Gold advances as inflation data fuels Fed rate cut optimism

Gold gained on Wednesday after an inflation print came in line with expectations, boosting the likelihood of a Federal Reserve rate cut next week, while investors awaited US Producer Price Index (PPI) data for further direction on monetary policy.

Spot gold climbed 0.9% to USD 2,717.29 per ounce, as of 01:41 p.m. ET (1841 GMT). Spot prices for bullion hit a record high of USD 2,790.15 an ounce on Oct. 31.

US gold futures settled 1.4% higher at USD 2,756.70.

The US consumer prices rose 0.3% on a monthly basis in November, data from the Labor Department showed. Annually, it climbed 2.7% after increasing 2.6% in October.

Economists polled by Reuters had forecast the CPI rising 0.3% and advancing 2.7% year-on-year.

“Gold is higher on the back of the premise that CPI data coming in benign or certainly in line with expectations, inflation not rising any further but remaining steady will allow the Fed to almost certainly cut rates at the next FOMC meeting,” said David Meger, director of metals trading at High Ridge Futures.

Traders predict a 95% chance of a further 25-basis-point cut at the Fed’s Dec. 17-18 meeting, compared with an about 86% chance seen before the inflation report, CME’s FedWatch Tool showed.

All eyes are now on the PPI data, due on Thursday for further clarity on the Fed rate cut path.

“We expect gold to reach fresh new highs in 2025, with the elevated bond yields we have today easing over the course of the year and geopolitical risks remaining a supportive driver of gold sentiment,” Nitesh Shah, commodity strategist at WisdomTree, said.

“We believe gold could reach USD 3,000/oz by the end of 2025.”

Gold, traditionally reputed as a safe investment during times of geopolitical uncertainty, thrives when interest rates are low.

Spot silver added 0.1% to USD 31.92 per ounce, platinum dropped 0.8% to USD 935.18 and palladium gained 1% to USD 977.50.

(Reporting by Anushree Mukherjee and Anjana Anil in Bengaluru; Editing by Franklin Paul, Alexander Smith, and Krishna Chandra Eluri)

Oil settles up USD 1 as EU agrees further sanctions threatening Russian oil flows

Oil prices settled more than USD 1 higher on Wednesday after the European Union agreed to an additional round of sanctions threatening Russian oil flows that could tighten global crude supplies.

Brent crude futures settled up USD 1.33, or 1.84%, to USD 73.52 a barrel. US West Texas Intermediate crude futures rose USD 1.70, or 2.48%, to USD 70.29.

European Union ambassadors agreed on Wednesday to a 15th package of sanctions on Russia over its war against Ukraine, the Hungarian EU presidency said.

“I welcome the adoption of our 15th package of sanctions, targeting in particular Russia’s shadow fleet”, European Commission President Ursula von der Leyen said on X.

The “shadow fleet” has aided Russia in bypassing the USD 60 per barrel price cap imposed by the G7 on Russian seaborne crude oil in 2022, and has helped keep Russian oil flowing.

“The renewed seriousness about clamping down on flows here is potentially supportive, and is offsetting the traditional demand metric that we have been focusing on,” said John Kilduff, partner at Again Capital in New York.

Curbing price gains on Wednesday, gasoline and distillate inventories rose by more than expected last week, according to data from the Energy Information Administration, weighing on crude prices.

Meanwhile, producers’ group OPEC cut its forecasts for demand growth in 2024 and 2025 for the fifth straight month on Wednesday and by the largest amount yet.

“OPEC are squaring up to reality about what they are facing, the (demand growth forecast) cuts highlight that they have their hands full in terms of trying to balance this market heading into 2025,” Again Capital’s Kilduff added.

OPEC+, which groups members of the Organization of the Petroleum Exporting Countries with other producers such as Russia, earlier this month delayed plans to start raising output.

Weak demand, particularly in top importer China, and non-OPEC+ supply growth were two factors behind the move.

However, investors anticipate a rise in Chinese demand following Beijing’s latest plans to boost economic growth.

China said on Monday it would adopt an “appropriately loose” monetary policy in 2025 marking the first easing of its stance in 14 years.

“It’s uncertain whether China can fully kick start growth in 2025,” said Global X research analyst, Kenny Zhu.

“We believe Chinese monetary and fiscal stimulus will be key data points to watch for the coming year,” Zhu added.

Chinese crude imports also grew annually for the first time in seven months in November, up more than 14% from a year earlier.

Meanwhile, the Kremlin said that reports of a possible tightening of US sanctions on Russian oil suggested the administration of US President Joe Biden wants to leave a difficult legacy for US-Russia relations.

Treasury Secretary Janet Yellen said on Wednesday that the US is continuing to look for creative ways to reduce Russia’s oil revenue and lower global demand for oil create an opportunity for more sanctions.

(Reporting by Georgina McCartney in Houston, Arunima Kumar in Bengaluru, Jeslyn Lerh in Singapore, and Nicole Jao in New York; editing by Saad Sayeed, Jason Neely, Keith Weir, Diane Craft, and David Gregorio)

Yields rise on supply, inflation data boosts Fed rate cut expectations

US Treasury yields rose on Wednesday as the Treasury Department sold long-dated supply and data showed a widening US budget deficit.

That overturned an earlier drop in yields after consumer price inflation data for November reinforced bets the Federal Reserve will cut rates by 25 basis points next week.

Longer-term debt concerns were seen weighing on the market after the US government posted a USD 367 billion budget deficit for November, up 17% from a year earlier.

“Not only does today’s report from the Treasury confirm that we’ve borrowed USD 624 billion so far this fiscal year – USD 10 billion per day – but on a rolling basis, we’ve borrowed USD 2.1 trillion in the last twelve months. That’s an astonishing sum especially when considering the huge challenges ahead,” the Committee for a Responsible Federal Budget said in a release.

The Treasury Department earlier saw good demand for a USD 39 billion sale of 10-year notes, the second sale of USD 119 billion in coupon-bearing sales this week.

The debt sold at a high yield of 4.235%, more than a basis point below where they had traded before the sale. Demand was 2.70 times the amount of debt on offer, the highest bid-to-cover ratio since at least March 2022.

The US government saw solid demand for a USD 58 auction of three-year notes on Tuesday and will also sell USD 22 billion in 30-year bonds on Thursday.

Benchmark 10-year note yields were last up 5 basis points on the day at 4.271%.

Interest rate sensitive two-year note yields rose 1 basis point to 4.159%.

The yield curve between two-year and 10-year notes steepened by around three basis points to 11.3 basis points.

Yields fell earlier after data showed that both headline and core consumer inflation rose by 0.3% in November, in line with economists’ expectations, keeping the Fed on track for another interest rate cut.

“It was largely as expected. I don’t think it will change the Fed’s thinking, so I expect them still to cut rates next week,” said Eric Winograd, director of developed market economic research at AllianceBernstein in New York.

The consumer price index posted the largest gain since April after advancing 0.2% for four straight months. In the 12 months through November, the CPI climbed 2.7% after increasing 2.6% in October.

Excluding the volatile food and energy components, the CPI rose by the same margin for the fourth consecutive month. In the 12 months through November, the so-called core CPI gained 3.3%, following a similar advance in October.

“With the payrolls report behind us and now the inflation report behind us, there’s nothing stopping the Fed from cutting 25 bps next week,” said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.

Traders are pricing in a 95% probability of a 25 basis point cut at the conclusion of the Fed’s Dec. 17-18 meeting, up from 86% before the data, according to the CME Group’s FedWatch Tool.

A positive sign in the data was that shelter inflation continued to slow, but services and shelter inflation are still higher than the Fed would like, said Winograd.

“As a result of that, I expect them to signal next week some caution and cut rates, but to indicate that they’re not locked into cutting rates every meeting, that they’re going to have to continue to watch the data and that they will eventually need to see additional downward momentum in inflation,” he said.

Traders see the Fed as likely to pause rate cuts in January. The trajectory of rates then may depend on how quickly policies by the new Trump administration are introduced, and when they begin to be seen in the economic data.

(Reporting By Karen Brettell; Additional reporting by Chuck Mikolajczak; Editing by Christina Fincher, Bernadette Baum, and Deepa Babington)

US dollar rises, Aussie drops after Chinese trade data

NEW YORK – The dollar rose on Tuesday ahead of US inflation data that could offer clues about the Federal Reserve’s monetary-easing path, while analysts assess the likely impact of President-elect Donald Trump’s policies when he begins his second term.

The Australian dollar dropped sharply against the US dollar as the Reserve Bank of Australia softened its tone on the inflation outlook. Its rally the day before sparked by China stimulus pledges also tapered off after weak Chinese trade data.

Money markets are pricing an 86% chance of a 25-bps rate cut by the US Federal Reserve next week, but investors will still be looking closely at an expected readout of Consumer Price Index data on Wednesday.

“Obviously the market’s kind of nervous about a stronger print, which might lead to a slightly more hawkish outlook on the Fed, or maybe a little bit of a repricing,” said Brad Bechtel, global head of FX at Jefferies. “I think the market is looking to see if CPI influences the decision on the December meeting, which right now is pretty much close to 100% priced, but not 100% priced.”

The US dollar rose 0.47% to 151.925 yen. The dollar index, which measures the currency against the yen and five other major peers, rose 0.23% to 106.4.

Market participants see little action before a busy second half of the week with the US data and European Central Bank policy meeting.

An ECB quarter-point cut is baked in, but investors will focus on the communication, which could provide clues about the central bank’s future moves.

The euro dropped 0.27% to USD 1.0526.

The Aussie fell 0.93% to USD 0.6381, after earlier dropping to its lowest level since August.

It rose 0.8% the previous day after China pledged an “appropriately loose” monetary policy next year.

“If we can get Chinese stocks to rally, China-sensitive commodities like copper to rally, that could depress the US dollar a little bit,” said Erik Bregar, director of FX & precious metals risk management at Silver Gold Bull. “You can feel there’s a lot of pressure over there to do something.”

China’s exports grew at a slower pace in November, while imports unexpectedly shrank, affecting expectations for the Australian economy, as China is its largest trading partner.

Chinese equities eased gains while Hong Kong stocks declined as the initial optimism over Beijing’s policy shift faded.

The RBA held rates steady as expected, but noted the board had gained “some confidence” inflation was heading back to target.

“A full pricing-in (of a rate cut) over the next few weeks would weigh further on the Australian dollar,” said Volkmar Baur, forex strategist at Commerzbank, recalling that two labour market reports and the inflation figures for the fourth quarter will be published before the next policy meeting in February.

The New Zealand dollar dropped in sympathy with the Aussie, declining 1.1% to USD 0.5801.

Investors will closely watch China’s closed-door Central Economic Work Conference this week, which sets key targets and policy intentions for next year.

The yuan was last at 7.2602 per dollar in offshore trading, supported by Monday’s surprise shift in Beijing’s monetary policy stance toward more easing to boost the ailing economy.

Elsewhere, the Bank of Canada and the Swiss National Bank decide policy on Wednesday and Thursday, respectively, with deep rate cuts expected from both.

Against Canada’s loonie, the US dollar rose to its strongest level since April 2020 at CUSD 1.4165.

(Reporting by Hannah Lang in New York; additional reporting by Stefano Rebaudo;
Editing by Rod Nickel and Matthew Lewis)

US high-yield credit set for best returns in eight years in 2024

A lower rung of US junk bonds is set to deliver its best returns in eight years in 2024, underscoring a significantly higher risk-return payoff for investors dabbling in speculative assets this year.

Returns on CC-rated debt, two rungs above D – meaning in default, have surged nearly 48% this year, a far cry from 83% in 2016 but nearly three times higher than last year, according to data from Morningstar Direct.

In comparison, investment-grade credit has generated returns between 3% and 5% this year, while other junk bond tiers have yielded returns between 7% and 15%.

Investment-grade bonds are generally perceived to be safer, but their lower risk and greater stability mean lower returns than often illiquid high-yield bonds.

This year’s outperformance by high-yield bonds has been driven by stronger corporate profitability and a soft economic landing that has kept default rates near historic lows and supported strong recovery rates, Bob Michele, global head of fixed income at JPMorgan Asset Management, said.

“It has been a very good year for credit,” Michele told the Reuters Global Markets Forum (GMF).

“Areas that stood out to us were the performance of bank debt, especially AT1, and the performance of high yield,” he added. AT1, or additional tier one bonds, are designed to act as shock absorbers that can be written off or converted into equity if a bank’s capital levels fall below a certain threshold, providing a cushion at times of market turmoil.

Despite record-tight spreads in corporate bond markets, asset managers remain bullish on US fixed income, bolstered by President-elect Donald Trump’s election victory and the Republicans’ control of the House and Senate, which are expected to reinforce pro-growth policies and further support risk assets.

“Spreads across risky assets are extremely tight and worth a second look for investors, but the favorable growth and labor market environment have continued to make it difficult for investors to step away,” Gennadiy Goldberg, US rates strategist at TD Securities, told the GMF.

The ICE BofA high-yield index, which tracks the performance of junk bonds .MERH0A0, has hit record highs above 1,736 this week and is heading for a rise of 9.7% in 2024.

(Reporting by Mehnaz Yasmin in Bengaluru. Editing by Amanda Cooper and Mark Potter)

Oil prices rise on China stimulus, possible tight supply in Europe

HOUSTON – Oil prices rose on Tuesday as markets looked to rising demand in China, the world’s largest buyer, and possible tight supply in Europe this coming winter and away from the overthrow of Syria’s president.

Brent crude futures settled at USD 72.19 a barrel, up 5 cents or 0.07%. US West Texas Intermediate finished at USD 68.59 a barrel, up 22 cents or 0.32%. Both benchmarks had risen more than 1% on Monday.

Support came from reports that China will adopt “appropriately loose” monetary policy in 2025 as Beijing tries to spur economic growth. This would be the first easing of its stance in 14 years, though details remain thin.

Chinese crude imports also grew annually for the first time in seven months, jumping in November from the year-earlier period.

The increase, however, “was more a function of stockpiling than demand improvement,” said Tamas Varga of oil broker PVM.

“The economy will only be stimulated by improving consumer sentiment and spending, by a rise in domestic aggregate demand echoed in a healthy increase in consumer inflation,” he added.

Speculation about winter demand was also a factor, said Phil Flynn, senior analyst with Price Futures Group.

“Hedge funds are starting to buy on tightness of supply in European markets this winter,” Flynn said.

In Syria, rebels were working to form a government and restore order after the ousting of President Bashar al-Assad, with the country’s banks and oil sector set to resume work on Tuesday.

“The tensions in the Middle East seem contained, which led market participants to price for potentially low risks of a wider regional spillover leading to significant oil supply disruption,” IG market strategist Yeap Jun Rong said.

While Syria itself is not a major oil producer, it is strategically located and has had strong ties with Russia and Iran.

Oil prices could receive a boost if the US Federal Reserve comes through with an expected quarter-percentage-point cut to interest rates at the end of its Dec. 17-18 meeting. That could juice oil demand in the world’s biggest economy, though traders are waiting to see if this week’s inflation data derails the cut.

(Reporting by Erwin Seba in Houston; Editing by Louise Heavens, David Goodman, Paul Simao, and Mark Porter)

US yields rise amid supply, before inflation data

NEW YORK – US Treasury yields rose on Tuesday as the Treasury sold USD 58 billion in three-year notes, the first of USD 119 billion in coupon-bearing sales this week, and as traders waited on key inflation data due later this week.

Tuesday’s three-year note auction saw solid demand at a high yield of 4.117%, only slightly above where it had traded before the sale. Demand was 2.58 times the amount of debt on offer.

It will be followed by an auction of USD 39 billion in 10-year notes on Wednesday and of USD 22 billion in 30-year bonds on Thursday.

Traders are waiting on consumer price inflation data on Wednesday and producer price inflation data on Thursday for any signs that inflation is picking up, which could derail the Federal Reserve’s expected interest rate cut next week.

“Those are the big numbers for the week,” said Tom di Galoma, head of fixed income trading at Curvature Securities. “I do think inflation is coming down… (but) inflation could certainly be a problem if it does push higher.”

Economists expect both headline and core consumer prices to have risen 0.3% in November, for an annual gain of 2.7% and 3.3%, respectively.

Producer prices are expected to show a 0.2% monthly increase in November, in both headline and core, for a 2.6% and 3.2% annual increase.

Markets are pricing in an 86% chance of a 25 basis point rate reduction next week, with a pause in January then seen as most likely.

Benchmark 10-year note yields were last up 2.5 basis points at 4.224%. Interest rate-sensitive two-year note yields rose 2.4 basis points to 4.151%.

The yield curve between two-year and 10-year notes was little changed on the day at 7 basis points.

Traders added to bets of a December rate cut after jobs data for November showed that the unemployment rate rose to 4.2%, from 4.1%, despite strong jobs gains during the month.

Data on Tuesday showed that US unit labor costs grew far less than initially thought in the third quarter, pointing to a still favorable inflation outlook, even though price increases have not moderated much in recent months.

Fed officials are in a blackout period before the Dec. 17-18 meeting.

(Reporting By Karen Brettell; Editing by Kevin Liffey and Chizu Nomiyama)

Taking chips off the table, seeking China clarity

Investors go into Wednesday in a cautious frame of mind as they continue to digest the likely impact of China’s policy signal this week, and following a ‘risk off’ day that saw stocks fall and the dollar and bond yields rise.

Asia’s economic calendar on Wednesday is light, with only Japanese producer inflation and South Korean unemployment figures on tap. Reserve Bank of Australia Deputy Governor Andrew Hauser also speaks, following the bank’s policy decision on Tuesday.

With US inflation figures to be released later on Wednesday after Asian markets close, potentially a key factor in whether the Fed cuts rates next week or not, investors may be inclined to hold the line and keep risk exposure to a minimum.

Tuesday’s market moves would feed into that mindset. World stocks fell for a second day in a row, something that last happened a month ago, while the rise in bond yields and the dollar tightened financial conditions further.

Investors may be extra sensitive to any rise in bond yields this week, as the US Treasury sells USD 125 billion of notes and USD 85 billion of bills.

Japanese government bond yields and the yen may also be sensitive to Wednesday’s producer price numbers from Japan, especially after the substantial upward revision to third-quarter GDP growth on Monday.

Meanwhile, investors and market watchers continue to try to figure out if Beijing’s historic shift in its monetary and fiscal policy stance this week will be matched by equally bold action.

The economy certainly needs it. The latest trade figures on Tuesday were uniformly weak, with the near-4% year-on-year slump in imports last month particularly alarming. That was significantly worse than the bleakest forecast in a Reuters survey of 21 economists of a 3% decline, and highlights how brittle domestic demand is.

The 10-year Chinese bond yield fell further on Tuesday to a new all-time low of 1.877%. It has fallen more than 15 basis points so far this month, and it is on track for its steepest monthly fall since July 2021.

Some analysts reckon the decline this week is a positive reaction to Beijing’s shift, as it shows investors are anticipating a significant loosening of monetary policy soon.

There may be something to that, and substantial policy easing could indeed reflate growth and asset prices. But it’s hard to disentangle the move in yields from the latest trade and inflation data that are a reminder of just how heavy the deflationary and weak demand pressures bearing down on the economy actually are.

The Indian rupee, meanwhile, is anchored at a record low, with rate cut hopes rising after the government named career civil servant Sanjay Malhotra to replace outgoing Reserve Bank of India Governor Shaktikanta Das.

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

– South Korea unemployment (November)

– RBA Deputy Governor Andrew Hauser speaks

– Japan producer inflation (November)

(Reporting by Jamie McGeever)

RBA decides, debate sparks over China policy shift

A look at the day ahead in Asian markets.

The Reserve Bank of Australia‘s interest rate decision takes center stage on Tuesday, while debate intensifies over the likely success – or otherwise – of China’s surprise announcement that it plans to implement looser monetary and fiscal policy.

The RBA is widely expected to keep its cash rate unchanged at 4.35%, so the focus will be on when Governor Michele Bullock signals the easing cycle might start.

Economists polled by Reuters reckon it will be some time in the second quarter, and Aussie money markets are pointing to a quarter point cut on April 1.Sentiment across Asia may be dented by Wall Street’s slide on Monday, but investors continue to digest the first shift in China’s broad policy stance since 2010.

The Politburo’s recommendation that a “more proactive” fiscal policy and “moderately loose” monetary policy be followed may not be on the same scale as Mario Draghi’s famous “whatever it takes” pledge to save the euro in 2012. But it could still be hugely significant in China’s battle to emerge from the property bust, deflation and sub-par growth.

China bulls argue that, following the blitz of fiscal and market-supporting liquidity measures earlier this year, Beijing’s commitment to get the economy back on track can no longer be questioned.

Although it will take time for policies to take effect, the dial has definitely shifted, so investors would do well to get in and buy Chinese equities now.

Those of a more cautious persuasion will say actions speak louder than words, and point out that Beijing has promised much in recent years but always under-delivered. Unless Beijing assumes the banking sector’s bad loans and bails out the banks, nothing will materially change.

Chinese stocks are still considerably higher than they were before the first stimulus and market support measures were announced in September, and billionaire hedge fund manager David Tepper’s subsequent “buy everything” call on China. China’s economic surprises index has bounced back too.

But economists remain skeptical over the 2025 growth outlook and Chinese bond yields are sinking – the 10-year yield is below 2% for the first time on record, and the 30-year yield is below the Japanese equivalent for the first time in around 20 years. Hardly the signs of recovery.

In addition, any optimism may be tempered by the latest inflation figures which suggest Beijing’s efforts to revive economic activity and demand are having a limited impact so far.

Sino-US trade tensions are bubbling up again too. China said on Monday it has launched an investigation into Nvidia Corp over suspected violations of the country’s anti-monopoly law. The move is widely seen as a retaliatory shot against Washington’s latest curbs on the Chinese chip sector.

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

– Australia’s interest rate decision

– China trade (November)

– Taiwan’s TSMC monthly sales announcement

(Reporting by Jamie McGeever;)

US Treasury yields rise ahead of inflation data

US Treasury yields rose on Monday as traders waited on key inflation data due this week to see whether stubbornly high price pressures could derail expectations for a Federal Reserve interest rate cut next week.

The Fed is widely expected to cut rates by 25 basis points at the conclusion of its Dec. 17-18 meeting, with a pause then seen as likely in January.

But inflation is key to whether the Fed will continue to cut rates.

Fed officials including Chair Jerome Powell have said that recent upticks in its preferred Personal Consumption Expenditures data reflect a bumpy path to its 2% annual target, but don’t change the overall trend.

“If we see a convincing uptick that the Fed isn’t able to continue using that bumpy excuse on, then that will call into question whether or not the Fed can deliver a rate cut next week,” said Vail Hartman, US rates strategist at BMO Capital Markets in New York.

Hartman said a solid to high 0.4% gain in core consumer prices could raise doubts over a cut next week, but rate expectations will also depend on producer prices.

Economists expect consumer prices released on Wednesday will show that both headline and core prices rose by 0.3% in November, for an annual gain of 2.7% and 3.3%, respectively.

Producer prices released on Thursday are expected to show a 0.2% monthly increase in November in both headline and core, for a 2.6% and 3.2% annual increase.

The next PCE release is due on Dec. 20.

Benchmark 10-year yields were last up 4.2 basis points at 4.195%. Interest rate-sensitive two-year yields rose 2.6 basis points to 4.124%.

The yield curve between two-year and 10-year notes steepened two basis points to 7 basis points.

Traders added to bets of a December rate cut after jobs data for November released on Friday showed some warning signs that the labor market was weakening. The unemployment rate rose to 4.2% from 4.1% despite strong jobs gains during the month.

Some underlying details in the report, including a weaker household survey, also pointed to declining labor market strength.

“The aggregate data is conforming with the whole slowdown theme,” said Hartman.

Fed officials are now in a blackout period before next week’s meeting.

Traders are also watching geopolitical events after rebels seized the Syrian capital of Damascus.

Risk appetite was boosted on news that China will adopt an “appropriately loose” monetary policy next year, the first easing of its stance in some 14 years, alongside a more proactive fiscal policy to spur economic growth.

The US Treasury Department will sell USD 119 billion in new coupon-bearing supply this week. This will include USD 58 billion in three-year notes on Tuesday, USD 39 billion in 10-year notes on Wednesday and USD 22 billion in 30-year bonds on Thursday.

(Reporting By Karen Brettell; editing by Jonathan Oatis)

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