Dollar eases as traders scale back bets on Fed tightening

NEW YORK, May 26 (Reuters) – The U.S. dollar edged lower on Thursday as markets considered whether the Federal Reserve might slow or even pause its tightening cycle in the second half of the year, which would weaken the allure of the safehaven currency.

The dollar index, which measures the greenback against a basket of six major peers, was down 0.206% at 101.84 at 3 p.m. ET (1900 GMT).

The currency began to weaken after minutes from the Fed’s May meeting, released Wednesday, showed that most participants judged that 50 basis-point hikes would likely be appropriate at the June and July policy meetings to combat inflation that they agreed had become a key threat to the economy’s performance.

Many of the participants believed that getting rate hikes in the books quickly would leave the central bank well positioned later this year to assess the effects of policy firming, the minutes showed.

“The market is becoming a little bit more optimistic that the Fed won’t be too aggressive with tightening and that some of the sell-off that we’ve seen with risky assets, specifically equities, might have been overdone, said Ed Moya, senior market analyst at Oanda.

“That’s prompting a little bit of a rally here for risky assets, which is really nice for the risk trade, which in essence, is bad for the dollar,” he said.

The dollar index reached a nearly two-decade peak above 105 earlier this month but signs that aggressive Fed action may already be slowing economic growth have prompted traders to scale back tightening bets, with Treasury yields also dropping from multi-year highs.

“While it is not the base case view of our Economics team … we think the Fed might make the case that reaching 1.75%-2% provides a normalization of policy which then offers an opportunity to pause and assess the impact on jobs and inflation,” strategists at JP Morgan said in a client note.

The implied yield on the eurodollar futures June 2023 contract — essentially where markets see interest rates to be at that point — is down some 80 basis points this month.

“The dollar at this point is range-bound,” said Boris Schlossberg, managing director of FX strategy at BK Asset Management.

Data on Thursday confirmed the U.S. economy contracted in the first quarter under the weight of a record trade deficit and a slightly slower pace of inventory accumulation compared to the fourth quarter.

A separate report showed number of Americans filing new claims for unemployment benefits fell last week, signaling continued tightness in the labor market.

Elsewhere, the euro rose 0.37% to USD 1.0719, while the dollar edged down 0.011% against the Japanese yen to 127.155 yen.

Risk-correlated currencies were mixed, with the Australian dollar up 0.08% at USD 0.7093 and New Zealand dollar down 0.08% at USD 0.6473.

Sterling briefly rose to a three-week high of USD 1.26165 ahead of an expected announcement from British Chancellor Rishi Sunak on a package of measures to help consumers cope with rising energy bills.

The pound was last up 0.1% at USD 1.2596.

In cryptocurrencies, bitcoin was last trading 0.17% lower at USD 29,459, while smaller rival ether was down 4.68% at USD 1850.

(Reporting by John McCrank; additional reporting by Samuel Indyk; Editing by Emelia Sithole-Matarise/Kirsten Donovan/Ken Ferris)

Wall Street climbs 1% on upbeat results, Fed relief

May 26 (Reuters) – US stock indexes climbed on Thursday after upbeat annual forecasts from several retailers, while data confirmed the US economy contracted in the first quarter, easing concerns about aggressive interest rate hikes.

All of the 11 major S&P sectors advanced in early trading, with consumer discretionary up 3%, followed by a 1.7% rise in the financials sector.

Macy’s Inc. (M) jumped 12.1% after the department store raised its annual profit forecast, as party-wear demand rebounds.

Dollar General Corp. (DG) and Dollar Tree (DLTR) gained 13.2% and 17.8% respectively, after raising their annual sales forecasts, as more Americans turn to discount store shopping with inflation at a four-decade high.

Meanwhile, the Commerce Department’s report showed US gross domestic product fell at a 1.5% annualized rate last quarter, revised down from the 1.4% decline reported in April under the weight of a record-trade deficit. The economy grew at a robust 6.9% pace in the fourth quarter.

Separately, weekly jobless claims fell to 210,000 last week, consistent with a tight labor market despite rising interest rates and tightening financial conditions.

“These numbers are indicative that growth is slowing, demand is slowing and maybe prices are even starting to slow. And if all those three things are in place, then the case for a dovish pivot will build over the summer months,” said Thomas Hayes, chairman of Great Hill Capital.

The report came a day after the minutes of the Federal Reserve’s May meeting showed most policymakers backed rate hikes of 50 basis points in June and July to tame inflation, but appeared flexible to possibly change course in September.

Markets have sold off sharply this year on growing worries about an economic slowdown due to aggressive Fed policy moves aimed at reining in surging prices. The war in Ukraine, pandemic-related lockdowns in China and recent dismal earnings forecasts have also weighed down markets.

The blue-chip Dow and the benchmark S&P 500 have lost 10.5% and 15.4% year-to-date, while the tech-heavy Nasdaq has fallen 25.9% as high-multiple growth stocks took a hit from rising interest rates.

“The reality is a lot more complicated at this juncture and so we will have these counter trend rallies in any bear market environment,” said Hans Olsen, chief investment officer of Fiduciary Trust Company.

At 10:06 a.m. ET, the Dow Jones Industrial Average was up 442.60 points, or 1.38%, at 32,562.88, the S&P 500 was up 55.00 points, or 1.38%, at 4,033.73, and the Nasdaq Composite was up 162.14 points, or 1.42%, at 11,596.89.

US-listed shares of Alibaba Group (BABA) jumped 11.5% after the company posted upbeat fourth-quarter revenue on growing demand for some of its niche online shopping services in China.

Advancing issues outnumbered decliners by a 7.18-to-1 ratio on the NYSE and a 3.32-to-1 ratio on the Nasdaq.

The S&P index saw three new 52-week highs and 29 new lows, while the Nasdaq recorded 19 new highs and 66 new lows.

(Reporting by Devik Jain and Anisha Sircar in Bengaluru; Editing by Saumyadeb Chakrabarty and Vinay Dwivedi)

Five things to know about Philippines’ next central bank governor, Felipe Medalla

MANILA, May 26 (Reuters) – The Philippines’ central bank will be led by a new governor, Felipe Medalla, starting July 1 as current chief Benjamin Diokno takes on a new role as finance minister in Ferdinand Marcos Jr’s incoming administration.

Below are five things to know about the next Bangko Sentral ng Pilipinas (BSP) governor:

WHO IS FELIPE MEDALLA?

Medalla, 72, is an economist and educator who earned his Ph.D. in economics from Northwestern University in the United States.

Outside of government work, he has engaged in public advocacy for fiscal reforms and market-friendly government policies and has also served on the boards of several public Philippine companies.

WHAT ARE HIS CREDENTIALS?

Medalla has served under four Philippine presidents, starting with Fidel Ramos in the 1990s up to the current administration. He was the country’s economic planning minister from 1998 to 2001.

He has been a member of the central bank’s policymaking board since 2011.

WHAT CHALLENGES WILL MEDALLA FACE?

Like central bankers globally, he will have to strike a balance between taming inflation and avoiding overly aggressive rate hikes that could derail the recovery of the Philippines, among Asia’s fastest growing economies before the pandemic.

The BSP this month started unwinding its pandemic-driven accommodative monetary policy to battle inflationary pressures, with a hike of 25 basis points. During the pandemic, rates were cut 200 basis points.

WHAT DOES HIS TEAM LOOK LIKE?

Diokno, as finance minister, will continue to be a part of the central bank’s policymaking board and can still influence monetary policy. Other members of the panel are experienced bankers and technocrats.

HOW DOES THE MARKET VIEW MEDALLA?

Medalla is seen in the business community as a respectable and able hand.

His experience as an economic planner bodes well for the central bank, said Michael Ricafort, economist at Rizal Commercial Banking Corp in Manila, as Medalla is seen to prioritise measures that provide greater support for economic growth and development.

(Reporting by Neil Jerome Morales; Editing by Kanupriya Kapoor)

Incoming Philippines central bank governor sees no need to rush rate hikes

MANILA, May 26 (Reuters) – The Philippine central bank has room to tighten monetary policy but there is no reason to rush raising interest rates with inflation mainly driven by higher cost of imports, its incoming governor said on Thursday.

Felipe Medalla, a monetary board member of the Bangko Sentral ng Pilipinas (BSP) for the past decade, was named as its next governor on Thursday by President-elect Ferdinand Marcos, who is close to completing his economic team.

Medalla, 72, will start work from July 1 and takes over from Benjamin Diokno, who has been named finance secretary in the new Marcos administration. Medalla will serve out the rest of Diokno’s term, which ends in July 2023.

“I am joining a strong group,” Medalla told Reuters, referring to Marcos’s economic team.

“I am also in an institution that has sufficient independence and tools to achieve its objectives.”

Medalla will take the helm of the BSP just as it kicked off its monetary tightening cycle this month to confront rising prices.

He said the hike in interest rates can be good news because it signals that “growth is already on solid footing.”

But while Medalla believes the economy’s strong growth affords the central bank room to tighten policy, he said there was “no reason to rush because much of inflation is imported.”

The central bank raised its policy rate by 25 basis points for the first time in over three years on May 19 to keep inflation under control. It next meets on June 23.

Medalla has a doctorate from Northwestern University in Evanston, Illinois and served under four Philippines presidents, starting with Fidel Ramos in the 1990s.

He was economic planning minister from 1998 to 2001 and aside from government posts, he was dean of the University of the Philippines’ School of Economics and has served as a director on the boards of several companies.

(Additional reporting by Neil Jerome Morales; Editing by Martin Petty)

Oil stocks lift European shares but rate-hike worries limit gains

May 26 (Reuters) – European shares opened slightly higher on Thursday, helped by energy stocks on the back of gains in oil prices, even though sentiment remained subdued as major central banks signaled continued policy tightening to control rising inflation.

The pan-European STOXX 600 index rose 0.2% by 0718 GMT, with energy shares up 0.8% as crude prices climbed on tight supply.

Overnight, minutes of the US Federal Reserve’s early May policy meeting showed policymakers’ belief in the strength of the economy. However, Fed policy makers agreed to continue hiking rates by 50 basis points for the next two months to tame surging prices exacerbated by the war in Ukraine.

This came after the European Central Bank’s resolve to follow suit beginning July, and left investors worried about a hit to economic growth.

While Wall Street ended higher on Wednesday, futures signaled some choppiness for Thursday. Asian shares also stumbled.

In Europe, miners, banks, and technology stocks fell between 0.1% and 0.2%.

London’s FTSE 100, heavy with mining stocks, traded flat.

Some markets in Europe, including Swiss, Sweden and Finland, were closed for a local holiday.

(Reporting by Susan Mathew in Bengaluru; Editing by Subhranshu Sahu)

Fed’s Brainard sees case for central bank digital currency

May 25 (Reuters) – Creating an official digital version of the US dollar could help ensure financial system stability as crypo-assets and digital currencies developed by other countries become increasingly popular, Federal Reserve Vice Chair Lael Brainard said on Wednesday.

“As we assess the future digital financial system, it is prudent to consider how to preserve ready public access to safe central bank money, perhaps through the digital analogue of the Federal Reserve’s issuance of physical currency,” Brainard said in testimony released in advance of her appearance on the issue before the US House of Representatives Financial Services Committee on Thursday.

“We recognize there are risks of not acting, just as there are risks of acting,” she said.

Fed policymakers remain divided on the need for a central bank digital currency (CBDC) and have just finished a three-month public consultation period soliciting feedback on the idea. The Fed has also indicated it would not launch one without clear support from the White House and lawmakers.

That puts it behind its other major global central bank peers, including the ECB, Bank of Japan and Bank of England, on the process of possible adoption. China is currently piloting its own CBDC and in total nine countries have launched one and another 87 countries are exploring the option, according to the Atlantic Council.

The risks of loosely-regulated cryptocurrencies and stablecoins, which exploded in value during the COVID-19 pandemic, have come into sharp focus with the crypto market slumping sharply this month after the downfall of major “stablecoin” terraUSD. Leading cryptocurrency Bitcoin has dropped more than 50% since November.

“These events underscore the need for clear regulatory guardrails to provide consumer and investor protection, protect financial stability, and ensure a level playing field for competition and innovation across the financial system,” Brainard said.

Unlike cryptocurrencies, which are typically run by private actors, a CBDC would be issued and backed by the central bank. If the US goes ahead with creating one, Brainard said, it ought to be designed so that commercial banks, given their centrality to the financial system, are not disintermediated, by for instance limiting the amount an individual could hold or transfer.

Brainard also argued a US CBDC could safeguard the dollar’s global importance.

Other Fed policymakers, including Fed Governor Christopher Waller, are more skeptical and point out that many dollar transactions are already digital, and have also raised privacy concerns.

(Reporting by Lindsay Dunsmuir and Ann Saphir; Editing by Richard Pullin)

Gold pares losses as Fed minutes confirm expectations

May 25 (Reuters) – Gold pared some losses on Wednesday after minutes from a Federal Reserve meeting suggested the central bank would stick to raising interest rates by half a percentage point in the June and July meetings.

Spot gold fell 0.7% to USD 1,853.80 per ounce by 4:15 p.m. ET (2015 GMT), having fallen 1.3% to USD 1,842.49 earlier in the session. US gold futures GCv1 settled down around 1% to USD 1,846.3.

All participants at the Federal Reserve’s May 3-4 policy meeting backed a half-percentage-point rate increase to combat inflation that threatened to race higher without central bank action, its minutes showed.

Gold pared losses after the minutes were in, yet stayed lower, having been down for most of the day on a stronger dollar.

“While the Fed minutes were broadly in line with market expectations, the Fed did state 50 bps increases would likely be appropriate at the June and July meetings,” said Suki Cooper, an analyst at Standard Chartered. “Market focus is likely to remain on inflation data and signs of cost pressures easing.”

Even though gold is often seen as a hedge against inflation, rate hikes erode its appeal as they tend to lift bond yields, raising the opportunity cost of holding zero-yield bullion.

Meanwhile, European Central Bank President Christine Lagarde gained key allies for her plan to raise rates out of negative territory this summer.

Spot silver fell 0.5% to USD 21.99 per ounce, platinum fell 0.6% to USD 948.95 and palladium rose 0.1% to USD 2,008.22.

“Platinum and palladium are being kept in check by the ongoing problems in the automotive industry, which is slowing demand for these precious metals,” Commerzbank analysts said in a note.

(Reporting by Ashitha Shivaprasad and Seher Dareen in Bengaluru; Editing by Vinay Dwivedi and Amy Caren Daniel)

Wall Street rallies as Fed minutes meet expectations

Refiling to change “estimates” to “expectations” in third bullet headline on Nvidia

Fed minutes: future 50-bp rate hikes ‘likely’

Nordstrom climbs after raising profit outlook

Nvidia Q2 revenue forecast falls short of expectations

Indexes up: Dow 0.60%, S&P 0.95%, Nasdaq 1.51%

By Stephen Culp

NEW YORK, May 25 (Reuters) – Wall Street closed higher Wednesday, boosted after minutes from the Federal Reserve’s latest monetary policy meeting showed policymakers unanimously felt the U.S. economy was very strong as they grappled with reining in inflation without triggering a recession.

The minutes from the Federal Open Market Committee’s May meeting, which culminated in a 50-basis-point hike in the Fed funds target rate – the biggest jump in 22 years – showed most of the committee’s members judged that further such rate hikes would “likely be appropriate” at its upcoming June and July meetings. nL2N2WW1W8

“The uniformity of opinion is a good thing,” said Ross Mayfield, investment strategy analyst at Baird in Louisville, Kentucky. “There’s a lack of uncertainty of what needs to be done in the near-term.”

“By the time (the Fed) gets to September, they will have plenty of economic data to make their move from there, so they continue to maintain optionality,” Mayfield added.

All three major U.S. stock indexes gyrated earlier in the day amid increasing jitters stemming from business and consumer surveys, economic data and corporate earnings reports suggesting a cooling American economy – even as the Fed prepares to toss a bucket of cold water on it to tackle decades-high inflation.

Fears that overly aggressive interest rate hikes by the Fed could tip the economy into recession despite evidence that inflation peaked in March has fueled those concerns.

“There’s some credence to the idea that inflation is doing (the Fed’s) job for them,” Mayfield said. “There’s already a cooling occurring, and financial conditions have tightened over the last month because of dollar strength and equity market weakness.”

On Thursday, the Commerce Department is due to release its second take on first-quarter GDP, which analysts expect to slow a slightly shallower contraction than the 1.4% quarterly annualized drop originally reported.

The Personal Consumption Expenditures (PCE) report will follow on Friday, which will provide further clues regarding consumer spending and whether inflation peaked in March, as other indicators have suggested.

The Dow Jones Industrial Average .DJI rose 191.66 points, or 0.6%, to 32,120.28, the S&P 500 .SPX gained 37.25 points, or 0.95%, to 3,978.73 and the Nasdaq Composite .IXIC added 170.29 points, or 1.51%, to 11,434.74.

Nine of the 11 major sectors in the S&P 500 rose, with consumer discretionary stocks .SPLRCD leading the pack with a gain of 2.8%.

Amazon.com Inc AMZN.O and Tesla Inc TSLA.O provided the strongest lift to the S&P 500 and the Nasdaq, rising 2.6% and 4.9%, respectively.

Department store operator Nordstrom Inc JWN.N surged 14.0% on the heels of its upbeat annual profit and revenue forecasts. nL3N2XG364

Fast-food chain Wendy’s Co WEN.O jumped 9.8% after a regulatory filing revealed that shareholder Nelson Peltz was considering a potential takeover bid for the company. nL3N2XG3F0

Shares of Nvidia Corp NVDA.O fell more than 8% in after-hours trading after the company’s second quarter revenue forecast missed expectations. nL3N2XH3AM

Advancing issues outnumbered declining ones on the NYSE by a 3.56-to-1 ratio; on Nasdaq, a 2.22-to-1 ratio favored advancers.

The S&P 500 posted three new 52-week highs and 32 new lows; the Nasdaq Composite recorded 23 new highs and 255 new lows.

Volume on U.S. exchanges was 11.19 billion shares, compared with the 13.27 billion-share average for the full session over the last 20 trading days.

(Reporting by Stephen Culp; additional reporting by Anisha Sircar and Devik Jain in Bengaluru; editing by Jonathan Oatis)

((stephen.culp@thomsonreuters.com; 646-223-6076;))

Wall Street rises on growth stocks ahead of Fed minutes

May 25 (Reuters) – U.S. stock indexes shook off early weakness to trade higher on Wednesday as growth stocks rallied, with investors awaiting minutes from the Federal Reserve’s May meeting for clues on the path of its policy tightening.

The central bank had at its May 3-4 meeting increased interest rates by half a percentage point, the biggest jump in 22 years. Minutes of that session, due to be released at 2 p.m. EDT (1800 GMT), could start shaping the debate over what happens when they meet in June and July to fight surging prices.

“You will see a little more of a hawkish tone (today) and a bit more pivot from full employment to making sure that inflation is being fought,” said Mike Mullaney, director of global markets research at Boston Partners.

“If the Fed continues on the path they’ve suggested, you’ll see a greater probability of a recession in 2023.”

Fed Chair Jerome Powell has promised to keep pushing on rate hikes until there is clear and convincing evidence that inflation is dropping. That has prompted money markets to price in 50 basis point hikes in June and July..

The aggressive outlook for policy tightening along with uncertainty stemming from Russia-Ukraine crisis and more recently dismal forecasts from retailers have pushed down the S&P 500 and Nasdaq by 16.8% and 27.4% this year, respectively.

“If we do force a recession, there’s still more downside risk for the S&P 500. You could see a 5% to 6% rally at any point, but it basically becomes a dead cat bounce,” Mullaney added.

On Wednesday, five of the 11 major S&P sectors advanced in morning trade, with consumer discretionary up 2.4%.

At 10:48 a.m. ET, the Dow Jones Industrial Average was up 122.42 points, or 0.38%, at 32,051.04, the S&P 500 was up 21.59 points, or 0.55%, at 3,963.07, and the Nasdaq Composite was up 93.95 points, or 0.83%, at 11,358.39.

Amazon.com AMZN.O and Tesla Inc. (TSLA) underpinned the gains on the Nasdaq with advances of 1% and 2.1%, respectively, while Nvidia Corp NVDA.O rose 2.5% ahead of its first-quarter results after market close.

Nordstrom Inc. (JWN) gained 10.3% after the upscale retailer raised its annual profit and revenue forecasts, counting on demand from affluent consumers to help it overcome price pressures.

Wendy’s Co. (WEN) jumped 9.9% after a regulatory filing showed the burger chain’s largest shareholder Nelson Peltz was considering a potential takeover bid for the company.

The CBOE volatility index, also known as Wall Street’s fear gauge, rose for the second straight day and was last up at 29.80 points.

Advancing issues outnumbered decliners by a 3.19-to-1 ratio on the NYSE and a 2.36-to-1 ratio on the Nasdaq.

The S&P index recorded 3 new 52-week highs and 31 new lows, while the Nasdaq recorded 14 new highs and 169 new lows.

(Reporting by Anisha Sircar and Devik Jain in Bengaluru; Editing by Shounak Dasgupta and Aditya Soni)

Philippines Congress proclaims Marcos as next president

MANILA, May 25 (Reuters) – A joint session of Philippines Congress on Wednesday declared Ferdinand Marcos Jr, the son and namesake of the notorious late dictator, the winner of this month’s election and confirmed he would become the country’s next president.

The proclamation formalizes the once unimaginable return to power of the country’s most famous political dynasty, after a 1986 “people power” revolt drove the Marcos family into exile in Hawaii.

Marcos, 64, better known as “Bongbong”, takes over on June 30 from Rodrigo Duterte and will serve until 2028, with the incumbent president’s daughter, Sara Duterte-Carpio, as his vice president.

“I ask you all, pray for me, wish me well,” Marcos, dressed in the traditional white Filipino barong shirt and trousers, said after the proclamation. “I want to do well for this country.”

Marcos won 31.6 million or 58.77% of ballots cast, with an 82% turnout.

He won by a margin not seen since before his father’s autocratic, 1965-1986 rule, an era characterized by corruption, martial law and unashamed extravagance of the first family, a narrative his campaign sought to upend.

Marcos’s wife and three sons were also present in Congress, where their family has won a seat in almost every election since its return from exile in the 1990s. Also attending was 92-year-old matriarch Imelda, the influential power-broker, who received loud applause from the house as she posed for pictures.

He is almost certain to command a legislative supermajority, with sister Imee a senator, son Ferdinand a congressman and cousin Martin Romualdez, the house majority leader expected to be named speaker, demonstrating the extent of the power the family will wield. nL3N2XA06U

He has said his focus areas will be energy prices, jobs, infrastructure and education. nL2N2X30WM

Marcos is still assembling his cabinet, which will need to navigate high inflation, government debt and a tricky foreign policy balance with ally the United States and an increasingly influential China.

Despite the margin of victory, Marcos’ rule will be divisive, with widespread anger among opponents and victims of persecution over what they see as historical revisionism to clear the family’s name.

Imee Marcos on Wednesday said the family was “very, very grateful for a second chance” in power.

(Reporting by Neil Jerome Morales; Editing by Martin Petty and Kanupriya Kapoor)

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