Inflows into Asian bonds slow on caution over US rate cuts, elections

Asian bond markets attracted overseas investments for the fifth consecutive month in September, though the pace of inflows slowed due to diminished expectations for further rate cuts by the US Federal Reserve and caution ahead of US elections.

Cross-border investors bought local bonds in Indonesia, India, Malaysia, South Korea, and Thailand, totaling a net USD 4.99 billion, which was less than USD 14.09 billion worth of net purchases the prior month, data from regulatory authorities and bond market associations showed.

Analysts anticipate a further decline in flows into Asian bonds due to the recent strengthening of the US dollar and the increase in US bond yields this month.

The US dollar index hit a two-month high of 103.397, this week, while the yield on US 10-year notes reached a two-and-a-half-month high of 4.12% after strong jobs data and higher-than-expected September inflation reduced expectations for large Fed rate cuts.

Saktiandi Supaat, an analyst at Maybank, noted that near-term risks for emerging market currencies persist, with a potential win by Republican presidential candidate Donald Trump possibly triggering de-risking due to his tariff proposals, while a victory by Democrat Kamala Harris might support a global soft landing and gradual Fed rate easing.

In September, foreigners purchased a net USD 2.76 billion worth of South Korean bonds, less than half the amount received in the previous month, while Indonesian bonds attracted about USD 1.4 billion in overseas capital.

Additionally, foreigners pumped about USD 427 million, USD 253 million, and USD 156 million respectively into Thai, Malaysian, and Indian bonds last month.

However, analysts are optimistic about the inclusion of Asian bonds in global bond indexes, which should bolster inflows.

Indian government securities were added to JPMorgan’s Government Bond Index-Emerging Markets in June 2024 and will join Bloomberg Index Services’ Emerging Market Local Currency Index in January 2025.

Additionally, FTSE Russell will include South Korean government bonds in the World Government Bond Index and Indian bonds in the Emerging Markets Government Bond Index starting in November 2025 and September 2025, respectively.

“Hopefully, the KTB yields’ upward march could be somewhat offset by the capital inflow amid its inclusion into the WGBI Index. The changing rate cut expectations will particularly weigh on higher yielders like IDR rates,” said Samuel Tse, an analyst at DBS Bank.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Chizu Nomiyama)

Inflation cools, TSMC offers AI weather vane

Markets across Asia should open on a firm footing on Thursday, supported by a rebound on Wall Street and softer Treasury yields the day before, and growing signs that global inflationary pressures are broadly easing.

Asia’s economic calendar on Thursday sees the release of the latest international trade data from Japan and Singapore, and Australian unemployment.

The main three US indices all closed in the green on Wednesday with banks and small caps leading the rise. Big Tech, however, remains under pressure, which may intensify the spotlight even more on TSMC’s third quarter results on Thursday.

Taiwan Semiconductor Manufacturing Co, the main producer of advanced chips used in artificial intelligence applications, is expected to report a 40% leap in profit to TUSD 298.2 billion (USD 9.27 billion) thanks to soaring demand.

The world’s largest contract chipmaker, whose customers include Apple, Nvidia, and ASML, has benefited from the global surge towards AI. A miss or weak guidance, however, could trigger another wave of selling across Big Tech.

But assuming analysts’ estimates are met or even exceeded, the backdrop to Thursday’s session in Asia looks favorable, despite the dollar’s tick higher. The VIX index of US stock market volatility dipped back below 20.0 on Wednesday and oil fell for a fourth day in a row.

Falling oil prices are often a warning of weak global economic activity and demand. A huge miss and surprising slump in Japanese machinery orders on Wednesday will only have strengthened those concerns.

But the disinflationary pull from oil’s weakness cannot be ignored, and if investors like one thing it’s lower interest rates. In that light, investors will have been encouraged by the price signals from around the world over the last 24 hours.

Inflation in New Zealand was slightly weaker than expected, inflation in Britain was much weaker than expected and sure to cement UK rate cut expectations, while the Bank of Thailand delivered a surprise rate cut.

With the European Central Bank widely expected to cut rates on Thursday by 25 basis points for a second meeting, to 3.25%, global financial conditions are loosening. Rates traders currently expect the Fed, ECB, and Bank of England each to cut rates another 50 bps and the Bank of Canada to cut at least another 75 bps by the end of the year.

That’s a lot of easing, especially without a recession, at least in the US. Indeed, if there is a US recession coming, someone forgot to tell the corporate bond market, where spreads are now the tightest in nearly 20 years.

This is usually where the first hints of recession are seen as investors move to price the impending impact of rising unemployment, slowing growth, and consumer weakness on companies’ debt loads.

Here are key developments that could provide more direction to markets on Thursday:

– Australia unemployment (September)

– Japan trade (September)

– Taiwan’s TSMC earnings (Q3)

(Reporting by Jamie McGeever)

Pullback in US yields spurs gold’s march toward record peak

Gold advanced towards record highs on Wednesday as gains in non-yielding bullion were bolstered by weakness in US bond yields and expected rate cuts by major central banks, with additional safe-haven support from ongoing geopolitical conflicts.

Spot gold rose 0.5% to USD 2,673.24 per ounce by 5:30 p.m. ET (2130 GMT), inching close to a record high of USD 2,685.42 it hit on Sept. 26. US gold futures settled 0.5% higher at USD 2,691.3.

“Expectations of a 25-basis-point rate cut by the US Federal Reserve in November are solidifying, weaker inflation data in Europe and the UK have increased expectations for more aggressive ECB and BoE easing, leading to generally lower yields which have lifted gold,” said Peter A. Grant, vice president and senior metals strategist at Zaner Metals.

“There’s even an outside chance we could see close to USD 3,000, and that’s probably more of a Q1 2025 target,” Grant said.

US Treasury yields fell to their lowest in over a week, making gold more attractive as it tends to thrive in a low interest rate environment.

Traders currently see about a 94% chance of a 25-basis-point US rate cut in November, according to the CME FedWatch tool.

The European Central Bank looks set to deliver another rate cut on Thursday, while a drop in British inflation indicated a rate cut next month by the Bank of England.

The main bullish drivers for gold include the risk of fiscal instability, safe-haven appeal, geopolitical tensions, de-dollarization, US Presidential election uncertainties, and rate cuts by central banks, said Ole Hansen, head of commodity strategy at Saxo Bank.

Delegates to the London Bullion Market Association’s annual gathering predicted gold prices would rise to USD 2,941 over the next 12 months and silver prices would jump to USD 45 per ounce.

Spot silver firmed about 0.6% to USD 31.67. Platinum rose 1% to USD 994.43 and palladium climbed 1.5% to USD 1,024.76.

(Reporting by Anushree Mukherjee in Bengaluru, additional reporting by Swati Verma; Editing by Krishna Chandra Eluri and Tasim Zahid)

US Treasury yields decline as Fed-cut expectations firm

NEW YORK – US Treasury yields dipped on Wednesday, with the benchmark 10-year note yield down for a third-straight session as investors dialed in expectations for the path of interest rates ahead of data on consumer strength.

The 10-year yield had risen four straight weeks, reaching 4.12% last week, its highest since July 31, in the wake of a strong payrolls report that diminished expectations for another outsized rate cut of 50 basis points from the Fed at its November policy meeting.

Labor Department data on Wednesday showed import prices slipped 0.4% last month, the biggest drop since December 2023, after a revised 0.2% decrease in August, amid a sharp decrease in the cost of energy products and indicating a benign inflation outlook that keeps the Fed on course to continue cutting interest rates.

The data comes ahead of retail sales figures on Thursday that will provide insight on the health of the consumer.

“Most likely if they come around expectations, it’s supportive of a still resilient and strong consumer, so not pointing to the need for super-fast rate cuts,” said JoAnne Bianco, BondBloxx partner and client portfolio manager in Chicago.

“We translate this into our view of where we think value is in the markets and we think the backup in yields that we’ve seen really has represented an opportunity for investors to increase their allocation to fixed income.”

Markets are now pricing in a 94.2% chance for a cut of 25 bps at the Fed’s next meeting, with only a 5.8% chance the central bank will hold rates steady, according to CME’s Fedwatch Tool. Expectations for a 50-bps cut were at 29.3% a month ago.

The yield on the benchmark US 10-year Treasury note fell 2.6 basis points to 4.012% after dipping to 3.995%, its lowest since Oct. 7.

Comments from Fed officials, including Chair Jerome Powell, have signaled a shift in focus from combating inflation to labor-market stability while also being deliberate in the path of future rate cuts.

The yield on the 30-year Treasury bond slipped 3.3 basis points to 4.295%.

Atlanta Federal Reserve President Raphael Bostic said late on Tuesday he penciled in just one more interest-rate reduction of 25 basis points this year when he updated his projections for September’s US central bank meeting.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a positive 7.7 basis points.

The two-year US Treasury yield, which typically moves in step with interest-rate expectations, lost 2.3 basis points to 3.933%.

The breakeven rate on five-year US Treasury Inflation-Protected Securities was last at 2.219% after closing at 2.226% on Oct. 15.

The 10-year TIPS breakeven rate was last at 2.273%, indicating the market sees inflation averaging about 2.3% a year for the next decade.

(Reporting by Chuck Mikolajczak; Editing by Andrea Ricci and Rod Nickel)

Oil prices hold at 2-week low on lower oil demand growth forecasts

NEW YORK – Oil prices held near a two-week low on Wednesday after dropping about 7% over the prior three days on forecasts for less oil demand growth and reduced concerns that Middle East conflicts will disrupt supply.

Brent futures fell 3 cents to settle at USD 74.22 a barrel, while US West Texas Intermediate (WTI) crude fell 19 cents, or 0.3%, to settle at USD 70.39.

Both crude benchmarks closed at their lowest levels since Oct. 2 for a second day in a row.

Earlier this week, crude prices fell in response to a weaker demand outlook and a media report that Israel would not strike Iranian nuclear and oil sites, easing fears of supply disruptions.

Iran is a member of the Organization of the Petroleum Exporting Countries (OPEC) and produced about 4.0 million barrels per day (bpd) of oil in 2023, US Energy Information Administration (EIA) data showed.

Iran was on track to export around 1.5 million bpd in 2024, up from an estimated 1.4 million bpd in 2023, according to analysts and US government reports.

Iran is backing several groups fighting Israel, including Hezbollah in Lebanon, Hamas in Gaza and the Houthis in Yemen.

Concern about an escalation in the conflict between Israel and Iran-backed militant group Hezbollah persists. Supply curbs by OPEC and its allies including Russia, a group known as OPEC+, remain in place until December when some members are scheduled to start unwinding one layer of cuts.

On the demand side, OPEC and the International Energy Agency this week cut their 2024 global oil demand growth forecasts, with China accounting for the bulk of the downgrades.

The IEA forecast global oil demand would peak before 2030 at less than 102 million bpd and then fall to 99 million bpd by 2035.

Fiscal stimulus announced in China has failed to give oil prices much support. China may raise an additional 6 trillion yuan (USD 850 billion) from special treasury bonds over three years to stimulate a sagging economy, local media reported.

Positive economic news from the US and Europe helped limit the oil price slide on Wednesday.

In Europe, the eurozone economy showed some signs of life with a raft of indicators pointing to lukewarm but still positive growth for a bloc that has been skirting a recession for over a year. US import prices fell by the most in nine months in September as energy product costs fell sharply, signaling a benign inflation outlook that keeps the Federal Reserve on course to keep cutting interest rates.

After hiking rates aggressively in 2022 and 2023 to tame a surge in inflation, the Fed started to lower rates in September.

Lower rates decrease borrowing costs, which can boost economic growth and demand for oil.

US OIL STORAGE DATA

Weekly US oil storage data is due from the American Petroleum Institute (API) trade group later on Wednesday and the EIA on Thursday. The reports were delayed by one day for the US Indigenous Peoples’ Day holiday on Monday.

Analysts projected US energy firms added about 1.8 million barrels of crude into storage during the week ended Oct. 11.

If correct, that would be the first time energy firms boosted stockpiles for three weeks in a row since April and compares with a withdrawal of 4.5 million barrels in the same week last year and an average increase of 1.1 million barrels over the past five years (2019-2023).

(Reporting by Scott DiSavino, Alex Lawler, Arunima Kumar, Jeslyn Lerh, and Sudarshan Varadhan; Editing by Paul Simao, Andrea Ricci, and Richard Chang)

Gold gains on lower yields, traders await more US data

Gold edged higher on Tuesday lifted by retreating Treasury yields, while investors cautiously awaited more data that could offer fresh clues on the Federal Reserve’s monetary easing cycle.

Spot gold rose 0.5% to USD 2,663.83 per ounce at 2:00 p.m. ET (1800 GMT). US gold futures settled 0.5% higher at USD 2,678.9.

The Benchmark 10-year note yields slipped following a soft reading of manufacturing activity in New York State, making non-yielding gold more attractive, while the dollar hovered near its highest in more than two months.

“We’re seeing a little pullback in yields as bond prices rally here. That’s offering a little stability, a little support to the gold market,” said David Meger, director of metals trading at High Ridge Futures.

“There is an expectation that gold would be going through a bit of a pause or a bit of a consolidation. We’re leaning now more towards a sideways to higher uptrend as we do think that yields are going to retrace a bit. We’re going to see a little bit of a pullback in the dollar.”

Currently, traders see about a 90% chance of a 25-basis-point cut in November, according to the CME FedWatch tool.

Markets’ attention will be on upcoming US retail sales, industrial production data, and weekly jobless claims due later this week.

Gold, which yields no interest on its own, also gains in times of political and economic uncertainties.

Should the media reports prove to be true and Israel refrains from targeting Iran’s oil and nuclear sites in the expected retaliatory strike, geopolitical risks would decrease, and support for the gold price from this side would also fade, Commerzbank said in a note.

“We see slight downside risks for the gold price and expect the gold price to be USD 2,600 at the end of the year.”

Spot silver rose 1% to USD 31.49 per ounce and platinum fell 0.5% to USD 988.45. Palladium was down 1.6% to USD 1,012.98.

(Reporting by Anushree Mukherjee in Bengaluru, Editing by Franklin Paul, Vijay Kishore, and Shailesh Kuber)

Yields fall after manufacturing data, Fed comments

NEW YORK – US Treasury yields declined on Tuesday, easing after a recent run to the upside that sent the benchmark 10-year note to a 2-1/2 month high, following a soft reading of manufacturing activity in New York State.

The New York Fed’s monthly gauge of factory activity in the state fell to a negative 11.9 in October from the prior 11.5 in September. Readings above zero indicate expanding activity.

Economists polled by Reuters had expected another month of expanding activity with a median forecast of 3.85.

“Yield to the upside kind of ran its course at this point and you just needed a small catalyst to kind of create a soft cap at this point, that’s all it is,” said Jim Barnes, director of fixed income at Bryn Mawr Trust in Berwyn, Pennsylvania.

“You’d probably need to have some type of material catalyst in order for it to keep running higher and since we really haven’t had that at this point now, it’s probably just going to be range-bound until we can get evidence as to what might factor into what the Fed will do going forward.”

The yield on the benchmark US 10-year Treasury note fell 3.9 basis points to 4.034%.

The 10-year yield has risen for four straight weeks, reaching 4.12% last week, its highest since July 31 in the wake of a strong payrolls report that diminished expectations for another outsized rate cut of 50 basis points (bps) from The Federal Reserve at its November policy meeting.

The yield on the 30-year bond declined 5.8 basis points to 4.324%.

Markets are now pricing in a 94.1% chance for a cut of 25 bps at the Fed’s next meeting, with only a 5.9% chance the central bank will hold rates steady, according to CME’s Fedwatch Tool. Expectations for a 50 bps cut were at 27% a month ago.

Comments from Fed officials, including Chair Jerome Powell, have signaled a shift in focus from combating inflation to labor market stability while also being deliberate in the path of future rate cuts. Investors will eye data on the health of the consumer on Thursday with retail sales numbers for September.

Federal Reserve Bank of San Francisco President Mary Daly said the central bank remains on track for more rate cuts this year as long as data meets expectations, while noting that even with last month’s rate cut, monetary policy is still working to bring inflation pressure down.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, edged up 1.1 basis points to 3.982%.

Federal Reserve Bank of Atlanta President Raphael Bostic is scheduled to speak later on Tuesday.

The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.239% after closing at 2.283% on October 11.

The 10-year TIPS breakeven rate was last at 2.291%, indicating the market sees inflation averaging about 2.3% a year for the next decade.

(Reporting by Chuck Mikolajczak, Editing by Nick Zieminski and Chizu Nomiyama)

Oil plunges 4% as Iran supply disruption concerns ease, demand outlook weakens

HOUSTON – Oil prices tumbled more than 4% to a near two-week low on Tuesday due to a weaker demand outlook and after a media report said Israel would not strike Iranian nuclear and oil sites, easing fears of a supply disruption.

Brent crude futures settled down USD 3.21, or 4.14%, at USD 74.25 a barrel. West Texas Intermediate futures finished down USD 3.25, or 4.4%, at USD 70.58 a barrel.

Both benchmarks had earlier fallen by USD 4, reaching their lowest since the beginning of October, after settling about 2% lower on Monday.

“We’re seeing an unwinding of the war premium we built up last week,” said Phil Flynn, senior analyst at Price Futures Group. “What we’re seeing, it’s not really about supply, it’s about the risk to supply and demand.”

Brent and WTI are down about USD 5 so far this week, nearly wiping out cumulative gains made after investors became concerned Israel could strike Iran’s oil facilities in retaliation for Tehran’s Oct. 1 missile attack.

Israeli Prime Minister Benjamin Netanyahu told the United States that Israel was willing to strike Iranian military targets and not nuclear or oil ones, the Washington Post reported late on Monday.

Both the Organization of the Petroleum Exporting Countries and the International Energy Agency this week cut their forecasts for global oil demand growth in 2024, with China accounting for the bulk of the downgrades.

OPEC has projected a much stronger expansion of global demand for the year than the IEA. But its “run of lower adjustments is something of an admission of wishful thinking,” said John Evans at oil broker PVM.

OPEC and its allies, known as OPEC+, may change production plans for late this year, said Andrew Lipow, president of Lipow Oil Associates.

“I think OPEC+ is going to defer raising production later this year,” Lipow said.

Current crude prices are below levels needed for many of those countries to meet their national budgets, Lipow added.

(Reporting by Erwin Seba, additional reporting by Paul Carsten, Sudarshan Varadhan, and Emily Chow; Editing by Christina Fincher, Emelia Sithole-Matarise, and Chizu Nomiyama)

Chinese stocks attractive but investment managers cautious before US election

NEW YORK – Asset managers of public and private funds believe that certain Chinese stocks are trading at attractive prices, but they are not buying just yet because of uncertainty around the upcoming US elections, an investment adviser said.

Christopher Ailman, the former chief investment officer of the California State Teachers’ Retirement System (CalSTRS), said China was the focus of a regular discussion that he moderated last week for more than a dozen money managers at the 300 Club, which describes itself on its website as a group of leading investment professionals who aim to raise awareness about current investment issues.

The group consists of representatives from global investment funds such as French asset manager Amundi, which manages 2.16 trillion euros and the Canada Pension Plan, which manages USD 632.3 billion.

A representative for the group said he had nothing further to add when reached for comment.

Although the conversation was intended to be about the risks that investors face if tensions between Israel and Iran worsened, Ailman said the dialogue quickly turned when investors realized that Iran’s oil exports are mostly consumed by China.

“When you think about geopolitical risks as an investor, China is at the forefront of your mind,” said Ailman, who retired from the USD 347-billion CalSTRS fund at the end of June. “Everything almost links back to China.”

Ailman said money managers on the call agreed that the prices of certain Chinese stocks looked attractive from the technical and fundamental perspectives, but no one indicated they were increasing their Chinese investments.

“No one wants to go rushing in before the US election,” said Ailman, who is the chairman of the North American chapter of the 300 Club. He did not say which were the Chinese stocks that investors found attractive.

Due to heightened Sino-US political tensions and China’s cooling economy, Ailman said many asset managers have reduced their Chinese investments or eliminated them altogether, adding that US and Canadian funds were particularly “gun shy” about investing in China right now.

But given that Chinese investments do not usually account for more than 5% of the portfolios of North American funds, he said asset managers’ analysis of Chinese equities was not as important as their views on real estate or the valuations of US technology stocks.

China’s stock market has been on a roller-coaster ride, soaring more than 20% since a slew of policy announcements on Sept. 24 fanned expectations that the Chinese government was unveiling a major rescue effort to revive the ailing economy.

Market euphoria about a large stimulus effort has petered out, though some analysts hoped that stock market gains will give way to a more steady — and sustainable — rebound.

(Reporting by Koh Gui Qing)

Investor optimism sees biggest jump since June 2020, survey shows

MILAN – Global investor optimism posted its biggest jump since June 2020 in October due to Federal Reserve rate cuts, stimulus pledges from China, and expectations of a soft landing for the US economy, a BofA survey of fund managers published on Tuesday showed.

Cash allocations dropped to 3.9% from 4.2% in September month, while equity allocations rose to a net 31% overweight, and bond allocations suffered a record drop to a net 15% underweight, according to the survey.

“Our broadest measure of (fund manager survey) sentiment, based on cash levels, equity allocation, and economic growth expectations, rose from 3.8 to 5.6, its largest monthly rise since Jun’20,” BofA said.

The survey showed investors expect the upcoming US election will most likely impact trade policy (47%), followed by geopolitics (15%) and taxation (11%).

In terms of how investors are positioning in light of the soft-landing narrative, the survey showed the biggest rise in global equity allocation since June 2020.

However, the steep drop in cash levels has triggered the first contrarian “sell signal” since last June, based on the bank’s own metrics.

“Since 2011, there have been 11 prior ‘sell’ signals which saw global equity (ACWI) returns of -2.5% in the 1 month after and -0.8% in the three months after the ‘sell’ signal was triggered,” the bank said, in reference to the performance of MSCI’s All-World index (ACWI), which is up 0.6% so far in October, heading for its sixth monthly rise.

The survey, which took place from Oct 4 to Oct 10, polled 231 panelists with USD 574 billion in assets under management.

(Reporting by Danilo Masoni and Amanda Cooper; Editing by Christina Fincher)

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