US yields climb after GDP, claims data point to soft landing

NEW YORK – US Treasury yields rose on Thursday, after data indicated the economy was on solid enough footing to give the Federal Reserve room to be less aggressive in cutting interest rates this year.

The Commerce Department said gross domestic product increased at a 3.0% annualized rate last quarter, revised up from the 2.8% rate reported last month, while consumer spending, which accounts for more than two-thirds of the economy, increased at an upwardly revised 2.9% rate versus the previously reported 2.3% pace.

A separate report showed weekly initial jobless claims slipped to 231,000 last week, slightly below the 232,000 estimate of economists polled by Reuters and consistent with levels that indicate a steadily cooling labor market.

“The market marginally decreased the pricing for 2024 rate cuts on the better-than-expected revisions to GDP, which were largely led by a stronger consumer and the consumer strength is really what markets are focused on, rather than inflation,” said Gennadiy Goldberg, head of US rates strategy at TD Securities in New York.

“Going forward, markets are going to be much more focused on employment and the state of the consumer for direction to gauge the magnitude of possible rate cuts.”

The yield on the benchmark US 10-year Treasury note rose 2 basis points to 3.862%, its fourth straight daily climb, and on track for its biggest one-day gain in a week.

Markets are fully pricing in a rate cut of at least 25 basis points (bps) at the Fed’s September meeting, although expectations for a cut of 50 bps fell to 34.5% after the data, down from 38% in the prior session, according to CME’s FedWatch Tool.

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 negative 2.9 basis points after narrowing to a negative 1.4 bps, its highest since August 8.

The two-year US Treasury yield, which typically moves in step with interest rate expectations,

climbed 2.9 basis points to 3.896%.

The yield on the 30-year bond advanced 1.5 basis points to 4.146%.

On Wednesday, Federal Reserve Bank of Atlanta President Raphael Bostic said that with inflation down further and the unemployment rate up more than he anticipated, it may be “time to move” on rate cuts, but he wants to be sure before pulling that trigger. Bostic is also expected to speak later on Thursday.

Yields briefly moved higher after a soft auction of USD 44 billion in seven-year notes, the final auction of the week, with a below-average demand of 2.5 times the notes on sale. The yield was last up 2.6 basis points to 3.763%.

Data on Friday in the form of the July personal consumption expenditures (PCE) will indicate whether inflation continues to cool.

The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.056% after closing at 2.046% on August 28.

The 10-year TIPS breakeven rate was last at 2.159%, indicating the market sees inflation averaging about 2.2% a year for the next decade.

(Reporting by Chuck Mikolajczak, Editing by Nick Zieminski)

Gold gains nearly 1% as investors zero in on Fed cuts, inflation data

Gold prices gained around 1% on Thursday, fuelled by strong expectations of a Federal Reserve rate cut in September with investors focusing on US inflation data for further insights on the potential size of the cut.

Spot gold rose 0.9% to USD 2,524.45 per ounce by 1:52 p.m. ET (1752 GMT). US gold futures settled 0.9% higher at USD 2,560.3.

“The market seems to be penciling in a rate cut no matter what, and now it is simply a question of what size – how big of a rate cut does the Fed do,” said Everett Millman, chief market analyst with Gainesville Coins.

“My expectation right now is that at least until we get to the next Fed meeting, the gold market will probably chop sideways, but there does seem to be that strong floor of support because of geopolitics.”

The Israeli military said its troops killed five Palestinian militants who were hiding inside a mosque in the West Bank city of Tulkarm.

Gold is used as a safe investment during times of economic and geopolitical uncertainties.

Data earlier showed US initial jobless claims slipped last week, with the Labor Department adding that the unemployment rate probably remained high in August. Fed Chair Jerome Powell last Friday signaled interest rate cuts were imminent in a nod to concerns over the jobs market.

Traders see a 65.5% chance of a 25-basis-point (bp) rate cut in September and about a 34.5% probability of a bigger 50-bp reduction, according to the CME FedWatch tool.

Investors are now looking at the Personal Consumption Expenditures (PCE) price index, the Fed’s preferred measure of inflation, on Friday.

Spot silver firmed 1.5% to USD 29.53. Platinum gained 1.3% to USD 942.06 and palladium was up 3.5% to USD 979.72.

“As a trend, the market has very much turned away from battery EVs and much more into standard ICE vehicles and hybrids,” said Bart Melek, head of commodity strategies at TD Securities.

Both platinum and palladium are used by automakers in catalytic converters to reduce exhaust emissions.

(Reporting by Anushree Mukherjee, Ashitha Shivaprasad, and Anjana Anil in Bengaluru; Editing by Krishna Chandra Eluri)

Oil settles up over 1% on worries over supplies from Libya, Iraq

NEW YORK- Oil prices settled up by more than a dollar a barrel on Thursday as supply disruptions in Libya and plans to lower output in Iraq raised fears of tighter global supplies.

Brent crude futures gained USD 1.29, or 1.6%, to settle at USD 79.94 a barrel. US West Texas Intermediate crude futures rose USD 1.39, or 1.9%, to USD 75.91 a barrel.

More than half of Libya’s oil production was offline on Thursday and exports were halted at several ports due to a standoff between rival political factions. About 700,000 barrels per day of oil output is offline in the country, according to Reuters calculations.

“Libyan exports were holding up so far, but with the closure of the export terminal, that should translate in a tighter Atlantic basin,” said Giovanni Staunovo, an analyst at UBS.

Even after blockades are lifted, traders must adapt to Libya being a wild card for the markets, said Aline Carnizelo, managing partner at Frontier Commodities.

Offline production in Libya is at an imminent risk of reaching 1 million bpd, Carnizelo said, adding that a gradual recovery is unlikely before October.

Elsewhere, Iraq plans to reduce oil output in September as part of a plan to compensate for producing over the quota agreed with the Organization of the Petroleum Exporting Countries and its allies, a source with direct knowledge of the matter told Reuters on Thursday.

Iraq, which produced 4.25 million bpd in July, will cut output to between 3.85 million and 3.9 million bpd next month, the source said. Its agreed quota is 4 million bpd.

“At the moment, the market is tight and vulnerable to upside moves,” Carnizelo said.

Expectations for the US central bank to start cutting interest rates next month also supported oil prices. Atlanta Federal Reserve President Raphael Bostic said it may be time for cuts, with inflation down farther and unemployment up more than anticipated.

The disruptions, and expectations of lower interest rates in the US, turned the attention away from signs of weak demand.

On Wednesday, oil prices lost more than 1% after data showed US crude inventories last week fell by 846,000 barrels to 425.2 million, smaller than the draw of 2.3 million barrels forecast by analysts in a Reuters poll.

Total oil products inventories in Europe’s Amsterdam-Rotterdam-Antwerp (ARA) refining hub rose 1.1% in the week to Thursday, data from Dutch consultancy Insights Global showed.

(Reporting by Shariq Khan; Additional reporting by Arunima Kumar, Ahmad Ghaddar, Katya Golubkova, and Trixie Yap; Editing by Jason Neely, Mark Potter, Paul Simao, Diane Craft, and David Gregorio)

Nvidia waiting game over, caution descends

Hold on to your hats, or prepare for lift-off?

In the end, the much-anticipated release of Nvidia’s second quarter results on Wednesday is unlikely to push investors to either extreme, but Asian markets on Thursday may still open on the defensive.

The AI golden goose and the world’s second-most valuable company reported second-quarter revenue of USD 30.04 billion, beating estimates of USD 28.70 billion, and forecast third-quarter revenue of USD 32.5 billion, compared with analysts’ average estimate of USD 31.77 billion.

But that doesn’t appear to have sufficiently impressed investors who have gotten used to Nvidia’s profits, revenue, and forecasts smashing forecasts, not just beating them.

Nvidia shares fell as much as 3.5% in volatile US after-hours trading, which should weigh on tech stocks and equities more broadly at the open in Asia.

Or perhaps when the dust settles a little, investors in Asia will look more favorably on what appears to be a pretty solid set of results?

The backdrop to the trading day in Asia on Thursday was already challenging – Wall Street had closed lower before Nvidia’s earnings on Wednesday, with the Nasdaq losing more than 1% and chip stocks down 1.8%, while the US dollar and bond yields climbed higher.

The dollar posted its biggest rise since early June, gaining more than 0.5% against a basket of major currencies and declining against emerging market currencies for a second day.

The Asia/Pacific calendar on Thursday is extremely light, with only Japanese consumer confidence and capex data from New Zealand likely to pique investors’ interest at all.

Investor sentiment towards China remains bleak and Shanghai stocks closed lower on Wednesday for a third day, sliding to their lowest level in six and a half months.

Swiss investment bank UBS on Wednesday cut its 2024 GDP growth forecast for China to 4.6% from 4.9%, citing a heavier-than-expected drag on overall economic activity from the property sector slump.

More alarmingly, perhaps, it also cut its 2025 GDP growth forecast to 4% from 4.6% and next year’s average inflation rate to 1.0% from 1.4%, indicating China’s economic malaise is likely to deepen rather than lift in the coming year.

Top Chinese and US officials, meanwhile, discussed holding fresh talks between Presidents Joe Biden and Xi Jinping in the near future, the two countries said on Wednesday during high-level meetings in Beijing.

The discussion occurred during lengthy talks between China’s top diplomat, Wang Yi, and US national security adviser Jake Sullivan held against the backdrop of sharp disagreements between the superpowers, including trade and tit-for-tat tariffs.

Progress, or another false dawn?

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

– Japan consumer confidence

– New Zealand capex (Q2)

– Germany inflation (August)

(Reporting by Jamie McGeever)

Stocks fall, Nvidia down 3% after the bell despite strong earnings

NEW YORK/LONDON – Global equity markets eased while the US dollar rebounded on Wednesday, and then chipmaker Nvidia’s better-than-expected results failed to impress some investors and the company’s stock fell 3% in extended trading.

Wall Street’s main indexes finished lower, the Dow Jones Industrial Average fell 0.39% to 41,091.42, the S&P 500 lost 0.60% to 5,592.18 and the Nasdaq Composite lost 1.12% to 17,556.03.

Europe’s benchmark STOXX index climbed 0.33% while Japanese stocks closed 0.22% higher. MSCI’s gauge of all stocks across the globe was 0.42% lower at 827.32.

Nvidia’s third-quarter revenue forecast of USD 32.5 billion surpassed Wall Street estimates after markets closed. The report still failed to impress the most bullish investors who have driven a dizzying rally in its shares as they bet billions on the future of generative artificial intelligence. Shares of the Santa Clara, California-based company fell 3% in extended trading.

Nvidia’s stock price is up some 3,000% since 2019 and with a market capitalisation of USD 3 trillion, a move in its share price affects the broader market. It finished down 2% at USD 125.61 during regular hours trading.

“They beat the average estimates because they came in around USD 32 billion and average estimates were USD 31 billion but some people on the street have them up at like USD 37 billion revenue estimates,” said Michael Ashley Schulman, chief investment officer at Running Point Capital in Los Angeles.

“I think you’re seeing some disappointment on some bets but not really disappointment on the company.”

A preliminary estimate of second quarter US gross domestic product is due on Thursday. The Fed’s preferred inflation measure – the core personal consumption expenditures (PCE) index – will be released on Friday.

Markets, which are fully priced for a 25 basis point US interest rate cut next month, see just over 100 basis points of easing by the end of the year.

The yield on benchmark US 10-year Treasury notes, which moves inversely to the price, rose 0.8 basis points to 3.841%.

“The good news is all pretty much priced in whether that be [Federal Reserve Chair Jerome] Powell’s promise more or less to cut rates in September and the fact that we’re now pricing a soft landing again,” said David Spika, chief markets strategist at Turtle Creek Wealth Advisors in Dallas.

“The economic data has been supportive of the fact that the economy is not falling apart.”

After a recent run of declines, the dollar was advancing. The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, gained 0.5% at 101.10, with the euro down 0.63% at USD 1.1114.

Gold prices were hurt by the stronger US dollar with spot gold lost 0.68% to USD 2,507.50 an ounce and US gold futures settled 0.6% lower at USD 2,537.80.

Oil prices fell on concerns about Chinese demand and risks of a broader slowdown. Brent crude futures settled down 1.13% at USD 78.65 a barrel. US West Texas Intermediate crude futures fell 1.34% to USD 74.52.

(Reporting by Chibuike Oguh in New York and Lawrence White in London, Editing by Bernadette Baum, Kirsten Donovan, and David Gregorio)

US yields little changed after auction as data eyed

NEW YORK – US Treasury yields were barely higher on Wednesday after an auction was well received by the market and investors turned toward data on economic growth and inflation later in the week to gauge the path of interest rate decisions by the Federal Reserve.

Investors have completely priced in a rate cut from the Fed of at least 25 basis points at its mid-September policy meeting, with expectations for a 50-bps cut at 36.5%, up from 11.3% a month ago, according to CME’s FedWatch Tool.

Yields have been declining as economic data has signaled a softening economy and inflation has resumed cooling, leading Fed Chair Jerome Powell to signal last week a shift in the central bank’s focus to supporting the labor market over combating inflation.

“A lot of people are just kind of waiting for the September meeting,” said Tom di Galoma, managing director and head of fixed income at Curvature Securities in Park City, Utah.

“The Fed is certainly ready to cut rates, I’m looking for 50 basis points in September. I’m probably an outlier, but the Fed probably wants to make the first move a substantial one, they want to probably get the economy going a little bit.”

Yields saw little reaction, only moving slightly higher, to an auction of five-year notes that was solid, with demand for the notes at 2.41 times the notes on sale. The yield was last up 0.7 bp to 3.664%.

The five-year auction follows a strong two-year note auction of USD 69 billion on Tuesday, with more supply coming on Thursday in the form of USD 44 billion in seven-year notes.

Data due on Thursday includes the second reading of economic growth in the preliminary report on second quarter gross domestic product. On Friday, the July personal consumption expenditures data will indicate whether inflation continues to cool.

The narrower inversion suggested that the bond market is pricing in the Fed’s easing cycle.

The yield on the benchmark US 10-year Treasury note rose 1.1 basis points to 3.844%. The yield on the 30-year bond edged up 0.4 basis points to 4.132%.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, rose 0.6 basis points to 3.871%.

The break-even rate on five-year US Treasury Inflation-Protected Securities was last at 2.041% after closing at 2.042% on Aug. 27.

The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.042%, unchanged from the close on Aug. 27.

The 10-year TIPS breakeven rate was last at 2.153%, indicating the market sees inflation averaging about 2.2% a year for the next decade.

(Reporting by Chuck Mikolajczak; Editing by Rod Nickel and Jonathan Oatis)

Gold falls on firmer dollar as US data takes spotlight

Gold prices dropped on Wednesday, hurt by a stronger US dollar as investors focused on key inflation data from the world’s largest economy for clues on the size of the Federal Reserve’s potential interest-rate cut in September.

Spot gold was down 0.8% at USD 2,505.03 an ounce by 01:41 p.m. ET (1741 GMT), having slipped as much as 1.1% earlier in the session. US gold futures settled 0.6% lower at USD 2,537.80.

The dollar climbed 0.6%, making gold more expensive for other currency holders.

“We’re seeing a little pressure coming from a bit firmer dollar. And at this point, we’re waiting for further information to drive this market either one direction or the other based on that inflationary data,” said David Meger, director of metals trading at High Ridge Futures.

“So what we’re seeing here is profit-taking consolidation ahead of that report.”

Investors are now looking out for chip giant Nvidia’s quarterly earnings due later in the day and US personal consumption expenditure (PCE) data due on Friday.

If Friday’s PCE numbers come in lower than expected, it could boost expectations of a more dovish Fed, creating upside potential for gold, said Ricardo Evangelista, senior analyst at ActivTrades in a note.

Markets are pricing in about a 63.5% chance of a 25-basis points US rate cut in September and a 36.5% chance of a 50-bps cut, according to the CME FedWatch tool.

Gold ETFs saw modest net inflows of 8 metric tons (USD 403 million) last week, led by North American funds, according to the World Gold Council.

Elsewhere, China’s net gold imports via Hong Kong rose 17% in July, marking the first increase since March, data showed on Tuesday.

China is a major consumer of gold, and this uptick in gold demand could support global gold prices.

Among other precious metals, spot silver fell 2.5% to USD 29.24 an ounce, platinum slipped 2.1% to USD 933.90 and palladium was down 2.6% at USD 944.58.

(Reporting by Anushree Mukherjee in Bengaluru, additional reporting by Polina Devitt; Editing by Shreya Biswas)

Oil prices fall 1% after US crude stocks draw; Libya supply risks limit losses

Oil prices settled 1% lower on Wednesday after a smaller-than-expected draw in US crude stockpiles and as concerns over Chinese demand persisted, though losses were capped by supply risks in the Middle East and Libya.

Brent crude futures settled down 90 cents, or 1.13%, at USD 78.65 a barrel. US West Texas Intermediate crude futures fell USD 1.01, or 1.34%, to USD 74.52.

Prices lost more than 2% on Tuesday, having gained 7% over the previous three days to more than USD 81 a barrel for Brent and USD 77 for WTI.

US crude inventories dropped by 846,000 barrels to 425.2 million barrels last week, data from the Energy Information Administration showed, less than analysts’ expectations in a Reuters poll for a draw of 2.3 million barrels. Refining activity rose during the week.

“It is a little surprising to see such a small crude draw if refinery runs were really that strong, at a six-week high,” said Matt Smith, lead oil analyst at Kpler. “Ongoing strength in imports and a tick lower in exports helped keep the draw in check,” he added.

China demand worries also continued to weigh on prices as recent data pointed to a struggling economy and slowing oil demand from refiners.

“Demand in China remains weak and the expected second-half rebound has yet to show credible signs of commencing,” Amarpreet Singh, an analyst at Barclays, said in a note.

ONGOING SUPPLY RISKS

The potential loss of Libyan oil output and the possible expansion of the Israel-Gaza conflict to include Iranian-backed militants from Hezbollah in Lebanon remained the largest risks to oil markets, limiting the price declines on Wednesday.

Several oilfields across Libya have halted output as a dispute continues between rival government factions over control of the central bank and oil revenue. The dispute puts about 1.2 million barrels per day (bpd) of production at risk.

The Libyan disruptions should tighten the oil market, considering real barrels are removed, but here investors want to see a drop in Libyan crude exports first, said Giovanni Staunovo, an analyst at UBS.

In the Middle East, fighting continued in the Gaza Strip between Israel and Hamas militants, with no signs yet of a concrete breakthrough in ceasefire talks in Cairo.

Over the weekend, Israel and Hezbollah bombarded each other with rockets and missiles across the Lebanese border.

Geopolitical risks will continue to put world crude oil prices on edge, said Tim Snyder, chief economist at Matador Economics.

(Reporting by Nicole Jao in New York, Robert Harvey in London, Arunima Kumar in Bengaluru, Sudarshan Varadhan in Singapore, and Georgina McCartney in Houston; Editing by David Goodman, Jonathan Oatis, Paul Simao, and David Gregorio)

Looking local as US macro, Nvidia shadows linger

The mood across Asian markets on Wednesday is likely to be one of caution, for two main reasons that should keep markets in relatively narrow ranges – lingering concern over the health of the US economy, and Nvidia’s earnings later in the day.

US and world stocks climbed higher on Tuesday but only slightly, while the dollar dipped again and Treasury yields were little-changed across the curve. None of that offers investors in Asia much to run with on Wednesday.

Given the lack of obvious global catalysts, regional events may take on added weight on Wednesday.

Bank of Japan Deputy Governor Ryozo Himino is scheduled to speak. This follows BOJ Governor Kazuo Ueda’s first public remarks last week since the central bank’s ‘hawkish hike’ in July.

Ueda’s tone on Friday was also hawkish, indicating that current rates are still well below ‘neutral’. This strengthens the case for further tightening this year beyond the mere 7 basis points of hikes rates markets are currently discounting.

The main economic indicator across the Asia/Pacific region on Wednesday will be Australian inflation. Economists polled by Reuters expect annual weighted consumer price inflation to have slowed to 3.4% in July from 3.8% in June.

That would be the lowest since February and closer to getting inflation back in the central bank’s 2%-3% target range for the first time since 2021. The Reserve Bank of Australia has held its cash rate at 4.35% since November last year, and last cut rates nearly five years ago.

The Aussie swaps market shows no rate cut is fully priced until December, with 100 bps of easing in total expected by the end of next year.

Thailand’s deputy finance minister Julapun Amornvivat and central bank governor Sethaput Suthiwartnarueput, meanwhile, both speak at a business seminar on Wednesday. This comes amid continued friction between the government and central bank over the path for interest rates.

The Bank of Thailand last week left rates on hold at 2.50% for a fifth meeting. But newly-sworn in Prime Minister Paetongtarn Shinawatra has called central bank independence an “obstacle” to economic growth, and her predecessor repeatedly called for rates to be cut.

Despite being an extremely low-yielding currency, the Thai baht has rallied strongly in recent weeks, perhaps because of the central bank’s refusal to cut rates just yet. It is now the only one of seven key Asian currencies to be up against the US dollar so far this year.

Indeed, if there is one discernible global driver for investors in Asia on Wednesday it is the US dollar’s persistent weakness, as the currency slipped to a fresh low for the year against a basket of major currencies.

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

– Australia inflation (July)

– BOJ Deputy Governor Ryozo Himino speaks

– Bank of Thailand Governor Suthiwartnarueput speaks

(Reporting by Jamie McGeever)

Longer-dated yields climb as investors consider recession outlook

NEW YORK – US Treasury longer-dated yields edged higher on Tuesday, as investors assessed the likelihood that the US economy will be able to avoid a recession, while a two-year note auction showed better than expected demand.

The closely watched gap between yields on two- and 10-year Treasury notes, considered a gauge of growth expectations, reduced its inversion to the narrowest gap in three weeks. It was last at minus 7.3 basis points versus minus 12.4 bps late on Monday.

The inversion was reduced further following a two-year note auction with stronger-than-expected demand.

The narrower inversion suggested that the bond market is pricing in the Federal Reserve’s easing cycle, which is likely to start next month.

“Generally we’ve seen very good buying out of Japan in the month of August … and generally the U.S accounts are buying as well, getting ready for Fed rate cuts totally possibly 100 (bps) through December,” said Tom di Galoma, managing director and head of fixed income at Curvature Securities in Park City, Utah.

Traders are now betting on an interest rate cut of either 25 or 50 basis points in September, according to CME Group’s Fed Watch tool.

Investors also digested the day’s earlier economic data, with 10-year yields dipping briefly after data showing US single-family home prices fell in June, leading to the smallest annual increase in nearly a year.

The yield on the benchmark US 10-year Treasury note rose 1.3 bps to 3.831%. The yield on the 30-year bond rose 1.7 bps to 4.125%.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, fell 2.9 bps to 3.905%.

A separate report showed US consumer confidence rose to a six-month high in August amid optimism over the economic outlook, but Americans are becoming more anxious about the labor market

Investors await July Personal Consumption Expenditure data due on Friday for additional hints about the path of rate cuts.

Investors have been trying to gauge how aggressive the Fed may be in cutting interest rates to avoid a recession.

UBS Global Wealth Management has raised the odds of a US recession to 25% from 20%.

“The question is how slow is the economy slowing. That’s going to determine how fast the Fed is going to ease,” said Stan Shipley, fixed income strategist at Evercore ISI in New York.

“Generally over the last two weeks or so the odds of a 50 (bps cut) have climbed higher. As a consequence, the Treasury market and other sovereign yields are saying if central banks are easing faster, the odds of a recession are going to be going down.”

Yields dropped last week after the Fed signaled in Jackson Hole, Wyoming, that it was ready to cut rates.

Fed Chair Jerome Powell endorsed an imminent start to a rate cut from the central bank, noting a further cooling in the labor market would be unwelcome while signaling confidence inflation is within reach of its 2% target.

(Reporting by Caroline Valetkevitch; editing by Jonathan Oatis)

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