Oil prices inch higher ahead of OPEC+ meeting to discuss supply cuts

SINGAPORE, Oct 4 (Reuters) – Oil prices inched higher in early Asian trade on Tuesday, on expectations that OPEC+ may agree to a large cut in crude output when it meets on Wednesday but concerns about the global economy capped gains.

Brent crude futures rose 43 cents, or 0.5%, to USD 89.29 per barrel by 0108 GMT after gaining more than 4% in the previous session.

US crude futures rose by 22 cents, or 0.3%, to USD 83.85 a barrel. The benchmark gained more than 5% in the previous session, which marked its largest daily gain since May.

Oil prices rallied on Monday on renewed concerns about supply tightness. There are expectations that the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known collectively as OPEC+, will cut output by more than 1 million barrels per day (bpd) at their first in-person meeting since 2020 on Wednesday.

Voluntary cuts by individual members could come on top of this, making it their largest cut since the start of the COVID-19 pandemic, OPEC sources said.

“Despite everything going on with the war in Ukraine, OPEC+ has never been this strong and they will do whatever it takes to make sure prices are supported here,” said Edward Moya, a senior analyst with OANDA, in a note.

OPEC+ has boosted output this year after record cuts put in place in 2020 due to demand destruction caused by the COVID-19 pandemic. But in recent months, the organisation has failed to meet its planned output increases, missing in July by 2.9 million bpd.

The production cut being considered was justified by the sharp decline in oil prices from recent highs, said Goldman Sachs, adding that this reinforced its bullish oil view.

Concerns about the global economy could cap the upside, said Tina Teng, an analyst at CMC Markets, as investors also look to take profit on gains made in the previous session.

“Uncertainties remain in the global markets, such as bond market turmoil, the sell-off in risk assets, and a skyrocketing US dollar,” said Teng.

Oil prices have dropped for four straight months as COVID-19 lockdowns in top oil importer China curbed demand while interest rate hikes and a soaring US dollar pressured global financial markets. Major central banks have embarked on the most aggressive round of rate rises in decades, sparking fears of a global economic slowdown.

US crude oil stocks were estimated to have increased by around 2 million barrels in the week to Sept. 30, a preliminary Reuters poll showed on Monday.

(Reporting by Isabel Kua; Editing by Ana Nicolaci da Costa)

Sterling climbs after tax plan reversal, dollar also weaker against other major currencies

NEW YORK/LONDON, Oct 3 (Reuters) – Sterling jumped against the dollar on Monday after Britain reversed a plan to cut the highest rate of income tax, and the dollar was also down against other major currencies.

The pound rose against the dollar after media reports of the u-turn to its highest level since Sept. 22, the day before British Finance Minister Kwasi Kwarteng roiled markets with a new “growth plan” to cut taxes and regulation, funded by vast government borrowing.

Sterling was last up 1.4% at USD 1.1320.

“Sterling is getting a boost as the UK tries to reverse some of its tax cuts,” Amo Sahota, director at Klarity FX in San Francisco, said.

British finance minister Kwasi Kwarteng said he would publish details “shortly” on how he planned to bring down public debt as a share of economic output over the medium term.

The dollar, which is up sharply for the year, weakened also against other major currencies.

But, “the big macroeconomic themes have not changed, so take this for what it is, it’s a new quarter and a opportunity for a bounce in equities and a little unwinding of the US dollar,” Sahota said.

Elsewhere, the Japanese yen weakened past the 145 mark for the first time since Sept. 22, when authorities intervened to prop up the currency.

The dollar was last just slightly lower at 144.69 yen.

Monday’s fall came as finance minister Shunichi Suzuki said Japan stood ready for “decisive” steps in the foreign exchange market if excessive yen moves persisted.

The yen has been weakening due to Japan’s policy of keeping interest rates pinned down at a time when they are rising elsewhere. After much speculation, authorities last month intervened in markets, spending a record of 2.8 trillion yen (USD 19.7 billion) to prop up the currency.

“The central banks are getting more active in trying to defend their currencies,” Klarity’s Sahota said.

The greenback was down against China’s offshore yuan and hit a low for the day of 7.0901.

“I think the yuan has strengthened enough that it will give some peace to the People’s Bank of China at this time,” Sahota said.

The euro rose 0.3% to USD 0.9825. Data earlier showed manufacturing activity across the euro zone declined further last month.

Reports that the OPEC+ group of oil producers is discussing potential output cuts of more than 1 million barrels per day also weighed on the currency, given Europe’s precarious energy situation.

The Australian and New Zealand dollars gained ground ahead of expected rate hikes by their central banks this week with the Aussie up 1.6% at USD 0.6515 and the kiwi 2% higher at USD 0.5717.

Investors were watching for more news on Credit Suisse, whose shares slid on Monday, reflecting market concerns ahead of a restructuring plan due to come with third-quarter results at the end of October.

(Additional reporting by Rae Wee; editing by Jason Neely, Andrew Heavens, David Evans and David Gregorio)

A market sweet spot?

Oct 4 (Reuters) – Whisper it, but markets may be in something of a sweet spot right now, opening the potential for a few weeks of respite and decent-sized rebounds.

Ok, maybe a few days until the next crisis rears its head and 2022 normal service is resumed. But there is a glimmer of hope.

It’s a new quarter, and after three quarters of misery, if ever there was a time for investors to pause and even put some chips back on the table, this is it. Financial assets are (relatively) cheap.

A lot of bad news is priced in. For example, the United States entering recession within the next 12-18 months is now overwhelming consensus. Citi’s economic surprises indices, with the exception of EM, are mostly back in positive territory at around three-month highs.

Ditto central bank tightening. Broadly speaking, the balance of risks now must surely be that policymakers are less aggressive relative to market expectations rather than more.

Up to 50 basis points of Fed tightening has been taken out of the 2023 US futures curve in recent days – the implied rate for December next year dipped as low as 4.03% on Monday.

Key to this is a steep decline in inflation expectations. Breakeven rates on the US two-, five- and 10-year horizons fell to around 2.15% on Monday, the lowest in 18 months and very close to the Fed’s 2% target.

That’s not to say the coast is clear. Far from it. And liquidity in Asia this week will be light due to China’s Golden Week break and Hong Kong’s public holiday on Tuesday.

But market waves are a little less choppy, and from Wall Street to Brazilian assets to sterling, investors have started Q4 on the offensive.

Key developments that could provide more direction to markets on Tuesday:

Japan inflation (September)

Australia interest rate decision (50 bps hike expected)

South Korea PMI (September)

Fed’s Williams, Logan, Mester, Jefferson, Daly speak

(Reporting by Jamie NcGeever in Orlando, Fla.; Editing by Josie Kao)

US yields decline after UK tax turnaround, US data

NEW YORK, Oct 3 (Reuters) – The yield on the benchmark US 10-year Treasury note fell on Monday, after British Prime Minister Liz Truss was forced to abandon a tax cut plan while US economic data showed a slowdown in manufacturing.

Truss had planned to eliminate a tax of 45% on the top rate on income before backing down, part of a plan that led the Bank of England to step in and announce plans to purchase government debt to support the market that had been rattled by the economic plans in recent days.

“What was happening overseas and specifically in the UK and their fiscal policy changes, that was the piece that added an extra leg of volatility, specifically to the fixed income markets here,” said Jim Barnes, director of fixed income at Bryn Mawr Trust in Berwyn, Pennsylvania.

“This morning with what appears to be the UK stepping things back a bit, the market is taking its cue from some of the bond activity happening overseas.”

The yield on 10-year Treasury notes was down 13.4 basis points to 3.670%. The yield had hit a 14-year high of 4.109% last week before tumbling after the BoE’s intervention.

The yield on the 30-year Treasury bond was down 4.3 basis points to 3.721%.

Yields extended declines following the Institute for Supply Management’s (ISM) survey which showed manufacturing activity in September was the slowest in nearly 2-1/2 years as new orders contracted, with a measure of inflation at the factory gate decelerating for a six consecutive month, hinting the rising interest rates being used to combat inflation by the Fed may have softened demand for goods.

“Looking at ISM prices paid versus inflation and that stat alone says inflation should be in the fours, not the eights, we’ll see, obviously a lot depends on rents,” said Jack Ablin, chief investment officer at Cresset Capital in Chicago.

“Our risk is that the economy slows and interest rates drop, not that rates rise because inflation spikes up, and that is good news.”

Investors will eye a flurry of data this week, including several reports on the labor market culminating with Friday’s US payrolls report. Signs of a softening in the jobs data would likely be welcomed by investors as it could signal the US Federal Reserve’s attempts to slow the economy and tamp down inflation may be starting to have an effect.

Fed officials have been in sync as they have vowed to take aggressive measures in hiking interest rates to combat rising inflation. Federal Reserve Bank of New York President John Williams said on Monday that while there have been early signs that inflation is easing, the central bank still must continue fighting high prices.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as a reliable indicator of an economic recession, was at -45.2 basis points, up from -57.85 hit two weeks ago.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was down 8.9 basis points at 4.120%.

The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.317%, after closing at 2.147% on Friday, which marked its lowest close in about 20 months.

The 10-year TIPS breakeven rate was last at 2.244%, indicating the market sees inflation averaging 2.2% a year for the next decade.

(Reporting by Chuck Mikolajczak; Editing by Andrea Ricci and Jonathan Oatis)

Gold rallies as dollar, yields retreat; silver soars over 8%

Oct 3 (Reuters) – Gold prices jumped more than 2% on Monday boosted by a dip in the US dollar and bond yields, as recent lows enticed investors and also sparked a rally in silver in potentially its best day since late-2008.

Spot gold rose 2.3% to USD 1,698.48 per ounce by 3:39 p.m. ET (1939 GMT), which could be its biggest daily rise since March 8. US gold futures settled 1.8% higher at USD 1,702.

Silver surged 8.8% to USD 20.67 per ounce, its highest since mid-August.

“For the whole of September everything took it on the chin,” and was over-sold, said Michael Matousek, head trader at US Global Investors. Now people are looking for opportunities, especially non-long-term term holders of these metals, who buy dips and sell rallies, he added.

The dollar eased, helping demand for the greenback-priced bullion among overseas buyers. Benchmark US 10-year Treasury yields fell to an over one-week low, supporting demand for zero-yield gold.

A retreat in the safe-haven currency has afforded gold some respite, with bullion prices staging a mini-recovery since sliding to their lowest since April 2020 last week.

Gold has found support as it has recently declined less than the overall market, Matousek said, adding there were some market participants now thinking the US Federal Reserve might ease interest rate hikes, which would support gold.

Supporting safe-haven demand for metals, US manufacturing activity grew at its slowest pace in nearly 2-1/2 years in September, likely as rising interest rates to tame inflation cooled demand for goods.

“You’re going to have to see a close back above USD 1,700 to get the (gold) bulls revived a little bit, and even that, really doesn’t change the technical posture a whole lot… the bears are still in pretty firm technical control,” said Jim Wyckoff, senior analyst at Kitco Metals.

Palladium rose 2.9% to USD 2,219.83. Platinum jumped nearly 5% to USD 901.52 per ounce.

(Reporting by Bharat Govind Gautam in Bengaluru; Editing by Andrea Ricci, Sandra Maler and Krishna Chandra Eluri)

China digs deep into bag of yuan tricks to resist dollar steamroller

SHANGHAI, Oct 3 (Reuters) – Chinese authorities have rolled out an array of tried-and-true manoeuvres in recent weeks to slow the yuan’s slide, showing relative success compared with other battered currencies, but analysts say they face long odds against an unstoppable dollar.

The stepped-up efforts, taken as the yuan tumbled about 7% from mid-August to a 14-year-low around 7.25 per dollar on Sept. 28, range from unusually strong signals to the market – last week the central bank told state-owned banks to prepare to sell dollars – to administrative measures that raise the cost of shorting the yuan.

That helped the yuan to regain some traction against the dollar, which also paused for breath against other currencies, but analysts expect the yuan to weaken further in the months ahead with a risk of volatile gyrations along the way.

“Considering the strength of the dollar, we now expect (the dollar/yuan rate) to trade around 7.40 around October and November,” SEB said in a note.

While that was among the more bearish forecasts, ANZ and Goldman Sachs saw a yuan rate of 7.20 per dollar within the next three months or so, with Goldman also noting upside dollar/yuan risks, and Citi said it could push to 7.3 in a strong dollar environment. The yuan late on Friday was trading around 7.12 per dollar.

In a sign that investors do not foresee the new measures tamping down swings in the yuan, expectations of future volatility priced into one-month yuan options have doubled in the past month.

For Chinese authorities, who were particularly keen to stabilize the yuan rate before a week-long national holiday in China this week, the stakes are high.

This is a a politically sensitive time for China’s ruling Communist Party, which is set to open its once-in-five-years congress on Oct. 16. President Xi Jinping is expected to secure a precedent-breaking third term during the gathering.

A weaker yuan also risks stoking financial instability fueled by capital outflows. Foreign investors cut holdings of Chinese bonds for the seventh straight month in August.

On the monetary policy front, the weaker yuan, fueled by the wide gap between low Chinese interest rates and rising U.S. rates, makes it harder to ease policy to support China’s faltering economy, the world’s second largest.

The yield gap between China’s benchmark 10-year government bonds and the U.S. Treasury for the same tenor is hovering at the widest in 15 years.

NO LINES IN THE SAND

Still, analysts do not expect Beijing to mount a desperate defense of any particular yuan level, in contrast to the last two times the yuan breached the psychologically significant 7 to the dollar level in 2019 and 2020, during the height of China-U.S. trade tensions and the initial outbreak of COVID-19.

“The central bank needs to play a balance between being market-oriented and also ensuring financial stability,” said Ju Wang, head of Greater China FX and rates strategy at BNP Paribas.

“Hence the official line will still be ‘no-lines-in-the-sand-but-two-way-volatility’.”

China’s economy also reaps some benefit from yuan weakness, which bolsters its exports by making them relatively cheaper in dollar terms. The export sector has become a vital pillar for the economy as it struggles with COVID outbreaks and a property crisis.

Further, the yuan has not fallen as sharply against the greenback as have the euro, the yen and other major currencies this year, keeping the yuan comparatively resilient against a basket of currencies of China’s main trading partners, with a fall of only 1.4% year-to-date.

Chinese authorities, who have emphasised that they want to make the yuan more international and market-driven, are aiming not to control the long-term value of the yuan, but to prevent a sudden short-term depreciation that would disrupt its economy and capital flows, analysts said.

“As China goes on a week-long holiday, the threat of intervention in the offshore yuan could keep a lid on near-term depreciation,” said Khoon Goh, head of Asia research at ANZ.

Mainland China’s financial markets are closed for the National Day holiday from Oct. 1, during which there will be no onshore trade or daily guidance through midpoint settings. Trading resumes on Oct. 10.

Goh added, however, that how long thenews threat remains effective will depend on the dollar’s trend.

“While the authorities will want to maintain FX stability into the Party Congress, the widening yield differential between the U.S. and China could still see yuan weakness re-emerge later in the year.”

(Reporting by the Shanghai Newsroom; Editing by Tony Munroe and Edmund Klamann)

Philippines and US kick off naval exercises amid China tension

MANILA, Oct 3 (Reuters) – The armed forces of the United States and Philippines launched two weeks of joint naval exercises on Monday, reinforcing a close military alliance at a time of regional uncertainty over tensions between Washington and Beijing.

KAMANDAG, an acronym in Filipino for “Cooperation of the warriors of the sea”, runs until Oct. 14, will involve 2,550 American and 530 Filipino troops and include island-based exercises in amphibious landings, live fire and humanitarian assistance.

US allies Japan and South Korea are joining the exercises as observers. The Philippines and United States, which are bound by a 70-year-old Mutual Defence Treaty, have been holding exercises for decades.

(Reporting by Karen Lema; Editing by Martin Petty)

Sterling briefly jumps after British government tax U-turn

LONDON, Oct 3 (Reuters) – The pound briefly jumped on Monday on news Britain would reverse plans to cut the highest rate of income tax, one contentious part of a package of financial measures that last month sent sterling and British government bonds tumbling.

“It is clear that the abolition of the 45p tax rate has become a distraction from our overriding mission to tackle the challenges facing our country,” finance minister Kwasi Kwarteng said in a statement.

The pound rose as high as USD 1.128 after news of the U-turn was reported by the BBC, the currency’s highest level since Sept. 22, the day before Kwarteng announced a new “growth plan” that would cut taxes and regulation, funded by vast government borrowing.

Sterling then gave up most of those gains and was last at USD 1.1177 up 0.1%.

The euro was down 0.27% against the pound at 87.61 pence.

“From a markets perspective, it is a good step in the right direction. It will take time for markets to buy the message but it should be ease the pressure, ” said Jan von Gerich, chief analyst, Nordea

“Questions still remain and sterling will likely remain under pressure,” he added.

Philippines rejects all bids at T-bills auction

MANILA, Oct 3 (Reuters) – Following are the results of the Philippine Bureau of the Treasury’s (BTr) auction of T-bills on Monday:

* BTr rejects all bids for 91-day, 182- and 364-day T-bills

* Details are on the BTr’s website

(Reporting by Neil Jerome Morales)

((neiljerome.morales@thomsonreuters.com; +632 8841 8914;))

Gold climbs on weaker dollar even as rate hikes loom

Oct 3 (Reuters) – Gold prices rose on Monday as a softer dollar rekindled some of bullion’s appeal for overseas buyers, although the prospects of sharp interest rate hikes by the US Federal Reserve and other major central banks capped further gains.

Spot gold was up 0.5% at USD 1,667.89 per ounce, as of 0603 GMT. US gold futures GCv1 were 0.2% higher at USD 1,675.30.

The dollar index was down 0.4% against a basket of currencies, making greenback-priced bullion less expensive for overseas buyers. Benchmark US 10-year Treasury yields were also lower after rising for two days.

“Recovery (gold’s) seems to be more of a near-term moderation from oversold technical conditions, as no slack in Fed’s tightening policies may suggest that any upside could potentially be sold into,” IG market strategist Yeap Jun Rong said.

The Federal Reserve’s No. 2 official on Friday added her full endorsement of the US central bank’s higher-for-longer game plan for interest rates to curb inflation.

Last month, the Fed raised its policy interest rate by 75 basis points, its third straight increase of that size, and signalled more large hikes to come this year.

Gold posted its sixth straight monthly decline in September, marking its longest streak of monthly losses in four years.

Though gold is often seen as a hedge against inflation, rising US interest rates increase the opportunity cost of holding the non-yielding asset and boost the dollar.

Meanwhile, euro zone inflation hit a record high last month, reinforcing expectations for another jumbo rate hike this month from the European Central Bank.

On investors’ radar are the US non-farm payrolls data due on Friday and a host of manufacturing PMI data for insight into the health of the global economy.

“A more lukewarm (payrolls) reading may be preferred by gold bulls for a relief rally, but the absence of any pause in Fed’s policies could still suggest that the overall downward trend may remain intact,” IG’s Yeap Jun Rong said.

Spot silver climbed 2.3% to USD 19.44 per ounce, platinum rose 0.6% to USD 864.45 and palladium was up 0.5% at USD 2,169.19.

(Reporting by Eileen Soreng in Bengaluru; Editing by Sherry Jacob-Phillips and Subhranshu Sahu)

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