Stocks, oil struggle to hold ground as minutes show Fed rally around rate hikes

WASHINGTON, July 6 (Reuters) – Wall Street ticked upward while oil continued to slide on Wednesday as investors juggled concerns over inflation versus a recession after Federal Reserve minutes showed officials rallied around a large rate hike at their June meeting.

All three major stock indices ended higher after the release of the Fed minutes, which showed officials agreeing that the inflation outlook had deteriorated and expressing concern over lost faith in the Fed’s ability to stem it. The Fed at that meeting hiked rates by 0.75% for the first time since 1994.

The Dow Jones Industrial Average was up 0.22%, the S&P 500 climbed 0.36% and the Nasdaq Composite was up 0.35%.

The MSCI world equity index, which tracks shares in 45 nations, was up 0.14%.

Oil struggled to stay above USD 100 a barrel, dropping to a 12-week low on recession fears earlier in the trading day. In the afternoon, Brent crude ended down 2.3% at USD 100.40 a barrel. That comes one day after Brent fell 9% on supply concerns.

New economic data out on Wednesday showed US job openings had fallen less than expected in May, suggesting the labor market remained tight and undercutting the notion that a recession was necessarily on its way.

If anything, the survey from the Institute for Supply Management (ISM) suggested the Fed may have to keep up its efforts to cool the economy and bring prices under control via rate hikes. Also on Wednesday, the US Labor Department reported 11.3 million job openings at the end of May, down slightly from March’s record high.

“Investors continue the tug of war between, ‘Should I be more worried about high inflation or the quickly deteriorating growth outlook?'” said Thomas Kennedy, chief investment strategist for J.P. Morgan Global Wealth Management. “Cross asset correlations over the last few weeks have suggested growth is the bigger worry for the market now.”

Energy concerns continued to push the dollar, perceived as a safe haven, ahead of other currencies.

The dollar index, which tracks the US unit versus a basket of six currencies, surged above 107, while the euro dropped below USD 1.02, the first time both currencies reached those levels since December 2002.

Benchmark US Treasury yields fell to five-week lows on Wednesday, while key parts of the yield curve remained inverted, sounding recession alarm bells.

The two-year, 10-year part of the Treasury yield curve reached minus 4 basis points, after inverting on Tuesday for the first time in three weeks, a move seen as a reliable indicator that a recession will follow in one to two years.

The two-year, five-year section, which on Tuesday inverted for the first time since February 2020, also stayed inverted.

Benchmark 10-year yields were last at 2.913%. They have fallen from 3.498% on June 14, the highest since April 2011.

“The probability of a soft landing had massively declined,” August Hatecke, the co-head of UBS Wealth Management Asia Pacific, told investors at a conference in Singapore.

(Additional reporting Sam Byford in Tokyo and Tom Westbrook in Singapore; Editing by Chizu Nomiyama , Will Dunham and Emelia Sithole-Matarise)

IMF chief says ‘cannot rule out’ possible global recession

July 6 (Reuters) – The head of the International Monetary Fund (IMF) on Wednesday said the outlook for the global economy had “darkened significantly” since April and she could not rule out a possible global recession next year given the elevated risks.

IMF Managing Director Kristalina Georgieva told Reuters the fund would downgrade in coming weeks its 2022 forecast for 3.6% global economic growth for the third time this year, adding that IMF economists were still finalizing the new numbers.

The IMF is expected to release its updated forecast for 2022 and 2023 in late July, after slashing its forecast by nearly a full percentage point in April. The global economy expanded by 6.1% in 2021.

“The outlook since our last update in April has darkened significantly,” she told Reuters in an interview, citing a more universal spread of inflation, more substantial interest rate hikes, a slowdown in China’s economic growth, and escalating sanctions related to Russia’s war in Ukraine.

“We are in very choppy waters,” she said. Asked if she could rule out a global recession, she said, “The risk has gone up so we cannot rule it out.”

Recent economic data showed some large economies, including those of China and Russia, had contracted in the second quarters, she said, noting the risks were even higher in 2023.

“It’s going to be a tough ’22, but maybe even a tougher 2023,” she said. “Recession risks increased in 2023.”

Investors are growing increasingly concerned about recession risks, with a key part of the US Treasury yield curve inverted for a second straight day on Wednesday, in what has been a reliable indicator that a recession is looming.

Federal Reserve Chair Jerome Powell last month said the US central bank was not trying to engineer a recession but was fully committed to bringing prices under control even if doing so risked an economic downturn.

Georgieva said a longer-lasting tightening of financial conditions would complicate the global economic outlook, but added it was crucial to get surging prices under control.

The global outlook was more heterogeneous now than just two years ago, with energy exporters, including the United States, on a better footing, while importers were struggling, she said.

Slower economic growth may be a “necessary price to pay” given the urgent and pressing need to restore price stability, she said.

Georgieva cited a growing risk of divergence between fiscal and monetary policies, and urged countries to carefully calibrate those actions to avert any chance of fiscal support undermining central bankers’ efforts to control inflation.

“We need to create the same strong level of coordination between central banks and finance ministries so they provide support in a very targeted way … and don’t weaken what monetary policies are aiming to achieve,” she said.

(Reporting by Andrea Shalal; Editing by Sandra Maler)

Marcos eyes economic growth of up to 8.0% during 6-yr term

MANILA, July 6 (Reuters) – Philippines President Ferdinand Marcos Jr. is aiming to expand his country’s economy by as much as 8.0% during his six-year term, the finance minister said on Wednesday, hoping to keep its place among Asia’s fastest-growing nations.

Announcing the new administration’s medium-term fiscal and growth targets, Benjamin Diokno said this year’s goal of 6.5% to 7.5% growth was a “conservative” range.

That was slightly lower than the previous government’s 7.0% to 8.0% target for 2022.

From 2023 to 2028, the Marcos administration is eyeing 6.5% to 8.0% growth, Diokno said, above the previous administration’s 6.0% to 7.0% range.

Growth under Marcos’ predecessor, Rodrigo Duterte, averaged 3.8% over his six-year term, dragged down by a pandemic-induced 9.5% contraction in 2020, the worst performance on record.

The economy was starting to pick up as COVID-19 restrictions eased following a long period of lockdown, but the outlook has since been clouded by soaring inflation and its threat to dampen consumer demand, a major driver of Philippine growth.

Diokno, who was central bank governor under Duterte, said the government was committed to arrest inflation, which was close to a four-year high in June on rising food and fuel costs.

His successor Felipe Medalla on Wednesday said the central bank may raise interest rates by an additional 100 basis points this year to tame price pressures.

Marcos took office last week and has appointed himself agriculture minister, pledging to boost rice and corn production to cut reliance on imports to mitigate the effects of a looming global food crisis.

Diokno said the government has fiscal space to support growth with the budget deficit to be brought down to 3.0% of gross domestic product from 2026 to 2028. The previous government’s deficit was equal to 8.6% of GDP in 2021.

(Reporting by Karen Lema and Enrico dela Cruz; Editing by Martin Petty)

China foreign minister seeks ‘new golden era’ of ties with Philippines

MANILA, July 6 (Reuters) – China’s foreign minister said on Wednesday Beijing was ready to work with new Philippines President Ferdinand Marcos Jr to help usher in what he called a “new golden era” in the countries’ relationship.

That relationship “turned a new page” with the election of Marcos, said Wang Yi, who is visiting Southeast Asia at a time when Philippines ally the United States is seeking to boost its influence in the region.

“We highly appreciate President Marcos’ recent commitment to pursuing friendly policy towards China and we speak highly of these recent statements that have sent out a very positive signal to the outside world,” Wang said in a meeting with his Philippines counterpart, Enrique Manalo.

Many analysts saw the election of Marcos, the son of the late strongman ousted in a 1986 uprising, as more favourable to China than the United States, but the new president has been clear in public statements that close ties with Beijing will not be at the expense of sovereignty.

China’s assertiveness and conduct in waters off the Philippines has long been a source of diplomatic tension, but Marcos on Tuesday said he wanted their relationship to be about more than a maritime dispute. nL4N2YM1OX

Wang said China was one with Marcos in his desire to deepen and strengthen ties.

“We are ready to work towards that same direction with the Philippines and to plan for our cooperation going forward in all areas,” Wang said.

“I’m confident that with the two sides working together, we can surely open a new golden era for the bilateral relationship.”

Marcos has a tricky balancing act in boosting business ties with China while maintaining a close relationship with defence ally the United States, a former colonial power that still holds considerable sway among the military and the public.

(Reporting by Karen Lema; Editing by Martin Petty)

((karen.lema@thomsonreuters.com; +632 841-8938;))

BSP governor says may raise rates by 100 bps more this year

MANILA, July 6 (Reuters) – The Philippine central bank may raise interest rates by 100 basis points more this year, its governor said on Wednesday, after annual inflation soared to a near four-year high in June driven mainly by increases in food and fuel prices.

“To begin with, even with no inflation target breaching we should normalise monetary policy as GDP recovers,” Bangko Sentral ng Pilipinas Governor Felipe Medalla said in a phone message.

The central bank has raised its benchmark interest rate by a total 50 basis points so far this year, and a cumulative 100 bps hike will bring the rate to 3.5%. Its next policy review is on August 18.

(Reporting by Karen Lema; Editing by Muralikumar Anantharaman)

US yield curve inverts again: What is it telling us?

NEW YORK, July 5 (Reuters) – A closely watched part of the US Treasury yield curve inverted again on Tuesday, as investors continue to price in the chance that the Federal Reserve’s aggressive move to bring down inflation will push the economy into recession.

Yields on two-year Treasuries briefly rose above those of 10-year Treasuries for the third time this year, a phenomenon known as a yield curve inversion that has in the past preceded US recessions.

It comes amid a chorus of growth warnings on Wall Street, as a Fed intent on bringing inflation down from more than 40-year highs sets the course for aggressive monetary policy tightening that investors fear will also hurt US growth.

Here is a quick primer on what a steep, flat or inverted yield curve means, how it has predicted recession, and what it might be signaling now.

WHAT SHOULD THE CURVE LOOK LIKE?

The US Treasury finances federal government budget obligations by issuing various forms of debt. The USD 23 trillion Treasury market includes bills that mature in one month to one year, two- to 10-year notes, and 20- and 30-year bonds.

The yield curve, which plots the return on all Treasury securities, typically slopes upward as the payout increases with the duration. Yields move inversely to prices.

A steepening curve typically signals expectations for stronger economic activity, higher inflation, and higher interest rates. A flattening curve can mean investors expect near-term rate hikes and are pessimistic about economic growth.

WHAT DOES AN INVERTED CURVE MEAN?

Investors watch parts of the yield curve as recession indicators, primarily the spread between three-month Treasury bills and 10-year notes, and the two- to 10-year (2/10) segment.

On Tuesday, yields on two-year Treasuries rose as high as 2.95%, while the 10-year stood at 2.94%. The two-year, five-year part of the curve also inverted for the first time since February 2020.

The inversions suggest that while investors expect higher short-term rates, they may be growing nervous about the Fed’s ability to control inflation without hurting growth, even though policymakers say they are confident in achieving a so-called “soft landing” for the economy.

The Fed has already raised rates by 150 basis points this year, including a jumbo-sized, 75 basis point increase last month.

The two- to 10-year segment of the yield curve inverted in late March for the first time since 2019 and again in June.

The US curve has inverted before each recession since 1955, with a recession following between six and 24 months, according to a 2018 report by researchers at the San Francisco Fed. It offered a false signal just once in that time. That research focused on a slightly different part of the curve, between one- and 10-year yields.

Anu Gaggar, Global Investment Strategist for Commonwealth Financial Network, found that the 2/10 spread has inverted 28 times since 1900. In 22 of these instances, a recession followed, she said in June.

For the last six recessions, a recession on average began six to 36 months after the curve inverted, she said.

Before March, the last time the 2/10 part of the curve inverted was in 2019. The following year, the United States entered a recession, which was caused by the pandemic.

WHAT DOES THIS MEAN FOR THE REAL WORLD?

While rate increases can be a weapon against inflation, they can also slow economic growth by raising borrowing costs for everything from mortgages to car loans.

The yield curve also affects consumers and business.

When short-term rates increase, US banks raise benchmark rates for a wide range of consumer and commercial loans, including small business loans and credit cards, making borrowing more costly for consumers. Mortgage rates also rise.

When the yield curve steepens, banks can borrow at lower rates and lend at higher rates. When the curve is flatter their margins are squeezed, which may deter lending.

(Reporting by David Randall; Editing by Ira Iosebashvili and Sam Holmes)

S&P 500, Nasdaq end higher as investors eye economic path

NEW YORK, July 5 (Reuters) – The S&P 500 ended slightly higher on Tuesday as investors kept their focus on the growth trajectory of the US economy, and the tech-heavy Nasdaq closed higher while the Dow slipped.

US stocks have been under relentless selling pressure this year, with the benchmark S&P 500 index recording its steepest first-half percentage drop since 1970, as the Federal Reserve moves away from easy-money policy by raising borrowing costs.

Investors are waiting for minutes from the Fed’s meeting in June on Wednesday as they brace for another 75-basis-point rate hike at the end of the month.

Traders are also keeping a watch on economic data, including a June nonfarm payrolls report expected on Friday, and on company commentaries for signs of peaking inflation and cooling economic growth, with another earnings season around the corner.

Data showed new orders for US-manufactured goods increased more than expected in May, reflecting that demand for products remains strong even as the Fed seeks to cool the economy.

Separately, business growth across the euro zone slowed further in June and European natural gas prices surged again, reigniting worries of a recession in the bloc.

“The risks of an outright recession are nonzero and the probability is growing at this point that a recession could emerge later – this year, or perhaps even into early 2023,” said Bill Northey, senior investment director at US Bank Wealth Management in Minneapolis. “And the US labor market continues to look quite healthy.”

The Dow Jones Industrial Average fell 129.44 points, or 0.42%, to 30,967.82, the S&P 500 gained 6.06 points, or 0.16%, to 3,831.39 and the Nasdaq Composite added 194.39 points, or 1.75%, to 11,322.24.

Benchmark US Treasury yields tumbled on Tuesday and a key part of the yield curve inverted for the first time in three weeks as economic growth concerns dented risk appetite and increased demand for the safe-haven US debt.

Eight of the 11 major S&P sectors ended down, with communication services .SPLRCL leading the gainers and energy notching the largest percentage drop, marking five-month lows as recession fears darkened the outlook for oil demand.

Volume on US exchanges was 12.39 billion shares, compared with the 13.03 billion average for the full session over the last 20 trading days.

Declining issues outnumbered advancing ones on the NYSE by a 1.33-to-1 ratio; on Nasdaq, a 1.37-to-1 ratio favored advancers.

The S&P 500 posted 1 new 52-week high and 51 new lows; the Nasdaq Composite recorded 13 new highs and 308 new lows.

(Reporting by Echo Wang in New York; Additional reporting by Amruta Khandekar and Shreyashi Sanyal in Bengaluru; Editing by Shounak Dasgupta and Matthew Lewis)

Philippines’ Marcos says China ties are about more than conflict

MANILA, July 5 (Reuters) – Philippines President Ferdinand Marcos Jr on Tuesday said he wanted ties with Beijing to be about more than a South China Sea dispute, and stressed the need for multilateral engagement in dealing with conflicts.

“We have our relationship not only on one dimension,” Marcos told a news conference ahead of a visit by Chinese Foreign Minister Wang Yi, part of his tour of Southeast Asia.

Marcos said he would try to “find ways to work to resolve the conflicts that we have,” so ties could normalise after years or maritime disputes, with room for relations to expand to new areas, including military exchanges.

Marcos has a tricky balancing act in boosting business ties with China while maintaining close relations with defence ally the United States, a former colonial power that still holds sway in the Philippines.

The new Philippine leader has expressed intent to elevate ties with China but has also vowed to stand firm against any threat it poses to Philippine sovereign interests.

During his election campaign, Marcos said he would pursue a bilateral approach to China, echoing Beijing’s position on handling the South China Sea issue.

On Tuesday, he mentioned the need for multilateral engagement, including for the Association of Southeast Asian Nation (ASEAN) bloc to be active for its member countries.

He also said Asia-Pacific leaders were “important actors in the regional geopolitics … because they are stakeholders in this.”

(Reporting by Karen Lema; Editing by Martin Petty)

European shares fall as strike in Norway fuels fears of energy crisis

July 5 (Reuters) – European stocks fell on Tuesday as a strike by Norwegian oil and gas workers exacerbated worries about an energy shock in Europe and added to concerns over red-hot inflation.

The continent-wide STOXX 600 index was down 0.4%. It gave up the opening gains, which were powered by positive economic data from Asia and a report that US President Joe Biden was considering rolling back some tariffs on Chinese imports.

Norwegian offshore workers began a strike on Tuesday demanding wage hikes to compensate for rising inflation. This could reduce oil and gas output at a time when supplies of natural gas to Europe are tight due to Russian export cutbacks.

“Their action is set to exacerbate the pain of rising prices and is leading to even tighter supply in the already squeezed energy market,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

“It comes at a highly fragile time geopolitically, given that the EU is facing the threat that Russia will turn off the taps abruptly, potential plunging vital industries into crisis.”

European Central Bank Vice President Luis de Guindos said on Monday the euro zone economy could suffer a recession if Russia cuts off gas supplies and industry had to adjust to a shortage of energy.

Concerns about Europe’s dependency on Russian gas and soaring inflation have dampened investor sentiment, with tightening financial conditions also fueling worries about a hit to economic growth and corporate profits.

The STOXX 600 has shed 16.4% so far this year.

Data showed business growth across the Eurozone slowed further last month, with forward looking indicators suggesting the region could slip into decline this quarter as the cost of living crisis keeps consumers wary.

Europe’s basic resources and automobile sectors were the biggest losers, down 1.5% each.

Among single stocks, Remy Cointreau (RCOP) gained 4% after Jefferies upgraded the French spirits group’s stock to “buy” from “hold”, citing its positioning to navigate inflationary pressures facing staples.

SAS (SAS) fell 9.2% after the Scandinavian airline filed for bankruptcy protection in the United States to help accelerate restructuring plans, warning strike action by pilots had impacted its financial position and liquidity.

ProSiebenSat.1 tumbled 8.8% after a report Goldman Sachs downgraded the German broadcaster’s stock to “sell” from “neutral”.

(Reporting by Devik Jain in Bengaluru; Editing by Uttaresh.V and Arun Koyyur)

Euro plunges to two-decade low vs dollar as economic fears mount

LONDON, July 5 (Reuters) – The euro sank to a two-decade low versus the dollar on Tuesday as another surge in natural gas prices reignited worries about the health of the euro zone economy and data showed euro zone business growth slowed sharply in June.

The euro tumbled 0.9% against the dollar to $1.0325, its weakest since December 2002. Versus the Swiss franc, it dropped 0.7%to 0.9941 francs, its lowest since 2015.

“It will continue to be very difficult for the euro to rally in any meaningful way with the energy picture worsening and risks to economic growth increasing notably,” said Derek Halpenny, an analyst at MUFG.

Survey data showed business growth across the euro zone slowed further last month and forward-looking indicators suggested the region could slip into decline this quarter as the cost of living crisis keeps consumers wary.

The dollar index gained 0.8% to 105.98, a new two-decade high for the currency.

Elsewhere, stock markets gave up early gains on Tuesday as the latest surge in natural gas prices rattled sentiment, offsetting earlier optimism about signs of easing U.S.-China trade tensions.

Australia’s central bank became the latest to extend its interest rate tightening cycle, hiking by a second straight 50 basis points, although the Aussie dollar fell 0.8% AUD=D3 as investors interpreted the bank’s accompanying messaging to be more dovish than expected.

With U.S. markets closed on Monday, trading is expected to be livelier on Tuesday and Wall Street reversed early gains and headed lower by 0825 GMT.

Offering brief respite to nervous markets was a report that U.S. President Joe Biden was leaning towards a decision on easing tariffs on goods from China as well as news Chinese Vice Premier Liu He had spoken to U.S. Treasury Secretary Janet Yellen.

A survey showing China’s services activity grew at the fastest pace in almost a year also helped sentiment.

But as European trading picked up, the Euro STOXX reversed course and was last down 0.43% while Germany’s DAX fell 0.6%. The FTSE 100 dropped 1.05% .FTSE.

In Asia, MSCI’s gauge of Asia Pacific stocks outside Japan rose 0.17%.

Tuesday offers little in the way of key economic data but later this week both the U.S. Federal Reserve and European Central Bank release their minutes from recent policy meetings and on Friday widely watched U.S. payrolls data are published.

Redmond Wong，market strategist, Greater China, at Saxo Markets Hong Kong, said traders would continue to watch closely the trajectory for inflation and growth in major markets.

“Market participants are still assessing the impact of the tug of war between inflation being at persistently elevated levels and signs pointing to potentially an incoming U.S. recession,” he said.

Those concerns were front and centre in South Korea, where June inflation accelerated to its fastest since the Asian financial crisis, fanning expectations the central bank could deliver a 50 basis point rake rise for the first time next week to cool prices.

U.S. treasury yields returned from the holiday marginally higher, with the yield on benchmark 10 year notes at 2.93% but failing to push back above the symbolic 3% level.

Euro zone government bond yields fell on uncertainty about the future path of monetary tightening by the European Central Bank and as investors fearful of the economic outlook sought safety.

Brent crude futures rose 0.2% to $113.8 a barrel, while U.S. crude oil increased 1.73% to 110.31 a barrel.

Spot gold dropped 0.29% to $1804 an ounce.

(Additional reporting by Kane Wu and Alun John in Hong Kong; Editing by Robert Birsel)

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