Stocks, oil surge as Q4 kicks off

By Dhara Ranasinghe and Pete Schroeder

LONDON/WASHINGTON (Reuters) -The final quarter of the year got a boost Monday as U.S. stocks surged in early trading, shaking off a gloomier start in global markets while oil prices jumped over 5%.

Oil prices rocketed upwards after the Organization of the Petroleum Exporting Countries and its allies, a group known as OPEC+, said it would consider reducing output, while sterling rallied after the British government said it would reverse a controversial tax cut that had rocked UK markets.

In early trading, the Dow Jones Industrial Average rose 1.27%, the S&P 500 gained 1.14% and the Nasdaq Composite added 0.82%. The early jump came after U.S. stocks posted their worst September in roughly two decades, as sentiment remained frail given worries that aggressive interest rate hikes from the U.S. Federal Reserve and others raise global recession risks.

The MSCI world equity index, which tracks shares in 45 countries, was last up 0.76%.

European equity markets were a sea of red, with the STOXX 600 index down 0.4%, pulling back from earlier losses of 1.4%. Shares in beleaguered Swiss bank Credit Suisse fell around 10% in early trading, reflecting market concern about the group as it finalises a restructuring programme due to be announced on Oct. 27.

News of the British government’s tax U-turn didn’t appear to lift broader sentiment but probably helps to calm market worries about fiscal excess, said Kallum Pickering, senior economist at Berenberg Bank in London.

“Markets seem to have lowered their expectations for the BoE bank rate while gilt yields have fallen further from their recent highs. Less tight financial conditions may ease the near-term shock on economic performance,” said Pickering.

Oil prices rallied on reports what OPEC+ will this week consider cutting output by more than 1 million barrels a day, for its biggest reduction since the pandemic, in a bid to support the market. Brent crude rose more than 5% to almost $90 a barrel and U.S. West Texas Intermediate crude was up over 6%, at over $84 a barrel.

UK RESPITE

Britain’s battered pound was up around 0.4% at $1.12085 and its government bond yields fell, pushing their price up, following the UK policy reversal.

London’s FTSE-100 stock index was down 0.5%, falling in line with other markets.

Trade across Asia was generally subdued. South Korea had a national holiday and China entered its “Golden Week” break on Monday. Hong Kong is closed for a public holiday on Tuesday.

Gold was 0.6% firmer at $1,669.20 an ounce.

The U.S. dollar continued its run upwards. The dollar index, which tracks the greenback versus a basket of six currencies, rose 0.19%.

(Reporting by Dhara Ranasinghe, additional reporting by Sam Byford in Tokyo; Editing by Hugh Lawson, David Evans and Jonathan Oatis)

Inflation punches Wall Street again, ending knock-down quarter

By Lawrence Delevingne

(Reuters) – Wall Street and global stocks slumped further on Friday, with government bond yields and the dollar holding near recent peaks, as higher-than-expected inflation capped a nasty third quarter for world markets.

Fresh personal consumption expenditures (PCE) price index data, tracked by the U.S. Federal Reserve as it considers more interest rate hikes, showed a rise of 0.3% last month after dipping 0.1% in July. Euro zone inflation also hit a record high of 10% in September, surpassing forecasts, flash inflation data showed.

Fed Vice Chair Lael Brainard said the U.S. central bank would need to maintain higher interest rates for some time as part of its effort to tame inflation and must guard against lowering rates prematurely.

Quincy Krosby, chief global strategist for LPL Financial in Charlottesville, Virginia, said the new price index data “did little to assuage fears that the campaign to curtail inflation is working as quickly as hoped by the market.”

All three major Wall Street indexes finished down around 1.5% after a day of choppy trading.

It was the third consecutive weekly decline for the S&P 500 and the Dow Jones Industrial Average, and all three indexes, including the Nasdaq Composite, were down for the second month in a row.

In the first nine months of 2022, Wall Street suffered three straight quarterly declines, the longest losing streak for the S&P and the Nasdaq since the Great Recession and the Dow’s longest in seven years.

Friday’s losses cap a week of global market turmoil that saw stocks and currency markets, already rocked by recession fears, sapped further by a U.S. dollar at 20-year highs.

Asian shares outside of Japan fell 0.4% on Friday, down around 13% in September, their largest monthly loss since the start of the pandemic in 2020.

European shares saw some recovery, with Europe’s STOXX 600 up 1.3%, but they notched a third consecutive quarter of losses on worry about the impact on global growth of central banks’ hiking interest rates to counter inflation.

The MSCI world equity index, which tracks shares in 47 countries, fell 0.85% on Friday, down about 9.8% for the month and 7.3% for the quarter.

“We do not expect a sustainable rally in stocks until the Fed sees clear and multiple months of evidence that inflation is trending down,” Andy Tepper, a managing director at BNY Mellon Wealth Management in Wynnewood, Pennsylvania, said in an email.

European government bond yields fell, while Germany’s 10-year yield was virtually flat at 2.118%, compared with Wednesday’s peak of 2.352%, an 11-year high.

U.S. Treasury yields gained modestly. The yield on 10-year Treasury notes was up 6.9 basis points to 3.817%; the 30-year was up 7.3 basis points to 3.766%, and the two-year, which typically moves in step with interest rate expectations, was up 7.4 basis points at 4.244%.

Goldman Sachs strategists forecasted that the Fed would deliver rate hikes of 75 basis points in November, 50 basis points in December and 25 basis points in February, for a peak rate of 4.5-4.75%, according to a client note released Friday.

The Bank of England will not raise interest rates before its next scheduled policy announcement on Nov. 3 despite a plummet in sterling, but would make big moves in November and December, a Reuters poll forecast.

European Central Bank policymakers have also voiced more support for a large rate hike.

The British pound, which was driven to all-time lows earlier this week on a combination of dollar strength and the government’s plans for tax cuts funded by borrowing, rose about 0.35%, but still suffered its worst quarter versus the dollar since 2008.

The dollar index was flat on the day after hitting a 20-year high on Wednesday. The dollar index has risen about 17% this year.

COMMODITIES

Oil prices dipped in choppy trading but notched their first weekly gain in five on Friday, underpinned by the possibility that OPEC+ will agree to cut crude output when it meets on Oct. 5. Brent crude futures fell 0.6% to settle at $87.96 a barrel and U.S. crude tumbled 2.1% to $79.49.

Gold was little changed, wrapping up its worst quarter since March last year, pushed down by fears of ever-higher interest rates.

GRAPHIC – Global markets – Q3 2022

https://graphics.reuters.com/GLOBAL-MARKETS/zdpxolrzdvx/chart.png

(Reporting by Lawrence Delevingne in Boston and Elizabeth Howcroft in London; Editing by Mark Potter, Angus MacSwan, William Maclean, Alex Richardson, Leslie Adler and Marguerita Choy)

‘Pick-your-poison’: Wall Street sell-off resumes

By Lawrence Delevingne

(Reuters) – Investors added another cycle of selling on Thursday as the dollar barely eased its stranglehold on currency markets, recession fears sapped stocks and bonds suffered more interest rate pain.

After a partial rebound on Wednesday, U.S. stocks fell sharply. The Dow Jones Industrial Average fell 1.5%, the S&P 500 lost 2.1% to a new low for 2022, and the Nasdaq Composite dropped 2.8%, weighed down by big technology names such as Apple Inc and Amazon.com Inc. [.N]

European stocks also suffered. The STOXX 600 share index was down 1.67%, even as the euro and the pound, hammered over the last week by UK debt concerns, recovered some ground, gaining 0.6% and 1.7%, respectively. [.EU][/FRX]

China currency intervention talk was gathering momentum too, while Europe’s government bond markets were braced for the highest German inflation reading since the 1950s.

Gilt selling also resumed a day after the Bank of England had dramatically intervened to try and quell the storm surrounding the British government’s new spending plans. [GVD/EUR]

“It’s a pick-your-poison collection of bad news for investors,” Sean Sun, portfolio manager at Thornburg Investment Management in Santa Fe, New Mexico, said in an email.

“From strong jobs data pushing the Fed to be more hawkish to the turmoil in the entire UK stock and bond markets to China intervening to prop up the yuan, with increasing geopolitical issues investors are left few places to hang their hats.”

UK SEEKS STABILITY

The UK 10-year gilt yield, which drives Britain’s borrowing costs, rose about 8 basis points (bps) to 4.214% after falling almost 50 bps the day before due to the BoE’s sudden intervention, although the 30-year yield being targeted by the central bank was little changed at 3.96%.

Agnes Belaisch, Barings Investment Institute’s chief European strategist, said “the market wouldn’t mind some stability,” as “it has become a little bit unpredictable.”

She said investors were now seeing “incoherence” in Britain with government spending as the Bank of England tries to rein in inflation, while everywhere else the focus is on how high central banks are prepared to go with interest rates.

British Prime Minister Liz Truss defended her new economic program that has sent sterling to a record low this week and left the UK’s borrowing costs close to Greece’s – saying it was designed to tackle the difficult situation Britain was now in.

“We are facing difficult economic times,” Truss, who only took over as prime minister this month, said on local BBC radio. “I don’t deny this. This is a global problem. But what is absolutely right is the UK government has stepped in and acted.”

The CBOE VIX Index, a measure of Wall Street’s volatility expectations, jumped 6.5%, although still off levels earlier in the week.

Graphics: UK 30-year bond yields see record moves after BoE intervention – https://graphics.reuters.com/BRITAIN-ECONOMY/znvneybqopl/chart.png

GETTING INFLATION IN CHECK

Zooming back out, it was still about the dollar which has crushed currencies virtually everywhere this year, as well as the impact of Russia’s invasion of Ukraine.

Speaking with reporters in London on Wednesday, veteran Federal Reserve policymaker Charles Evans gave no indication that any of the recent foreign exchange and bond market drama would blow the U.S. central bank off its rate hike course.

“We just really need to get inflation in check,” Evans said, backing lifting the Fed’s rates – now at 3% to 3.25% – to a range of 4.5% to 4.75% by the end of the year or March.

Federal Reserve Bank of Cleveland President Loretta Mester echoed that on Thursday, saying she did not see distress in U.S. financial markets that would alter the Fed’s campaign.

Such comments helped push the yield on U.S. government bonds. The yield on 10-year Treasury notes was up 6.5 basis points to 3.772%; 30-year Treasury bonds rose 2.9 basis points to 3.710%.

Thursday’s currency moves saw the U.S. dollar index, which measures the currency against its peers, hang around its recent 20-year high again, down about 0.4%, having had its worst session in 2-1/2 years on Wednesday. [/FRX]

“Despite substantial appreciation year-to-date, we see little pressure for policymakers to respond to dollar strength for now,” Morgan Stanley strategists wrote in a note released Thursday.

“Trade-weighted dollar strength is not excessive, in sync with broadly tighter financial conditions and in line with Fed objectives, though inflation benefits are small.”

Overnight, China’s yuan had fallen again too, although it stayed just off recent post-financial crisis lows, as China’s central bank said stabilising the foreign exchange market was its top priority and on reports of potential FX intervention too. [CNY/]

MSCI’s broadest index of Asia-Pacific shares outside Japan ended the day virtually flat, although Japan’s Nikkei did manage a near 1% rise. [.T]

Weekly jobless claims data bucked expectations with an unexpected fall showing how tight the U.S. labour market remains. U.S. GDP fell at an unrevised 0.6% annualised rate last quarter, the government said in its third estimate of GDP. The economy contracted at a 1.6% rate in the first quarter.

Oil prices were ticked down, still weighed on by the stronger dollar and weak economic outlook, even as OPEC+ have begun discussions about an oil output cut.

U.S. crude fell 1.1% to settle at $81.23 per barrel and Brent ended at $88.49, down 0.9% on the day.

Goldman Sachs cut its 2023 oil price forecast earlier this week, citing expectations of weaker demand and a stronger U.S. dollar, but said global supply issues reinforced its long-term view that prices could rise again.

The strong dollar also helped keep gold prices down, with looming rate hikes also a headwind. Spot gold added 0.1% to $1,660.24 an ounce. U.S. gold futures fell 0.02% to $1,660.00

Graphics: Major currencies vs. the dollar – https://graphics.reuters.com/BRITAIN-MARKETS/jnvweqwekvw/chart.png

(Reporting by Lawrence Delevingne in Boston and Marc Jones in London; Editing by Andrew Heavens, Jonathan Oatis and Marguerita Choy)

Japan considers steps to help with utility bill burden

By Leika Kihara and Takahiko Wada

TOKYO (Reuters) -Japan will consider more steps to cushion the blow of rising electricity bills, a government spokesperson said on Thursday, underscoring the pressure it faces in addressing the burden on households of higher prices for imports from a weak yen.

Electricity bills have risen about 20% in the past year for households and by about 30% for businesses, Chief Cabinet Secretary Hirokazu Matsuno told a briefing, adding that such increases were becoming a “heavy burden” for consumers.

“We’ll scrutinise developments of electricity bills and consider whether further steps could be necessary,” he said.

The remarks came after the Nikkei newspaper reported on Thursday the government may offer cash payouts to households and firms, as well as subsidies for utilities to ease the pain from rising electricity bills.

The Nikkei said Prime Minister Fumio Kishida may announce his resolve for “unprecedented, bold measures” to directly reduce the burden in a speech to parliament on Monday.

Kishida is also likely to announce that Japan will set an inbound tourism spending target of more than 5 trillion yen ($35 billion) a year, the Nikkei reported.

The government is expected to announce a package of measures to cushion rising inflation next month, which is likely to be funded by another supplementary budget.

Kishida’s administration has seen its approval rating slide, partly because of public discontent over the rising cost of living, as recent sharp falls in the yen push up prices of imported fuel and food.

Underscoring policymakers’ worries over damage to growth from the sliding yen, authorities intervened in the foreign exchange market last week to prop up the yen for the first time since 1998.

Any government steps to curb electricity bills would likely affect the Bank of Japan quarterly inflation projection due next month, which is closely watched for clues on how soon the central bank may whittle down its massive stimulus.

“If the government does take steps to curb utility bills, that will put some downward pressure on consumer inflation,” said Toru Suehiro, chief economist at Daiwa Securities.

“But core consumer inflation is still likely to exceed 2.5% and approach 3% through the March end of this fiscal year, and may not slow much thereafter,” he said.

While Japan’s inflation is much lower than that in other advanced economies, core consumer inflation quickened to 2.8% in August, exceeding the central bank’s 2% target for a fifth month, as the weak yen pushed up the price of imports.

BOJ Governor Haruhiko Kuroda has ruled out raising Japan’s ultra-low interest rates any time soon, arguing that core consumer inflation would ease back below 2% next fiscal year when cost-push factors dissipate.

($1 = 144.3100 yen)

(Reporting by Leika Kihara and Takahiko Wada; Additional reporting by Elaine Lies and Kantaro Komiya; Editing by Jamie Freed and Richard Pullin)

Wall Street bounces off lows as UK steps in to calm bonds

By Lawrence Delevingne

(Reuters) -Global equities staged a partial comeback on Wednesday — with Wall Street stocks surging around 2% — as the Bank of England said it would step in to the bond market in an attempt to dampen investors’ fears of contagion across the financial system.

The BoE said it would temporarily buy long-dated bonds – linked most closely to workers’ pensions and home loans – in light of a surge in UK bond yields and related borrowing costs.

Sterling, which hit record lows against the dollar on Monday, was last up about 1.4% in volatile trading, while gilt prices roared higher. European government bonds also got a lift from the surge in gilts.

Investors have been rattled in the last week in particular by soaring bond yields, as central bankers have raced to raise interest rates to contain red-hot inflation before it tips the global economy into recession.

The dollar, the ultimate safe-haven in times of market turmoil, was down about 1.2%, easing from two-decade highs spurred on by yields on the benchmark 10-year Treasury approaching 4.0% for the first time since 2008. Yields on other U.S. government bonds also declined on Wednesday.

The MSCI All-World index was last up about 1.3%, having pulled off a session trough that marked its lowest level since November 2020. It is still heading for a more than 7% drop in September – its biggest monthly decline since March 2020’s fall of 13%.

In Europe, the STOXX 600 and FTSE 100 both pared losses to finish up about 0.3%.

Wall Street’s rebound gained momentum over the day, with the S&P 500 Index up about 2% after it fell to a two year low on Tuesday. The Dow Jones Industrial Average also gained 1.9% and the Nasdaq Composite was up about 2%.

Weighing on growth stocks was Apple Inc, which was down about 1.3% on a report the tech company was dropping its plans to boost production of the latest model of its flagship iPhone.

Bryce Doty, senior portfolio manager for Sit Fixed Income Advisors LLC in Minneapolis, said the UK intervention had helped calm U.S. markets, but that the “temporary stability is something of an illusion.”

Doty cited the widening gap between 10-year treasury yields and 30-year mortgage rates, which he attributed to the Fed reducing its mortgage securities and the sharp inversion of the yield curve resulting from the Fed’s “aggressive determination to damage economic activity.”

UK MARKETS STORM

At the heart of earlier sell-off across global markets was the British government’s so-called mini-budget last week which announced a raft of tax cuts and little in the way of detail as to how those would be funded.

The International Monetary Fund and ratings agency Moody’s criticised Britain’s new economic strategy announced on Friday, which has sparked a collapse in the value of British assets.

Strategists at Amundi, Europe’s largest asset manager, said earlier on Wednesday they believed UK assets were in for more losses, as the UK’s fiscal credibility remained on the line.

“We believe risks remain tilted to the downside – given how much is already priced-in, less aggressive signalling from the BoE will accelerate the move to below parity (for sterling/dollar), in our view,” strategists led by Laurent Crosnier, global head of FX, wrote, recommending investors avoid pounds.

Oil prices jumped higher on Wednesday for a second day, rebounding from recent losses as the U.S. dollar eased off recent gains and U.S. fuel inventory figures showed larger-than-expected drawdowns and a rebound in consumer demand. U.S. crude rose 4.5% to $82.06 per barrel and Brent was at $89.22, up 3.4% on the day.

Spot gold added 2.0% to $1,660.79 an ounce. U.S. gold futures gained 2.04% to $1,659.70 an ounce.

Scott Wren, senior global market strategist at Wells Fargo Investment Institute, said markets may already be pricing in future pain.

“Should the economy slow and eventually fall into recession and inflation stays higher for longer, we believe financial asset prices have adjusted to reflect this likely reality,” Wren wrote in a client note released on Wednesday. “Eventually, brighter skies will be on the horizon.”

(Reporting by Lawrence Delevingne in Boston and Amanada Cooper in London; Additional reporting by Wayne Cole in Sydney; Editing by Matthew Lewis and Alistair Bell)

Asia-Pacific Shares Fall on Global Recession Fears

The major Asia-Pacific share markets fell on Wednesday as swelling borrowing bolstered fears of a global recession, frightening investors into the arms of the safe-haven dollar and driving the Chinese Yuan to record lows. Investors were taking their cues from another rise in U.S. Treasury yields with the benchmark 10-year breaching 4% for the first time since 2010.

Down Across the Board

In Japan, the benchmark Nikkei 225 Index settled at 26173.98, down 397.89 or -1.5%. Hong Kong’s Hang Seng Index is at 17277.98, down 582.67 or -3.26% and South Korea’s KOSPI Index is at 2169.29, down 54.27 or -2.45%.

China’s benchmark Shanghai Index finished at 3045.07, down 48.79 or -1.58% and Australia’s S&P/ASX 200 Index settled at 6462.00, down 34.2 or -0.53%.

Odds of Global Recession Increasing

“It is now clear that central banks in advanced economies will make the current tightening cycle the most aggressive in three decades,” said Jennifer McKeown, head of global economics at Capital Economics. “While this may be necessary to tame inflation, it will come at a significant economic cost.”

“In short, we think the next year will look like a global recession, feel like a global recession, and maybe even quack like one, so that’s what we’re now calling it.”

China Stocks Track Global Peers Lower, Yuan Tumbles to Record Lows

China stocks fell on Wednesday and Hong Kong Shares neared 11-year lows, as fears grew that rapid interest rate hikes would tip the global economy into recession.

Meanwhile, China’s onshore Yuan touched the weakest level against a rising dollar since the global financial crisis of 2008, while its offshore counterpart hit the lowest on record, pressured by expectations of more Federal Reserve rate hikes.

Currency traders said the local currency was reacting to broad greenback strength in global markets as the dollar hit a fresh two-decade peak against a basket of currencies. The dollar has been buoyed by safe-haven demand and a hawkish Fed in recent days.

The declines come even as China’s central bank on Monday announced fresh steps to slow the pace of the Yuan’s recent fall by making it more expensive to bet against the currency.

Short-Term Outlook

It’s very difficult to buy Asia-Pacific stocks right now with global investors on edge as surging borrowing costs stoke fears of widespread recession, with most of the world’s major central banks putting their focus squarely on tightening policies to contain super-heated inflation.

For a look at all of today’s economic events, check out our economic calendar.

Wall Street keeps selling as world assets fail to recover

By Lawrence Delevingne

(Reuters) -U.S. stocks gave up early gains to fall deeper into a bear market on Tuesday, while sterling showed scant movement a day after hitting a record low, as investors remained nervous about a potential global recession.

The pound was little changed at $1.071 after sterling collapsed to $1.0327 on Monday on concern over the funding of recently announced UK tax cuts, which follow huge energy subsidies.

The Bank of England said late on Monday it would not hesitate to change interest rates and was monitoring markets “very closely.” BoE Chief Economist Huw Pill added on Tuesday that central bank was likely to deliver a “significant policy response” to last week’s announcement but it should wait until its next meeting in November before making its move.

The yield on five-year gilts rose about 0.1% to about 4.6%, holding its spike on Monday from just over 4%.

U.S. stocks mostly faltered after a morning bounce, with the S&P 500 hitting a two-year intraday low. The Dow Jones Industrial Average fell 0.42%, the S&P 500 lost 0.20%, and the Nasdaq Composite added just 0.25%

The S&P benchmark index fell more than 20% from its early January high to a low on June 16, confirming a bear market. The index then rallied into mid-August before petering out.

“We don’t see a quick retrenchment or a return to 2% inflation, keeping the Fed in hiking mode. This implies more volatility and a need for caution and balance in equity allocations,” Tony DeSpirito, BlackRock’s chief investment officer for U.S. Fundamental Equities, wrote in a note released on Tuesday.

Markets see a 65% probability of a further 75 basis points move at the next U.S. Federal Reserve meeting in November.

The Fed needs to raise interest rates by at least another percentage point this year, Chicago Fed President Charles Evans said on Tuesday, a more aggressive stance than he has previously embraced that underscores the central bank’s resolve to quash excessive inflation.

“Central bankers have been walking a tightrope trying to curb inflation while attempting to limit recessionary risks,” Bank of America strategists wrote in a note released Tuesday.

“However, their recent tone and ‘jumbo’ rate hikes have reinforced that the foremost priority is controlling inflation, even at the potential cost of a recession.”

GLOBAL CONTAGION

Spillover from Britain kept other assets on edge.

The MSCI world equity index reversed early gains on Tuesday, falling about 0.3% to a near two-year low early Tuesday afternoon. European stocks slipped 0.13%.

MSCI’s broadest index of Asia shares outside Japan hit a fresh two-year low and was flat on the day. Japan’s Nikkei gained about 0.5%.

Bond selling in Japan pushed yields up to the Bank of Japan’s ceiling and prompted more unscheduled buying from the central bank, while euro zone government bond yields rose to new multi-year highs on Tuesday.

Benchmark U.S. 10-year Treasury yields also rose to their highest in more than 12 years as investors braced for higher interest rates.

The dollar held gains on Tuesday in its relentless rally while sterling, the euro and Japanese yen regained little ground from multi-year lows after unusually volatile trading in recent sessions.

There was some good news. New orders for U.S.-manufactured capital goods increased more than expected in August, suggesting that businesses remained keen to invest in equipment, and a survey showed consumer confidence rising for a second straight month in September.

Oil rallied after plunging to nine-month lows in the previous session, helped by supply curbs in the U.S. Gulf of Mexico ahead of Hurricane Ian and by a slightly softer dollar.

Brent crude settled 2.6% higher at $86.27 a barrel, and U.S. crude ended at $78.50, up 2.3%.

Dutch and British gas prices spiked on news that the Nord Stream gas pipeline from Russia to Europe had suffered damage, raising concerns over the security of the bloc’s energy infrastructure and triggering a sabotage probe.

Gold, which hit a 2-1/2-year low on Monday, rose around 0.3% to $1,626 an ounce.

Bitcoin briefly broke above $20,000 for the first time in about a week, as cryptocurrencies bounced.

(Reporting by Lawrence Delevingne in Boston and Carolyn Cohn in London; Additional reporting by Xie Yu in Hong Kong; editing by Jonathan Oatis, Richard Chang and Marguerita Choy)

Sollers in talks to buy Mazda out of Russian joint venture

MOSCOW (Reuters) – Russian automaker Sollers is in talks with Mazda Motor Corp about buying the Japanese company’s stake in their Russian joint venture, Sollers said on Monday, as Mazda prepares to wind down operations in Russia.

Mazda, which sold 30,000 cars in Russia last year, said in March that exports of parts to the venture’s Vladivostok plant were going to end and production would cease when stocks ran out. The Nikkei newspaper on Saturday first reported the talks with Sollers.

Sollers said it was in talks with Mazda over stopping car production in Vladivostok and on buying out Mazda’s stake in the venture.

“At the same time, Sollers Auto has already developed a plan to relaunch the factory for production of other automobile brands and negotiations on this issue are currently being finalised,” Sollers said in a statement.

It did not give a timeframe for stopping production at the Vladivostok plant.

A Mazda spokesperson said the company was discussing ending vehicle production in Vladivostok, without giving details.

Mazda’s Japanese rival Toyota Motor Corp said on Friday it had decided to end vehicle production in Russia due to the interruption in supplies of key materials and parts.

Many factories in Russia have suspended production and furloughed workers due to shortages of high-tech equipment because of sanctions and an exodus of Western manufacturers since Moscow sent armed forces into Ukraine on Feb. 24.

(Reporting by Satoshi Sugiyama in Tokyo and Gleb Stolyarov in Moscow; Writing by Alexander Marrow; Editing by Mark Potter)

Mazda discussing ending production in Russia – Nikkei

TOKYO (Reuters) – Japan’s Mazda Motor Corp is discussing ending production of its vehicles at a joint venture plant in Vladivostok, eastern Russia, the Nikkei newspaper reported on Saturday.

The Japanese automaker, which sold 30,000 cars in Russia last year, said in March that exports of parts to the plant were going to end and production would cease when stocks ran out. It operates the plant with Russian automaker Sollers.

Mazda has not made a decision about ending car sales and maintenance operations in Russia, the newspaper said. There was no timeframe for stopping production at the Vladivostok plant.

A Mazda spokesperson was not immediately available for comment.

Mazda’s rival, Toyota Motor Corp, said on Friday that it had decided to end vehicle production in Russia due to the interruption in supplies of key materials and parts.

Many factories in Russia have suspended production and furloughed workers due to shortages of high-tech equipment because of sanctions and an exodus of Western manufacturers since Moscow sent armed forces into Ukraine on Feb. 24.

(Reporting by Satoshi Sugiyama; editing by Clelia Oziel)

Stocks tumble, dollar soars and bonds plunge as recession fears grow

By Herbert Lash, Amanda Cooper and Tommy Wilkes

NEW YORK/LONDON (Reuters) – U.S. and European stocks tumbled on Friday, the dollar scaled a 22-year high and bonds sold off again as fears grew that a central bank prescription of raising interest rates to tame inflation will drag major economies into recession.

The Dow narrowly missed confirming a bear market as a deepening downturn in business activity across the euro zone, and U.S. business activity contracting for a third straight month in September, left Wall Street wallowing in a sea of red.

The British currency and debt prices weakened further after the UK government announced huge debt-financed tax cuts that will boost borrowing, sending UK bond yields vaulting higher in their biggest daily increases in decades.

The euro plummeted to a 20-year low and sterling to a 37-year low, while the dollar soared after the Federal Reserve this week signaled rates would be higher for longer.

George Goncalves, head of U.S. macro strategy at MUFG, said the Fed wanted financial conditions to tighten and high interest rates were the mechanism to deliver a market investors had not seen for a long time.

“It’s something we’re not used to, that’s why it’s more surprising for most,” he said. “It’s going to be a long staring contest between the Fed and the markets, and in the middle is the economy which is not responding yet to this tightening.”

MSCI’s world stocks index shed 2.07% to almost two-year lows. The pan-European STOXX 600 index closed down 2.34%, its biggest weekly loss in three months.

On Wall Street, the Dow Jones Industrial Average fell 1.62%, the first major U.S. stock index to fall below its June trough on an intraday basis. But the blue-chip index averted confirming a bear market, as it missed closing 20% or more lower than its record high, according to a widely used definition.

The S&P 500 and the Nasdaq Composite, already in bear market territory, fell 1.72% and 1.85, respectively.

Britain, Sweden, Switzerland, Norway and other countries also hiked rates this week. But the Fed’s signal that it expects high U.S. rates to persist through 2023 sparked the rout in equity and bond markets.

Investors are trying to get a handle on inflation and how high rates will go, said Andrzej Skiba, head of the BlueBay U.S. fixed income team at RBC Global Asset Management.

“There’s unease in the market about having confidence that we know how inflation will develop and that yields will indeed peak in the mid-high 4s,” he said, referring to a Fed projection of the fed funds rate at 4.6% in late 2023.

“People have been reflecting on that uncertainty and it might mean more tightening ahead, it might mean even more tightening of financial conditions that the markets have to go through.”

The euro fell for a fourth straight day, sliding 1.49% to $0.9689 after data showed the downturn in the German economy worsened in September. The dollar index rose 1.6%.

The Japanese yen weakened 0.68% to 143.34 per dollar, but failed to notch its first weekly gain in more than a month. On Thursday, Japanese authorities intervened to support the currency for the first time since 1998.

UK bond prices went into a tailspin, with yields on the five-year gilt leaping 51.4 basis points to 4.052%, the largest one-day rise since at least late 1991, according to Refinitiv data, after the government unveiled tax cuts. A bond’s price moves counter to its yield.

Sterling fell 3.49% to $1.0864 in its biggest single-day decline since March 2020 when the COVID-19 pandemic rocked markets. The pound was already under pressure before the tax cut announcement, down 11% since the start of July.

“Typically looser fiscal and tighter monetary policy is a positive mix for a currency – if it can be confidently funded,” said Chris Turner, global head of markets at ING.

“Here is the rub – investors have doubts about the UK’s ability to fund this package, hence the gilt under-performance.”

The dollar hit its highest in two decades and extended its double-digit gains for the year against several currencies.

Yields on the benchmark 10-year U.S. Treasury note have soared as investors ditch inflation-sensitive assets. Global government bond losses are on course for the worst year since 1949, BofA Global Research said in a note.

Yields on 10-year Treasury Inflation-Protected Securities (TIPS), which account for expected inflation and are known as real yields, reached 1.426%, the highest since February 2011.

The inversion in the yield curve between two- and 10-year notes reached minus 58 basis points on Thursday, the most inverted in at least two decades, and was last at minus 51.6 basis points, indicating fears about a looming recession.

Euro zone bond yields also rose sharply, with the Italian 10-year hitting 4.294%, its highest since late 2013, ahead of Italian elections on Sunday.

Oil prices plunged about 5% to an eight-month low. The super-strong dollar made crude more expensive in other currencies and fears of recession hit the demand outlook.

Brent crude futures settled down $4.31 at $86.15 a barrel, while U.S. crude fell $4.75 to settle at $78.74.

Gold prices fell to their lowest since April 2020 as the rally in the dollar and rising Treasury yields hurt bullion, which pays no interest.

U.S. gold futures settled 1.5% lower at $1,655.60.

Bitcoin fell 2.57% to $18,904.00.

(Additional reporting by Tom Westbrook in Sydney and Joice Alves in London; Editing by Kirsten Donovan, Angus MacSwan, Mark Potter, David Gregorio and Diane Craft)

Yen spikes after Japan intervention, stocks slump

By Herbert Lash and Marc Jones

NEW YORK/LONDON (Reuters) – The yen spiked higher on Thursday after the Federal Reserve’s strong stance on rates the day before roiled the outlook for bonds and stocks while forcing Japan to intervene in FX markets to support its currency for the first time since 1998.

The dollar slid after surging to fresh two-decade highs following the Fed’s raising of interest rates on Wednesday by a hefty 75 basis points. Its projection of more large increases to come cemented a “higher for longer” view on rates.

The bond market responded with the part of the yield curve measuring the gap between two- and 10-year Treasury notes inverting the most since at least 2000. The measure, a signal of a likely recession in a year or two, later eased a bit to stand at -42.0 basis points.

Stocks fell further on Wall Street and in Europe, where Russia’s threat on Wednesday to use nuclear weapons amplified the existing economic pain and volatility from the Ukraine war. The major British, German and French bourses tumbled more than 1%.

But the day’s big news was Tokyo swooping in to support the yen soon after Europe opened. While such a move had seemed imminent for weeks – the yen has fallen 20% this year, almost half of that in the last six weeks – it still packed a punch.

The Japanese currency surged almost 4% to 140.31 to the dollar from 145.81 in a little over 40 minutes. The yen was last up 1.17% versus the greenback at 142.36.

Graphic: Japan intervenes to prop up weak yen https://graphics.reuters.com/JAPAN-ECONOMY/klvykaaobvg/chart_eikon.jpg

Central banks hiking rates around the world and Japan fighting back against the weak yen cooled the dollar’s latest burst to fresh highs, said Joe Manimbo, U.S. senior market analyst at Convera.

“But the Fed’s unflinching determination to restore 2% inflation is likely to keep the buck well-supported for the foreseeable future,” Manimbo added.

With the dollar stalled, the euro edged up 0.01% to $0.9839 and other currencies gained as well.

Tokyo’s move came just hours after the Bank of Japan maintained super-low rates, fighting the global tide of monetary tightening by the U.S. and other central banks trying to rein in roaring inflation.

Volatility and uncertainty have risen as the market comes to grips with a policy regime that is reducing liquidity after a decade of abundance, said David Bahnsen, chief investment officer at wealth manager The Bahnsen Group in Newport Beach, California.

“Excessive quantitative easing over the past decade is going to result in excessive tightening and the market has no way to properly price what this means for valuations,” Bahnsen said.

On Wall Street, the Dow Jones Industrial Average closed down 0.36%, the S&P 500 dropped 0.85% and the rate-sensitive Nasdaq Composite slid 1.37%.

The likelihood of a recession if the Fed maintains its rate-hiking stance suggests earnings will come down 15% next year, said Mike Mullaney, director of global markets at Boston Partners.

Excluding the energy sector, the estimated growth rate for the S&P 500 in the third quarter already has declined by 1.7%, according to Refinitiv data.

“We’re going to revisit the (June) lows,” Mullaney said of the S&P 500. “The number being thrown around by the bears is 3200. Under a recessionary scenario that’s definitely in play.”

In Europe, the pan-regional STOXX 600 index lost 1.79% to close below 400 for the first time since January 2021. MSCI’s gauge of global stock performance shed 1.04%, breaking below this year’s bottom to touch lows last seen in November 2020.

MSCI’s emerging markets index fell 0.90% and Asian stocks marched overnight to a two-year low after the Fed’s rate hike and outlook.

The median of Fed officials’ own outlook has U.S. rates at 4.4% by year’s end – 100 bps higher than their June projection – and even higher, at 4.6%, by the end of 2023.

Futures scrambled to catch up. The yield on two-year Treasuries hit a 15-year high of 4.135% in Asia and were last at 4.120%. Ten-year yields set fresh 11-year highs and were last up 19 basis points at 3.702%.

In Europe, Germany’s rate-sensitive two-year bond yield rose to 1.897%, its highest since May 2011, before easing to 1.833%.

Graphic: Yen sees historic drop https://fingfx.thomsonreuters.com/gfx/mkt/lgvdwddjapo/Pasted%20image%201663838463801.png

FOLLOW THE FED

The Swiss National Bank also pulled up its rates by 75 basis points, only the second increase in 15 years. The move ended a 7-1/2-year spell with negative rates.

Also in Europe, Norway and Britain raised rates by 50 bps with traders seeing plenty more ahead.

The pound rose modestly on the day after hitting a 37-year low of $1.1213 overnight on growing worries about the state of Britain’s finances. Sweden’s crown had also touched a record low despite the country’s steepest rate hike in a generation earlier this week.

The global economic outlook is helping drive the dollar higher as U.S. yields look attractive and investors think other economies look too fragile to sustain rates as high as those contemplated by the Fed.

Japan and China are outliers and their currencies are sliding particularly hard.

The dollar’s rise has also sent emerging market currencies tumbling and punished cryptocurrencies and commodities.

Lira traders were left wincing again as Turkey, where inflation is running at around 85%, defied economic orthodoxy and slashed another 100 basis points off its interest rates.

Oil rose in volatile trading on concerns an escalation of the war in Ukraine could further hurt supply.

Brent crude futures settled up 63 cents at $90.46 a barrel and U.S. crude rose 55 cents to settle at $83.49.

U.S. gold futures settled 0.3% higher at $1,681.10 an ounce.

Bitcoin rose 4.76% to $19,345.00.

Graphic: Central banks ramp up fight against inflation https://graphics.reuters.com/GLOBAL-CENTRALBANKS/klvykaanlvg/chart.png

(Reporting by Herbert Lash, Additional reporting by Marc Jones in London, Tom Westbrook in Sydney; Editing by Kirsten Donovan, Nick Zieminski and Richard Chang)

Stocks gyrate, dollar gains as Fed keeps hawkish stance

By Herbert Lash

NEW YORK (Reuters) – U.S. stocks rose, then slumped while Treasury yields surged and then fell on Wednesday as markets reacted wildly to a bleak economic picture next year after the Federal Reserve adhered to a tough stance to fight inflation by jacking up interest rates.

The three main stock indices jolted up and down, the yield on benchmark 10-year Treasury notes spiked to 3.6401% and the dollar surged to a fresh two-decade high after the Fed raised rates by 75 basis points as expected.

The Fed also said in a statement following a two-day meeting of policymakers that it expects its policy rate to hit 4.4% by year’s end and rise to 4.6% by the end of 2023.

The Fed’s aggressive drive to lower inflation to its 2% target will take years and comes at a cost of slower growth and higher unemployment, according to projections from policymakers that cast doubt on market hopes for a “soft landing.”

The projections show Americans are in for some pain as the U.S. central bank works to end inflation and prevent what Fed Chair Jerome Powell has said would otherwise be even worse outcomes.

“The Fed reset the expectations in order to eliminate counterproductive speculation by market participants of a pivot, for now,” said Johan Grahn, head of ETFs at Allianz Investment Management LLC in Minneapolis.

“It’s a logical action by a ‘Volcker-courageous’ Fed, but one that they can walk back at a later date if needed,” Grahn said, referring to former Fed chief Paul Volcker, who tamed double-digit inflation four decades ago by inducing a recession.

Stocks on Wall Street tried to rally several times, without luck. After 10 years of abnormally low rates, investors have yet to figure out how to position their portfolios, said Carol Schleif, deputy chief investment officer at BMO family office in Minneapolis.

“It takes a while to anchor to the new normal,” Schleif said. “Investors keep wanting to hear something more positive, and they weren’t hearing that positive tilt they wanted.”

Ellen Hazen, chief market strategist at F.L.Putnam Investment Management in Wellesley, Massachusetts, said the equity market was a little bit too optimistic that the Fed might soften its language.

After the the past four meetings of the Federal Open Market Committee, stocks rallied only to fall the following day.

“A lot of times you see (the market) do something on the day of and then something else the next day. Investors might want to reserve judgment until tomorrow,” Hazen said, when stocks were trading higher on the day.

Graphic: Fed’s four-meeting streak snapped https://graphics.reuters.com/USA-STOCKS/egpbkrdbxvq/chart.png

The Dow Jones Industrial Average closed down 1.7%, the S&P 500 lost 1.71% and the Nasdaq Composite dropped 1.79%. After an initial negative reaction, markets mostly shrugged off Russian President Vladimir Putin accusing the West of “nuclear blackmail,” remarks that sparked a flight to safe-haven assets like gold and bonds.

The pan-regional STOXX 600 index in Europe closed up 0.90% after earlier sliding to its lowest level since early July when Putin announced the military mobilization. MSCI’s gauge of stocks worldwide fell 1.55%.

The 10-year Treasury yield fell 5.7 basis points to 3.516% after a big spike following the Fed statement. Two-year yields were last at 4.0506%, after earlier hitting 4.123%, the highest since October 2007.

The closely watched yield curve between two- and 10-year notes inverted further to minus 53 basis points, indicating concerns about a recession in the next year or two.

The dollar index rose 1.026%, with the euro down 1.27% to $0.9843. The Japanese yen weakened 0.19% versus the greenback at 143.98 per dollar,

Oil prices fell after the Fed hiked rates to quell inflation as it may also reduce economic activity.

Brent crude futures settled 79 cents lower at $89.83 a barrel, its lowest close in two weeks, while U.S. West Texas Intermediate (WTI) crude fell $1.00 to $82.94, its lowest close since Sept. 7.

U.S. gold futures settled up 0.3% at $1,675.70 an ounce.

Bitcoin was mostly flat, up 0.04% at $18,886.00.

(Reporting by Herbert Lash, additional reporting by Caroline Valetkevitch and Sinéad Carew in New York; Editing by David Gregorio and Jonathan Oatis)

Asia-Pacific Markets Tumble after Putin Accuses West of “Nuclear Blackmail”

The major Asia-Pacific stock indexes finished lower on Wednesday with Japan’s Nikkei 225 touching a two-month low ahead of today’s U.S. Federal Reserve policy decisions at 18:00 GMT.

Investors also flocked to the safe-havens such as government bonds, the U.S. Dollar and the Japanese Yen after Russian President Vladimir Putin on Wednesday ordered a partial mobilization and accused the West of “nuclear blackmail”.

On Wednesday, Japan’s Nikkei 225 Index settled at 27313.13, down 375.29 or 1.36%. Hong Kong’s Hang Seng Index finished at 18444.62, down 336.80 or -1.79% and South Korea’s KOSPI Index closed at 2347.21, down 20.64 or -0.87%.

In China, the benchmark Shanghai Index settled at 3117.18, down 5.23 or -0.17% and in Australia, the S&P/ASX 200 Index finished at 6700.20, down 106.20 or -1.56%.

Investors Spooked as Putin Signals Major Escalation of War in Ukraine

Russian President Vladimir Putin rattled the Asia-Pacific markets on Wednesday after he called up 300,000 reservists to fight in Ukraine and said Moscow would respond with the might of all its vast arsenal if the West pursued what he called its “nuclear blackmail” over the conflict there.

It was Russia’s first such mobilization since World War Two and signified a major escalation of the war, now in its seventh month.

In a televised address to the Russian nation, Putin said:  “If territorial integrity of our country is threatened, we will use all available means to protect our people – this is not a bluff”.

Russia had “lots of weapons to reply,” he said.

Sellers hit stock markets in the Asia-Pacific region. The Euro also tumbled, but gold and crude oil rose with the latter jumping 3%.

Clearly, Putin upped the ante in the region by bringing up the ‘Nuclear Card’ and investors will be watching for how the West responds. More sanctions on the way? Oil and commodity shortages? Faster route to a massive global recession? These are factors that investors have to consider as the major central bankers push for more rate hikes.

Asian Development Bank: Asia Shows Signs of Recovery, but China is a Drag

The Asian Development Bank now sees growth of 4.3% in 2022 and 4.9% in 2023 for emerging Asian economies, according to the latest updates in its report.

The Manila-based lender slashed its forecasts for China to 3.3% in 2022 from its previous prediction of 4% revised in July, dragging down the wider region’s growth prospects.

Taiwan and South Korea, in particular, are likely to see a decline in export demand, Asian Development Bank Chief Albert Park told CNBC’s “Squawk Box Asia.”

For a look at all of today’s economic events, check out our economic calendar.

Stocks drop, yields rise; investors brace for Fed, other central bank meetings

By Caroline Valetkevitch

NEW YORK (Reuters) – Global stocks fell on Tuesday while the yield on two-year U.S. Treasury notes rose to almost a 15-year high as investors prepared for the likelihood of another 75-basis-point interest rate hike from the Federal Reserve.

The Fed is set to announce its decision on Wednesday at the end of a two-day policy meeting. Rate futures traders are pricing in an 81% chance of a 75 basis point hike and a 19% probability of a 100 bps of tightening.

Britain, Norway, Switzerland and Japan also have monetary policy meetings this week.

Earlier on Tuesday, Sweden’s central bank raised interest rates by a larger-than-expected full percentage point to 1.75% and warned of more to come over the next six months.

The U.S. two-year note, which is highly sensitive to shifts in monetary policy expectations, earlier on Tuesday hit 3.992%. The last time its yield broke above 4% was Oct. 18, 2007.

Yields on the benchmark 10-year Treasury shot to 3.604% before paring some gains. They were up 8 basis points to 3.569% after topping 3.5% for the first time in 11 years on Monday.

The Fed and other banks are trying to take an aggressive stance to tackle inflation, but investors have also worried about the impact of higher rates on the global economy.

On Wall Street, investors were cautious of making new bets.

“Investors are just selling the Fed,” said Jake Dollarhide, chief executive officer of Longbow Asset Management in Tulsa, Oklahoma. “All of the bad that was ignored, we’re getting all of that back. People are pessimistic.”

Shares of Ford Motor Co sank after the automaker said inflation-related supplier costs will run about $1 billion higher than expected in the current quarter.

The Dow Jones Industrial Average fell 313.45 points, or 1.01%, to 30,706.23, the S&P 500 lost 43.96 points, or 1.13%, to 3,855.93 and the Nasdaq Composite dropped 109.97 points, or 0.95%, to 11,425.05.

The pan-European STOXX 600 index lost 1.09% and MSCI’s gauge of stocks across the globe shed 0.85%.

The dollar rose, trading near a two-decade high, as investors held firm on expectations of another aggressive rate hike by the Fed.

The dollar index was on track for its fifth weekly gain in six and was last up 0.5% at 110.13. It hit 110.79 this month for the first time since June 2002.

“Traders and investors are taking cover, aware that the dollar is behaving like a force of nature, and unwilling to face its wrath,” said Karl Schamotta, chief market strategist at Corpay in Toronto.

The rate hike by Sweden’s central bank was larger than analysts had expected, causing the Swedish crown to briefly spike against the euro and dollar.

Hikes from the Bank of England and Swiss central bank are expected on Thursday.

China’s central bank kept its benchmark lending rates unchanged at a monthly fixing on Tuesday, as expected.

The Bank of Japan has shown no sign of abandoning its ultra-easy yield curve policy despite a big slide in the yen and inflation hitting its fastest pace in eight years.

The dollar was last up about 0.4% against the Japanese currency. It climbed as high as 144.99 on Sept. 7 for the first time in 24 years.

Oil prices eased as the dollar stayed strong.

Brent crude futures settled down $1.38, or 1.5%, to $90.62 a barrel, while U.S. crude for October delivery ended at $84.45, down $1.28, on the day of its expiration. The more active November contract settled down $1.42 to $83.94 a barrel.

(Additional reporting by Huw Jones in London and Gertrude Chavez-Dreyfuss; Editing by Edwina Gibbs, Will Dunham and Alison Williams)

Asia-Pacific Shares Rise as Japan’s Core Inflation Nears 8-Year High

The major Asia-Pacific stock markets posted solid gains on Tuesday as investors responded to news of a jump in Japan inflation and China’s decision to keep its loan prime rate on hold. The markets were also lifted by a rebound in the final hour of trading on Wall Street. Gains were limited, however, as investors looked ahead to the start of the Federal Reserve’s policy meeting on Tuesday.

In Japan, the Nikkei 225 Index settled at 27688.42, up 120.77 or +0.44%. Hong Kong’s Hang Seng Index rose 18781.42, up 215.45 or +1.16% and South Korea’s KOSPI Index finished at 2367.85, up 12.19 or +0.52%.

In Australia, the S&P/ASX 200 Index settled at 6806.40, up 86.5 or 1.29%. China’s Shanghai Index was also higher, closing at 3211.41, up 6.80 or +0.22%.

Japan’s Core Inflation Hits Near 8-Year High, Stays Above BOJ’s Target

The major overnight event comes out of Japan, where a government report showed Japan’s core consumer inflation surged to 2.8% in August, hitting its fastest annual pace in nearly eight years and exceeding the central bank’s 2% target for a fifth straight month as price pressure from raw materials and yen weakness broadened.

The strength of August inflation reinforced growing suspicions among economists that price pressure will last longer than the Bank of Japan (BOJ) has been expecting, though many still expect no immediate change to its ultra-easy policy.

Will the Surge in Core Inflation Prod the BOJ to Shift Policy?

The inflation data highlights the dilemma the BOJ faces as it tries to underpin a weak economy by maintaining ultra-low interest rates, which in turn are fueling an unwelcome slide in the Yen that pushes up import costs.

With inflation still modest compared with price rises seen in other major economies, the BOJ has pledged to keep interest rates ultra-low, remaining an outlier in a global wave of monetary policy tightening.

But traders are wondering how long the BOJ can maintain this ultra-dovish policy. At Thursday’s central bank policy meeting, investors will be focusing on whether BOJ Governor Haruhiko Kuroda will offer stronger warnings on the Yen’s sharp decline or tweak his view the recent cost-push inflation will be short-lived.

“Japan’s consumer inflation is perking up at a faster than expected pace, partly due to the weak Yen. It’s becoming hard for the BOJ to keep saying price rises will remain temporary,” said Mari Iwashita, chief market economist at Daiwa Securities.

Given today’s strong inflation report, the BOJ’s dovish stance will definitely be in the spotlight following the Fed’s interest rate decision on Wednesday.

For a look at all of today’s economic events, check out our economic calendar.

Treasury yields jump before Fed meeting, dollar gains

By Herbert Lash

NEW YORK (Reuters) -The benchmark 10-year Treasury yield hit its highest in over a decade on Monday and the dollar strengthened as investors were on edge before an expected hefty Fed interest rate hike this week to tackle inflation.

The 10-year’s yield shot to 3.518%, its highest since April 2011, before backing off. The higher yield helped strengthen the dollar and made gold less attractive as concerns about the economy in light of higher rates cooled risk taking.

But stocks on Wall Street rallied as hedge funds positioned themselves on the off-chance the Fed’s tone is less onerous than markets expect when policymakers raise rates on Wednesday, said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.

“There’s positioning going on just in case there’s something that comes out of the Fed that proves to be less hawkish. I don’t think anyone is predicting that’s going to happen,” he said. “The majority of people are in the negative camp right now.”

Stock trading on Wall Street and in Europe was choppy for most of the session as central banks around the world were expected to increase borrowing costs this week and slow economic growth.

FedEx Corp’s warning last week of a global demand slowdown has weighed on U.S. equities as investors reassess stock valuations, said King Lip, chief investment strategist at Baker Avenue Asset Management in San Francisco.

“Our biggest concern now, and the reason why you’re seeing such choppiness in the market today, is that there’s more uncertainty about earnings now, in addition to the concern over rate hikes,” Lip said.

“We may be going in for a hard landing rather than a soft landing and the hard landing being the Fed perhaps over-tightening in a situation where we’re already seeing the economy decelerate,” he said.

Wall Street rallied in thin, late trading. The Dow Jones Industrial Average rose 0.64%, the S&P 500 gained 0.69% and the Nasdaq Composite added 0.76%.

Earlier in Europe, the broad STOXX 600 index closed down 0.09% and MSCI’s U.S.-centric all-country world index gained 0.38%. Overnight in Asia stocks lost ground.

Investors heard a hawkish message from Fed Chairman Jerome Powell at the Jackson Hole banking symposium in August, but then remained in denial until it became clear inflation was stubbornly high, said George Goncalves, head of U.S. macro strategy at MUFG Securities Americas Inc in New York.

After the past three Fed meetings, there have been relief rallies in bonds and equities as markets interpreted Powell as being dovish. But a rally this time is unlikely when policymakers conclude a two-day meeting on Wednesday, he said.

“People are wising up to the fact that the Fed means business,” he said. “The only way to contain this inflation is to get ahead of it, and they’re still behind the curve. Peak hawkishness is getting closer, but we’re not there yet.”

Markets are pricing in a 75 basis points hike, with futures showing an 18% chance of a full percentage point increase on Wednesday, according to CME’s FedWatch Tool.

Markets also indicate a real chance that rates could hit 4.5% by March as the Fed is forced to tip the economy into a recession to subdue inflation.

The two-year yield, a barometer of future inflation expectations, climbed to a fresh almost 15-year high of 3.970%. European government bond yields also rose. [GVD/EUR]

TIGHTENING TIME

Most of the central banks meeting this week – from Switzerland to South Africa – are expected to hike, with markets split on whether the Bank of England will move by 50 or 75 basis points.

But China’s central bank cut a repo rate by 10 basis points to support its ailing economy. Chinese blue chips still finished 0.1% lower.

The other exception is the Bank of Japan, also due to meet this week, and which has shown no sign of abandoning its ultra-easy yield curve policy despite a drastic slide in the yen.

Trading was thin in Britain as markets were closed in observance of the state funeral of Queen Elizabeth.

The dollar rose 0.21% against the yen, backing off from the 24-year peak of 144.99 two weeks ago amid increasingly strident intervention warnings from Japanese policymakers.

The dollar index rose 0.055%, with the euro up 0.06% to $1.0021.

Oil prices edged up in volatile trading as worries of tight supplies outweighed fears that global demand could slow due to a strong dollar and possibly large rate increases.

Brent settled up 65 cents at $92.00 a barrel, while U.S. crude rose 62 cents to settle at $85.73.

U.S. gold futures settled 0.3% lower at $1,678.20 an ounce.

Bitcoin, which also moves in line with investors’ risk appetite, hit a three-month low of $18,271 but later rebounded, up 0.22% to $19,461.00.

(Reporting by Herbert Lash, additional reporting by Alun John in London; Editing by Catherine Evans and Nick Zieminski)

Chubu Electric joins all-Japan Toshiba buyout consortium

TOKYO (Reuters) -Chubu Electric Power Co said on Sunday it is joining private equity firm Japan Industrial Partners (JIP) in conducting due diligence for a potential buyout of Japanese conglomerate Toshiba Corp.

Toshiba, which is exploring going private and other options, has selected Bain Capital, CVC Capital Partners, Brookfield Asset Management and a consortium involving JIP and state-backed Japan Investment Corp to proceed to a second bidding round.

JIP has contacted more than 10 companies including Chubu Electric, Orix Corp and Central Japan Railway Co (JR Central) to participate in its consortium, the Nikkei newspaper reported on Sunday.

Orix said it was considering investing in Toshiba, without providing details. Toshiba said it does not comment on candidates for the potential buyout. JR Central did not immediately respond to a request for comment.

(Reporting by Mariko Katsumura, Sam Nussey, Makiko Yamazaki, Ritsuko Shimizu and Junko Fujita; Editing by Alex Richardson, Christian Schmollinger and William Mallard)

Stocks down, bond prices rise with rates, economy in focus

By Sinéad Carew

NEW YORK (Reuters) – Wall Street’s major indexes closed lower on Friday while U.S. Treasury prices climbed as investors’ fears about the prospects for a global recession intensified while they also prepared for a massive U.S. interest rate hike from the Federal Reserve.

Economic fears were amped up by a FedEx Corp revelation late on Thursday that a global demand slowdown had accelerated at the end of August and was on pace to worsen in the November quarter, prompting the delivery company to withdraw its financial forecasts.

The warning came at a time when investors were already jittery ahead of a Fed meeting after which the central bank is widely expected to raise rates by 75 basis points. Some traders are betting on a 100 basis points increase, according to CME Group’s FedWatch tool. The Bank of Japan and Bank of England are also due to meet next week.

“Today is a continuation of what we’ve seen this week, the volatility around the expectations for what the Federal Reserve may do, with 75 basis points baked in and 100 basis points a possibility,” said Megan Horneman, chief investment officer at Verdence Capital Advisors. “Then you have the dismal report out of FedEx, which some people consider a bellwether not only for consumer spending but also the broad economy.”

The stock market is down on a “growing concern that’s really starting to escalate that the Fed is going to make a mistake and oveovertightensaid Jim Paulsen, chief investment strategist at The Leuthold Group in Minneapolis.

Paulsen said the FedEx warning had led investors to ask, “what if the Fed’s going to tighten right into a recession.”

But Treasury yields retreated after the FedEx warning revived the notion that slower growth will help the Federal Reserve tame inflation.

After increasing to 3.924%, its highest level since 2007, earlier in the day, the two-year U.S. Treasury yield, a bellwether for interest rate expectations, fell.

The yield curve inversion between the two-year and 10-year notes – seen as a recession harbinger – widened further before returning to Thursday’s closing level.

The two-year’s yield last fell 0.4 basis points to 3.869% and the 10-year yield slid 0.6 basis points to 3.453%.

“The Fed will view the FedEx report as an indication that they are on the right path, rather than a warning that the Fed may be moving too aggressively,” said Rick Meckler, a partner at Cherry Lane Investments in New Vernon, New Jersey. [.N]

In equities, the Dow Jones Industrial Average fell 139.4 points, or 0.45%, to 30,822.42; the S&P 500 lost 28.02 points, or 0.72%, to 3,873.33; and the Nasdaq Composite dropped 103.95 points, or 0.9%, to 11,448.40.

The pan-European STOXX 600 index had lost 1.58% and MSCI’s gauge of stocks across the globe shed 0.96%.

Earlier in the day, the European Central Bank’s vice president said an economic slowdown in the euro zone would not be enough to control inflation and the bank will have to keep raising rates.

The dollar index fell 0.1%, with the euro up 0.09% to $1.0008.

The Japanese yen strengthened 0.40% versus the greenback at 142.94 per dollar, while Sterling was last trading at $1.142, down 0.38% on the day.

Analysts and fund managers said the yen could hurtle toward three-decade lows before year-end.

Oil prices rose slightly on Friday as a spill at Iraq’s Basra terminal appeared likely to constrain crude supply, but the commodity remained down for the week on fears rate increases would curb global economic growth and fuel demand.[O/R]

U.S. crude settled up 1 cent at $85.11 per barrel while Brent crude settled up 51 cents at $91.35.

Gold prices rose on Friday as the dollar stalled, but gains in the greenback over the week and expectations of a sizeable U.S. rate hike kept bullion well below the key $1,700 mark and en route to its weakest week in four.

Spot gold added 0.6% to $1,674.17 an ounce. U.S. gold futures gained 0.34% to $1,671.70 an ounce.

(Additional reporting by Herbert Lash in New York, Medha Singh in Bengaluru, Elizabeth Howcroft in London; Editing by Sherry Jacob-Phillips, Toby Chopra and Jonathan Oatis)

U.S. stocks slip while yields rise, Fed in focus

By Sinéad Carew

NEW YORK (Reuters) – Wall Street indexes were firmly in the red after a choppy start to Thursday’s session while bond yields rose as investors digested economic data that provided the Federal Reserve little reason to ease its aggressive interest rate hiking cycle.

Oil futures tumbled more than 3% on demand concerns and after a tentative agreement that would avert a U.S. rail strike, as well as continued U.S. dollar strength with expectations for a large U.S. rate increase. (Full Story)

Economic data showed U.S. retail sales unexpectedly rebounded in August as Americans ramped up purchases of motor vehicles and dined out more while taking advantage of lower gasoline prices. But data for July was revised downward to show retail sales declining instead of flat as previously reported.

Separately the Labor Department said initial claims for state unemployment benefits fell for the week ended Sept. 10 to the lowest level since the end of May. (Full Story)

Investors are widely expecting an aggressive rate hike after the Federal Open Market Committee (FOMC) meeting next week, but nervously awaiting hints from Fed Chair Jerome Powell about future policy moves, said Quincy Krosby, chief global strategist at LPL Financial.

“The market remains choppy knowing that there’s a Fed meeting next week. Even though participants agree that it’ll be a 75 basis points rate hike, it’s what the statement adds to previous commentary and what Chairman Powell says in his press conference” that have them worried, Krosby said.

The Dow Jones Industrial Average .DJI fell 173.07 points, or 0.56%, to 30,962.02; the S&P 500 .SPX lost 44.69 points, or 1.13%, to 3,901.32 and the Nasdaq Composite .IXIC dropped 167.32 points, or 1.43%, to 11,552.36. .N

MSCI’s gauge of stocks across the globe .MIWD00000PUS shed 0.96% while emerging market stocks .MSCIEF lost 0.57%.

Stocks, bonds and currencies on Thursday were showing a market “increasingly understanding the Fed is going to hike more aggressively next week,” said Scott Ladner, chief investment officer at Horizon Investments in Charlotte, North Carolina.

Referring particularly to the still strong labor market, Ladner said “economic numbers released today are tying a bow on the situation.”

Treasury yields rose with the two-year hitting fresh 15-year highs, after data on retail sales and jobless claims showed a resilient economy that gives the Fed ample room to aggressively hike interest rates.

Also already signaling a recession warning the inverted yield curve – the gap between 2-year and 10-year treasury yields US2US10=RR – widened further to -41.4 basis points, compared with -13.0 bps a week ago. US/

Benchmark 10-year notes US10YT=RR were up 4.5 basis points to 3.457%, from 3.412% late on Wednesday. The 30-year bond US30YT=RR last fell 5/32 in price to yield 3.4779%, from 3.469%. The 2-year note US2YT=RR last fell 5/32 in price to yield 3.8646%, from 3.782%.

“In this vicious cycle where the data continues to remain resilient, that would imply a Fed that would likely stay the course and continue to tighten policy,” said Subadra Rajappa, head of U.S. rates strategy at Societe Generale in New York.

Also clouding investors’ moods on Thursday was the World Bank’s assessment that the world may be edging toward a global recession as central banks across the world simultaneously hike interest rates to combat persistent inflation. (Full Story)

In currencies the dollar was slightly higher against the yen while the Swiss franc hit its strongest level against the euro since 2015. (Full Story)

The dollar index =USD, which measures the greenback against a basket of major currencies, rose 0.091%, with the euro EUR= up 0.18% to $0.9995.

The Japanese yen weakened 0.19% versus the greenback at 143.44 per dollar, while Sterling GBP= was last trading at $1.1469, down 0.57% on the day.

Before the tentative labor agreement, fears of a U.S. railroad worker strike had supported oil prices due to supply concerns on Wednesday. In addition, the International Energy Agency (IEA) said this week that oil demand growth would grind to a halt in the fourth quarter. IEA/M O/R

U.S. crude CLc1 settled down 3.82% at $85.10 per barrel while Brent LCOc1 finished at $90.84, down 3.46% on the day.

Gold dropped to its lowest level since April 2021, hurt by elevated U.S. Treasury yields and a firm dollar, as bets of another hefty Fed rate hike eroded bullion’s appeal. (Full Story)

Spot gold XAU= dropped 1.9% to $1,664.46 an ounce. U.S. gold futures GCc1 fell 2.02% to $1,662.30 an ounce.

(Additional reporting by Herbert Lash in New York, Marc Jones in London, Stefano Rebaudo in Milan, Tom Westbrook in Singapore and Wayne Cole in Sydney; Editing by Kirsten Donovan and Jonathan Oatis)

More yen pain could catch Japanese firms off guard: Reuters poll

By Tetsushi Kajimoto

TOKYO (Reuters) – The vast majority of Japanese companies expect the yen to firm against the dollar by year-end, a Reuters monthly poll showed on Thursday, suggesting further weakness in the local currency could catch businesses off guard.

The yen’s downturn this year, which accelerated in recent weeks, has burdened households with higher costs of everything from food to fuel. The rapid declines have also raised alarm among big companies and policymakers, making it difficult for companies to plan for the future.

The currency has lost about 20% versus the dollar since the start of this year, hitting a fresh 24-year low of just shy of 145 yen last week. The yen has been hammered against the dollar due to the growing gap between U.S. and Japanese interest rates.

“The yen has weakened so rapidly that it has meant a big impact on business management,” wrote a manager at one manufacturer in the automotive industry, responding on the condition of anonymity.

During the Aug. 31 – Sept. 9 survey period, the yen was trading in a range of 138-145 to the dollar.

The survey was conducted before Japanese authorities this week gave strong indications that they were uncomfortable with the currency’s sharp declines and appeared to be preparing to intervene to prop it up. On Wednesday, the yen was at 143.62 to the dollar.

“From the standpoint of sustaining economic growth and coping with the procurement costs of raw materials, moderate rises in the yen are desirable,” wrote a manager at a maker of industrial ceramics used in chips.

Asked how they expected the yen to move against the dollar by year-end, 45% of firms – the biggest chunk – pegged it at 136-140, followed by 28% at 131-135, the survey showed.

Some 11% put it at 126-130, while 3% set it at 120-125. Only 13% saw it weakening further from 141, meaning many firms could be put on the back foot if the currency were to weaken again.

Separately, a slim majority of respondents want the yen to rise moderately while 28% want it to fall modestly.

INBOUND TOURISM

So far, Japan has not been able to capitalise on one big potential benefit from the weak yen: inbound tourism. Thanks to strict border controls the world’s third-largest economy is still only seeing a trickle of foreign tourists.

Prime Minister Fumio Kishida this month raised the daily cap for entrants into Japan to 50,000 and the government is now considering scrapping the cap altogether by October, the Nikkei business daily reported on Sunday.

The government is also considering removing a requirement that only visitors on package tours are allowed in, the newspaper said.

Still, the survey showed corporate Japan – which has broadly lobbied to ease restrictions on tourism – believes a recovery will be slow in coming.

A slim majority said they don’t expect the government’s easing of border controls to help inbound tourism recover.

Some 28% think inbound demand will return to pre-pandemic levels by end-2023 while 18% expect it to return to those levels in 2024 or later. A full 20% see it never returning to those levels.

One-third said they were unaffected by inbound tourism.

The Reuters Corporate Survey, conducted for Reuters by Nikkei Research, canvassed around 500 big non-financial Japanese firms on condition of anonymity, allowing them to speak more freely.

Separately, the survey also found that three quarters of firms are concerned about the possibility of an incident in Taiwan, given the political sensitivies around the island claimed by China.

(Reporting by Tetsushi Kajimoto; Editing by David Dolan and Sam Holmes)