dollar, as US equities were pulled lower following a profit warning from retail giant WalMart (WMT), which said it would slash prices to reduce inventory.

The Fed is widely expected to raise interest rates by 75 basis points on Wednesday, with investors keeping a close eye on the central bank’s forward guidance as it grapples with high inflation and the potential for a recession. Last week, the European Central Bank (ECB) raised rates by 50 basis points.

“The writing is on the wall for the euro. I know it has been a punching bag for quite some time, but these growth concerns are not going to get any better, the energy crisis it just seems like it is only going to get worse,” said Edward Moya, senior market analyst at Oanda in New York.

“There are growing risks we could see investors become a little bit more nervous that it might not just be a very brief recession, that it could be a little bit more hard-hitting so you are probably still going to see that safe-haven flows into the dollar are likely to remain the focal point for many traders.”

The dollar index =USD rose 0.714% at 107.180, with the euro down 0.98% to USD 1.012. The euro was on pace for its biggest daily percentage drop since July 11.

Data showed US consumer confidence fell for a third straight month in July, while new home sales dropped to their lowest level in more than two years, signaling an economy that may be susceptible to a recession.

On Thursday, investors will get the advance reading for second-quarter gross domestic product, while Friday will bring the release of personal consumption expenditures, the Fed’s preferred inflation measure.

A second straight quarter of negative growth would result in what is known as a technical recession by analysts, although an official declaration of a recession from the National Bureau of Economic Research, which uses a more comprehensive definition, would likely come much later.

On Monday, Russian energy giant Gazprom (GAZP), citing instructions from an industry watchdog, said gas flows to Germany through the Nord Stream 1 pipeline would fall to 33 million cubic meters per day from Wednesday, or half of the current flow, which was already at only 40% capacity.

The euro also fell 0.87% against the safe-havens yen to 138.450 and was down 1.1% against the Swiss franc at 0.975.

The Japanese yen weakened 0.07% versus the greenback to 136.78 per dollar, while sterling was last trading at USD 1.2024, down 0.15% on the day.

In cryptocurrencies, bitcoin last fell 5.75% to USD 20,894.37 after Bloomberg News reported the US Securities and Exchange Commission (SEC) is investigating whether Coinbase Global (COIN) improperly let Americans trade digital assets that should have been registered as securities.

(Reporting by Chuck Mikolajczak; Editing by Mark Potter)

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