Precious metals fall as dollar firms, gold hits 1-week low

Aug 15 (Reuters) – Gold fell over 1% to its lowest in a week on Monday amid sharp declines across precious metals due to a stronger dollar, with concerns over further rate hikes by the US Federal Reserve adding to pressure on bullion.

Spot gold slid 1.2% to USD 1,780.99 per ounce by 1:44 p.m. ET (1744 GMT) having hit its lowest since Aug. 8 earlier in the session. US gold futures settled nearly 1% lower at USD 1,798.10.

The dollar index rose 0.8%, making gold and other commodities priced in the greenback more expensive for overseas buyers.

“Gold has stuck around the USD 1,800 handle, and today a stronger dollar is pushing gold and the entire commodity complex lower,” said RJO Futures senior market strategist Bob Haberkorn.

“It is a cautious trade right now in gold, as the Fed is going to continue raising rates … investors do see rate hikes in the horizon.”

Investors await minutes from the Fed’s July meeting on Wednesday for cues on the likely magnitude of rate hikes in the coming months.

Higher rates tend to increase bond yields, raising the opportunity cost of holding non-yielding bullion.

Gold and silver prices are also lower on demand concerns after weak economic data from China, said Jim Wyckoff, senior analyst at Kitco Metals in a note.

Industrial output in China, the world’s top consumer of gold, expanded at 3.8% in July from a year earlier, slowing from a 3.9% rise in June.

Bullion attracts safe-haven flows during recession worries, but a slowing economy could potentially lead to low demand for physical gold.

Spot silver fell 2.5% to USD 20.29 per ounce, platinum dipped over 2.9% to USD 934.16, while palladium dropped 3.1% to USD 2,153.26.

“The looming likelihood of a recession in Europe has the potential to reduce industrial demand for silver,” Rupert Rowling, a market analyst at Kinesis Money, said in a note.

(Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Vinay Dwivedi and Marguerita Choy)

China, US data renew EUR/USD parity risk

Aug 15 (Reuters) – EUR/USD fell to a five-session low on Monday after disappointing US and Chinese data rekindled worries about slower global growth, renewing the risk of a drop below parity as technicals also flash warnings to longs.

Dismal Chinese retail sales and industrial output data combined with a PBOC rate cut and massive downside miss in the Empire State manufacturing index heightened worries about global growth while euro zone struggles with potential energy shortages and falling Rhine river levels impacting trade.

Euro zone and global interest rates reacted bearishly. September 2023 Euribor prices rallied sharply as investors priced in a lower terminal ECB rate. The dollar’s yield advantage increased as German-US 2-year spreads widened, weighing down.

Technicals highlight downside risks. EUR/USD fell below the 10- and 21-day moving averages as well as the base of the rising wedge pattern on daily charts. Falling daily and monthly RSIs reinforce bearish signals.

Investors now await a slew of Fed speakers this week. A reiteration of hawkish risks would buoy the dollar.

Should risk aversion persist, EUR/USD could weaken, putting July’s low in focus.

(Christopher Romano is a Reuters market analyst. The views expressed are his own)

Asian bonds see first monthly foreign inflow in five months

Aug 15 (Reuters) – Overseas investors were net buyers of bonds from emerging Asian markets, excluding China, in July on hopes the United States might slow the pace of interest rate hikes as its economy feels the heat, while concerns over higher inflation levels subsided.

Foreigners moved a combined net total of USD 2.39 billion into Indonesian, Thai, Malaysian, South Korean and Indian bonds last month, marking their first month as net buyers since February, regulatory and bond market associations’ data showed.

“Some investors are adding back exposures to Asia bonds,” said Duncan Tan, a strategist at DBS Bank.

“Pressures have eased recently due some market expectations of a dovish Fed pivot and an attendant pull-back in the broad US Dollar,” he added, referring to speculation the US Federal Reserve might relax its pace of monetary policy tightening.

Data showed last month the US economy unexpectedly contracted in the second quarter as business spending declined and growth in consumer spending dropped to a two year low.

Investors also scaled back expectations for the size of a Federal Reserve rate hike next month, as US inflation slowed in July.

Foreigners purchased South Korean bonds worth USD 3.56 billion last month in their biggest net buying since December, while Indonesian debt attracted just USD 79 million, after four months of outflows in a row.

South Korean economic growth unexpectedly picked up in the second quarter, boosted by strong consumption.

However, foreigners sold USD 794 million worth of bonds in Malaysia, while India and Thailand recorded outflows of USD 258 million and USD 201 million, respectively.

As the market focus shifts from inflationary concerns to worries over growth, Asian bonds could attract some inflows, analysts said.

“We expect the large foreign bond outflows of 1H to reverse into small inflows in 2H” DBS’s Tan said.

(Reporting by Gaurav Dogra in Bengaluru; Editing by Mark Potter)

Dollar gains on safety flows after China data, yuan eases on rate cut

LONDON, Aug 15 (Reuters) – The safe-haven US dollar rose on Monday after a new batch of disappointing data from China bolstered global recession worries, while the yuan weakened following a People’s Bank of China surprise rate cut.

Chinese industrial output, retail sales and fixed-asset investment all fell short of analyst estimates on Monday, as a nascent recovery from draconian COVID-19 lockdowns faltered.

“Of course, bad data from China also weighs on recession worries for the rest of the world,” said Ipek Ozkardeskaya, market strategist at Swissquote. That pushed down the euro against the greenback, she added.

The dollar was also supported by Federal Reserve policymakers’ hawkish comments in response to early signs that US inflation may have peaked.

Richmond Fed President Thomas Barkin told CNBC on Friday that he would like to see inflation running at the Fed’s 2% target for “some time” before stopping rate hikes.

“The euro is slowly finding its way back down towards parity after the spike last week. It is too early for the Fed to take its foot off the brake, despite the drop in inflation,” said Jens Nærvig Pedersen, chief analyst, FX and rates strategy at DanskeBank. He maintained a bullish US dollar view.

The onshore yuan eased to a one-week low of 6.7696 per dollar, compared with the previous close of 6.7430, after the People’s Bank of China unexpectedly lowered borrowing costs on medium-term policy loans and a short-term liquidity tool for the second time this year.

“Despite the warning of inflation risk and flush liquidity conditions, the dominant downside risks from the COVID spread and property-sector rout prompted the PBOC to cut rates to stimulate demand,” said Ken Cheung, chief Asian FX strategist at Mizuho Bank.

The US dollar index against six peers rose 0.25% to 105.96, consolidating near the middle of its range this month.

Last week, fueling investor hopes for less aggressive Fed tightening, US data showed the first decline in import prices for seven months, following statistics showing US consumer and producer prices also cooling.

Analysts will scour minutes of the Fed’s most recent meeting, due to be released on Wednesday, for more clues on policymakers’ thinking, while retail sales data on Friday will give some fresh insight on the economy’s health.

Money markets now price 43.5% odds of another 75 basis-point rate hike by the Federal Open Market Committee in September, versus 56.5% probability of a slowing in the pace of tightening.

The euro eased 0.24% to USD 1.0232, weighed down by Europe’s struggles with the war in Ukraine, the hunt for non-Russian energy sources and a hit to the German economy from scant rainfall.

(Editing by Jacqueline Wong)

Current conditions support a bigger dollar rise

Aug 15 (Reuters) – High inflation, rising stock markets, a resilient economy, bullish techs and the belief that the U.S. currency has peaked following a very modest dip in CPI are the recipe for a bigger dollar.

At 8.5% yy in July, U.S. inflation is more than four times the Federal Reserve’s target and interest rates are expected to reach 3.5% this year in order to suppress it.

But the strength of the U.S. jobs market and soaring stock markets are giving the Fed greater leeway to lift interest rates faster and possibly further than currently expected.

Following the CPI data, speculators slashed bets on dollar rising from 17.4 billion to 13 billion. When U.S. interest rates were last at 2.5%, bets on it rising exceeded 39 billion.

Despite heavy selling, the dollar failed to break any major tech supports and is entrenched in an uptrend. It’s risen 17.5% since taper talk emerged last year and could rise much further without the restraint of big speculative bets.

Volatility has tumbled which, coupled with soaring stocks, is ground for carry trades, making the dollar – already the highest-yielding major currency – more attractive.

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

Nikkei hits over 7-month high on Wall Street optimism, robust earnings

TOKYO, Aug 15 (Reuters) – Japan’s Nikkei share average jumped on Monday to its highest in more than seven months, supported by Wall Street’s gains at the end of last week, and as upbeat corporate earnings lifted risk appetite and prompted investors to scoop up beaten-down stocks.

The Nikkei rose 1.14% to 28,871.78, extending gains to a second session, while the broader Topix advanced 0.6% to 1,984.96.

Wall Street closed higher on Friday, as signs that inflation may have peaked in July increased investor confidence a bull market could be underway and spurred the S&P 500 and the Nasdaq to post their fourth straight weekly gain.

“There was optimism in the U.S. equities market in the previous session. That has promoted investors to make bets on stocks that had been sold off but reported strong earnings,” said Ikuo Mitsui, a fund manager at Aizawa Securities.

Investors appeared to show scant response to data that signalled Japan’s economy rebounded at a slower-than-expected pace in the second quarter from a COVID-induced slump.

“Investors are now trying to gauge whether the market has recovered, or there would be another retreat. But today it seems they are making positive bets.”

Shares of Pan Pacific International Holdings surged 11.48% after the operator of discount store Don Quijote raised its annual profit forecast.

Drugstore chains also traded higher, with Matsukiyococokara 3088.T rising 5.64% after the company reported gains in its quarterly profit and announced a share buyback.

Peer Sundrug jumped 10.77% after increasing its dividend payout forecast.

Daiichi Sankyo surged 14.52% after U.S. drugmaker Seagen said an arbitrator had ruled in favour of the Japanese drugmaker over an agreement between the two companies for using its drug technology.

Daiichi Sankyo was the second largest boost to the Nikkei, after technology investor SoftBank Group 9984.T, which rose 5.17%.

Uniqlo clothing store owner Fast Retailing climbed 0.92%.

Among losers, shares of Snow Peak 7816.T tanked 14.8% after the camping gear retailer cut its annual profit forecast.

(Reporting by Junko Fujita; Editing by Sherry Jacob-Phillips and Subhranshu Sahu)

Hedge funds strike it right on dollar, yield curve: McGeever

ORLANDO, Fla., Aug 15 (Reuters) – Hedge funds slashed their long dollar positions and bet harder on a flatter yield curve, two macro trades that have come up trumps.

The dollar last week fell to its lowest level on a broad basis since June, while the yield curve inversion reached levels not seen in over 20 years.

The question now for currency and bonds speculators is whether they buy into the notion that inflation has peaked, the economy will achieve a soft landing, and the Federal Reserve won’t tighten monetary policy so aggressively.

That’s a scenario that could keep the dollar under pressure, but re-steepen the curve and get the 10-year yield back above the two-year yield.

The latest Commodity Futures Trading Commission report shows that funds cut their net long dollar position against G10 currencies in the week ending August 9 by USD 4.4 billion to USD 13 billion.

That is the biggest reduction since January, and net longs now are the lowest since April.

The move was driven by USD 1.7 billion shifts in both sterling and the Japanese yen. Funds’ net long dollar position against the yen is now just USD 2.3 billion, the smallest since March last year, and their net short sterling position is down to USD 2.6 billion.

The dollar weakened almost 1% last week and is down 4% in the last month. The dollar’s outlook now is certainly more balanced.

“Our sense remains that the dollar rally will resume before too long. It will take a lot more good news on inflation before the Fed changes tack,” Capital Economics strategists wrote on Friday.

INFLATION PEAK?

In bonds, the trend remains funds’ friend as the 10-year Treasury yield fell as much as 50 basis points below the two-year yield, resulting in the most inverted curve since 2000.

CFTC data shows that speculators increased their net short two-year Treasuries position for a third week, by more than 70,000 contracts to 172,221. That is now their biggest bet against two-year Treasuries since July last year.

In the same week, they trimmed their net short 10-year bond position by just over 9,000 contracts to 286,478 contracts.

A short position is essentially a bet that an asset’s price will fall, and a long position is a bet it will rise. In bonds, yields fall when prices rise, and move up when prices fall.

Hedge funds’ hawkish view on the Fed was also clearly reflected in their rates futures trades.

In the week to Aug. 9 they increased their net short position in three-month ‘SOFR’ rates futures to a record 797,342 contracts. The net short has doubled in less than three months.

This suggests speculators are betting heavily on the Fed keeping its foot on the rate-hiking pedal, perhaps pushing the fed funds policy rate well into ‘restrictive’ territory to make sure it gets inflation back down.

But consumer and producer price inflation figures for July released after the cutoff for the latest CFTC report showed a notable easing in price pressures. It’s only one month, but some investors’ outlook is changing.

“In the near term, risk assets should trade well, as we’re getting past peak inflation worry,” Citi strategists wrote on Friday.

(The opinions expressed here are those of the author, a columnist for Reuters.)

Oil sheds more than $1 as China data disappoints

SINGAPORE, Aug 15 (Reuters) – Oil prices dropped for a second session on Monday as weak China economic data triggered concerns about demand at the world’s largest crude importer while the head of the world’s top exporter, Saudi Aramco, said it was ready to ramp up output.

Brent crude futures fell USD 1.14, or 1.2%, to USD 97.01 a barrel by 0631 GMT after settling 1.5% lower on Friday. US West Texas Intermediate crude was at USD 91.03 a barrel, down USD 1.06, or 1.2%, after a 2.4% drop in the previous session.

China’s economy unexpectedly slowed in July, while refinery output slipped to 12.53 million barrels per day, its lowest since March 2020, government data showed.

“The official data suggests that oil demand is weakening as domestic logistics and consumer demand are deterred by the record high oil pump prices,” said Heron Lin, an economist at Moody’s Analytics.

Oil demand could stay on the downtrend for the rest of the year as the threat of COVID-19 restrictions encourages precautionary savings and reduces oil consumption, he added.

Saudi Aramco stands ready to raise crude oil output to its maximum capacity of 12 million bpd if requested to do so by the Saudi Arabian government, Chief Executive Amin Nasser told reporters on Sunday.

“We are confident of our ability to ramp up to 12 million bpd any time there is a need or a call from the government or from the ministry of energy to increase our production,” Nasser said. He added that China’s easing of COVID-19 restrictions and a pickup in the aviation industry could add to demand.

Oil prices rebounded more than 3% last week after a damaged oil pipeline component disrupted output at several offshore Gulf of Mexico platforms and as investors pared back expectations for interest rate increases in the United States.

Producers had moved to reactivate some of the halted production after repairs were completed late Friday, a Louisiana official said.

Energy services firm Baker Hughes Co. (BKR) reported on Friday that US oil rig count rose by 3 to 601 last week. The rig count, an early indicator of future output, has been slow to grow with oil production only seen recovering from pandemic-related cuts next year.

Global oil markets remained supported by tight supplies in the run-up to EU sanctions on Russian crude oil and refined product supplies this winter.

More supplies could come if Iran and the United States accept an offer from the European Union to revive the 2015 nuclear deal, which would will lift sanctions on Iranian oil exports, analysts said.

(Reporting by Florence Tan; Editing by Kenneth Maxwell and Muralikumar Anantharaman)

Gold slips on firmer dollar, Fed rate-hike fears

Aug 15 (Reuters) – Gold prices slipped on Monday as the dollar rebounded, with expectations of sharp interest rate hikes from the Federal Reserve further pressuring the yellow metal.

Spot gold was down 0.6% at USD 1,791.33 per ounce, as of 0704 GMT, after rising about 1.6% last week. US gold futures fell 0.5% to USD 1,807.30.

The dollar erased earlier losses to strengthen 0.2% against its rivals, making gold more expensive for buyers holding other currencies.

“Gold looks like in some consolidation here for a week or two before resuming the upward march towards USD 2,000 yet again. There may be even some who will feel the need to take profits to offset property portfolio weakness,” said Clifford Bennett, chief economist at ACY Securities.

“Gold is likely to be supported around USD 1,785. A slip to USD 1,760 cannot be ruled out, but this would represent a fantastic long-term buying opportunity.”

Meanwhile, Richmond Fed Bank President Thomas Barkin said on Friday he wanted to raise interest rates further to bring inflation under control.

Investors will be watching out for minutes from the Fed’s last monetary policy meeting due on Wednesday for more clues on future rate hikes.

Traders were pricing in around a 44.5% chance of a 75-basis-point rate hike by the Fed in September and a 57.5% chance of a 50 bps increase.

Although gold is seen as a hedge against inflation, rising US interest rates dim non-yielding bullion’s appeal.

“Gold recorded its fourth consecutive weekly gain amid easing inflationary pressures. However, those same issues may ultimately be a negative,” ANZ analysts said in a note.

On the technical front, spot gold is biased to retest a support USD 1,784 per ounce, a break below which may cause a fall into a range of USD 1,767-USD 1,773, according to Reuters technical analyst Wang Tao.

Elsewhere, spot silver dropped 1.2% to USD 20.57 per ounce, platinum fell 1.3% to USD 950.37 and palladium was steady at USD 2,222.23.

(Reporting by Brijesh Patel in Bengaluru; Editing by Subhranshu Sahu and Vinay Dwivedi)

China may spook the market with unexpected rate cuts

Aug 15 (Reuters) – China unexpectedly lowered two of its benchmark lending rates on Monday but the policy-easing move could have unintended effects on sentiment. The yuan slipped in reaction while Chinese stocks reversed mild opening losses.

The one-year medium-term lending facility (MLF) rate was lowered by 10 basis points, as was the 7-day reverse repo rate, while some maturing loans were allowed to expire. All analysts polled by Reuters had expected the MLF to be held.

Chinese policymakers have been reluctant to ease monetary conditions, in light of decades-high inflation threatening developed economies. China’s July consumer prices rose at their fastest annual pace in two years.

Monday’s sudden rate cuts, in the wake of very weak bank lending data Friday and forecast-missing retail sales, might make markets nervous. It suggests Beijing is getting more worried about the economic impact of maintaining its zero-COVID strategy amid a languishing property market.

Yuan investors might be fretting too. The rally sparked by China’s rate cuts has sent USD/CNH to 6.7627 and out of the daily Bollinger downtrend channel. If it ends Monday above 6.7715, the uptrend channel will be engaged. That signal could inspire USD bulls to add to bets for the 6.8000 barrier to be reclaimed and for May’s 20-month high of 6.8391 to be challenged soon.

(Ewen Chew is a Reuters market analyst. The views expressed are his own.)

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