Yen tanks as FX market adjusts to central bank rate decisions

NEW YORK, June 17 (Reuters) – The Japanese yen tumbled against the dollar on Friday after the Bank of Japan bucked a wave of tightening and stuck with its ultra-accommodative stance, adding to soaring volatility in currency markets hit by a series of rate hikes this week.

Currency markets have been roiled by one of the biggest runs of monetary policy tightening in decades, including the Federal Reserve’s mid-week three-quarters-of-a-percentage-point rate increase, its biggest since 1995, and the Swiss National Bank’s surprise decision to hike rates by 50 basis points.

Japan’s central bank swam against the current on Friday, keeping its policy settings unchanged and vowing to defend its bond yield cap of 0.25% with unlimited buying.

“Everybody expected the BOJ to do something. They didn’t,” said Boris Schlossberg, managing director of FX strategy at BK Asset Management.

The yen, which on Wednesday hit a 24-year low of 135.6 per dollar, plunged in reaction to the BOJ decision. The Japanese currency was last down 2.09% against the greenback at 134.885 yen, and was 1.62% lower versus the euro.

The 135 level has been a technical resistance point for the yen and breaking through it could force many shorts against the dollar-yen currency pair to have to cover their bets, potentially pushing the pair up to 137 or 140, said Schlossberg.

“If we start to really creep higher from this point, I think it will definitely force some of these early shorts out of the trade,” he said.

The dollar rose from a one-week low against major peers, bouncing off a two-day slide after the Fed’s mid-week rate increase of 75 basis points, a move that was anticipated by markets as the Fed attempts to tame stubbornly high inflation.

The dollar index, which measures the currency against a basket of six rivals, was up 0.732% at 104.64, putting it on track for a weekly rise of around 0.4% ahead of a long weekend in the United States.

“Today we’re seeing a rebalancing of the market,” said Simon Harvey, head of FX analysis at Monex Europe. “Markets are still adjusting to the central bank meetings from throughout the week.”

The euro was last down 0.53% at USD 1.0496 versus the dollar.

The Swiss National Bank’s surprise decision to raise rates by half a percentage point continued to reverberate through markets, with the franc touching 1.0098 against the euro, its strongest since April 13, as investors bet the SNB would not try to stop the strengthening currency as it has in the past.

Giving up earlier gains against the Swiss currency, the dollar lost 0.31% to 0.9696 francs, after tumbling the most in seven years versus the Swissy in the previous session.

“The surprise rate hike in Switzerland, as well as the European Central Bank’s announcement that it is working on a tool to prevent the fragmentation of the European bond markets, will help to limit USD strength around current levels,” strategists at UBS’s Global Wealth Management’s Chief Investment Office said in a research note.

Sterling GBP=D3 dropped 0.99% to USD 1.2229, giving back most of its gains from when the Bank of England decided to lift rates again, albeit by less than many in the market had expected, along with a hawkish signal about future policy action.

Currency markets are also having to contend with a massive drop in risk sentiment that has roiled equity markets.

The Australian dollar, which is very sensitive to the broad global investment mood, fell 1.53% to just under USD 0.6938 after stock markets in Asia tumbled, while Wall Street edged higher after a steep selloff on Thursday.

(Reporting by John McCrank in New York and Tommy Wilkes in London; Editing by Raissa Kasolowsky, Edmund Blair, Toby Chopra and Alex Richardson)

US super stock options expiry may bring short market respite

June 17 (Reuters) – An unusually large quarterly expiration of US stock futures and options on Friday is likely to boost trading volumes and add to volatility, market strategists said, with some even expecting it to trigger a relief rally at the end of a turbulent week.

Friday marks the once-a-quarter, simultaneous expiry of stock options, stock index futures and index option contracts, with investors unwinding old positions and putting on new ones.

“Many market makers who sold puts hedged their exposure with a short market position,” said Michael Oyster, chief investment officer at Chicago-based Options Solutions.

“As those put options expire, the hedges are reversed, in this case through a short-covering purchase,” Oyster said, adding this could provide some support to the market.

About 64% of all S&P 500 index puts stand to expire “in-the-money”, while 96% of the June call open interest is set to expire “out-of-the-money” or worthless, Options Solutions said.

An option gives the buyer the right to buy or sell a security at a given price on a given date. Buying a call option is a bet the underlying asset will rise in price, while the opposite holds for a put option.

Analytic services SpotGamma said there are a significant number of deep “in-the-money” puts expiring, similar in size to when markets crashed in March 2020, referring to protective options that have risen in value due to the market’s fall.

“These positions are likely adding to the overall market volatility,” said SpotGamma founder Brent Kochuba.

Goldman Sachs estimated this week that about USD 3.4 trillion of US stock options were set to expire on Friday, a much larger than usual quarterly figure.

US markets will be shut on Monday for the Juneteenth holiday.

Some market participants expect more demand for hedging of portfolios as investors face a possible recession. A large number of bearish positions expiring could also provide some relief in the near term, they said.

The Federal Reserve’s 75 basis point interest rate hike on Wednesday and the possibility of more hikes to tame decades-high inflation has put the S&P 500 on course for its worst weekly performance since the pandemic-led crash in 2020.

The US benchmark index is already in a bear market, after falling more than 20% from its all-time high.

“Now that the big Fed shoe has dropped, in the absence of other news, markets may take a breather…but a sustained recovery may remain elusive for now,” Oyster said.

(Reporting by Medha Singh in Bengaluru; Editing by Arun Koyyur)

US bond funds face biggest outflows since March 2020

June 17 (Reuters) – US bond funds suffered robust outflows in the week to June 15 as climbing inflation levels raised the odds of a faster pace of interest rate hikes by the Federal Reserve and spurred worries of a recession.

According to Refinitiv Lipper data, investors dumped bond funds valued at USD 18.73 billion, the biggest weekly net selling since March 18, 2020.

Data last week showed US consumer prices accelerated faster than expected in May, leading to the largest annual increase in nearly 40-1/2 years.

The Federal Reserve on Wednesday approved an interest rate increase of 75 basis points, its biggest policy rate hike since 1994, to stem a surge in inflation that US central bank officials acknowledged may be eroding public trust in their power.

US investors offloaded municipal bond funds worth USD 5.93 billion and taxable bond funds of USD 12.94 billion.

They exited high yield bonds funds, general domestic taxable fixed income funds and short/intermediate investment-grade funds worth USD 5.87 billion, USD 5.41 billion and USD 4.74 billion, respectively.

US equity funds also saw outflows worth USD 21.62 billion, which was the biggest weekly net selling since Dec. 15.

Investors sold US large and mid-cap funds of USD 10.26 billion and USD 591 million, respectively, however, small-cap funds obtained USD 2.02 billion worth of inflows.

US growth funds recorded a USD 7.95 billion worth of withdrawals in a 10th straight weekly outflow, while value funds suffered a net selling of USD 6.02 billion.

Among sector funds, financial, metals and mining as well as tech posted outflows amounting to USD 989 million, USD 224 million and USD 144 million, respectively, but utilities lured purchases of USD 249 million.

Meanwhile, investors withdrew USD 8.94 billion out of money market funds after purchases of USD 24.96 billion made in the previous week.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Amy Caren Daniel)

Stocks track worst week in 3 months as recession fears mount

June 17 (Reuters) – Emerging market stocks were set to end Friday with their biggest weekly declines in more than three months on mounting fears of a global recession as central banks across the world aggressively tighten monetary policy to combat rising inflation.

The MSCI’s index for EM equities fell 0.2%, down 4.6% for the week, its worst performance since March. Emerging market assets have taken a hit from developed world central banks hiking their policy rates, with the US Federal Reserve delivering its largest rate hike in more than a quarter of a century.

This set off worries of tipping the world’s largest economy into a recession, and when combined with renewed COVID lockdowns in China starting to impact its economy the hike sparked a flight out of riskier emerging market assets, as investors turn towards safer bets and become more defensive.

“The more aggressive line by central banks adds to headwinds for both economic growth and equities. The risks of a recession are rising, while achieving a soft landing for the US economy appears increasingly challenging,” Mark Haefele, global wealth management chief investment officer at UBS.

“The expected fall in inflation has been delayed by the surge in energy and food prices resulting from the war in Ukraine, while disruptions arising from the pandemic are also lingering longer than forecast.”

Turkish stocks fell nearly 2% for the week, while South African equities dropped 2.3%, both bourses were set for their second weekly fall.

Emerging market currencies struggled to make headway for much of the week, with the MSCI’s index posting weekly declines of 0.5%. The index is headed for its second week lower.

Turkey’s lira shed 0.2% and was on track to record its ninth straight weekly decline – worst losing streak since a currency crisis in December 2021, which was triggered by unorthodox monetary policy amid sky-high inflation.

The Russian rouble opened lower against the dollar, while South Africa’s rand firmed to 15.91 against the greenback.

(Reporting by Shreyashi Sanyal in Bengaluru, Editing by William Maclean)

Philippines sees wider current account deficits as global risks build

MANILA, June 17 (Reuters) – The Philippine central bank said on Friday it expects the country’s current account balance to register wider deficits in 2022 and 2023 than previously projected, taking into account the challenges facing the global economy.

The Bangko Sentral ng Pilipinas (BSP) has revised its balance of payments (BOP) projections, with the current account deficit now seen hitting USD 19.1 billion, or 4.6% of the gross domestic product in 2022.

That compares with the March forecast of a USD 16.3 billion deficit for this year, or 3.8% of GDP.

The BSP said in a statement the revisions to BOP projections took into account the build-up in external risks, ongoing global monetary policy tightening and lingering COVID-19 challenges.

In particular, the BSP cited the downgraded global growth outlook amid the Ukraine-Russia conflict and its impact on commodity prices, the slowdown in China, and the effect on capital flows on central bank policy tightening.

For 2023, the current account deficit is expected to reach USD 20.5 billion, or 4.4% of GDP, wider than the previous projection of USD 17.1 billion, or 3.7% of GDP.

With the wider current-account deficit forecast for 2022, the Philippines’ BOP is expected to yield a deficit of USD 6.3 billion this year (1.5% of GDP) versus the March projection of USD 4.3 billion (1.0% of GDP).

The BOP deficit forecast for 2023 has been kept at USD 2.6 billion (0.6% of GDP).

Money sent by Filipinos abroad, a crucial financial flow supporting the Philippine economy, is still projected to increase 4% this year and in 2023, the BSP said, citing base effects that are expected to fade and the recovery of partner economies to pre-pandemic levels.

The country’s gross international reserves, however, are forecast to hit USD 105 billion by end-2022 and USD 106 billion by end-2023, lower than the March projections of USD 108 billion and USD 109 billion, respectively.

(Reporting by Neil Jerome Morales and Enrico Dela Cruz; Editing by Ed Davies)

European shares steady at the end of brutal week

For a Reuters live blog on U.S., UK and European stock markets, click LIVE/ or type LIVE/ in a news window

June 17 (Reuters) – European stocks inched higher on Friday but were set for sharp weekly losses as a slew of interest rate hikes from major central banks fuelled worries about a sharp economic slowdown.

The pan-European STOXX 600 index .STOXX gained 0.1% by 0710 GMT, but was on course to mark a 4.7% weekly decline in what could be its worst since early March.

World stock markets were heading for their biggest weekly decline since markets’ pandemic meltdown in March 2020, hit by growing worries about a recession after rate increases in the United States and Britain were followed by a surprise move in Switzerland to quell an inflation surge. nL1N2Y31LZ

The final reading of euro zone inflation for May will be out later in the day.

Among single stocks, Britain’s biggest retailer Tesco TSCO.L slipped 0.3% after it said it was seeing early indications of changing customer behaviour due to surging inflationary pressures. nL8N2Y40U8

Spain’s Santander SAN.MC gained 1% after it named Hector Grisi as its new chief executive officer, replacing long-time executive Jose Antonio Alvarez. nL1N2Y407O

(Reporting by Sruthi Shankar in Bengaluru; Editing by Subhranshu Sahu)

((sruthi.shankar@thomsonreuters.com; within U.S. +1 646 223 8780; outside U.S. +91 80 6182 2787;))

Oil edges down as demand concerns weigh, heading for weekly fall

June 17 (Reuters) – Oil prices edged slightly lower on Friday as worries about global economic growth and uncertainty weighed on markets following numerous interest rate hikes around the world this week.

Brent crude futures fell 83 cents, or 0.8%, to USD 118.98 a barrel, while US West Texas Intermediate (WTI) crude futures fell to USD 116.79 a barrel, down 80 cents, or 0.7%.

If losses hold through the day, Brent crude futures would post their first weekly dip in five weeks, while US crude futures would see their first dip in eight weeks.

Central banks across Europe raised interest rates on Thursday, some by amounts that shocked markets, and hinted at even higher borrowing costs to come to tame soaring inflation that is eroding savings and squeezing corporate profits.

Argentina’s central bank raised its benchmark interest rate by the most in three years on Thursday, as the South American country fights inflation running at over 60%.

Those moves came on the heels of a 75 basis point rate hike this week by the US Federal Reserve, the highest since 1994.

Federal Reserve policymakers are less confident than at any time since the height of the pandemic about what will happen with the economy, data showed.

US stock indexes also closed sharply lower on Thursday in a broad sell-off as recession fears grew.

The International Energy Agency on Wednesday also warned that sky-high oil prices and weakening economic forecasts dimmed the future demand outlook.

Investors also remained focused on tight supplies after the United States announced new sanctions on Iran.

“A rebound in China demand sentiment, and expected seasonal ramp-up in OECD oil demand into August leaves price risk to the upside through 3Q 2022,” said Baden Moore, head of commodities research at the National Australia Bank.

(Reporting by Arathy Somasekhar in Houston; Editing by Lincoln Feast.)

Wall Street plunges as recession fears grow

NEW YORK, June 16 (Reuters) – US stock indexes closed sharply lower on Thursday in a broad sell-off as recession fears grew following moves by central banks around the globe to stamp out rising inflation after the Federal Reserve’s largest rate hike since 1994.

The benchmark S&P 500 suffered its sixth decline in seven sessions. Stocks had rallied on Wednesday as the Fed delivered an aggressive 75 basis point rate hike, as expected, to help the index snap its longest daily losing streak since early January.

But rate hikes by Switzerland and Britain on Thursday reignited fears that attempts by central banks to curb inflation could lead to sharply slower growth worldwide or a recession.

“That is what people reassessing today – what is the probability of a potential recession and will corporate profits come in where analysts estimates are or will those get taken down,” said Tom Hainlin, global investment strategist at US Bank Wealth Management’s Ascent Private Wealth Group in Minneapolis.

“The Swiss came out and surprised everybody today and said we are less worried about the strength of our currency and more worried about inflation.”

The Dow Jones Industrial Average fell 741.46 points, or 2.42%, to 29,927.07, the S&P 500 lost 123.22 points, or 3.25%, to 3,666.77 and the Nasdaq Composite dropped 453.06 points, or 4.08%, to 10,646.10.

Each of the 11 major S&P sectors were lower, although the defensive consumer staples was outperforming the broader market as names like WalMart (WMT), General Mills (GIS) and Procter & Gamble (PG) were among the few advancers as only 14 S&P 500 components finished higher for the session.

Growth stocks were hit hard with the S&P growth index down 3.75% while the Nasdaq Composite saw its fifth decline of 4% or more since the start of May.

Hopes the Fed could engineer a soft economic landing are fading and Wells Fargo analysts now see a greater than 50% chance of a recession. Other banks that have warned of rising recession risks include Deutsche Bank and Morgan Stanley.

The benchmark index has slumped about 23% year-to-date and recently confirmed a bear market began on Jan. 3, while the Dow Industrials was on the cusp of confirming its own bear market.

The CBOE volatility index, also known as Wall Street’s fear gauge, rose to slightly below the one-month high of 35.05 touched earlier this week. Many analysts are looking for the VIX to reach around 40 as one of the signals that selling pressure may be reaching its apex.

Volume on US exchanges was 13.98 billion shares, compared with the 12.16 billion average for the full session over the last 20 trading days.

Declining issues outnumbered advancers on the NYSE by a 7.58-to-1 ratio; on Nasdaq, a 4.48-to-1 ratio favored decliners.

The S&P 500 posted one new 52-week high and 99 new lows; the Nasdaq Composite recorded seven new highs and 779 new lows.

(Reporting by Chuck Mikolajczak; Editing by Richard Chang)

Philippine central bank says stagflation not immediate risk to economy

MANILA, June 16 (Reuters) – The Philippines’ central bank does not see stagflation as an immediate risk to the economy and is optimistic recovery will be sustained, its governor said on Thursday.

Central banks across Asia are under pressure to tighten policy rates to tame inflation, though the move risks stunting growth and increasing unemployment.

A steady upturn in credit activity, ample domestic liquidity and improving labour market conditions will help boost economic activity, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said in a statement.

“The BSP will remain vigilant over emerging price and output conditions and will undertake necessary action to ensure that monetary policy settings remain appropriately calibrated,” Diokno said.

The Philippines has signalled another rate increase for its June 23 policy meeting as risks to the inflation outlook tilt toward the upside for both 2022 and 2023.

The central bank last month started unwinding its easy money policy, lifting the overnight reverse repurchase facility rate by 25 basis points to 2.25%, to combat inflationary pressures.

(Reporting by Neil Jerome Morales; Editing by Martin Petty and Ed Davies)

Dollar off two-decade high as Fed delivers on 75-bp hike

SINGAPORE, June 16 (Reuters) – The dollar retreated from a 20-year high on Thursday after the Federal Reserve delivered its biggest rate hike in decades but then tempered its outlook by telling investors that such sharp moves higher were unlikely to become a habit.

Markets had expected the 75 basis point hike and priced in several more after a surprisingly hot inflation reading last week. The dollar had scaled new heights as US yields rose, but it lurched lower after Chair Jerome Powell’s press conference.

It last traded at USD 1.0464 per euro, while in the Asia session the Australian dollar tacked another 0.4% on to its almost 2% overnight surge to hit USD 0.7031.

The dollar index, which made a two-decade high of 105.79 on Wednesday, traded at 104.84 in Asia.

“Today’s 75-basis-point increase is an unusually large one,” Powell told reporters.

“I do not expect moves of this size to be common,” he said, though adding that next month either a 50 bp or 75-bp hike was likely.

Fed members also drastically lifted their projections for the peak in the benchmark funds rate, with the median forecast having it around 3.8% in 2023, much higher than the 2.8% peak they had last projected in March.

That, however, was met with initial relief as it was a bit lower than the 4%-and-above that futures markets had implied earlier this week.

“Against a market pricing in a ~3.75% Fed funds rate by year-end, (Powell’s) comments soothed the market and that weighed on the dollar,” analysts at ANZ Bank said in a note.

“Some unwind of volatility is likely in coming days as US policy expectations fall back to earth, but the Fed still has plenty to do… risk appetite has breathed a sigh of relief – let’s see if it lasts.”

A small dip on the yen was already being unwound on Thursday morning as the Fed’s tone is in stark contrast with the Bank of Japan’s redoubling of efforts to pin interest rates near zero.

The yen JPY=EBS last traded at 134.39 per dollar after finding a 24-year low of 135.60 on Wednesday.

The Bank of Japan meets on Friday amid a speculative attack on its yield-curve-control policy that has made for erratic trade in Japanese government bonds this week.

The dollar eased against the New Zealand dollar, but the kiwi struggled to make further progress on Thursday after data showed an unexpected contraction in the economy.

It last bought USD 0.6292.

Sterling held overnight gains at USD 1.2178 ahead of a Bank of England meeting later in the day that is expected to bring at least a 25 bp hike, with swaps pricing implying about an 80% chance of a 50-bp hike.

Traders will also be closely watching several speakers from the European Central Bank after the ECB promised to control borrowing costs for the currency’s bloc’s periphery after an emergency meeting on Wednesday.

(Reporting by Tom Westbrook; Editing by Lincoln Feast)

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

Policy rate views: Fed expected to do baby steps

Inflation Update: Faster but full-year average within target