Optimism rising high, soft landing on track

Investors start the new week with an ebullient mood after last Friday’s US jobs figures kept the “soft landing” story on track, lowering the dollar and bond yields, and adding fuel to the relentless “risk on” rally in stocks.

Most of the world’s main equity markets are at record or multi-year peaks, and there doesn’t seem to be much on the immediate horizon to derail them.

Profit-taking, quarter-end position adjustments, worries over valuations or market concentration, and political or policy jitters have all come into play recently. But the overpowering “buy the dip” mentality has ensured any pullbacks have been shallow and brief.

European politics may have some influence on early Asian trading on Monday – France was on course for a hung parliament in Sunday’s election, with a leftist alliance unexpectedly taking the top spot ahead of the far right in a major upset that was set to bar the far right, eurosceptic National Rally party from running the government.

Asia opens in good shape. Japan’s Nikkei 225 index scraped a new record high of 41,100 points on Friday and has risen some 7% in just two weeks, and the MSCI Emerging Market and MSCI Asia ex-Japan indices are at their highest in two years.

More broadly, the MSCI World, S&P 500, and Nasdaq all hit record highs last week, and last month euro zone stocks hit a 23-year high. Britain’s FTSE 100 hit a record high in May.

Monday’s Asia and Pacific calendar is light, with the spotlight on bank lending, trade and current account, and overtime pay figures from Japan. Philippines central bank governor Eli Remolona and finance secretary Ralph Recto speak at a business forum on Monday too.

Japan’s overtime pay isn’t usually seen as a top-tier indicator, but it is worth watching this month.

A recent labor union survey showed that firms offered to hike pay by 5.1% on average this year, the biggest increase in 33 years and far outpacing inflation now hovering around 2%. But figures on Friday showed that household spending plunged in May as higher prices continued to squeeze consumers’ purchasing power.

This is a headache for Bank of Japan policymakers who want to raise interest rates and have put great store on rising wages, but are worried about the impact on an economy that’s far from firing on all cylinders.

Looking ahead, the most market-sensitive events in Asia this week are likely to be central bank policy meetings in New Zealand, South Korea, and Malaysia, and producer and consumer price inflation figures from China.

The main market drivers globally are likely to be US CPI inflation on Thursday, and two days of Congressional testimony by Fed Chair Jerome Powell set for Tuesday and Wednesday.

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

– Japan wage growth (May)

– Japan current account (May)

– France general election

(Reporting by Jamie McGeever)

Dollar stays lower after US jobs data; euro up ahead of French election

NEW YORK – The US dollar index stayed slightly lower on Friday after data showed US job growth slowed marginally in June while the unemployment rate rose, underscoring the view the Federal Reserve could begin cutting interest rates in September.

Nonfarm US payrolls increased by 206,000 jobs last month, the Labor Department report showed. Data for May was revised sharply down to show 218,000 jobs added instead of the previously reported 272,000. The unemployment rate rose to 4.1%, slightly higher than the estimated 4.0%.

Investors have been watching the labor market and inflation data closely as they try to gauge when the Fed could begin cutting rates from nearly two-decade highs.

The dollar index initially extended declines after the data. The dollar weakened against the yen before paring losses.

The dollar index, which measures the greenback against a basket of currencies, was last down 0.28% at 104.87 and hit a three-week low early.

Against the Japanese yen, the dollar weakened 0.34% to 160.73. It was near 160.45 just after the US payrolls data.

“We see rates coming down across the curve on confirmation of moderation in US labor markets. The unexpected rise in the unemployment rate, the deceleration in wage gains, and revisions in prior months’ headline gains all point to a slowing in labor market conditions,” said Karl Schamotta, chief market strategist at Corpay in Toronto.

“This is… raising the likelihood that we do see (Fed) Chair Powell put a September rate cut on the table either at the July policy meeting or at the Jackson Hole conference in August.”

Futures markets are now pricing in a roughly 72% chance for a 25 basis point rate cut at the Fed’s meeting in September, up from a 57.9% chance seen a week ago, according to CME’s FedWatch Tool.

The euro was last up 0.23% at USD 1.0835 and on track for its biggest weekly gain of the year against the dollar.

The euro has been bolstered by signs France could be heading for a hung parliament in elections on Sunday rather than a ruling majority for the far-right National Rally.

Marine Le Pen’s eurosceptic, anti-immigration National Rally (RN) topped the parliamentary election’s first round with a third of the vote, opening the prospect of the far right leading a French government for the first time since World War Two.

The pound firmed as the Labour party secured a landslide victory in the UK general election.

Sterling strengthened 0.46% to USD 1.2814.

Bitcoin was set for its biggest weekly fall in nearly a year as traders worried about the likely dumping of tokens from defunct Japanese exchange Mt. Gox and further selling by leveraged players after the cryptocurrency’s strong run.

The price of the world’s largest cryptocurrency slid as much as 8% on the day to USD 53,523, its lowest level since late February. It was on track for its biggest weekly decline since August 2023.

Bitcoin was last down 3.08% at USD 56,530.00. Ethereum declined 4.81% at USD 2991.8.

(Additional reporting by Iain Withers in London, Editing by Anil D’Silva, Chizu Nomiyama, and Christina Fincher)

Yields slip after jobs report bolsters Fed rate-cut expectations

NEW YORK – Benchmark 10-year Treasury yields slid on Friday following closely-watched jobs data that appeared to show the US labor market weakening, strengthening market expectations that the Federal Reserve will begin to cut interest rates in September.

Nonfarm payrolls grew by 206,000 jobs in June, slightly higher than the 190,000 jobs estimated by economists polled by Reuters. Estimated job growth for May, meanwhile, was revised down to 218,000 positions from 272,000, while April’s job growth was revised down to 108,000 jobs from the previous 165,000.

The unemployment rate rose to 4.1%, slightly higher than the estimated 4.0%.

The labor market has been a key focus for Fed policymakers in their debate over when to begin cutting interest rates. The US central bank has cited the resiliency of the jobs market as a potential catalyst for a possible resurgence in inflation.

“This was not a terrible report, but with the large revisions it shows there are cracks and weaknesses under the surface,” said David Wagner, a portfolio manager at Aptus Capital Advisors. “This keeps the (Fed’s) September meeting a live meeting for a rate cut.”

Futures markets are now pricing in a roughly 73% chance for a 25-basis-point rate cut at the Fed’s Sept. 17-18 meeting, up from a 57.9% chance a week ago, according to CME Group’s FedWatch tool. Overall, markets are pricing in a cumulative 50 basis points in interest rate cuts by the end of the year.

“The downward revisions to the previous two months are consistent with an economic slowdown,” said Jeffrey Roach, chief economist for LPL Financial. “We should expect more rhetoric out of the Fed about labor market conditions and the importance of keeping policy appropriate for their dual mandate.”

The yield on the benchmark US 10-year Treasury note fell 7.1 basis points to 4.276%, leaving it down approximately 20 basis points for the week and near its lowest levels since late June.

The yield on the 30-year bond fell 4.8 basis points to 4.472%.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, fell 8.9 basis points to 4.604%, leaving it at its lowest level since late March.

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 33.0 basis points.

(Reporting by David Randall; Editing by Andrew Heavens, Chizu Nomiyama, David Evans, and Paul Simao)

Gold prices rise to over one-month high after US jobs report

Gold prices extended gains on Friday to their highest level in over a month following key US jobs data that showed the labor market was softening, lifting expectations around a Federal Reserve interest rate cut in September.

Spot gold was up 1.3% at USD 2,385.63 per ounce as of 2:10 p.m. (1810 GMT). Bullion is up more than 2% for the week so far.

US gold futures settled 1.2% higher to USD 2,397.7.

“Gold is trading at one-month highs as lower payroll revisions and yet another uptick in the unemployment rate help ‘cement’ a September rate cut,” said Tai Wong, a New York-based independent metals trader.

“Bulls are eyeing a return to USD 2,450 all-time highs if the Fed starts openly hinting at September,” he added.

Data showed US non-farm payrolls grew by 206,000 jobs in June, slightly higher than the 190,000 new jobs estimated by economists polled by Reuters.

Meanwhile, estimated job growth for May was revised down to 218,000 new jobs from 272,000, while April’s job growth was revised down to 108,000 new jobs from a previous 165,000. The unemployment rate rose to 4.1%, slightly higher than the estimated 4.0%.

Following the data, US interest-rate futures prices reflected continued market confidence in a September rate cut, with the implied probability remaining at about 72%.

Traders are also pricing in a rising chance of a second rate cut in December. Lower rates reduce the opportunity cost of holding non-yielding gold.

The dollar slipped to a three-week low against its rivals after the jobs data, making gold less expensive for other currency holders, while the yield on the benchmark US 10-year Treasury note crept lower.

Elsewhere, spot silver rose 2.7% to USD 31.25 per ounce and is on track for its best week since May 17. Platinum rose 2.6% to USD 1,028.62 per ounce and palladium gained 0.2% to USD 1,019.75.

(Reporting by Daksh Grover in Bengaluru; Editing by Jason Neely, Vijay Kishore, and Shailesh Kuber)

Bond market re-focus on US elections throws wrench into 2024 rally hopes

NEW YORK – A recalibration of how the US presidential election plays out is causing bond investors to bet yields stay higher for longer as November approaches.

Yields have risen sharply after President Joe Biden’s stumbling performance against Republican rival Donald Trump in the first presidential debate last month, which increased speculation about a second Trump win when voters go to the polls on Nov. 5. The benchmark 10-year yield rose about six points to 4.34% following the debate.

Some investors are betting on higher inflation under Trump because of trade and economic policies such as higher tariffs on imports, and profligate government spending along with lower tax revenues, which would boost fiscal deficits and US debt levels. Trump’s team has said his pro-growth policies would bring down interest rates and shrink deficits.

Republican National Committee spokesperson Anna Kelly said in a statement that the market reaction to Trump’s “debate victory reflected the anticipation of the strong-growth, low-inflation reality that President Trump will deliver once again.”

Some have said a reckoning on US debt will eventually catch up with the country and market.

“The lens (is) really starting to turn to the fiscal and the debt dynamics,” said Mary-Therese Barton, fixed income chief investment officer at Pictet Asset Management. “(The) rate-cutting cycle is perhaps shallower than expected with a focus more on the longer end.”

Those concerns around widening fiscal deficits and the rising government debt burden threaten to limit any nascent rally in bonds, expected as the Federal Reserve gets closer to cutting rates after an aggressive hiking cycle to tame inflation.

“We feel the probability of (a) Trump election victory has risen,” John Velis, Americas macro strategist at BNY, wrote in a note. “Our faith in lower yields going forward has been eroded and we wouldn’t be surprised to see a continuation of the very recent moves higher in yields.”

Shorter-dated Treasuries, more directly linked to changes in monetary policy, could still rally in case of rate cuts, but even for bond bulls, the outlook for longer-dated Treasuries has become cloudier. Longer-dated debt tends to reflect expectations for economic growth, inflation, and the fiscal outlook.

“The headwind that we’ve been seeing should start abating and we do think investors will start focusing more on the cutting cycle,” said Anders Persson, chief investment officer and head of global fixed income at Nuveen.

However, “that’s probably going to show up more on the front end of the curve like the two-year for instance,” he noted. “The 10-year will be a little bit trickier to call given the elections and if inflation is a little bit stickier.”

‘FRUSTRATION’

Investors had bet heavily early this year on a normalization of interest rates, but that has sharply changed with the Fed increasingly being seen as pushing rate cuts out further. Traders of futures contracts tied to the Fed’s policy rate are betting on about two rate cuts for the rest of 2024, one-third of the policy easing investors were hoping for in January.

Bonds rally when rates are lowered because existing securities yield more than new ones and become more valuable. But as monetary easing has proven elusive, what appeared to be a straightforward trade as the year began has become a test of patience for investors.

“I think there was some frustration with some people who took that big positioning,” especially on behalf of clients, said Kevin McCullough, portfolio consultant at Natixis Investment Managers. “That’s a real hard conversation to have.”

A measure of total returns for Treasuries since the beginning of the year remains in negative territory despite yields having declined from their annual peak in April.

Year-to-date total returns, which include bond payouts and price fluctuations, were minus 0.6% as of Friday, the ICE BofA US Treasury Index showed. Returns have been negative since early February.

Regardless of the election outcome, many investors are optimistic about bonds as yields have become more attractive in an environment of higher rates.

“We still have six months left to carry in fixed income … and obviously if yields move lower from here still, there’s potential for even more appreciation,” said Mike Cudzil, managing director and generalist portfolio manager at PIMCO, one of the world’s biggest bond investors.

On Friday, yields declined after closely-watched jobs data that appeared to show the US labor market weakening.

“Whoever wins the election, regardless if Republican or Democrat, the loser is going to be the deficit,” said Cudzil. “I think what will matter more is the slowing of inflation, the slowing of growth.”

(Reporting by Davide Barbuscia; editing by Megan Davies and Richard Chang)

Oil settles 1% lower as Mideast ceasefire talks ease supply disruption concerns

HOUSTON – Oil prices settled lower on Friday as the rising possibility of a ceasefire deal in Gaza outweighed strong summer fuel demand and potential supply disruptions from Gulf of Mexico hurricanes.

Brent crude futures settled down 89 cents, or 1.02% lower, to USD 86.54 a barrel, after reaching their highest since April earlier in the session. US West Texas Intermediate (WTI) crude futures settled at USD 83.16 a barrel, down 72 cents, or 0.9%.

For the week, Brent rose 0.4%, while WTI futures posted a 2.1% rise.

The head of Israel’s Mossad has returned from Doha after an initial meeting with mediators trying to reach a Gaza ceasefire and hostage release deal, and negotiations will resume next week, Prime Minister Benjamin Netanyahu’s office said on Friday.

Netanyahu’s office said in a statement that gaps remain between the sides.

“Obviously a breakthrough there would help calm the waters”, said John Kilduff, partner at Again Capital. An easing of the Middle Eastern conflict reduces the risk premium of barrels out of the region and weighs on oil prices.

WTI did not settle on Thursday due to the Independence Day holiday, giving way to thin trading, but prices have risen this week on strong summer oil demand expectations in the US

“The last couple of days represent the peak of the drive season, in terms of demand and prices continue to creep higher. This is coming from stronger consumer demand and the effects of Hurricane Beryl,” Tim Snyder, economist at Matador economics said in a note on Friday.

The US Energy Information Administration (EIA), on Wednesday, reported a much larger-than-expected 12.2 million barrel inventories draw last week, compared with analyst expectations for a draw of 700,000 barrels.

On the supply side, Hurricane Beryl, a Category 2 storm, made landfall in Mexico, after killing at least 11 people in the Caribbean, tearing through buildings and power lines across several Caribbean islands.

Mexico’s major oil platforms are not expected to be affected by the storm, but oil projects in US waters to the north may be disrupted if the hurricane continues on its expected path.

The possibility that US interest rate cuts are approaching, meanwhile, raised expectations for an increase in oil demand.

US job growth slowed marginally in June, but a rise in the unemployment rate to more than a 2-1/2 year high of 4.1% and moderation in wage gains pointed to an easing of labor market conditions and could put a rate cut at the July meeting in their sights.

“This morning’s employment data shows that there are some cracks in the labor market, that could spur on a rate cut even this month”, said Kilduff at Again Capital.

Lower interest rates can boost economic activity and increase crude oil demand.

(Reporting by Georgina McCartney in Houston, Arunima Kumar in Bengaluru, and Ahmad Ghaddar in London; additional reporting by Sudarshan Varadhan in Singapore; Editing by David Goodman, Jane Merriman, David Evans, and David Gregorio)

Gold lingers near two-week high as focus shifts to payrolls data

Gold prices were flat near a two-week high on Thursday after softer-than-expected US economic data spurred hopes of interest rate cuts as early as September, and the market spotlight is now on Friday’s non-farm payrolls data.

Spot gold edged 0.1% higher to USD 2,358.19 per ounce as of 9:53 a.m. ET (1353 GMT), after prices hit their highest level since June 21 on Wednesday. Most US markets were closed for the Independence Day holiday on Thursday.

Bullion prices in the previous session gained more than 1% after a weak services report and ADP employment report on Wednesday depicted a slowing US economy.

“It appears that there’s a strong chance that the rate cuts might occur sometime in the end of the third quarter or early part of the fourth quarter, which just makes gold a lot more attractive than the alternative (which is) bonds,” said Alex Ebkarian, chief operating officer at Allegiance Gold.

Lower rates reduce the opportunity cost of holding non-yielding gold.

Minutes of the Fed’s June meeting acknowledged the US economy appeared to be slowing and “price pressures were diminishing”.

“Long-term wise, we’re seeing the sanctions that the US placed (on Russia) inducing a lot of central banks and other governments to move towards gold specifically to eliminate the counterparty and default risk,” Ebkarian added.

The sanctions, announced last month, are aimed at cutting off Russia’s access to products and services needed to sustain military production for its war in Ukraine.

Traders are now focused on US nonfarm payrolls data, due on Friday. The market was looking for weaker job creation last month, said Ole Hansen, head of commodity strategy at Saxo Bank.

“Together with an expected easing in wage pressure, the precious metal market is likely to react positively should these numbers be confirmed,” Hansen added.

Spot silver fell 0.2% to USD 30.409 while platinum rose 1.6% to USD 1,012.50.

Palladium was 0.5% down at USD 1,024.66, after scaling its highest level since mid-April in the previous session.

(Reporting by Sherin Elizabeth Varghese and Daksh Grover in Bengaluru; Editing by David Holmes)

Hike bets are rousing Japan’s rates market

TOKYO – Trade in short-term Japanese interest rate swaps is breaking records and newly-launched futures turnover is surging, as speculators and investors’ hedging revive a once-sleepy market.

BY THE NUMBERS

The notional value of yen contracts for two years or below in the swaps market has hit 865 trillion yen (USD 5.4 trillion) for the year so far, already exceeding last year’s record of 525 trillion, according to the Japan Securities Clearing Corporation.

Three-month TONA overnight average rate futures launched in May last year on the Osaka exchange and annual turnover totaled 3.4 trillion yen.

Over the five months to the end of May 3.3 trillion yen worth of contracts has traded, according to Japan Exchange Group. Open interest in May was a record of more than 45,000 contracts.

WHY IT’S IMPORTANT

The rising volumes show life and liquidity returning to a market that was fallow for years while Japanese rates remained below zero and barely moved.

CONTEXT

Japan ended eight years of negative interest rates in March in a historic policy shift and markets see rates volatility ahead.

Swaps imply another 20 basis points of hikes in Japan’s short-term interest rate this year. Above-target inflation and a weak yen that is putting upward pressure on import prices are driving speculation of even more hikes and demand for hedging interest rate risk that was largely absent in years past.

“If the BOJ’s policy rates stay in a definitely positive territory, there will be more needs for rate hedging,” said Tomohiro Mikajiri, head of yen and non-yen fixed income trading in Japan for Barclays.

(USD 1 = 161.3600 yen)

(Editing by Tom Westbrook and David Holmes)

Asian stocks draw robust foreign inflows on US rate outlook, tech rally

Foreign investors channeled massive money into Asian equities in June, after two months of selling, as easing US price pressures raised hopes that the Federal Reserve would cut interest rates this year.

Market optimism was further fueled by a surge in global AI-linked firms, enhancing demand for tech and semiconductor exports from Asia.

Foreign investors bought a net USD 7.16 billion worth of regional equities, according to stock exchange data from South Korea, India, Taiwan, Indonesia, Vietnam, Thailand, and the Philippines.

US inflation held steady in May, aligning with economists’ forecast, a Commerce Department report indicated last week. Fed Chair Jerome Powell said on Tuesday that the US is back on a “disinflationary path”, reinforcing expectations about forthcoming rate cuts.

Technology exporters – South Korea and Taiwan – saw foreign purchases in equity markets last month worth USD 3.83 billion and USD 1.94 billion, respectively.

“Both (South Korea and Taiwan) have served as major beneficiaries from the ramp-up in AI investments,” said Yeap Jun Rong, a market strategist at IG.

Propelled by the global tech rally, the MSCI Asia Pacific IT index advanced nearly 10% in June, marking its best performance in seven months.

Indian markets attracted USD 3.19 billion in foreign funds, a sharp contrast to the USD 3.06 billion net sell-off the previous month.

“After (a very short) panic sell post the election, Indian equities have quickly picked up the upward trend as investors sees a policy continuity with the new government,” said Minyue Liu, an investment specialist at BNP Paribas Asset Management.

“We believe the Indian economy is at the cusp of a multi-year economic growth cycle backed by the “Production Linked Incentives (PLI)” schemes, favorable demographic structure, and strong FDI.”

Still, stock markets in Thailand, Vietnam, the Philippines, and Indonesia faced net outflows worth USD 936 million, USD 658 million, USD 104 million, and USD 91 million, respectively.

“We remain constructive on the outlook for Asian equities,” BNP Paribas’ Liu said.

“Most regional central banks’ rate-hiking cycles appear to have reached a turning point, which would be positive for Asian equities.”

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Sherry Jacob-Phillips)

Brent crude trades above USD 87, sets highest levels since April

Oil prices for Brent crude hit their highest level since April on Thursday, holding above USD 87 after data the previous day showed a decline in US inventories.

Brent crude futures were up 21 cents, or 0.2%, at USD 87.55 a barrel by 1922 GMT. US West Texas Intermediate (WTI) crude futures were up 18 cents at USD 84.06 in trade thinned by the US Independence Day holiday.

In the previous session, Brent gained 1.3% to settle at USD 87.34 for its highest close since April 30. WTI, meanwhile, had settled at an 11-week high of USD 83.88.

Those gains followed a larger-than-expected decline in US crude stocks. The US Energy Information Administration (EIA) reported a 12.2 million draw in inventories. Analysts polled by Reuters had expected a draw of 680,000 barrels.

Traders were also tracking the war in Gaza and elections in France and the United Kingdom, said RBN Energy analyst Martin King.

“Trade is quiet and people are watching the physical market and geopolitical situation,” King said.

Oil prices had earlier dropped by as much as 83 cents, but the dip was expected not to last given dollar weakness and a brighter outlook for US fuel demand after the EIA data, said PVM analyst Tamas Varga.

However, German industrial orders fell unexpectedly in May, adding to signs that a recovery for Europe’s largest economy remains elusive.

Demand concerns were heightened by US data on Wednesday showing that first-time applications for US unemployment benefits increased last week while jobless numbers also rose.

Countering that, weaker economic data could hasten interest rate cuts by the US Federal Reserve, analysts said, which could be supportive for oil markets.

On Thursday, Reuters reported that Russia’s oil producers Rosneft and Lukoil will sharply cut oil exports from the Black Sea port of Novorossiisk in July, according to two sources familiar with a loading plan.

Meanwhile, Saudi Arabia’s Saudi Aramco cut the price for the flagship Arab light crude it will sell to Asia in August to USD 1.80 a barrel above the Oman/Dubai average.

The potential price reduction for Asia, which accounts for about 80% of Saudi’s oil exports, underscores the pressure faced by OPEC producers as non-OPEC supply continues to grow while the global economy faces headwinds.

Swiss bank UBS expects Brent crude to reach USD 90 a barrel this quarter, it said in a note to clients, citing OPEC+ production cuts and projected declines in oil inventories.

(Reporting by Nia Williams in British Columbia, Robert Harvey and Paul Carsten in London, Arunima Kumar in Bengaluru, Katya Golubkova in Tokyo, and Trixie Yap in Singapore; Editing by David Goodman, Emelia Sithole-Matarise, and Matthew Lewis)

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