Two-year yields gain, long-dated Treasuries mixed after Powell speech

NEW YORK, Aug 26 (Reuters) – two-year Treasury yields briefly popped to their highest levels since October 2007 before stabilizing near two-month highs on Friday after Federal Reserve Chair Jerome Powell reiterated that the central bank will continue to raise interest rates to fight inflation.

Powell, in a closely watched speech at the Fed’s Jackson Hole conference, said investors should not expect the central bank to reduce interest rates until inflation is tamed.

“While higher interest rates, slower growth and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” Powell said.

The two-year Treasury yield, which typically moves in step with interest rate expectations, was up 2.9 basis points at 3.403%, slightly below its high for the year of 3.4350% in June.

The rise in short-term interest rates further inverted the yield curve, which is often seen as a signal of an upcoming recession. The closely watched gap between yields on two- and 10-year Treasury notes was at -37.0 basis points, compared with -31.3 basis points before Powell’s speech.

The yield on 10-year Treasury notes was up 0.9 basis point to 3.033%. The yield on the 30-year Treasury bond was down 2.7 basis points to 3.207%.

Yields rise as bond prices fall.

“Powell’s comments were remarkably in line with market expectations,” said Ian Lyngen, head of rates strategy at BMO Capital Markets. “Overall, the response is well within the recent range in nominal terms, even if the curve appears biased to break out lower.”

August 26 Friday 1:55PM New York / 1755 GMT

	Price	Current Yield %	Net Change (bps)
Three-month bills	2.785	2.843	0.043
Six-month bills	3.1475	3.2417	0.018
Two-year note	99-181/256	3.4028	0.029
Three-year note	99-60/256	3.3986	0.035
Five-year note	99-174/256	3.1948	0.038
Seven-year note	99-240/256	3.135	0.025
10-year note	97-140/256	3.0371	0.013
20-year bond	99-12/256	3.4413	-0.020
30-year bond	95-252/256	3.2096	-0.024

DOLLAR SWAP SPREADS
	Last (bps)	Net Change (bps)
US 2-year dollar swap spread	32.75	-0.50
US 3-year dollar swap spread	14.00	0.00
US 5-year dollar swap spread	7.75	0.50
US 10-year dollar swap spread	8.50	0.25
US 30-year dollar swap spread	-28.75	0.50

(Reporting by David Randall;
Editing by Chizu Nomiyama, Nick Zieminski and Leslie Adler)

Gold slides after Powell doubles down on tight monetary policy

Aug 26 (Reuters) – Gold fell over 1% on Friday after Federal Reserve Chair Jerome Powell in his speech at Jackson Hole said the US economy needed a tight monetary policy until inflation was under control.

Powell said this could mean slower growth, but did not hint at what the Fed might do at its September policy meeting.

Spot gold fell 1.2% to USD 1,738.14 per ounce by 1335 p.m. ET, en route to fall for a second straight week, down about 0.4% so far. US gold futures settled 1.2% lower at USD 1,749.8.

“Equities and metals are suffering from Powell’s unvarnished reminder that rates will need to be high for longer and that perhaps 75 bps is the default for September unless the totality of the data suggests otherwise,” said Tai Wong, a senior trader at Heraeus Precious Metals in New York.

Gold is considered a hedge against economic risks, but rising interest rates dent the appeal of the non-yielding asset.

Since there was no dovish pivot from Powell, gold will continue to face pressure as it will have to deal with higher interest rates, said Philip Streible, chief market strategist at Blue Line Futures in Chicago.

US two-year Treasury yields briefly popped to their highest since October 2007 before stabilizing near two-month highs, while the dollar rebounded from an initial dip.

Standard Chartered analyst Suki Cooper said in a note that while gold could trend lower in the coming months, most of the downside risk was already priced in.

Bullion could also benefit from “tailwinds including recession risk, a price-responsive physical market, already scaled-back positioning and elevated inflation,” Cooper added.

Physical gold premiums in China jumped this week to their highest since last October, while demand cooled in India.

Spot silver dropped 2.02 % to USD 18.89 per ounce.

Platinum fell 2.04% to USD 863.00, and palladium fell 1.3% to USD 2,119.23.

(Reporting by Ashitha Shivaprasad, additional reporting by Arpan Varghese and Rahul Paswan in Bengaluru; editing by Jonathan Oatis, Shailesh Kuber and Vinay Dwivedi)

Philippines probes telecoms firms over anti-competition complaint

MANILA, Aug 26 (Reuters) – The Philippines’ antitrust agency said on Friday it will investigate allegations that its major telecoms firms abused their dominant market positions to make it difficult for a China-backed newcomer to connect to their networks.

The agency said it would open a preliminary inquiry into the allegations made by DITO Telecommunity (DITO), which launched in 2021 and is 40% owned by China Telecom, against the country’s two other networks, PLDT (TEL) and Globe Telecom (GLO).

DITO and Globe said in separate statements that they welcomed the probe. PLDT did not immediately respond to a request for comment.

DITO, which filed the complaint on Aug. 8, has alleged that its rivals failed to provide “sufficient interconnection capacity”, making it difficult for its subscribers to call the two networks. Globe and PLDT have denied this in previous statements.

Separately, Globe and PLDT have claimed they have detected “fraudulent calls” from DITO’s network to their subscribers, which DITO denies. Globe has said it is seeking a 622 million pesos (USD 11 million) fine from DITO related to the calls.

DITO has around 11 million subscribers in the Philippines, a country of more than 110 million people. PLDT and Globe had 69.4 million and 87.4 million mobile subscribers, respectively, as of end-June.

DITO is controlled by Dennis Uy, a tycoon and the top campaign donor of former Philippines President Rodrigo Duterte. His firm has insisted there was no conflict of interest.

(USD 1 = 56.05 Philippine pesos)

(Reporting by Neil Jerome Morales; Editing by John Geddie)

Global equity funds see large outflows on slowdown worries

Aug 26 (Reuters) – Global equity funds witnessed their biggest weekly capital withdrawals in five weeks in the week to Aug. 24 on concerns that rate hikes would lead to a recession.

Investors were also wary ahead of the Federal Reserve’s annual Jackson Hole symposium, which could offer insights into the central bank’s future policy path.

According to Refinitiv Lipper, investors disposed of a net USD 10.48 billion worth of global equity funds in the week, which compares with just USD 3.15 billion worth of purchases in the previous week.

Fed Chair Jerome Powell is due to deliver his keynote speech to the symposium on Friday, and investors are likely to scrutinize the comments for any indication on how steep future interest rate hikes would be.

All major regions witnessed equity fund outflows with investors exiting a net USD 5.17 billion, USD 2.19 billion and USD 2.11 billion from Europe, the United States and Asia, respectively.

Among sector funds, tech, industrials and consumer discretionary faced outflows of USD 2.04 billion, USD 735 million and USD 595 million, respectively. Financials sector funds obtained USD 1.85 billion, while utilities received USD 588 million.

Bond funds also recorded withdrawals, amounting to USD 8.41 billion, the biggest for a week since June 29.

Investors sold high yield funds of USD 5.98 billion, marking their biggest weekly net selling since June 15, while government and short- & medium-term funds saw outflows of USD 894 million and USD 153 million, respectively.

Meanwhile, weekly net selling in money market funds eased to a three-week low of USD 375 million.

Commodities funds’ data showed precious metal funds suffered outflows of USD 354 million in a ninth straight week of net selling, while energy funds had a second weekly outgo, although a marginal USD 5 million.

An analysis of 24,457 emerging market funds showed investors sold equity funds of USD 1.34 billion, posting the biggest outflow in five weeks, while also exiting bond funds to the tune of USD 1.05 billion, after three weeks of buying in a row.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Kim Coghill)

Germany leads European shares lower on sentiment survey, Powell speech

Aug 26 (Reuters) – European shares tumbled on Friday, with Germany in the lead as investors fretted over downbeat consumer sentiment data in the continent’s biggest economy, while a reiterated hawkish stance from Federal Reserve Chair Jerome Powell added to fears.

The pan-European STOXX 600 slid 1.7%, closing down 2.6% for the week. Germany’s DAX index ended 2.3% lower, with a weekly fall of 4.2% making it its worst week in more than two months.

German consumer sentiment is set to hit a record low for the third month in a row in September, a new survey showed, as households brace for surging energy bills. In contrast, French consumer confidence unexpectedly rose in August.

“German recession fears just became more intense with the sentiment index falling to a new record low… Germany is particularly reliant on external energy producers, and people are saving at the highest in 11 years, showing consumers are taking precautions in case of the worst case scenario,” said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.

Comments from Powell did not offer any respite to jittery stock markets as he noted the US economy would need tight monetary policy “for some time” before inflation was under control, which meant slower growth, a weaker job market and “some pain” for households and businesses.

“In less than nine minutes, Chair Powell jawboned the market to avoid discounting their steadfast resolve to move into very restrictive territory and stay there as long as necessary,” said Jeff Klingelhofer, co-head of investments at Thornburg Investment Management.

“Chair Powell threw cold water on the market’s belief that the Fed will move to marginally restrictive policy and then pause.”

Euro zone bond yields rose further following Powell’s comments. Borrowing costs across the bloc had already been pushed higher after a Reuters report that the European Central Bank could debate a 75 basis point rate hike in September.

Elsewhere, regulator Ofgem said British energy bills would rise an eye-watering 80% to an average of 3,549 pounds (USD 4,188) a year from October, calling it a “crisis” that needed to be tackled by urgent government action.

The retail and travel & leisure sectors fell about 3.5% each, the most among European sectors.

Danish brewery Carlsberg slipped 0.3% after saying its Poland subsidiary could cut or halt beer production due to a lack of carbon dioxide deliveries.

Germany’s Salzgitter Maschinenbau Group fell 2.0% after private equity firm Dymon Asia said it was buying the lifting equipment maker’s Singapore unit.

Shares of Britain’s Micro Focus nearly doubled after Canada’s OpenText agreed to buy the enterprise software maker in an all-cash deal for USD 6 billion.

(Reporting by Anisha Sircar and Shreyashi Sanyal in Bengaluru: Editing by Sriraj Kalluvila and Alex Richardson)

Japan’s Nikkei ends slightly higher ahead of Powell speech

TOKYO, Aug 26 (Reuters) – Japanese shares ended slightly higher on Friday after erasing some of their earlier gains, as cautious investors awaited a speech by Federal Reserve Chair Jerome Powell for fresh clues about the path of US monetary policy tightening.

The Nikkei share average ended up 0.57% at 28,641.38, well off the morning session’s high of 28,792.93.

The broader Topix also gave up some of its early gains to close 0.15% higher at 1,979.59.

The market were buoyed by a tech-led rally on Wall Street overnight, amid lower US bond yields as several Fed officials were non-committal about the size of interest rate hike they will approve at their meeting next month.

Powell will speak at the Fed’s annual symposium in Jackson Hole, Wyoming at 1400 GMT.

“The desire to close out positions may be strengthening,” a market participant at a domestic securities company said.

“It’s a difficult environment to take new positions,” a market participant at another securities firm said.

The Nikkei, however, still posted a 1% weekly drop, after a rally for three weeks.

Of the Nikkei’s 225 component stocks, 134 rose versus 83 that fell, while eight were flat.

Industrials made up the best performing sector, followed by basic materials and tech. Energy was the biggest loser, following an overnight decline in crude oil prices.

Chipmaking equipment maker Tokyo Electron was the biggest mover by index points, adding 35 points to the benchmark with a 2.23% gain.

Uniqlo store operator Fast Retailing contributed 33 points, with a 1.1% advance.

Startup investor SoftBank Group also rose 1.19%. That’s after major holding Alibaba rallied following a Wall Street Journal report that the United States and China were nearing an agreement allowing American accounting regulators to travel to Hong Kong to inspect audit records of US-listed Chinese companies.

(Reporting by Tokyo markets team; Editing by Subhranshu Sahu and Rashmi Aich)

Oil prices edge up on signs of improving demand

KUALA LUMPUR, Aug 26 (Reuters) – Oil prices rose as much as USD 1 on Friday on signs of improving fuel demand, although further gains were capped as the market awaited clues from the US Federal Reserve chairman on the outlook for rate hikes in a speech later in the day.

Brent crude futures climbed 87 cents, or 0.9%, to USD 100.21 a barrel by 0410 GMT. US West Texas Intermediate (WTI) crude futures also rose 88 cents, or 0.9%, to USD 93.40 a barrel. Both contracts jumped in early trade by as much as USD 1 after slumping about USD 2 on Thursday.

Despite uncertainty over the pace of rate hikes in the United States to tackle soaring inflation, worries about oil demand destruction eased this week, putting the benchmark oil contracts on track for gains of around 3% for the week.

ANZ Research analysts said comments from some US central bank officials ahead of Chairman Jerome Powell’s speech on Friday had cast a cloud over the economic backdrop.

“Nevertheless, signs of strong demand are emerging,” ANZ Research analysts said in a note, pointing to data on encouraging road traffic growth.

“The most recent Congestion Index data from TomTom shows Asia Pacific, European and North American traffic levels all posting strong weekly growth in the week to August 24.”

Congestion levels in China also rebounded, ANZ said, pointing to Baidu data.

The prospect of the Organization of the Petroleum Exporting Countries (OPEC) curbing output to offset production increases from Iran also supported prices.

Sources told Reuters that potential OPEC+ production cuts mooted this week by Saudi Arabia are likely to coincide with the return of Iran to oil markets should it clinch a nuclear deal with the West.

Crude markets may remain supported, said Tina Teng, an analyst at CMC Markets, as the supply cartel signalled it would cut output if oil prices weaken.

Tehran is reviewing Washington’s response to a European Union-drafted final offer to revive a nuclear deal, with the EU expecting a response soon. It is unclear, though, how quickly Iranian oil exports would resume if a deal is reached.

If sanctions are lifted against Iran, it could take around a year and a half for it to reach its full capacity of 4 million barrels per day, up 1.4 million bpd from its current output.

(Reporting by Sonali Paul in Melbourne and Emily Chow in Kuala Lumpur; Editing by Himani Sarkar and Tom Hogue)

Asian shares rise as hopes for audit deal boost China tech

SYDNEY, Aug 26 (Reuters) – Asian shares rose on Friday, buoyed by news of possible progress for China and the United States to hammer out an audit deal, while traders anxiously awaited a speech from Federal Reserve Chair Jerome Powell on rate-hike path later in the day.

MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.6% in early Asia trade, driven by Chinese tech shares listed in Hong Kong that surged 1.3%. Hong Kong shares of Alibaba were up 4%.

That helped the Asian index eke out a 0.4% gain for the week.

The Wall Street Journal reported on Thursday that Washington and Beijing are nearing an agreement that allows American accounting regulators to travel to Hong Kong to inspect audit records of US-listed Chinese companies.

Hong Kong’s Hang Seng Index .HSI rose 0.7%, Japan’s Nikkei advanced 0.9%, while South Korea gained 0.5%.

Overnight on Wall Street, stocks rose while US Treasury yields slipped, as investors digested comments from Fed officials who continued hammering the point they will drive rates up and keep them there until inflation has been squeezed from the economy.

The S&P 500 climbed 1.4% and the Nasdaq gained 1.67%, lifted by gains in Nvidia and other technology-related stock.

“So it is a fair bet that the Powell speech will take a similar turn today,” said Robert Carnell, regional head of Research, Asia-Pacific, at ING.

“If so, the most likely market reaction would be a rise in yields at both the front and back of the yield curve, a sell-off in equities and dollar strength as markets seem to have been positioning themselves for a more supportive set of comments.”

Investors have pared back expectations the Fed could tilt to a slower pace of rate hikes as US inflation remains at 8.5% on an annual basis, well above the Fed’s 2% target. But Powell’s speech due on Friday will be scrutinised for any indication that an economic slowdown might alter the Fed’s strategy.

Interest rate futures now imply a 60% chance of a 75 bp Fed hike in September FEDWATCH.

“The experience of Jackson Hole 2021 will make the Fed Chair cautious in making the same error twice. That itself argues against his messaging looking too far forward, or, erring on the dovish side,” said Alan Ruskin, macro strategist at Deutsche Bank.

“Markets have however largely taken this on board, which risks a small, short-lived ‘buy the rumour, sell the fact’ technical bond rally, sell the USD, and relief equity trade.”

In the currency markets, the dollar was little changed against a basket of major currencies. The commodity-exposed Australian and New Zealand dollars fell 0.4% versus the greenback after a strong rebound in the previous day.

The yield on benchmark 10-year Treasury notes were up slightly to 3.0425%, compared with its US close of 3.024% the previous day.

The two-year yield, which rises with traders’ expectations of higher Fed fund rates, touched 3.3803%, compared with a US close of 3.374%.

Oil prices recovered some ground on Friday after slumping by about USD 2 a barrel in the previous session on the possible return of sanctioned Iranian oil exports and on worries from rising US interest rates. nL1N30105R

Brent crude LCOc1 rose 0.5% in early Asia trade to USD 99.87 per barrel and US crude was up by a similar margin to USD 96.01 a barrel.

Gold was slightly lower. Spot gold was traded at USD 1755.4698 per ounce.

(By Stella Qiu, Editing by Sam Holmes)

Hawkish Fed, strong US economy will keep dollar king of currencies

NEW YORK, Aug 25 (Reuters) – The US dollar surged this year to its highest in two decades and there are still plenty of bulls betting the greenback has legs to keep climbing thanks to a hawkish Fed and economic news that should keep America ahead of other major economies.

The dollar is up about 13.5% this year against a basket of peers, on pace for its strongest year in nearly 40 years, while the euro has been crushed about 12% to below parity, a level untouched in two decades.

Lifted by the US Federal Reserve aggressively hiking rates and buyers seeking a safe-haven asset from the Russia-Ukraine war and other areas of global uncertainty, the dollar has been a sure-fire bet for investors.

The greenback has risen against every G10 currency, up 19% against the Japanese yen and 15% versus the British pound.

“We have been structurally dollar bullish for something like the last 15 months … it feels a bit long in the tooth but we are never finding reasons to change,” said Credit Suisse Group AG’s Global Head of FX Strategy Shahab Jalinoos.

JPMorgan analysts pointed to “encouraging” recent US economic data on inflation and payrolls, compared with “vulnerability” growing in Europe and China, as a key reason for the dollar’s continued rise.

The US consumer price index rose at an annual rate of 8.5% in July, a decline from the 9.1% reported for June, while an unexpected acceleration in job growth in July diminished fears the economy was in recession.

The same cannot be said about other major economies.

The Bank of England forecasts that Britain will enter recession later this year as surging energy bills help drive inflation higher into the double digits.

Europe is also now approaching double digit inflation, driven in large part by the continuing Russia-Ukraine conflict and resulting energy crisis. Economists see risks that the continent could get embedded in a hard-to-break wage-price spiral, making investors reluctant to buy the euro even after its steep decline.

“The biggest concern in Europe is energy … that is keeping the dollar up and the European currencies under pressure,” said Ugo Lancioni, head of currency management at Neuberger Berman.

Meanwhile, China’s central bank this month cut key lending rates in a surprise move to revive demand as the economy unexpectedly slowed in July, with factory and retail activity squeezed by Beijing’s zero-COVID policy and a property crisis.

In the rest of the world, a strong dollar can help some other countries with exports and their balance of trade, but it exacerbates other problems: Oil and other dollar-denominated commodities cost more for buyers using other currencies and it becomes harder for companies and governments to service dollar debt.

“Much of the dollar’s dominance is due to simply seeing how the US is able to cushion itself from all the negativity that has developed,” said Juan Perez, director of trading at Monex USA in Washington.

RATE HIKES

Aggressive Fed rate hikes aimed at stamping out inflation have made the dollar more attractive, pushing yields on US debt higher than those in many developed countries – a trend that is likely to continue, said Rob Haworth, senior investment strategy director at US Bank Wealth Management.

“We just don’t see a change in this fundamental paradigm which is that the Federal Reserve is probably still the most aggressive of the major central banks,” he added.

Fed officials at the central bank’s annual meeting in Jackson Hole, Wyoming on Thursday reiterated that they will drive rates up and keep them there until inflation has been squeezed from the economy.

Investors remain bullish on the dollar even at its elevated levels.

Speculators’ net long positioning on the currency rose in the latest week to USD 13.37 billion, broadly in line with how large that position has been since July 2021, according to calculations by Reuters based on US Commodity Futures Trading Commission data released on Friday.

While Lancioni believes the dollar is over-valued in the long run, he is hesitant to bet against it. “It’s very difficult to go against the dollar right now,” he said.

Investors will listen carefully to Fed Chair Jerome Powell at the Jackson Hole conference on Friday for a clearer picture of his thinking on the economic outlook.

“If Powell even hints inflation is easing and supply chain challenges are easing … any words like that, combined with stronger rhetoric from the ECB, could weigh on the dollar,” said Quincy Krosby, Chief Global Strategist for LPL Financial.

(Reporting by Saqib Iqbal Ahmed; editing by Megan Davies, Michelle Price and David Gregorio)

Dollar pauses rally vs yen to see if Fed delivers on hawkish hype

Aug 10 (Reuters) – USD/JPY weakened on Thursday as it consolidated August’s 130.40-137.705 gains, and it could resume the rise toward July’s 24-year peak at 139.38 if Fed Chair Jerome Powell and other officials convince markets on Friday that more tightening than already expected is on the way.

Coming on the heels of back-to-back 75bp rate hikes in July and June — and the possibility of a third such move in September — the bar for a dollar-bullish surprise has been raised, with futures projecting rates will peak at 3.75% in March.

A stream Fed policymaker comments has begun and will culminate in Powell’s 1000 a.m. EDT speech at the Jackson Hole symposium on Friday. It follows consistent messaging since the July meeting that taming inflation is the bank’s primary focus, leading markets to expect more of the same.

A growing consensus that inflationary pressures may be structurally persistent due to de-globalization, demographics and geopolitical risks feeding supply shortages reinforces those expectations.

The caveat to the bullish USD/JPY view is the diminishing returns for those who bought after the last two rate hikes.

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

2024 Mid-Year Economic Briefing: Navigating the Easing Cycle

Investing with Love: A Mother’s Guide to Putting Money to Work

Investor Series: An Introduction to Estate Planning

Inflation Update: Steady and mellow

Philippines Trade Update: Growing exports lead to stronger trade balance