LONDON, Nov 16 (Reuters) – World stocks fell for the first time in five sessions, oil slipped and the dollar saw a slight lift on Thursday, as markets continued to acclimatize to falling borrowing costs after nearly two years of relentless gains.
Europe’s moves saw the STOXX 600 (.STOXX) slip from a more than one-month high, Wall Street look set for an early dip, and Taiwan’s dollar rise after China’s President Xi Jinping and U.S. counterpart Joe Biden agreed to reopen key military communications channels between the two superpowers.
Xi also underscored the point by saying China would not “fight a cold war or a hot war with anyone”.
Global markets have rallied sharply this month as inflation data out of the United States and parts of Europe, such as Britain, have reinforced hopes that major central banks are now done raising borrowing costs.
Robust U.S. retail sales figures on Wednesday were a reminder that it might not be a straight line move, however, with the focus now squarely on weekly U.S. jobless claims data later and a monthly euro zone inflation print on Friday.
“If you don’t get confirmation of the slowing economic direction from every single piece of data every single day we risk running out of momentum on the big trades,” Societe Generale FX strategist, Kit Juckes, said.
“Until we get to the point where rate cuts are just around the corner, everything is going to be very stop-start. The dollar sell-off is stop-start, the bond market rally is really stop-start and the equity market is all over the place.”
Key government bond market borrowing costs resumed their broad downward trend on Thursday, driven by increasing confidence that rate cuts are coming next year.
Germany’s 10-year bond yield dipped to 2.62% but held above the previous day’s two-month low of 2.568%, while sterling sank to a six-month low against the euro as dealers in London inched closer their predictions on when the Bank of England (BoE) will start cutting rates. EUR/GVD
Many now think it might be as soon as May although BoE policymaker Meg Greene warned on Thursday that investors are missing the message that central banks have been pushing recently that interest rates will remain higher for longer.
“I think markets globally haven’t really clocked on to this,” Greene told Bloomberg Television, adding that the BoE was not talking about cutting rates.
CHINA PROPERTY
Asian stocks fell overnight as new Chinese data showed continued weakness in its problem-hit property sector which dented recent optimism about a recovery in the world’s second-largest economy.
While data this week showed China’s industrial and retail sectors are now making a comeback, figures have also shown a sharp drop in property investment and weak home prices, underscoring the ongoing drag the sector is having.
There was mixed news from Japan too, where exports grew for a second straight month in October but at a sharply slower pace due to slumping China-bound shipments of chips and steel.
“The weak economic data from both countries indicate the fact that the global economy is slowing down, highlighting ongoing macro headwinds that businesses face,” said Tina Teng, market analyst at CMC Markets.
XI AND BIDEN
Australian shares (.AXJO) ended their day down 0.7% as strong wage data indicated that inflationary pressures there are still running high.
Japan’s Nikkei (.N225) dipped 0.3%, moving into reverse after it, along with the main MSCI Asian and emerging market indexes, all posted their biggest gains in a year on Wednesday.
Chinese stocks showed some disappointment at Xi and Biden’s first meeting in years, with Shanghai’s blue-chip CSI300 index (.CSI300) closing down 1% and Hong Kong’s Hang Seng index (.HSI) ending 1.3% lower.
While the two leaders agreed to resume military-to-military communications and cooperate on anti-drug policies, a sign ties are improving, some investors were disappointed at a lack of other breakthroughs in the talks.
The MSCI main 47-country global stocks index (.MIWD00000PUS) was down for the first time in five sessions after a near 8% surge this month.
Wall Street futures pointed to a slightly weaker start there too, although there was modest relief that the Senate had overwhelmingly approved a temporary funding measure to avert another U.S. government shutdown for now.
Money market traders have now fully priced in that the Federal Reserve will keep U.S. interest rates steady in December. They see the first rate cut of the cycle in May.
The yield on benchmark 10-year Treasury notes was back under 4.5% compared with its U.S. close of 4.537% on Wednesday. The two-year yield hovered at 4.88% compared with a U.S. close of 4.916%.
In currencies, the euro was flat at $1.0848, having gained 2.5% in a month, while the dollar index , which tracks the greenback against a basket of currencies of other major trading partners, was fractionally higher.
Oil traders, meanwhile, nudged U.S. crude down 0.3% to $76.55 a barrel. Brent crude was at $80.90 per barrel while safe-haven gold was slightly higher at $1,965 per ounce .
Additional reporting by Julie Zhu in Hong Kong; Editing by Christina Fincher and Mark Potter
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The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, October 30, 2023. REUTERS/Staff/File Photo Acquire Licensing Rights
A look at the day ahead in European and global markets from Kevin Buckland
Chip stocks gave Asian equity investors some small bit of cheer to start the week, picking up where Wall Street left off while U.S. yields stayed subdued, which kept a lid on the dollar, too.
But elsewhere, bears were firmly in control.
A lot of that can likely be traced to China, rather than to the Moody’s downgrade to the outlook for the U.S. sovereign debt rating, which investors have taken in stride.
The Chinese consumer has so far refused to ride to the rescue of the world’s second-largest economy. Monthly retail sales data is due on Wednesday but the country’s Singles Day shopping extraganza over the weekend – equivalent to Black Friday sales elsewhere – recorded only meagre growth.
Looking across the region, Japan’s tech-heavy Nikkei managed to keep its head above water, buoyed by gains for its two biggest chip-related shares; Taiwan’s benchmark advanced 0.8%.
But Hong Kong flipped from early gains to a loss of about 0.15%. A sub-index of tech shares remained firmly positive but another of mainland property developers slumped more than 1%.
China’s blue chips fell 0.5%.
U.S. retail sales data is also due on Wednesday, preceded by CPI a day earlier. The figures could be key in helping the Federal Reserve to plot the path ahead for interest rates, including whether another hike is needed.
The Fed’s rhetoric has taken a hawkish turn recently, but markets so far are more focused on the data, particularly the soft non-farm payrolls numbers at the start of this month.
ECB President Christine Lagarde last week said that rates will stay restrictive at least for several quarters. Lagarde deputy Luis de Guindos has his say a little later today, giving the keynote speech to kick off Euro Finance Week.
Elswhere, Bank of England board member Catherine L. Mann will take the podium, after the bank’s chief economist, Huw Pill, said last week its projection that monetary policy will need to remain restrictive for an extended period should not be taken as a promise.
Key developments that could influence markets on Monday:
-ECB’s de Guindos, BoE’s Mann speak
-UK Rightmove house prices
-Sweden SEB housing
-New York Fed consumer expectations survey
Reporting by Kevin Buckland; Editing by Edmund Klamann
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A man looks at an electric board displaying the Nikkei stock average outside a brokerage in Tokyo, Japan June 14, 2023. REUTERS/Kim Kyung-Hoon/File Photo Acquire Licensing Rights
SYDNEY, Nov 9 (Reuters) – Asian share markets rallied on Thursday and the dollar firmed, even as global investors again sold off the troubled mainland Chinese property sector.
MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) was up 0.1%, and is up 4.3% so far this month.
The yield on benchmark 10-year Treasury notes reached 4.4902% compared with their U.S. close of 4.508% on Wednesday.
The two-year yield , which rises with traders’ expectations of higher Fed fund rates, touched 4.9277% compared with a U.S. close of 4.936%.
Australian shares (.AXJO) were up 0.26%, while Japan’s Nikkei stock index (.N225) rose 1.53%.
Hong Kong’s Hang Seng Index (.HSI) reversed an early gain and was down 0.25% in the afternoon while China’s bluechip CSI300 Index (.CSI300) was 0.1% higher.
China’s troubled property sector is being closely watched on Thursday after most major stocks rallied one day earlier following a Reuters report that Ping An Insurance Group had been asked by the Chinese authorities to take a controlling stake in Country Garden Holdings (2007.HK) .
A spokesperson for Ping An (601318.SS) said the company had not been approached by the government and denied the Reuters report that cited four sources familiar with the plan.
The Hang Seng Mainland Properties Index (.HSMPI) shed 3.73% on Thursday and the Hang Seng Properties Index (.HSNP), which covers Hong Kong developers, was down 0.7%.
“I think for equities investors, they are still shying away from Chinese property because there are so many unknowns,” said Jason Lui, BNP Paribas’s Head of APAC Equity & Derivative Strategy.
“It’s difficult to ask investors to go back to pre-property downturn days, fundamentally property is going to play a very different role in Chinese economic development going forward.
“Property needs to stop being a drag on GDP and sentiment so investors can move on to the real growth drivers.”
In early European trades, the pan-region Euro Stoxx 50 futures were up 0.1%, German DAX futures were down 0.05%, FTSE futures were down 0.16% at 7,401.5,
U.S. stock futures, the S&P 500 e-minis , were down 0.06% at 4,396.8.
Chinese inflation figures for October published on Thursday showed a 0.1% decline compared to September and a 0.2% fall from one year, according to official statistics.
The dollar dropped 0.03% against the yen to 150.93 . It is moving back towards its high this year of 151.74 on Oct. 31.
The European single currency was up 0.0% on the day at $1.0708, having gained 1.25% in a month, while the dollar index , which tracks the greenback against a basket of currencies of other major trading partners, was up at 105.51.
The dollar has rebounded from last week’s sharp sell-off on rising confidence the Fed has ended raising rates. There is less agreement on whether a rate cut is on the horizon with inflation still above the U.S. Federal Reserve’s 2% target.
On Wall Street, the S&P 500 (.SPX) rose 0.10% and the Nasdaq Composite (.IXIC) added 0.08%. The Dow Jones Industrial Average (.DJI) fell 0.12%.
The S&P 500 rose for the eighth consecutive day, extending its longest win streak in two years.
The Federal Reserve last week kept the benchmark overnight interest rate in the current 5.25%-5.50% range and the central bank is due to meet again mid next month.
The U.S weekly jobless claims published on Thursday will be closely watched as an indicator of the how the country’s labour market is performing. Economists predict claims will reach 219,000 after coming in at 217,000 last week.
Oil prices slid over 2% on Wednesday to their lowest in more than three months on concerns over waning demand in the U.S. and China.
In Asian trading Thursday, U.S. crude ticked up 0.15% to $75.44 a barrel. Brent crude rose to $79.68 per barrel.
Gold was slightly lower. Spot gold was traded at $1948.9332 per ounce.
Reporting by Scott Murdoch; Editing by Tom Hogue and Stephen Coates
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The Arm Ltd logo and a rising stock graph are seen in this illustration taken March 6, 2023. REUTERS/Dado Ruvic/Illustration Acquire Licensing Rights
Nov 8 (Reuters) – Semiconductor company Arm Holdings (O9Ty.F), on Wednesday gave a fiscal third-quarter sales outlook below Wall Street estimates, with the company attributing the forecast to a large deal that will likely land later than expected.
Arm’s shares dove 8% to $50 in extended trading after the news.
But the company, which sells designs and other intellectual property for creating computing chips that power most of the world’s mobile phones, also forecast fiscal full-year sales that beat Wall Street expectations, powered by a wave of companies designing new chips amid a boom in artificial intelligence applications.
Arm became publicly listed again in September after Japan’s SoftBank Group (9984.T), which still owns more than 90% of Arm, sold off some of its shares. One issue that the company is grappling with is new accounting rules that affect how it must recognize revenue from large, multi-year license deals.
In a shareholder letter, Arm’s top executives said that “revenue recognition profiles for future agreements are subject
to change.”
Analysts said that the unpredictability raises questions about Arm’s valuation, which, at more than $65 billion after its initial public offering, was far higher relative to its anticipated annual revenue than any other chip company.
“There are still questions about whether there is a sustainable growth narrative for this company,” said Ben Bajarin, chief executive and principal analyst at Creative Strategies. “The quarter looked good, but the guidance didn’t look good – we don’t really understand what the customer cycle looks like.”
‘STRONG DEMAND’
Arm Chief Financial Officer Jason Child told Reuters that the below-expectations guidance for the current fiscal third quarter but higher full-year forecast was because the company now expects a major licensing deal to land a quarter later than initially expected.
“These are very, very large deals that require lots of complicated approvals that go to the highest levels and it’s organizations that can take a while and that’s hard for us to predict,” Child said in the conference call Wednesday.
Arm said it forecast a fiscal 2024 revenue range with a midpoint of $3.02 billion, above analyst expectations of $2.95 billion, according to data from LSEG. For the current fiscal third quarter, Arm expects a revenue range with a midpoint of $760 million, below analyst estimates of $767.84 million, according to LSEG data.
For Arm’s second fiscal quarter ended in September, revenue jumped 28% to $806 million, ahead of an average estimate of $744.31 million, according to LSEG data. Adjusted profit of 36 cents per share beat expectations of 26 cents per share.
Arm has been working to expand from its stronghold of mobile phone chips into other areas such as data center servers and personal computer chips. Reuters last month reported that Nvidia plans to use technology from Arm in a major new challenge to Intel (INTC.O) in the personal computer market.
Arm has two primary revenue streams: the upfront licensing fees it charges for access to its chip designs and other intellectual property, and a royalty that it collects on each chip sold that was made with its intellectual property. Arm has said it aims to increase its royalty revenues by moving into parts of the chip market where chips sell for higher average prices.
Arm said that royalty revenue for the fiscal second quarter declined to $418 million, below analyst expectations of $420.3 million, according to data from Visible Alpha. Licensing and other revenue for the second quarter was $388 million, above expectations of $326.9 million, according to data from Visible Alpha.
Child told Reuters that Arm’s second quarter royalty revenues still reflected a chip glut that affected the chip industry broadly.
“We expect our royalty numbers to flip to positive (growth) this quarter,” Child told Reuters.
It reported a net loss of $509 million in the quarter, driven by employee stock compensation costs. The company said its initial public offering generated a large one-time expense for previously granted shares and that future employee stock compensation costs are expected to be between $150 million to $200 million per quarter.
Reporting by Stephen Nellis and Max A. Cherney in San Francisco; Additional reporting by Yuvraj Malik in Bengaluru; Editing by Aurora Ellis and Lisa Shumaker
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Two women walk next to the Reserve Bank of Australia headquarters in central Sydney, Australia February 6, 2018. REUTERS/Daniel Munoz/File Photo Acquire Licensing Rights
A look at the day ahead in European and global markets from Tom Westbrook:
Bond markets have curbed a little of last week’s enthusiasm about a prospective peak in global interest rates, but still cheered a rate hike in Australia that looks to be the last of the cycle.
The Aussie dollar fell more than 0.8% and Australian government bonds rallied because the 25 basis point hike by the Reserve Bank of Australia came with a softening of language on whether further hikes would be needed.
The ASX200 (.AXJO) lifted from mid-session lows.
It was an otherwise quiet session in the absence of major updates that might have consequences for the interest rate outlook.
Gravity dragged South Korean shares back to earth, with the Kospi (.KS11), which soared 5.7% on Monday after a short-selling ban was re-imposed, falling 3%.
Three days of strong gains for the MSCI Asia ex-Japan index (.MIAPJ0000PUS) also came to an end.
Data showed Chinese imports unexpectedly grew in October, a welcome signal on domestic consumption, but exports contracted at a quicker pace than expected, giving a mixed picture overall.
Last week’s chaos in Chinese money markets has subsided but it left behind a glimpse of financial pressures beneath the surface and the challenges around China’s uneven recovery from the COVID-19 pandemic.
Read Reuters’ exclusive report on what happened here: Clashing priorities behind China’s rare money market distress.
British house prices, German industrial output and European producer prices are due later on Tuesday, as are earnings from UBS (UBSG.S).
Overnight news from the U.S. included the latest humbling of WeWork (WE.N), which sought bankruptcy protection. It expects to continue in business, but the move represents an admission by majority owner SoftBank that the office-space firm cannot survive unless it renegotiates its pricey leases.
Israeli Prime Minister Benjamin Netanyahu said his government would consider “tactical little pauses” in fighting to facilitate the entry of aid or the exit of hostages from the Gaza Strip, but again rejected calls for a ceasefire despite international pressure.
Without a Fight won the 163rd Melbourne Cup by two lengths.
Key developments that could influence markets on Tuesday:
Earnings: UBS
Economics: German industrial output, Euro zone producer prices, UK house prices, NY Fed household debt report
Speakers: Fed’s Waller, Logan and Schmid, ECB’s de Guindos and McCaul, BoC’s Kozicki
Reporting by Tom Westbrook; Editing by Edmund Klamann
Our Standards: The Thomson Reuters Trust Principles.
A look at the day ahead in U.S. and global markets from Mike Dolan
A more modest yearend schedule of Treasury debt sales than many feared helped bonds rally overnight while the Bank of Japan closed out a scary October for world markets on Tuesday with another modest tightening tweak.
A hectic Halloween of policy meetings, big macro reports and another slew of company earnings is seeing most world markets shave off the sharpest edges of a rough month, just as the Federal Reserve kicks off its latest two-day gathering.
But relief in Treasuries, the villain of the piece for several weeks, is probably the most significant marker for the remainder of the year.
On Monday, the U.S. Treasury said it expects to borrow $776 billion in the fourth quarter of the year, less than $852 billion it has previously indicated and below Wall St forecasts.
Officials said the reduced tally was down to an increased revenue estimate and that was mainly because tax payments from California and other states that had been previously deferred due to natural disasters were now flowing to Treasury coffers.
Given that the announcement in July of third-quarter borrowing of more than trillion dollars was largely responsible for the bond market selloff since, the more benign forecast for the final three months dragged 10-year benchmark yields back further from bruising 16-year peaks above 5%.
With hopes the resurfaced risk premium for holding long-term debt may ease as a result, 10-year yields were as low as 4.82% on Tuesday – some 20 basis points off recent highs.
Even though the Bank of Japan further loosened its grip on long-term interest rates on Tuesday by re-defining 1.0% as a loose “upper bound” rather than a rigid cap, markets took some solace it wasn’t more draconian. Even though 10-year Japanese government yields jumped as much as 7bps to 0.96%, the yen weakened again sharply past 150 per dollar and the Nikkei 225 index of leading stocks rose (.N225).
And there were further soothing noises for world bonds, even if not for global growth, from surprisingly weak Chinese business surveys for October. Chinese stocks (.CSI300) underperformed and closed lower yet again.
Adding to the mix on Monday was a retreat in crude oil prices to their lowest since the October 7 attacks on Israel, as Israel’s land invasion into Gaza advanced slowly and pressure to up stuttering humanitarian aid to the besieged citizens there increased.
Crude prices steadied around $83 per barrel on Tuesday, with market speculation about a rise in U.S. shale oil output circulating following recent major acquisitions by Big Oil firms.
In Europe, falling energy stocks (.SXEP) bucked a more positive wider market due to a 4.2% fall in BP (BP.L) after third-quarter earnings missed analysts’ forecasts.
Overall, the picture pointed to another positive day for Wall Street stocks, with futures marginally positive ahead of the open as the Fed meeting gets underway. The S&P500 (.SPX) rebounded after an awful month on Monday to clock its best day’s gain since August – but it remains on course to record its third straight month of losses since 2020.
The U.S. central bank is expected to leave policy rates unchanged again on Wednesday as it assess the final-quarter trajectory of inflation and the economy after a bumper Q3.
With the October jobs report due Friday, the latest consumer confidence reading for this month tops the economic diary on Tuesday in the meantime. The likes of pharma giant Pfizer and construction bellwether Caterpillar are on a heavy earnings slate.
In other positive news, General Motors (GM.N) and the United Auto Workers struck a tentative deal late on Monday, ending the union’s unprecedented six-week campaign of coordinated strikes that won record pay increases for workers at the Detroit Three automakers.
Key developments that should provide more direction to U.S. markets later on Tuesday:
* U.S. Oct consumer confidence, Oct Chicago business survey, Oct Dallas Fed service sector survey, Q3 employment costs, Aug house prices
* Federal Reserve starts 2-day policy meeting
* U.S. corporate earnings: Pfizer, Caterpillar, AMD, Amcor, Amgen, Marathon, MSCI, Caesars, Global Payments, Sysco, Eaton, Franklin Resources, Allegion, Assurant, AMETEK, Equity Residential, GE Healthcare, First Solar, Incyte, Paycom, Match, Bio-Techne, WEC Energy, Hubbell, Echolab, Zebra, ONEOK, Xylem
* U.S. Treasury auctions 12-month bills
By Mike Dolan, editing by Christina Fincher, <a href=”mailto:mike.dolan@thomsonreuters.com” target=”_blank”>mike.dolan@thomsonreuters.com</a>. Twitter: @reutersMikeD
Our Standards: The Thomson Reuters Trust Principles.
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
An electronic board shows Shanghai and Shenzhen stock indexes, at the Lujiazui financial district in Shanghai, China October 25, 2022. REUTERS/Aly Song/File Photo Acquire Licensing Rights
SINGAPORE, Oct 19 (Reuters) – Asian shares slid on Thursday as risk aversion prevailed due to mounting worries over Middle East conflict, while the bond sell-off intensified, taking Treasury yields to fresh 16-year highs ahead of a keenly awaited speech from Fed Chair Jerome Powell.
Investors sought safer assets, keeping gold prices near two-month peaks and the dollar firm. MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) fell 1.42%.
The broad sell-off in U.S. Treasuries continued into Asian hours with the yield on 10-year notes touching a fresh 16-year high as investors come to grips with the Federal Reserve’s messaging that interest rates may stay higher for longer. Yields rise when bond prices fall.
The gloomy mood is likely to continue as Europe wakes up. Futures indicated stock markets in the region were set for a lower open, with the Eurostoxx 50 futures down 0.61%, German DAX futures down 0.59% and FTSE futures 0.35% lower.
U.S. President Joe Biden pledged to help Israel and the Palestinians during a lightning visit on Wednesday.
The region remained volatile in the aftermath of an explosion at Gaza’s Al-Ahli al-Arabi hospital late on Tuesday, which Palestinian officials said killed 471 people and blamed on what they said was an Israeli air strike. Israel and the U.S. said the cause was a failed rocket launch by Islamist militants in Gaza who denied responsibility.
“It’s a fairly messy, uncertain situation at present,” said Shane Oliver, head of investment strategy and chief economist at AMP in Sydney. “If the conflict remains limited to Israel, that’ll be terrible but markets will learn to live with it as they have with the Ukraine war.”
“If alternatively it expands to encompass key oil producers, notably Iran – which is where the risk is highest – that would be a major problem,” said Oliver.
Oil prices eased on Thursday after OPEC showed no signs of supporting Iran’s call for an oil embargo on Israel and as the United States plans to ease Venezuela sanctions to allow more oil to flow globally.
Oil prices had skipped 2% higher in the previous session on worries over disruptions to global supplies.
Meanwhile, investor concerns of geopolitical risks after a widening U.S. chip export ban cast a shadow over Chinese stocks despite some good news from a flurry of data on Wednesday that underscored an economy that was showing signs of stabilising.
Worries over China’s property sector have also kept investors jittery.
Bondholders of Country Garden (2007.HK) are seeking urgent talks with the company and its advisers after the troubled property developer missed a $15 million coupon repayment, putting it at risk of default, three sources told Reuters.
China’s blue-chip stock index CSI300 (.CSI300) fell 1.61%, while the Hang Seng Index (.HSI) sank 2%. Japan’s Nikkei (.N225) sank 1.58%.
AWAITING POWELL
The spotlight will now be on Fed Chair Jerome Powell, who will take the podium in New York on Thursday with his colleagues at the U.S. central bank in apparent agreement to hold interest rates unchanged at their next meeting in two weeks.
A Reuters poll of economists indicated the Federal Reserve will keep its key interest rate on hold on Nov. 1 and may wait longer than previously thought before cutting it.
While a slight majority still see a cut before the middle of 2024, a significant minority of forecasters, around 45%, now see no rate reduction until the second half of next year or later, up from 29% in the last poll.
“I think he (Powell) will hedge his bets in this environment,” said AMP’s Oliver, noting that Powell will likely reinforce the higher for longer view.
The yield on 10-year Treasury notes was up 6.4 basis points to 4.966%, touching highest since mid-2007.
The dollar index , which measures U.S. currency against six rivals, rose 0.056%%. The Japanese yen was at 149.80 per dollar.
U.S. crude eased 0.16% to $88.18 per barrel and Brent was at $91.11, down 0.43% on the day.
Spot gold was at $1,948.42 per ounce, just shy of $1,962.39 its highest since Aug. 1 touched earlier this week. Gold prices are up 6% in the past two weeks.
Reporting by Ankur Banerjee; Editing by Christopher Cushing and Lincoln Feast.
Our Standards: The Thomson Reuters Trust Principles.
Israeli soldiers gather on and around a tank near Israel’s border with the Gaza Strip, in southern Israel October 15, 2023. REUTERS/Ronen Zvulun/File Photo Acquire Licensing Rights
A look at the day ahead in European and global markets from Kevin Buckland
A nervous watch has gripped markets as Israel prepares to roll troops into Gaza and worries mount that the conflict with Hamas will spill across borders. Iran in particular has warned of a regional escalation if attacks on Palestinians continue.
Sentiment was fragile in Asia, with Japan’s Nikkei down as much as 2% and other equity benchmarks also in the red, hinting at further declines in Europe after Friday’s 1% selloff in the pan-European STOXX 600.
Brent crude stayed firmly above $90 a barrel on Monday, although it eased from a 1 1/2-week high hit very early in the session.
U.S. Secretary of State Antony Blinken was on the ground in the Middle East and President Joe Biden on the phone to help soothe tensions.
Currencies though were mostly calm, with the eye-catching exception of the Israeli shekel, which slumped to its lowest in more than eight years.
The recent spike in oil prices shows just how interconnected global markets can be, fuelling inflation worries ahead of meetings over the next few weeks of the world’s biggest central banks. Policymakers have already been converging in a chorus of higher rates for longer.
The ECB’s next decision is due on Oct. 26, and there is plenty of room for more hawkish market pricing on interest rates, since investors had become convinced that hikes were done and a first rate cut would be coming by the middle of next year.
ECB speakers are out in force this week, including Bank of Spain Governor Pablo Hernández de Cos on Monday, when the euro zone also releases trade data.
It will be a busy week for BoE rhetoric as well, starting with the central bank’s chief economist, Huw Pill, on Monday. There’s lots of important British data, with house prices later today, jobs and wage figures on Tuesday, and CPI on Wednesday.
Britain’s monetary authority announces policy on Nov. 2, a day after the U.S. Federal Reserve.
Fed Chair Jerome Powell’s speech at the Economic Club of New York this Thursday, just before the start of the central bank’s blackout period, is probably the most anticipated bit of central bank speak for the week.
The U.S. also has retail sales data on Tuesday, along with more bank earnings, including Goldman Sachs on the same day and Morgan Stanley on Wednesday.
Tesla and Netflix also report on Wednesday.
Key developments that could influence markets on Monday:
-Euro area trade balance (Aug)
-UK house prices (Oct)
-ECB’s de Cos, BoE’s Pill speak
Reporting by Kevin Buckland; Editing by Edmund Klamann
Our Standards: The Thomson Reuters Trust Principles.
[1/2]The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, September 26, 2023. REUTERS/Staff/File Photo Acquire Licensing Rights
LONDON/HONG KONG, Sept 27 (Reuters) – Global stocks inched higher on Wednesday as investors found a footing after a sharp sell-off the previous day, while U.S. Treasury yields dipped after hitting their highest level since 2007.
Stocks and bonds have dropped in recent weeks as investors come to terms with the idea that central banks will hold interest rates “higher for longer” than previously expected, as officials try to squeeze inflation out of economies.
The Europe-wide STOXX 600 index (.STOXX) was up 0.2% on Wednesday, after falling 0.6% in the previous session in its fourth straight daily drop.
MSCI’s index of global stocks (.MIWD00000PUS) was little changed after falling 1.2% the previous day. The index has fallen 4.5% since the start of September.
Germany’s Dax index (.GDAXI) was up 0.05% while Britain’s FTSE 100 (.FTSE) was flat. In Asia overnight, Japan’s Nikkei 225 index (.N225) rose 0.18%.
At the root of the recent equity sell-off, said Jan von Gerich, chief analyst at Nordea, has been a sharp rise in bond yields as traders have cut their bets that central banks will lower interest rates any time soon.
“The latest catalyst has been the increase in bond yields, so if that stabilises then maybe the equity market stabilises as well,” he said.
“The big picture outlook is that we’re probably close to the peak (in bond yields) but the near-term momentum is still upwards.”
On Wednesday, the yield on the 10-year U.S. Treasury note was down 5 basis points to 4.507%, after touching its highest level since October 2007 on Tuesday at 4.566%. A bond’s yield rises as its price falls, and vice versa.
Also on investors’ minds is a looming U.S. government shutdown; further signs of an economic slump in China; and a recent rise in oil prices.
U.S. equity futures picked up as bond yields fell, with contracts for the benchmark S&P 500 stock index 0.43% higher. Dow Jones futures were 0.35% higher while Nasdaq futures were up 0.46%.
The Dow posted its biggest one-day percentage drop since March on Tuesday, while all three major averages ended at their lowest closing levels in well over three months.
In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) was 0.12% higher. The index is down 3.7% so far this month.
Chinese corporate health was a focal point. Profits at China’s industrial firms fell 11.7% in the first eight months of the year, albeit a smaller decline than the 15.5% drop for the first seven months.
“The stabilising industrial profits are simply not significant enough to override concerns about risks, especially in real estate,” said Gary Ng, Asia Pacific senior economist at Natixis.
As stress spreads in the Chinese property sector, Bloomberg reported that the chairman of beleaguered Chinese property group Evergrande has been placed under police surveillance.
The dollar index , which tracks the greenback against a basket of currencies, was roughly flat at 106.2. It climbed to 106.32 earlier in the session, its highest since Nov. 30.
U.S. crude oil was 1.14% higher to $91.42 a barrel. Brent crude rose 0.85% to $94.76 per barrel.
The U.S. Senate on Tuesday took a step forward on a bipartisan bill meant to stop the government from shutting down in just five days, but the House remains hamstrung by divisions between Republican members.
Meanwhile, investors were also on the lookout for government intervention in the Japanese yen after it fell past the 149 per dollar mark on Tuesday for the first time in just under a year.
Reporting by Harry Robertson in London and Julie Zhu in Hong Kong; Editing by Jamie Freed, Edwina Gibbs and Anil D’Silva
Our Standards: The Thomson Reuters Trust Principles.
A look at the day ahead in U.S. and global markets by Mike Dolan
A renewed surge in long-term Treasury yields is stifling world markets yet again as Federal Reserve officials hang tough on one more rate rise, some $134 billion of new government debt sales hit this week and a government shutdown looms.
The yield spike has supercharged the U.S. dollar worldwide – both a reflection and aggravator of mounting financial stress far and wide.
Despite wariness of Bank of Japan intervention, the dollar/yen exchange rate hit its highest for the year on Tuesday – as did the dollar’s DXY (.DXY) index and the dollar’s rate against the South Korea’s won . Sterling hit a 6-month low.
Treasury tremors continue to reverberate from last week’s upgraded Fed forecasts, its insistence on signalling one more rate rise in the current tightening cycle and an uncompromising ‘higher-for-longer’ mantra.
Short term Fed futures haven’t moved much. All the action is in longer-dated U.S. Treasuries, which may now be repricing the economy’s resilience over multiple years and more persistent inflation pressures.
Ten-year Treasury yields , which have added a whopping 25 basis points in just a week, hit another 16-year high at 4.5660% early on Tuesday. As Deutsche Bank notes, this is historically significant territory as the average of the 10-year yield going back to 1799 is around 4.50%.
Thirty-year bond yields , meantime, have jumped over 30bp in a week to a 12-year high of 4.6840%.
And as an indication of how the long-term sustainable interest rate structure as whole is being re-thought, the 10-year real, inflation-adjusted yield has also leaped 26bp to 2.20% – its highest since 2009.
Significantly, this is shifting the deeply-inverted 2-to-10 year yield gap – which has for more than a year indicated recession ahead but which now looks to be closing that negative spread to its smallest since May.
The latest wobble – which has seen exchange-traded funds in U.S. Treasuries deepen year-to-date losses to more than 6% and losses over three years to more than 20% – comes as another heavy supply of new paper goes up for auction this week.
The Treasury sells $48 billion in two-year notes on Tuesday, $49 billion in five-year paper on Wednesday and $37 billion in seven-year notes on Thursday.
A government shutdown from this weekend is still looming with no budget deal in Congress yet to avert it and Moody’s warning of sovereign credit rating implications.
The Fed seems in no mood to calm the horses.
Minneapolis Fed Bank President Neel Kashkari said on Monday the Fed probably needs to raise borrowing rates further.
“If the economy is fundamentally much stronger than we realized, on the margin, that would tell me rates probably have to go a little bit higher, and then be held higher for longer to cool things off,” Said Kashkari.
Even a typically more dovish Chicago Fed boss Austan Goolsbee sounded hawkish. “The risk of inflation staying higher than where we want it is the bigger risk,” he said, adding the Fed would now have to “play by ear” in conducting policy.
Private sector bankers are starting to brace for the worst, with JP Morgan chief Jamie Dimon reported overnight as warning: “I am not sure if the world is prepared for 7% (Fed rates).”
Even though the European Central Bank seems shier of even higher rates, the higher-for-longer message there too is clear. ECB chief Christine Lagarde said on Monday the central bank can meet its 2% inflation target if record high rates are maintained for “a sufficiently long duration.”
In a thin data diary on Monday, the Dallas Fed’s September manufacturing survey showed a deterioration of activity there this month. The Chicago Fed’s national business poll for August also fell.
And a retreat in energy prices would have soothed some inflation worries, with U.S. crude falling back to $88 per barrel for the first time in almost two weeks,
Nationwide consumer confidence tops the slate on Tuesday.
Despite a late rally in Wall St stocks on Monday, futures are back about 0.5% in the red – as were bourses in Asia and Europe as the end of the third quarter hoves into view on Friday.
China Evergrande (3333.HK) shares slid for a second day, dropping as much as 8% after a unit of the embattled property developer missed an onshore bond repayment.
There was no sign of a breakthrough in the widening U.S. autoworkers labor dispute, seen as inflationary by some due to potential supply outages.
Key developments that should provide more direction to U.S. markets later on Tuesday:
* US Sept consumer confidence, US Aug new home sales, July house prices, Richmond Fed Sept business survey, Dallas Fed Sept service sector survey, Philadelphia Fed Sept services survey
* Federal Reserve Board Governor Michelle Bowman gives pre-recorded remarks to Washington conference
* U.S. Treasury auctions $48 billion of 2-year notes
* U.S. corporate earnings: Costco, Cintas
Reporting by Mike Dolan; Editing by Christina Fincher
Our Standards: The Thomson Reuters Trust Principles.
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.