Stocks slip in Europe as investors refine Fed hike bets

By Huw Jones

LONDON (Reuters) – European stocks fell on Thursday as cautious investors continued to assess how far and fast the U.S. Federal Reserve will begin raising interest rates this year.

Also keeping a lid on risk taking were the tech-laden U.S. Nasdaq entering correction territory on Wednesday, a sell-off in bonds, still elevated crude oil prices and increased political tensions over Ukraine.

But Chinese stocks were a bright spot after the country cut benchmark mortgage reference rates to ease pressure on its property sector.

The STOXX index of 600 European companies was down 0.17% at 480 points, below its life-time high of 495.46 points hit in the first week of trading this year. Blue-chip indexes in Frankfurt, Paris and London were all lower.

Gains in Asia helped to counter the pullback in Europe to keep the MSCI all country stock index in positive territory, up 0.16% at 728 points, but still down about 3.8% so far this year.

“There is a tonne of caution now,” said Seema Shah, chief strategist at Principal Global Investors.

“The key factor that markets are thinking about is Fed tightening,” she said.

Rising U.S. interest rates could dent global growth prospects and the earnings outlook for international companies.

A Reuters poll of economists showed they expect the Fed to tighten monetary policy at a much faster pace than thought a month ago to tame high inflation.

Shah said the year opened with elevated valuations in markets and the sell-off in bonds since then has fuelled a growing sense of caution as markets ask if they have priced in enough Fed rate hikes.

“That’s what’s driving a lot of the caution at the moment. Even with four hikes, the question is, is that enough and should we get ahead of this continued forecasting that we have been seeing,” Shah said.

European Central Bank head Christine Lagarde said euro zone inflation will decrease gradually over the year, adding that the ECB did not need to act as boldly as the Fed because of a different economic situation.

Analysts said global growth still remained solid but investors wanted reassurance of that in the earnings season now unfolding.

ASIA PERKS UP, UKRAINE EYED

Asian share markets broke a five-day slide, pushing higher on Thursday as China underscored its diverging monetary and economic picture by cutting benchmark mortgage rates.

China’s blue-chip CSI300 index rose 0.9% on the day. Shares of Chinese property developers boosted gains in the broad index amid hopes that government measures would help ease a funding squeeze in the embattled sector, even as another developer warned of default.

Seoul’s Kospi rose 0.7% and Australian shares gained 0.14%. In Tokyo, the Nikkei added 1.11%.

Analysts at ING said geopolitical risks, notably the possibility of Russia invading Ukraine, could continue to weigh on global shares, adding to existing pressure from the rising rates outlook.

U.S. President Joe Biden predicted on Wednesday that Russia will make a move on Ukraine, saying a full-scale invasion would be “a disaster for Russia” but suggesting there could be a lower cost for a “minor incursion.”

“Markets may soon start to take into account a greater risk of a conflict flare-up between Russia and Ukraine, which is one reason why stocks may continue to sell and why Treasury yields aren’t on a one-way ticket higher,” ING said.

Fed rate hike worries pushed U.S. Treasury yields to two-year highs on Wednesday, and taking Germany’s 10-year yield into positive territory for the first time since May 2019.

On Thursday U.S. yields edged up, but remained below their highs in the previous session.

The benchmark U.S. 10-year yield rose to 1.839% from a U.S. close of 1.827%, and the policy-sensitive two-year yield touched 1.0433% compared with a U.S. close of 1.025%.

The pause in Treasury yields’ march higher kept the greenback in check, with the dollar index, which measures the greenback against six major peers, edging down to 95.527 as commodity currencies benefited from high oil prices.

The U.S. dollar traded little changed against the Japanese yen at 114.21 and, and rose 0.06% against the euro to $1.1350.

In commodity markets, oil prices eased off elevated levels after touching their highest levels since 2014 on Wednesday on strong demand and short-term supply disruptions.

Global benchmark Brent crude was last down 0.9% at $87.58 per barrel and U.S. crude fell 0.3% to $86.68 per barrel. [O/R]

Gold paused after marking its best session in three months a day earlier. Spot gold was little changed at $1,840 an ounce.

(Additional reporting by Andrew Galbraith; Editing by Simon Cameron-Moore, Gerry Doyle and Susan Fenton)

Stocks slide on inflation concerns as oil prices rise further

By Herbert Lash and Lawrence White

NEW YORK/LONDON (Reuters) – Strong U.S. and European corporate results could not stop a slide on Wall Street, where the Nasdaq entered a correction, as rising crude prices kept inflation concerns alive even as bond yields eased a bit after earlier touching fresh multiyear highs.

The Nasdaq closed more than 10% lower from its Nov. 19 record closing high to confirm a correction as investors continue to price in the Federal Reserve moving faster to hike interest rates, fears that led to Tuesday’s sell-off.

Stock markets on both sides of the Atlantic initially rebounded, with an index of Europe’s 600 biggest stocks rising as much as 0.8% as robust earnings from luxury majors Burberry and Richemont countered pressure from rising yields. Buoyant reports from UnitedHealth Group Inc and Procter & Gamble Co also initially lifted Wall Street.

But the gains faded as concerns about rising inflation and higher rates rattled the market as investors await the Fed’s policy meeting next week for any changes to the central bank’s plan to tackle inflation.

“The market is still grappling with how do you adjust to higher rates and what are the companies that are impacted by higher rates?” said Jon Maier, chief investment officer at Global X ETFs.

“The market was very excited that maybe the Goldman Sachs (earnings) numbers (on Tuesday) weren’t so bad. Then reality sunk in.”

The broad STOXX Europe 600 index closed up 0.23%, but MSCI’s all-country world index fell 0.74% as Wall Street sold off late in the session.

The Dow Jones Industrial Average fell 0.96%, the S&P 500 slipped 0.97% and the Nasdaq Composite dropped 1.15%.

U.S. Treasury yields earlier hit fresh two-year highs, and Germany’s 10-year yield broke into positive territory for the first time since May 2019 as investors bet policymakers will curb years of stimulus in order to fight rising asset prices.

The rise above 0% for the bund — the euro zone’s benchmark — marks a turning point for regional debt, reflecting record-high inflation that is being exacerbated by supply chain disruption.

“This inflationary episode is unusually challenging in that it is driven by both strong demand and shortages of supply,” said Guy Foster, chief strategist at wealth manager Brewin Dolphin.

Oil prices hit their highest since 2014 amid an outage on a pipeline from Iraq to Turkey and global political tensions that stoked fears of more persistent inflation and helped prop up the dollar, which hovered near one-week highs.

The market is making interest rate adjustments throughout the major industrialized economies, said Marc Chandler, chief market strategist at Bannockburn Global Forex.

“Those countries that seem to be ahead of the U.S. in the queue of raising grades — Canada, the UK and Norway — have stronger currencies this year against the dollar,” he said. “Other areas like the Euro, Swiss franc are softer on the year.”

The dollar index, which tracks the greenback versus a basket of six currencies, fell 0.14% to 95.579. The euro was last up 0.16 percent at $1.1343, while the yen was last down 0.29% at $114.2800.

Overnight in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.4% as tech stocks in particular suffered as they had on Tuesday in Europe and on Wall Street.

Australia’s main stock index shed 1.0%, while Japan’s Nikkei hit a three-month low as worries over new curbs on businesses to halt a record surge in coronavirus cases curbed risk appetite.

The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, rose 0.7 basis point to 1.047% late in the session after earlier trading lower. The yield on 10-year Treasury notes fell 1.8 basis points to 1.850%, after also trading lower.

Oil prices rose for a fourth day after a fire on a pipeline from Iraq to Turkey briefly stopped flows, increasing concerns about an already tight short-term supply outlook.

Brent crude futures settled up 93 cents at $88.44 a barrel. The international benchmark has gained 28% since the beginning of December. U.S. crude futures rose $1.53 to settle at $86.96 a barrel.

Gold rose more than 1% as a retreat in the dollar and geopolitical tensions surrounding Ukraine burnished safe-haven bullion’s appeal.

U.S. gold futures settled up 1.7% at $1,843.20 an ounce.

(Reporting by Herbert Lash; additional reporting by Lawrence White in London and Daniel Leussink in Tokyo; editing by Kim Coghill, Simon Cameron-Moore, Emelia Sithole-Matarise, William Maclean and Jonathan Oatis)

No Crypto ATM’s in Singapore Until MAS Clarifies on New Guidelines

Two cryptocurrency ATM operators have acted quickly to the Monetary Authority of Singapore’s (MAS) new guidelines issued on Monday. Under the new guidelines, the central bank of Singapore said that crypto trading should not be promoted to the public.

Daenerys & Co. and Deodi Pte crypto ATM operators in the city-state have shut down quoting the MAS guidelines as an “unexpected surprise.”

“To comply with the sudden announcement, we have ceased to offer buy or sell services via our ATMs while seeking further clarification from the MAS,” a representative from Daenerys told FXEmpire.

Another operator, Deodi Pte has halted services from its public Bitcoin machine on Tuesday, pursuant to MAS notice.

Singapore crypto ATM
A Bitcoin ATM machine was removed on Tuesday in Singapore – Source: The Straits Times

Daenerys has five crypto ATMs, that accept fiat currency to lend cryptos, mostly Bitcoin, Ethereum, Ripple among others.

Alongside digital currencies’ increasing prominence in Singapore, the untraceable nature making it an attractive medium for illegal activities has made the regulator reiterate the risks it poses.

However, MAS did not impose any penalties from ATM operators for non-compliance.

MAS has restricted crypto businesses from providing physical crypto ATM services in the country. According to the watchdog, convenient access to Bitcoin ATMs might encourage “impulse-driven” trading activities, without considering the risks involved.

Daenerys has an “ongoing application” with MAS as a payment service provider and is waiting for the regulator to approve licensing, the company stated.

No Crypto Ban – Just Made It Less Accessible

Singapore’s financial regulator has clearly told crypto companies to refrain from advertising or promoting their digital currency services but has not banned its usage.

Users can still go and buy cryptos – but it will be more deliberate and less on impulse.

Having said that, with tougher rules spread out by the government, crypto entrepreneurs lured by the country’s crypto-embraced culture, find it difficult to get approval to legally operate in the city-state.

The cautious approach on every aspect is due to the fear of cryptocurrencies being abused for money laundering, terrorism financing, due to the speed and cross-border nature of the transactions.

“Digital payment token service providers in Singapore have to comply with requirements to mitigate such risks, including the need to carry out proper customer due diligence, conduct regular account reviews, and monitor and report suspicious transactions,” a MAS spokesperson told Nikkei.

Such steps by the government show how Singapore’s stance on digital assets has resulted in cryptos being less accessible to the public and the country being one of the most advanced and mature nations when it comes to crypto inclusion.

How Does It Work in Preventing Frauds

Singapore is one of the few countries that openly support cryptocurrencies and blockchain projects. According to a recent poll by fintech comparison website Finder.com, nearly 16 percent of Singaporean adults currently own cryptocurrency.

Bitcoin is the most popular coin owned by citizens, followed by Ethereum and Cardano.

However, some crypto ATM kiosks allow certain transactions to take place without acquiring any customer information other than their phone numbers. Some even use prepaid cellphones, that are disposed of after a transaction.

Shutting down crypto ATMs means that it is important for operators to set know-your-customers (KYC) standards to protect them from fraudulent activities and transactions. This is however been more challenging to implement in the cryptocurrency space where anonymity thrives.

Stocks sink, notably tech, as Treasury yields jump

By Herbert Lash and Marc Jones

NEW YORK/LONDON (Reuters) – Benchmark U.S. Treasury yields jumped to two-year highs and equity markets tumbled on Tuesday, with the Nasdaq falling more than 2%, as traders braced for the Federal Reserve to tackle fast-rising inflation by tightening monetary policy.

The dollar hit a six-day high as Treasury yields surged, while inflation fears were bolstered as oil prices rose to their highest since 2014 on possible supply disruptions after attacks in the Gulf increased an already tight outlook.

The jump in Treasury yields slammed U.S. and European technology stocks, while a drop in Goldman Sachs’ stock led declines among U.S. banks after it missed quarterly earnings as the Fed slowed its asset purchases in November.

Two-year Treasury yields, which track short-term interest rate expectations, rose above 1% for the first time since February 2020 as traders priced in a more hawkish Fed before the U.S. central bank’s policy meeting next week.

The two-, three- and five-year part of the yield curve will bear the brunt of expected Fed policy, said Tom di Galoma, a managing director at Seaport Global Holdings in Greenwich, Connecticut.

“The front end of the market is still way underpriced for Fed tightenings. The two-year note could be 1.5% by March,” he said.

The yield on two-year Treasuries rose 8.4 basis points to 1.051% and on 10-year Treasury notes they climbed 10.2 basis points to 1.874%, a yield last seen that high in early January 2020.

Yields have jumped since minutes from the Fed’s December policy meeting showed it may raise rates sooner than expected and begin reducing its asset holdings to slow inflation and address a tight labor market.

Information technology was the biggest percentage declining sector on Wall Street, losing 2.48%, with interest rate-sensitive financials the second biggest, down 2.27%.

Tech stocks also weighed the most in Europe, falling 2.2%, as European shares fell to their lowest level in more than a week. The pan-European STOXX 600 index fell as much as 1.44% before paring some losses to close down 0.97%.

Securities will continue to revalue as the market anticipates rate hikes, said Michael O’Rourke, chief market strategist at JonesTrading in Stamford, Connecticut.

“We still have a bit of a ways to go to prepare for three rate hikes or four rate hikes. We haven’t priced that in,” he said.

On Wall Street, the Dow Jones Industrial Average slid 1.51%, the S&P 500 fell 1.84% and the Nasdaq Composite slipped 2.60% to close almost 10% below its record closing high on Nov. 19, which would confirm a correction.

MSCI’s all-country world index closed down 1.57% as tech stocks dropped in Asia overnight despite China easing policy again.

Investors are increasingly pricing in as many as four Fed rate hikes this year, with the first seen coming in March, and one from the European Central Bank.

Big market declines often occur in years following outsized gains on Wall Street, with nine sell-offs starting in the first quarter that averaged 10.9% since World War Two, said Sam Stovall, chief investment strategist at CFRA Research.

However, “history is a great guide, but it’s never gospel,” he said.

Oil was the only positive sector on Wall Street as Brent crude prices hit $88 a barrel after Yemen’s Houthi group attacked the United Arab Emirates, escalating hostilities between the Iran-aligned group and a Saudi Arabian-led coalition.

Brent crude futures rose $1.03 to settle at $87.51 a barrel. U.S. crude futures settled up $1.61 at $85.43 a barrel.

Gold prices fell. U.S. gold futures settled down 0.2%at $1,812.40 an ounce.

Japan’s yen initially fell after the Bank of Japan said it would stick to its ultra-loose monetary policy, despite hopes the economy is finally kicking clear of deflation.

The yen was last down 0.01% at $114.5900. The dollar index, which tracks the greenback versus a basket of six currencies, rose 0.523% to 95.749 and the euro was last down 0.74%, at $1.1323.

Russia’s rouble, highly volatile recently, firmed 1.18% to 76.9395 a dollar after reports the West was no longer considering cutting Russian banks off from the Swift global payments system and was instead eyeing sanctions on banks.

(Reporting by Herbert Lash, additional reporting by Sinéad Carew in New York and Marc Jones in London; Editing by Chizu Nomiyama, Jonathan Oatis and Chris Reese)

China Arrests Eight People for $1 Million Crypto Scam

Chinese authorities have arrested eight people involved in a crypto scam in its latest crackdown on crypto-related activities. It also froze 6 million yuan ($1 million) worth of crypto assets tied to the crime.

Despite the clear ban on cryptocurrency trading, mining, and related activities in China, many still appear to be involved in crypto activities, albeit illegally. 

The Criminals Rug Pulled Crypto Investors

According to a report on Nikkei Asia, this DeFi rug pull was first uncovered by the Chizhou public security bureau and had the potential to be worth 50 million yuan ($7.8 million).

Investigations started after an investor lost 590,000 yuan in crypto assets in June 2021, and evidence pointed to the eight arrested people.

Apart from the frozen assets, authorities also seized luxury houses, cars, and other expensive items. All these assets are alleged to have been acquired with the stolen assets.

The unnamed scam project promised investors high returns for swapping their liquidity. But the scammers used anonymous pools to siphon the money while investors were left with nothing.

This event doesn’t just show the risks of crypto assets but also proves that banning cryptocurrencies won’t protect people from the risks. Instead, the ban might further give more opportunities for bad actors to exploit the people that the ban seeks to protect.

Despite Security Concerns, DeFi Adoption Continues

Rug pulls became the number one crypto scam in 2021 as it accounted for 37% of stolen assets. The nature of decentralized finance space further makes it possible to pull off this scam due to its unregulated and permissionless nature. 

With users losing almost $3 billion to rug pulls last year, security has become a major source of concern for investors.

However, the potential of the space continues to attract many investors, including institutions. 

Recently, Aave launched an institutional DeFi platform, Aave Arc. Despite the overall dip in the crypto market, DeFi tokens have been the least affected. Uniswap (UNI), Aave (AAVE), PancakeSwap (CAKE), and other DeFi tokens have all had a positive rise in value in the past seven days. 

Available data on DeFiLlama would also show that the TVL of assets locked in the space is currently over $230 million.

However, like Chainalysis pointed out, crypto adoption growth might be hampered if solutions are not found for the risks attached to using digital assets.

Hong Kong fund to sell Japan, South Korea Burger King business in deal over $1bln – source

By Kane Wu

Hong Kong (Reuters) – Private equity firm Affinity Equity Partners is this week launching the sale of its Burger King fast-food businesses in South Korea and Japan, in a deal that could fetch more than $1 billion, a person with knowledge of the matter told Reuters.

Hong Kong-based Affinity has appointed Goldman Sachs to run the sale, which is targeting both private equity investors and strategic buyers, said the person, who declined to be identified as the information is confidential.

The bank declined to comment.

Affinity bought full control of Burger King South Korea in 2016 for about $170 million and a year later acquired the American fast-food brand’s Japan franchise.

The South Korean business reported 680 billion won ($572 million) in revenue in 2021, with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) at 80 billion won ($67 million), said the person, adding its adjusted EBITDA in 2022 is expected to reach 100 billion won.

Burger King Japan’s adjusted EBITDA in 2021 was 700 million yen ($6 million), the person said.

Global fast-food chains such as McDonald’s and Yum! Brands are trading at 20 to 30 times their EBITDA, Refinitiv Eikon data showed. Burger King India is trading at about 25 times of its EBITDA.

Affinity and Burger King Japan did not immediately respond to a request for comment.

An official at BKR Corporation, the operator of Burger King in South Korea, declined to comment.

The Nikkei business daily first reported the sale on Monday.

It comes as the consumer and retail sector faces tremendous challenges and disruption caused by the coronavirus pandemic.

In South Korea, businesses have adapted by relying more on deliveries, which has prompted exponential growth for its food delivery apps.

Burger King Korea said on Monday the number of monthly active users on its mobile app in December exceeded 1.4 million, the highest since the app was launched in May 2016.

Since Affinity’s acquisition, Burger King has been in an expansion mode in South Korea and Japan.

Burger King runs 440 outlets in South Korea, more than its rival McDonald’s.

The Japan franchise said on Monday it would open three new outlets in January, bringing the total there to 149, with plans to open more “aggressively” in 2022.

($1 = 114.4800 yen)

(Reporting by Kane Wu in Hong Kong, additional reporting by Sam Nussey and Rocky Swfit in Tokyo and Joyce Lee in Seoul, Editing by Louise Heavens)

Toyota needs to build 1 million cars in March to reach annual target – Nikkei

TOKYO (Reuters) -Toyota Motor Corp will build 700,000 vehicles globally in February, up 10% on the year, but will still need to make a million more in March in order to reach an annual production target of 9 million, the Nikkei business daily said.

A Toyota spokesperson declined to comment when asked about the Nikkei report or whether the Japanese automaker planned to stick to that production target for the year ending March 31.

The world’s biggest car maker has been trying to increase production in the final months of the business year to make up for output lost earlier because of a shortage of components from plants in Southeast Asia hit by COVID-19 lockdown restrictions.

Toyota and other car makers have been forced to curb production even as demand in key markets such as China has rebounded.

(Reporting by Tim Kelly; Editing by Jacqueline Wong)

European shares edge higher ahead of earnings; China adds stimulus

By Elizabeth Howcroft

LONDON (Reuters) -European shares recovered from Friday’s losses on Monday as investors focused on company earnings and U.S. Federal Reserve policymakers entered a quiet period ahead of their meeting next week.

Stock market moves in Asian trading were small and economic data from China was mixed: industrial output picking up but retail sales missed expectations.

China’s central bank unexpectedly eased policy by cutting rates on medium-term loans.

Analysts expect more policy easing as growth in the world’s second-largest economy has shown signs of slowing from its rapid rebound after the COVID-19 slump.

At 1321 GMT, the MSCI world equity index, which tracks shares in 50 countries, was flat. Europe’s STOXX 600 was up 0.6%, having recovered most of Friday’s losses.

Markets in the United States are closed for a public holiday, but S&P 500 futures were up 0.2% and Nasdaq futures up 0.1%.

Expectations of central banks tightening policy to combat persistent inflation have meant that equities have generally struggled to make gains so far this year and investors are rotating from growth to value stocks.

Investors are focused on company earnings, which will need to be strong to prevent further losses. Goldman Sachs, BofA, Morgan Stanley and Netflix report earnings this week.

Marija Veitmane, senior multi-asset strategist at State Street Global Markets, said that she would be looking to see how much the costs of higher prices and labour shortages have affected corporate profits, as well as how companies will spend the money on their balance sheets.

“One thing that was a very positive surprise for us last year, particularly towards the end of the year, was the strength of corporate margins,” Veitmane added.

“Corporates were able to pass higher costs to the end consumer and that was really encouraging news for us. That’s exactly what we’ll be looking for this time around.”

FED MEETING

The U.S. Federal Reserve meets on Jan. 25-26 and investors expect a cycle of rate hikes to begin in March. Rate hikes tend to harm riskier assets such as equities.

Speculators’ net bearish bets on benchmark U.S. 10-year Treasury note futures have swelled to their largest since February 2020, just before the onset of the pandemic, according to Commodity Futures Trading Commission data released on Friday.

The yield on the 10-year U.S. Treasury yield hit a two-year high last week. The implied yield from futures rose to 1.85% early on Monday.

The U.S. dollar index was up 0.1% on the day at 95.329, clinging to its recent bounce. The euro was at $1.1396.

Ahead of a Bank of Japan policy meeting concluding on Tuesday, the dollar was up 0.3% against the yen, at 114.555.

Euro zone government bond yields edged higher, with the benchmark German 10-year yield at -0.034%.

Brent crude futures hit their highest in more than three years as investors bet supply will remain tight amid restrained output by major producers, with global demand unperturbed by the Omicron coronavirus variant.

Bitcoin was a touch lower, around $42,637.

(Reporting by Elizabeth Howcroft; Editing by Pravin Char and Alison Williams)

Stocks stumble, yields jump on rates outlook; oil rallies

By Koh Gui Qing

NEW YORK (Reuters) -Global stock markets stumbled again on Friday and U.S. Treasury yields climbed as cautious investors worried about how imminent U.S. interest rate hikes would affect the economy.

A warning from the largest U.S. bank JPMorgan Chase & Co that its profitability may fall below a medium-term target cast another pall on Wall Street.

By early evening, MSCI’s gauge of stocks across the globe had shed 0.36%. The pan-European STOXX 600 index closed down 1.01% and had its worst week since Nov. 26, weighed in part by declines in technology stocks. [.EU]

In the United States, a spate of bargain hunting toward the end of the day helped stocks to narrow losses. The Dow Jones Industrial Average fell 0.56%, the S&P 500 ended flat, and the Nasdaq Composite flipped into the black, rising 0.59%. [.N]

“We are now entering a period where the Federal Reserve will engage in a never-before-seen experiment: raising interest rates off zero and reducing the size of its balance sheet in the same year,” said Nicholas Colas, co-founder of DataTrek Research.

“The market is still left wondering what results will come from their decisions,” Colas said.

In line with expectations of rising rates, benchmark 10-year Treasury yields jumped to 1.7859%, rebounding toward a two-year high of 1.8080% struck earlier this week. Two-year Treasury yields hit a high of 0.9730%, a level last seen in February last 2020. [US/]

European bond yields also rose in choppy trade as investors focused on monetary policy tightening by central banks, though sharp falls in Germany’s benchmark 10-year yield earlier this week led it to notch its biggest weekly fall in 10 weeks. [GVD/EUR]

Meanwhile, in Asia, the five-year Japanese government bond yield jumped to its highest since January 2016 and the yen rose after a Reuters report that Bank of Japan policymakers are debating how soon they can start an eventual interest rate hike.

Such a move could come even before inflation hits the bank’s 2% target, sources said.

The dollar, which has been slugged by a three-day selling spree as investors bet that expectations of rate rises are already priced into the currency, finally steadied on Friday.

The dollar index, which measures the greenback against a basket of six currencies, bounced 0.34% to 95.167, pulling away further from a two-month low hit this week. [USD/]

A bounce in the dollar dragged on the euro, which lost 0.34% to 1.14135.

Sterling also slipped 0.22% to 1.36780, taking a breather after this week’s rally that pushed it to a 2-1/2-month high.

GDP data on Friday showed that Britain’s economy grew faster than expected in November and its output finally surpassed its level before the country went into its first COVID-19 lockdown.

Asian shares had fallen overnight after Fed Governor Lael Brainard on Thursday became the most senior central banker to indicate the Fed will hike rates in March.

Other Fed officials have shown their willingness to raise rates, after data this week showed U.S. consumer prices surged 7% year-on-year.

Bucking the weakness in equity markets, oil futures rose again, on course for a fourth weekly gain, boosted by supply constraints. [O/R]

Brent crude futures rallied 1.9% to a two-and-a-half month high of $86.44 a barrel. U.S. West Texas Intermediate crude jumped 2.6% to $84.28. Both Brent and U.S. futures entered overbought territory for the first time since late October.

Rising bond yields weighed on non-yielding gold, with spot gold down 0.31% at $1,816.53 per ounce. [GOL/]

“It’s clearly the impact of monetary policy tightening that’s being felt in markets here,” said Guillaume Paillat, multi-asset portfolio manager at Aviva Investors.

Paillat, who is expecting at least four Fed rate hikes this year, said it was “pretty much a done deal” that the tightening cycle would start in March.

“What matters over the coming days is going to be more about earnings,” he added. “There’s still a bit of room for earnings to surprise to the upside.”

(Reporting by Koh Gui Qing and Elizabeth Howcroft; editing by Jonathan Oatis and David Gregorio)

Marketmind: Let’s talk about sterling

A look at the day ahead from Dhara Ranasinghe.

Let’s take a break from just how quick is the Fed going to slam on the brakes to contain inflation and talk about sterling.

The pound is proving to be one of the best performing major currencies in the early days of 2022. It’s trading near its highest levels in over two months above $1.37, thanks to signs the Omicron COVID surge is abating and on expectations that UK interest rates could rise again as soon as February.

Data on Friday shows Britain’s economy grew a faster-than-expected 0.9% in November.

Yet, as week draws to an end, there’s a question mark over how long the rally will last given rising political uncertainty. Prime Minister Boris Johnson’s leadership is in the balance as he faces calls to resign from some in his party over Wednesday’s admission that he attended staff drinks during the May 2020 lockdown. Fresh revelations about parties in Downing Street were being reported on Friday.

If the number of bank research notes this week reminding clients of the rules of a potential leadership challenge to Johnson are anything to go by, sterling bulls be warned.

At the Fed, Governor Lael Brainard became the latest and most senior U.S. central banker on Thursday to signal that rates will rise in March to combat inflation.

Asian shares took a beating from rate-hike unease; Japan’s Nikkei fell 1.3%. European shares are tipped to open lower although U.S. stock futures are moving up.

U.S. 10-year Treasury yields are slightly higher at 1.73% and the dollar index is near two-month lows — a sign that tighter policy is already well priced into the greenback now.

December U.S. retail sales numbers out later in the day is the next focus.

Lastly, China Evergrande shares edged up after the world’s most indebted developer secured a crucial approval from onshore bondholders to delay payments on one of its bonds as more developers race to avert defaults.

Key developments that should provide more direction to markets on Friday:

– China posted a record trade surplus in December and in 2021

– Germany 2021 GDP

– Riksbank Governor Stefan Ingves

– ECB: President Christine Lagarde

– Fed: Philadelphia President Patrick Harker; New York President John Williams

– US retail sales Dec/industrial production/inventories/University of Michigan survey

– US earnings: BlackRock, JPM, Wells Fargo, Citi Graphic: Sterling off to a solid start to 2022, https://fingfx.thomsonreuters.com/gfx/mkt/xmvjobemgpr/theme1301.PNG

(Reporting by Dhara Ranasinghe; Editing by Saikat Chatterjee)

Stocks slip, bonds steady after inflation palpitations

By Koh Gui Qing

NEW YORK (Reuters) – Nervous global stock markets tumbled on Thursday as the dollar wilted, after a drumbeat of hawkish remarks from Federal Reserve officials made clear that U.S. interest rates could rise as soon as March, putting an end to ultra-easy monetary conditions.

Fed Governor Lael Brainard became the latest and most senior U.S. central banker to signal that rates will rise in March to fight inflation, saying that the Fed “has projected several rate hikes over the course of the year”.

Indeed, data released on Thursday that pointed to rapidly tightening U.S. labor market conditions presaged the supply bottlenecks and persistent inflation pressures that could come, further unsettling investors already nervous about imminent rate hikes.

MSCI’s gauge of stocks across the globe had shed 0.92%, as stocks in Europe and the United States slipped into the red.

After spending much of the day nursing modest declines, U.S. stocks deepened losses toward the end of the session. The S&P 500 lost 1.4%, the Nasdaq Composite dropped 2.5%, and the Dow Jones Industrial Average lost 0.5%.

The pan-European STOXX 600 index ended flat as losses in defensive stocks were matched by gains in automakers and technology stocks on hopes of improving semiconductor supply. [.EU]

“We do not think the returns from many financial assets will be as good in 2022 as they were in 2021,” said John Higgins, chief markets economist at Capital Economics.

“For a start, we envisage a sell-off in government bonds in most places, reflecting the outlook for monetary policy. And, in general, we foresee an underwhelming performance from equities, including in the United States and China.”

Data released on Wednesday had showed U.S. consumer price inflation bounding 7% on an annual basis in December, the highest since 1982. While the report was widely expected, it left investors almost certain that U.S. rates will rise in March.

“As we see it, the inflation story is going to persist for a good while longer yet,” said Manulife Asset Management’s global macro strategist, Eric Theoret.

“We have had a tremendous acceleration in the Fed’s tightening,” he added. Theoret pointed out that when the U.S. central bank raised interest rates in 2015, it waited two years before shrinking its balance sheet, whereas this time it could begin by the end of the year.

“The challenge from here is how the global economy responds to this normalization.”

In bond markets, where borrowing costs have raced to keep up with rate hike expectations this year, 10-year U.S. Treasury yields edged down to 1.7006%, though analysts say they are almost certain to climb higher this year against a backdrop of rising rates. Germany’s 10-year yield bobbed near -0.086% having approached positive yield territory for the first time since May 2019.

European Central Bank Vice President Luis de Guindos became the latest to warn that the current spike in inflation was not going to be as transitory as originally expected. Upmarket Swiss bathroom goods giant Geberit had seen its shares slide too as it warned it was now impossible to predict how much raw materials prices would rise this year.

It is a busy period for bond issuance as countries and companies look to beat the rise in rates. Italy was due to sell up to 7 billion euros of three- and seven-year bonds later, and Ireland was eyeing a bumper sale. The week is also set to be a record one for emerging market corporate debt sales with nearly 30 taking place.

“It is a record in my time,” said Omotunde Lawal, head of emerging markets corporate debt at Barings. “Most people are swamped, but you can see why with as many as four Fed hikes now priced in.” (Graphic: global cbanks, https://fingfx.thomsonreuters.com/gfx/mkt/gdpzykbekvw/cbank%20sheet.JPG)

DOLLAR DOLDRUMS

In the currency markets, the dollar continued to slip toward a two-month low against a basket of currencies, with the dollar index down 0.139% at 94.873.

The euro was a big beneficiary of the move and was steady at $1.14530, up 0.1% on the day, while sterling and the yen also extended recent gains. [/FRX]

The pound is up more than 4% from December lows and traders have so far shrugged off a political crisis enveloping Prime Minister Boris Johnson, who apologized on Wednesday for attending a party at his official Downing Street residence in May 2020 during a coronavirus lockdown.

The central bank of New Zealand has begun hiking rates too, and the New Zealand dollar climbed 0.2% to $0.68625, the highest in almost two months.

“The (U.S.) dollar does not have to increase because the Fed is readying a tightening cycle,” said Commonwealth Bank of Australia strategist Joe Capurso.

“It is not a simple equation of Fed hikes equals dollar increases. The dollar is a counter-cyclical currency which decreases as the world economy recovers.”

In Asia, Chinese blue-chips dropped 1.6% after data showing mainland bank lending fell more than expected in December, causing property and consumption sectors to sink.

MSCI’s broadest index of Asia-Pacific shares outside Japan was flat after recording its biggest daily gain in a month on Wednesday. Japan’s Nikkei lost nearly 1% after surging nearly 2% a day earlier.

Oil prices ticked lower in commodity markets too, a day after hitting their highest in nearly two months. [O/R]

U.S. crude fell 1.36% to $81.52 per barrel and Brent was at $83.86, down 0.96% on the day.

A softer dollar did not bolster bullion prices, which were instead weighed down by the prospect of rising rates. Spot gold dropped 0.2% to $1,822.08 an ounce. U.S. gold futures fell 0.65% to $1,821.20 an ounce. [GOL/]

(Additional Reporting by Tommy Wilkes in London and Andrew Galbraith in Shanghai; Editing by Tomasz Janowski, Toby Chopra, Jonathan Oatis and Alexandra Hudson)

Japan to advance timeframe for balancing budget to FY2026

By Yoshifumi Takemoto and Tetsushi Kajimoto

TOKYO (Reuters) – Japan’s government will estimate that its primary budget would be balanced in fiscal 2026, one year earlier than its previous projection made about six months ago, two sources with knowledge of the matter told Reuters.

The revised projection would assume a scenario for robust economic recovery from the COVID-19 crisis and higher tax revenue, said the sources who requested anonymity because the new estimate is being finalised on Friday.

Separate from this projection, the government has set a goal of achieving a primary budget balance, excluding new bond issuance and debt servicing costs, by fiscal 2025 – a key gauge of diagnosing a country’s fiscal health. But the target has been pushed back several times due to a delay in fiscal reform.

Its most recent pledge of meeting that goal in fiscal 2025 included a caveat that it would be reviewed, when the revised fiscal projections are issued, to account for the fallout of the pandemic.

Whether the government would keep or ditch the goal in favour of more stimulus spending has been in focus as Prime Minister Fumio Kishida faced pressure from both sides within his ruling Liberal Democratic Party (LDP).

Japan is saddled with public debt that is more than double the size of its $5 trillion economy, the world’s third largest, making it the industrial world’s heaviest debt burden as a result of decades of massive pump-priming spending.

“It’s true tax revenue is overshooting thanks to a return on massive stimulus spending, but it would be dangerous to assume a rosy scenario that tax revenue would remain high, given uncertainty such as the Omicron outbreak,” said Hiroshi Shiraishi, senior economist at BNP Paribas Securities.

“Japan must carry the flag of fiscal reform to win market confidence in its debt management, but it would be difficult to achieve the primary balance target given the risk of a ‘fiscal cliff’ that could be caused by putting the plug on stimulus.”

There is uncertainty over whether Japan can speed up efforts to keep its fiscal house in order as Kishida faces pressure to maintain or ramp up spending ahead of an upper house election later this year.

A vast majority of Japanese firms want fiscal support to keep flowing at least through this year, a Reuters poll showed, even as major economies from Europe to the United States dial back crisis-mode economic stimulus programmes.

(Reporting by Kaori Kaneko, Leika Kihara and Daniel Leussink; Editing by Jacqueline Wong and Kim Coghill)

Stocks up, dollar down; U.S. inflation data surges as forecast

By Koh Gui Qing

NEW YORK (Reuters) – World stocks rose on Wednesday while U.S. Treasury yields and the dollar fell, after the latest U.S. inflation data showed price pressures surging but within expectations, apparently suggesting the Federal Reserve will not have to hike interest rates too aggressively.

Oil prices hit two-month highs, lifted by tight supply and easing concerns over the spread of the Omicron coronavirus variant.

Data showed the U.S. consumer price index leaping a whopping 7% in the 12 months through December, the biggest annual increase since June 1982. But it was within forecasts, which appeared to reassure investors.

“Today’s inflation report continued to reinforce the theme that gaudy price gains are not standing in the way of demand,” said Rick Rieder, BlackRock’s Chief Investment Officer of Global Fixed Income and Head of the BlackRock Global Allocation Investment Team.

“We don’t think the Fed will overreact to this condition,” Rieder said, adding that he expected the Fed to raise rates in March.

The benchmark S&P 500 index gained 0.28%, the Nasdaq Composite added 0.23%, and the Dow Jones Industrial Average inched up 0.11%. Gains were stronger for European and Asian shares.

The pan-European STOXX 600 index rose 0.65%. Britain’s FTSE 100 climbed 0.81% to one-year highs, lifted by mining and oil giants. [.L]

Japan’s Nikkei rose 1.9% overnight, while MSCI’s broadest index of Asia-Pacific shares outside Japan closed up 1.95%.

Buoyant global equity markets lifted MSCI’s gauge of stocks across the globe up by 0.8%.

Benchmark 10-year Treasury yields edged down to 1.7481% after falling as far as 1.7269% — more than seven basis points from an almost two-year high hit on Monday. [US/]

Fed fund futures are predicting nearly four rate hikes this year, a seismic change from a few months ago. Long-term rates have been relatively steady.

U.S. interest rate pricing is peaking at 1.5% by the third quarter of 2024, far lower than previous U.S. rate tightening cycles.

“It seems to be a fait accompli that the Fed will hike interest rates quickly, even if inflation comes in a little below expectations,” Commerzbank analysts said in a client note.

“In a worst-case scenario, lift-off will not be in March, but in May or June.”

The dollar hit a two-year low on the inflation report, with the dollar index falling 0.666% to 94.97 against a basket of six major currencies. A struggling dollar lifted the euro up 0.66% to a near two-month high of $1.14430, and boosted spot gold by 0.2% to $1,825.40 an ounce.

The prospect of rate hikes by the Bank of England also boosted sterling. The pound leapt 0.52% to $1.37045, its highest in more than two months against the dollar.

In oil markets, U.S. crude jumped 1.92% to $82.78 per barrel and Brent was at $84.76, up 1.24%. [O/R]

“Omicron is yesterday’s story now,” said Luca Paolini, chief strategist at Pictet Asset Management. “The market isn’t moving on Omicron but on earnings, Fed and economic data.” (Graphic: US CPI expected to hit 7%, https://fingfx.thomsonreuters.com/gfx/mkt/zjpqknabypx/USCPI1201.PNG)

Not all major central banks are tightening policy though. In China, a softer than expected reading on prices has drawn bets on policy easing.

Five-year Chinese government bond futures rose eight ticks to an 18-month high before trimming gains. Yuan gains were also capped. [CNY/]

(Additional reporting by Tom Westbrook in Sydney and Saikat Chatterjee, Dhara Ranasinghe and Sujata Rao in London; editing by Bernadette Baum and Alex Richardson)

Singapore Approaches Cryptos, NFTs and Metaverse With Caution

One Singaporean Minister says, the government is “closely studying” non-fungible tokens (NFTs) and Metaverse, while another official has cautioned the public over crypto investment scams.

In a written reply to a question from a parliament member, the Minister for Communications and Information S Iswaran said the government is tapping these “early-stage” technologies’ characteristics and risks.

“The Government will seek to balance between promoting economic vitality, preserving social stability and protecting public security in the digital domain.”

Minister Iswaran noted.

Though the interactive and decentralized elements of these technologies show potential growth, Singapore is approaching them with caution.

He continued that given the borderless nature of Metaverse, “international coordination of regulatory approaches” is important. Also, individuals should make sure to deal with technologies like NFTs with caution, even as they prove to open opportunities.

Another MP urged the public to deal with entities that are only regulated by the city-state’s central bank – the Monetary Authority of Singapore (MAS).

The Minister for Home Affairs K Shanmugam has warned the public to “ask, check and confirm” before making any crypto transactions or investments.

If the offer from an investment platform or online game appears too good to be true, it could be a scam,” he wrote. He responded to a question regarding a recent crypto gaming scam in Singapore, dubbed “Neko Inu.”

His warnings come at a time when many nations are vigilant over such scams and issuing cautionary notices to people. The US FTC, for instance, warned about a new scam involving crypto ATMs for transactions.

Crypto “Gaming Craze”

Last month, over 20 police reports were made against a Singaporean who was behind the “Neko Inu” play-to-earn crypto gaming craze. The game allegedly cost local players to lose more than $100,000 in cryptocurrency.

The game, which acts like a Ponzi scheme, allows players to earn Tether (USDT). It has cartoon pets as NFTs, which can be traded or sold to cash out the USDT.

According to a player, the game developer converted all player’s USDT earnings to a coin called Neko$, which is neither listed on any crypto exchanges, nor players can cash out their USDTs. The gaming platform, however, did not have support for other cryptos such as Bitcoin and Ethereum.

“We were shocked to find that our USDT was turned into Neko$. The conversion was one USDT to five Neko$,” the victim told to local news.

In order to address such scams, the government is stepping up “investigation efforts,” Minister Shanmugam added. Measures include educating the public on cryptocurrency-related scams and increasing public awareness, given the difficulties involved in investigating such anonymous and overseas crypto scams.

Singapore To Become a Crypto Hub

The island nation has been constantly involved in embracing nascent technologies like NFTs, Metaverse, Blockchain and others.

Singapore officials have also expressed their desire to make it a hub for crypto and fintech developments, however, by exercising caution.

In December’21, Singapore’s central bank proved to be one of the toughest regulators by rejecting over 100 licensing applications from cryptocurrency firms.

According to the Japanese financial newspaper Nikkei, out of the 176 businesses that applied for a license to offer “digital payment token services,” 103 have either withdrawn their applications or have been rejected by MAS.

Monetary Authority of Singapore

MAS has shown how serious it is on deciding over unregulated entities after the exit of the world’s largest exchange Binance and its local subsidiary Binance.sg from the country, despite the fact that its CEO Changpeng Zhao resides in Singapore.

The central bank has been insisting that cryptocurrencies and blockchain tech play a major role in shaping the future of finance. However, it is keen to harness the risks that these pose to online safety, consumer protection, privacy, and protection of intellectual property.

U.S. stocks bounce, investors digest news of 2022 rate hikes

By Koh Gui Qing

NEW YORK (Reuters) – U.S. stocks bounced and Treasury yields retreated on Tuesday in choppy trade as investors absorbed remarks from the Federal Reserve that interest rates are likely to rise this year, as expected.

In comments to U.S. lawmakers, Federal Reserve Chairman Jerome Powell said he expected the Fed would raise rates and end its asset purchases this year, but that the central bank had made no decision about the timing for tightening monetary policy.

“Inflation is running very far above target. The economy no longer needs or wants the very accommodative policies we have had in place,” Powell said in his testimony.

The Dow Jones Industrial Average closed up 0.51%, the S&P 500 added 0.92%, and the Nasdaq Composite climbed 1.41%.

The pan-European STOXX 600 index rose 0.84% and MSCI’s gauge of stocks across the globe gained 0.94%.

“Comments from Fed Chair Jerome Powell reassured investors that the Fed is prepared to tighten monetary policy to maintain price stability,” analysts at Australia’s ANZ Bank said in a note.

Inflation pressures prompted the Fed in December to flag plans to tighten policy faster than expected, possibly even raising rates in March, though that was before it became clear just how fast the Omicron coronavirus variant would spread.

Some investors were relieved that the Fed did not sound more hawkish than the market had anticipated, and this helped Treasury yields pull back a touch from two-year highs struck earlier.

Benchmark 10-year Treasury yields retreated to 1.741%, after hitting an almost two-year high above 1.8% overnight.

Two-year Treasury yields, which are highly sensitive to interest rates, dipped to 0.8966%, down from a high of 0.945% last seen in February 2020. [US/]

The recovery in risk appetites weighed on the dollar. The dollar index, which measures the currency against a basket of six major currencies, fell 0.34% to 95.614. A softer dollar lifted the euro up 0.3% to $1.13670. [USD/]

The weaker dollar benefited bullion, and spot gold added 1.2% to $1,822.75 an ounce. U.S. gold futures gained 1.34% to $1,822.50 an ounce. [GOL/]

U.S. December consumer inflation data will be released on Wednesday with headline CPI expected to hit a red-hot 7% year- on-year, boosting the case for rates to rise sooner rather than later.

GRAPHIC – Bloomberg Barclays index

https://fingfx.thomsonreuters.com/gfx/mkt/egvbkjjqepq/Pasted%20image%201641850886841.png

“We continue to believe liftoff in March is increasingly likely. How these debates are settled will likely have implications for post-liftoff rate hikes,” Nomura economists said in a report, referring to U.S. monetary policy.

“In particular, we believe comments regarding earlier runoff and less aggressive rate hikes support our view that the Fed will slow the pace of rate hikes to two per year in 2023.”

Oil rose to nearly $82 a barrel, supported by tight supply and hopes that rising coronavirus cases and the spread of the Omicron variant would not derail a global demand recovery.

U.S. crude recently rose 3.82% to $81.22 per barrel and Brent was at $83.72, up 3.52% on the day.

Stronger risk appetites supported bitcoin, which rose 2.1% to $42,722.21, after dropping below $40,000 the previous day for the first time since September.

(Reporting by Karin Strohecker, Sujata Rao and Tommy Wilkes in London and Anshuman Daga in Singapore; Editing by David Goodman, Gareth Jones, Mark Heinrich and Cynthia Osterman)

Japan’s Mizuho to acquire U.S. private equity agent Capstone, source says

TOKYO (Reuters) – Mizuho Financial Group plans to acquire U.S. private equity placement agent Capstone Partners, a person familiar with the matter said, as the Japanese lender looks to beef up its investment banking business.

Dallas, Texas-based Capstone helps private equity firms find limited partners to invest in their funds, helping raise capital for global private equity, credit, and infrastructure firms.

Following the acquisition, Capstone will come under Mizuho’s holding company in the United States, where it is expected to help build out the Japanese bank’s investment banking business, the person said, declining to be identified because the information has not been made public.

Mizuho does not plan to disclose the cost of the acquisition, the person added.

No one was immediately available for comment at Capstone’s Dallas office outside normal working hours.

Mizuho, which has struggled at home to overcome a long-running series of system errors, is set to appoint senior executive officer Masahiro Kihara as its next chief executive to tackle the issue.

The Capstone purchase is in line with efforts by Japan’s biggest banks to acquire more businesses overseas, particularly in faster-growing markets.

Of the three megabanks, Mizuho has, however, been slower to move than bigger rivals Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group.

The news was earlier reported by the Nikkei business daily.

(Reporting by Makiko Yamazaki; Writing by David Dolan; Editing by Edwina Gibbs)

Stocks fall further as U.S. yield climb unnerves investors

By Koh Gui Qing

NEW YORK (Reuters) – U.S. stocks fell on Monday despite staging a comeback late in the day, as bets that the U.S. Federal Reserve could raise interest rates as soon as March led investors to pare risky assets and lifted the 10-year Treasury yield to a two-year high.

Monday’s drop follows a bruising first week of the year when a strong signal from the Fed that it would tighten policy faster to tackle inflation and then data showing a strong U.S. labor market, unnerved investors who had pushed equities to record highs over the holiday period.

The Dow Jones Industrial Average shed 0.45%, and the S&P 500 lost 0.14%.

Technology stocks, which have soared in the past two years thanks in part to very low interest rates, led the falls early in the day but rallied later in the session to leave the Nasdaq Composite up just 0.05%.

The pan-European STOXX 600 index lost 1.48% and MSCI’s gauge of stocks across the globe shed 0.26%.

“The big story of the first week of the new year has been the steady march higher in U.S. treasury yields,” said Arthur Hogan, chief market strategist at National Holdings Corp.

Hogan recommended investors put more money in financial, industrial and energy stocks as they will likely benefit from strong economic growth expected in the months ahead.

Some of Wall Street’s biggest banks now expect the Federal Reserve to raise interest rates four times this year, and Goldman Sachs sees the Fed beginning the process of reducing its balance sheet size as soon as July.

A busy week sees U.S. inflation data due on Wednesday, which analysts say could show core inflation climbing to its highest in decades at 5.4%, a level that would all but confirm a U.S. rate rise is coming in March. The season of corporate earnings also kicks off this week with the big U.S. banks reporting from Friday onwards. [

Rate futures now imply a greater than 70% chance of a rise to 0.25% in March and at least two more hikes by year end.

FURTHER TO RUN?

Yields on 10-year U.S. Treasury notes hit a high of 1.8080% in early trading, levels last seen in January 2020, having shot up 25 basis points last week in their biggest move since late 2019. [U/S] The yield later retreated to 1.7603%.

GRAPHIC-Ten-year “real” U.S. yields

https://fingfx.thomsonreuters.com/gfx/mkt/egvbkjowdpq/Pasted%20image%201641767281191.png

“We think that the increase in long-dated Treasury yields has further to run,” said Nicholas Farr, an economist at Capital Economics.

“Markets may still be underestimating how far the federal funds rate will rise in the next few years, so our forecast is for the 10-year yield to rise by around another 50bp, to 2.25%, by the end of 2023.”

The dollar index edged up 0.17% to 95.957. The greenback has failed to find significant support from rising Treasury yields.

The euro stood at $1.13270, down 0.28% on the day.

Oil prices dipped but held onto to recent gains, having climbed 5% last week helped in part by supply disruptions from the unrest in Kazakhstan and outages in Libya. [O/R]

U.S. crude fell 0.85% to $78.23 per barrel and Brent closed at $80.87, down 1.1% on the day.

The shift from risk weighed on cryptocurrencies, and bitcoin last fell 0.21% to $41,788.27

(Reporting by By Koh Gui Qing; Additional reporting by Wayne Cole in Sydney, Editing by Alison Williams and Lisa Shumaker)

Whiplashed Wall Street struggles with mixed payrolls data

By Lawrence Delevingne

BOSTON (Reuters) -U.S. stocks and Treasury yields were mixed on Friday as investors digested payroll data and its potential impact on Federal Reserve policy in the final session of an already roller-coaster first trading week of the year.

U.S. employment rose by a less-than-expected 199,000 jobs last month as the impact of a resurgent pandemic bites, well below the 400,000 forecast by economists, but data for November was revised higher. The unemployment rate dropped to 3.9%, underscoring near full-employment.

“Seasonal adjustments, diverging surveys, and a volatile economic environment made this report a mess,” Barry Gilbert, a strategist at LPL Financial in Boston, wrote in a note. “It won’t divert the Fed from its current path, but any rate decision will be more focused on the data over the next several months.”

The Dow Jones Industrial Average fell 4.81 points, or 0.01%, to 36,231.66, the S&P 500 lost 19.03 points, or 0.41%, to 4,677.02 and the Nasdaq Composite dropped 144.96 points, or 0.96%, to 14,935.90.

Technology and growth shares eased as investors remained worried about the U.S. interest rate outlook, while consumer discretionary and technology sectors led the way lower on the S&P 500; financials extended recent gains.

It had already been a confusing week for stocks. After a start to 2022 marked by new highs, the mood changed on Wednesday after minutes from the Fed’s December meeting signaled the central bank may have to raise interest rates sooner than expected.

Wall Street steadied by Thursday evening, though analysts at ING bank said the minutes were still reverberating across markets, driving bond yields higher, hitting growth stocks and supporting the dollar.

The MSCI All Country stock index was flat at 743.52 points, down nearly 2% from a record high on Tuesday. In Europe, the STOXX index was off 0.4% at 486.3 points, also off about 1.6% from a record high on Tuesday.

SUPPLY CONCERNS

Longer-dated Treasury yields rose anew on Friday but shorter-term government bonds declined after the U.S. nonfarm payrolls report. Analysts said the data was solid enough to keep the Fed on track to raise interest rates at its March meeting – or sooner.

“Today’s report should be eye-opening for the Fed as tight labor conditions are only going to exacerbate the building inflation problem,” Charlie Ripley, senior investment strategist at Allianz Investment Management in Minneapolis, said. “It would be surprising if the Fed is not contemplating a faster removal of policy accommodation at the January meeting.”

The yield on benchmark 10-year Treasury notes was last at 1.7673%, up from 1.7461% before the payrolls data.

Euro zone inflation rose unexpectedly last month to 5% from 4.9% in November, a record high for the currency bloc, though unlike the Fed, the European Central Bank says prices will ease enough this year to avoid the need for rate hikes.

The dollar was on track for its biggest daily percentage drop in six weeks on the heels of the jobs report seen as strong enough to keep the Fed’s tightening path intact.

The dollar index fell 0.53% at 95.750, and was poised for its biggest drop since Nov. 26, when concerns about the Omicron COVID-19 variant began to rattle markets. Even with Friday’s weakness, the dollar was still on track for a slight weekly gain, its first in three weeks.

Oil prices settled lower as the market weighed supply concerns from the unrest in Kazakhstan and outages in Libya against the mixed U.S. jobs report and its potential impact on Federal Reserve policy.

U.S. crude fell 0.52% to $79.05 per barrel and Brent was at $81.90, down 0.11% on the day, partially erasing gains earlier in the week. [O/R]

Spot gold stood at $1,795 an ounce, up slightly on the day after touching a two-week low of $1,788.25 on Thursday, as rising U.S. Treasury yields hurt demand for the non-interest bearing metal.

Bitcoin slumped as much as 5% on Friday to its lowest since late September, amid a broader sell-off for cryptocurrencies driven by concerns about tighter U.S. monetary policy.

Bitcoin was last down about 3% at $41,896 after touching $40,938, its lowest since Sept. 29, as the payrolls data fueled some bargain buying.

(Reporting by Lawrence Delevingne; Editing by Alison Williams and Chizu Nomiyama)

Wall Street’s Fed headache lingers as stocks decline, Treasuries gain

By Lawrence Delevingne

BOSTON (Reuters) -Wall Street’s headache over the potential of a relatively fast pullback from stimulus by the U.S. Federal Reserve lingered Thursday as stocks sold off again and government bond yields mostly marched higher.

The Dow Jones Industrial Average fell 170.64 points, or 0.47%, to 36,236.47, the S&P 500 lost 4.53 points, or 0.10%, to 4,696.05 and the Nasdaq Composite dropped 19.31 points, or 0.13%, to 15,080.87.

Stocks fell sharply in Asia and Europe too after Wall Street’s technology-heavy Nasdaq index plunged more than 3% on Wednesday.

Minutes released on Wednesday from the Fed’s December meeting https://www.reuters.com/markets/us/fed-may-need-hike-rates-faster-reduce-balance-sheet-quickly-minutes-show-2022-01-05 had shown that a tight jobs market and unrelenting inflation could require the U.S. central bank to raise rates sooner than expected and begin reducing its overall asset holdings.

The Fed news “took stock markets unawares this week, creating a level of discomfort with more speculative stocks,” analyst Christopher Whalen of Whalen Global Advisors LLC wrote in a note Thursday.

As stocks struggled, U.S. Treasury yields on most maturities rose again on Thursday as investors fretted over the Fed’s more hawkish stance, surging inflation and a deluge of supply.

Benchmark 10-year yields rose to 1.7530%, the highest since March 2021, and were last up slightly on the day to 1.7246%. U.S. 2-year yields, which track near-term rate expectations, rose to the highest since early March 2020, the start of the global spread of COVID-19, at 0.8736%.

Adding to the worries on Thursday was data from the U.S. Labor Department https://www.reuters.com/markets/us/us-weekly-jobless-claims-increase-moderately-2022-01-06 showing an increase in the number of Americans filing new claims for unemployment benefits last week, and the Institute for Supply Management (ISM) noting that non-manufacturing activity fell in December.

“Despite the weaker than expected ISM today, the market continued to increase how much it is pricing for the Fed to hike in 2022 and 2023 – now more than 5.5 hikes is priced before the end of 2023,” Nancy Davis, founder of Quadratic Capital Management in Greenwich, Connecticut, said in an email.

Investors will now look ahead to a key U.S. jobs report on Friday, which will follow new euro zone inflation data that the European Central Bank will watch closely.

The dollar continued its climb towards a 14-month high, after riding the tailwind of the Fed minutes. The dollar index last gained 0.105%, with the euro down 0.19% at $1.1291.

Cryptocurrencies were among the hardest hit in the overnight market selloff, with bitcoin falling more than 5%. It last traded at around $43,164, down 0.63% on the day.

Gold prices slid to a two-week low on Thursday, pressured by rallying U.S. Treasury yields.

Spot gold dropped 1.2% to $1,788.22 an ounce. U.S. gold futures fell 2.1% to $1,787.10 an ounce.

In commodity markets, oil prices rose sharply on Thursday, extending their new year’s rally, on escalating unrest in OPEC+ oil producer Kazakhstan and supply outages in Libya.

U.S. crude rose 2.1% to $79.50 per barrel and Brent was at $81.99, up 1.5% on the day.

(Reporting by Lawrence Delevingne; Editing by John Stonestreet, Lisa Shumaker and Marguerita Choy)

Stocks slump, Treasury yields rise on fear of a faster Fed pullback

By Lawrence Delevingne

BOSTON (Reuters) -U.S. stocks slid and Treasury yields jumped on Wednesday after meeting minutes released by the Federal Reserve indicated that it might not only raise interest rates sooner than expected but could also reduce its overall asset holdings to tame high inflation.

The Dow Jones Industrial Average fell 392.54 points, or 1.07%, to 36,407.11; the S&P 500 lost 92.96 points, or 1.94%, to 4,700.58; and the Nasdaq Composite dropped 522.54 points, or 3.34%, to 15,100.17 — led downward by shares of technology titans Apple Inc, Google parent Alphabet Inc, Amazon.com, Meta Platforms and Microsoft Corp.

The Fed minutes from December, released on Wednesday, offered more details on the Fed’s shift last month toward a more hawkish monetary policy. Policymakers agreed to hasten the end of their pandemic-era program of bond purchases, and issued forecasts anticipating three quarter-percentage-point rate increases during 2022.

“Today’s FOMC minutes make clear that discussions about more than three rate hikes and outright quantitative tightening this year are on the table,” Dave Donabedian, chief investment officer for CIBC Private Wealth, U.S., said in an email.

U.S. Treasury yields soared on Wednesday after the Fed meeting minutes came in more hawkish than expected.

U.S. 2-year and 5-year yields, which mirror rate hike expectations, climbed to their highest since March and February 2020, respectively. The benchmark U.S. 10-year yield rose to its strongest level since April 2021, at around 1.7%, while 30-year yields climbed to more than two-month peaks.

One positive economic indicator on Wednesday was the ADP National Employment report, which showed private payrolls increased by 807,000 jobs last month, more than double what economists polled by Reuters had forecast.

Citing an optimistic corporate earnings forecast, market analysts at Citi raised their 2022 S&P 500 index price target to 5,100, a 7% gain from year-end 2021.

“We remain moderately constructive on the broader market outlook, while acknowledging valuation headwinds as the Fed moves down a more hawkish path,” the Citi analysts wrote before the Fed minutes were released.

Citi’s target was toward the higher end of other banks, with Morgan Stanley at 4,400 and Goldman Sachs also at 5,100.

Oil prices rose modestly on Wednesday, extending gains even after OPEC+ producers stuck to an agreed output target rise for February and U.S. fuel inventories surged due to sliding demand as COVID-19 cases spiked.

U.S. crude rose 0.09% to $77.06 per barrel and Brent was at $80.08, up 0.1% on the day.

The dollar fell on Wednesday but pared losses to a 0.091% dip after the Fed minutes were released.

In cryptocurrencies, bitcoin fell about 3.5% to $44,201 — still significantly below its most recent all-time high of $69,000 reached in November.

Goldman Sachs said in a research note on Tuesday that bitcoin would likely take market share away from gold as a “store of value” as digital assets become more widely adopted and that its price could hit $100,000 in five years.

Spot gold dropped 0.3% to $1,809.58 an ounce. U.S. gold futures gained 0.06% to $1,824.60 an ounce.

(Reporting by Lawrence Delevingne, Elizabeth Howcroft and Medha Singh; editing by Jonathan Oatis, Marguerita Choy and Aurora Ellis)