Wall Street Slips as Fed Mulls Policy, Economic Data Disappoints

With the Fed kicking off a two-day policy meeting today, investors are balancing the central bank’s insistence inflation will be transitory with fresh data showing prices growing faster than expected.

In separate reports, U.S. economic data showed an acceleration in producer prices in May as supply chains try to keep up with surging demand with the pandemic easing, while retail sales dropped more than expected as consumers turned their attention back to service industries.

The readings have investors wondering if the Fed may come out of its meeting Wednesday with any indication it is tweaking its go-slow approach.

“Rising prices are expected to subside as the supply side of the economy recovers to meet demand and inventories are restocked, but accomplishing that will not be as easy as flipping a switch,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “It will take some time for that gap to be filled. In the meantime, upward pressure on prices are likely to continue.”

The central bank is not expected to announce any plans to ease back on its bond purchases until August, but investors are looking for any indication the Fed has begun discussing such an exit. Nearly 60% of economists in a Reuters poll expect a taper announcement will come in the next quarter, despite a patchy recovery in the job market.

“To a large extent, high US inflation has to do with the massive US fiscal stimulus. Inflation has been increasing in most of G10, but the US clearly stands out,” wrote Bank of America Securities analysts in a note. “Assuming that some of the recent increase in inflation is indeed sustained, we would argue that the Fed will react to it, supporting the USD later this year.”

After markets reached new highs in Europe, U.S. markets eased following the economic reports. U.S. Treasury yields also dipped, while the dollar ticked up.

The MSCI world equity index, which tracks shares in 45 nations, fell 0.86 points or 0.12%.

The Dow Jones Industrial Average was down 114.95 points, or 0.33% in afternoon trading, while the S&P 500 lost 9 points, or 0.21%, and the Nasdaq Composite dropped 89.10 points, or 0.63%.

OIL GAINS

Oil prices hit their highest levels since 2019 during trading Tuesday on an expected demand surge that should accompany increased travel as pandemic restrictions ease.

Brent crude was last up $1.09, or up 1.5%, at $73.95 a barrel. U.S. crude was last up $1.16, or 1.64%, at $72.04 per barrel. It previously hit a session high of $72.16 a barrel, the highest level seen since October 2018.

In currency markets, the dollar hit a one-month high against a basket of currencies Tuesday on the back of the fresh economic data. The dollar index, which measures the greenback against a basket of six currencies, was 0.06% higher at 90.544, after rising as high as 90.677, its highest since May 14.

Spot gold prices fell $9.585 or 0.51%, to $1,856.41 an ounce, while U.S. gold futures were down 0.4% at $1,857.60.

Benchmark 10-year yields were 1.4939%, slightly lower than Monday, when they rebounded from Friday’s three-month low.

(Reporting Pete Schroeder in Washington; Editing by Kim Coghill, Alex Richardson, Barbara Lewis and Peter Graff)

 

World Stocks Near Record High, U.s. Bond Yields Near 1-month Low

By Hideyuki Sano

MSCI’s all-country world index last stood at 716.55, after hitting an intraday high of 718.19 on Tuesday, led by gains in Europe.

European stocks are expected to open almost flat, with Euro Stoxx futures up 0.1% and Britain’s FTSE futures down 0.1% in early trade.In Asia, the MSCI’s broadest index of Asia-Pacific shares outside Japan ticked down 0.20% and Japan’s Nikkei average shed 0.28%.

On Wall Street on Tuesday, the S&P500 was steady and near its record high.

The 10-year U.S. debt yield, on the other hand, fell to 1.513%, its lowest level in a month, and down a quarter of a percentage point from a 14-month peak of 1.776% hit in March. It last stood at 1.533%, almost flat so far on Wednesday.

“As the recovery in the job market is contained, any discussion at the Fed on tapering is unlikely to gain momentum, even if it starts soon,” said Naokazu Koshimizu, senior rates strategist at Nomura Securities.

“So those who had bet on steepening of the yield curve are unwinding their positions while some investors are also now buying to earn carry.”

U.S. payrolls data last Friday showed hiring did not grow as fast as economists had expected, despite growing signs of a labour shortage.

Many analysts think more evidence of strong job growth would be required for the Federal Reserve to step up its discussion on tapering.

The U.S. central bank has said rises in inflation this quarter would be transient and would not threaten price stability, one of its key mandates.

Thursday’s U.S. consumer price data is expected to show the overall annual inflation rate rose to 4.7% and core inflation increased to 3.4%.

While those readings will be well above the Fed’s inflation target of 2%, many economists expect the inflation rate to ease in coming months, allowing the Fed to wait before taking any tapering measures.

Yet some investors remained wary that a tight labour market could lead to unexpectedly strong inflationary pressures.

“The U.S. labour market looks really tight. At the moment, workers are not coming back for various reasons. But they will eventually return and as payrolls grow, companies will have to raise wages,” said Yoshinori Shigemi, macro strategist at Fidelity International.

Inflation data from China showed its producer price index jumped 9.0% from a year earlier, the highest in over 12 years, on surging commodity prices.

The rise in consumer prices, however, was softer than expected, helping to mitigate concerns. While China’s central bank is slowly scaling back pandemic-driven stimulus, top leaders have vowed to avoid any sharp policy turns and keep borrowing costs low.

The Chinese yuan, whose rally to a three-year high last week was propelled in part by speculation Beijing may want a stronger yuan to tame inflationary pressure, ticked up slightly to 6.3943 per dollar.

“While Chinese authorities have denied market speculation about the yuan, in the past the yuan did rise when import prices rose sharply,” said Naoto Saito, chief researcher at Daiwa Institute of Research.

Other currencies hardly budged, with the euro little changed at $1.2178 and the dollar flat at 109.47 yen.

Investors have scaled back expectations that the European Central Bank may indicate a plan to reduce its asset purchases when it reviews policy on Thursday.

Oil prices held firm after U.S. Secretary of State Antony Blinken said that even if the United States were to reach a nuclear deal with Iran, hundreds of U.S. sanctions on Tehran would remain in place.

U.S. crude futures closed above $70 per barrel for the first time since Oct 2018 on Tuesday and last stood at $70.48, up 0.6%.

Brent futures rose 0.6% to $72.66, staying near their highest level since early 2020.

(Reporting by Hideyuki Sano; Editing by Neil Fullick and Kim Coghill)

 

US Equities Rally, Dollar Drops as Hiring Picked Up Last Month

US stocks performed excellently this afternoon while the Greenback fell following a pickup in hiring last month. The job data has bolstered confidence in the economy. However, the surge in hourly wages contributed to inflation worries in the country, leading the US Dollar to perform poorly.

US stocks rally, USD underperforms

US equities are performing excellently as the stock markets in the country open. This comes following an impressive job data presented a few hours ago. The United States added 559,000 jobs in May, one of the highest recorded in a while and just below the average forecast.

Following this impressive job data, US indices are performing excellently this afternoon. The S&P 500 is currently up by 0.5%, while the NASDAQ 100 also surged by 0.8%. Furthermore, the Dow Jones Industrial Average went up by 0.4%, the Stoxx Europe 600’s value is up by 0.2%, and the MSCI World index has seen a 0.5% increase.

S&P 500 chart. Source: FXEMPIRE

While the stocks are performing well, the US Dollar is having a tough time in the market. The Bloomberg Dollar Spot Index dropped by 0.5%, while the Euro gained 0.4% over the past few hours to now stay at $1.2176. The GBP also went up by 0.7% against the USD and now stands at $1.4198. The Greenback is basically losing against most of its major competitors as it is also down by 0.6% against the Japanese Yen.

The decline in the US Dollar’s performance is due to the increase in hourly wages, creating concern about the rising inflation wages in the country.

Will the job data continue to increase?

The economy of the United States and several other countries in the world is slowly recovering following the Coronavirus pandemic that plagued virtually every country last year. Due to the pandemic, millions lost their jobs.

However, the Biden administration is targeting at least 70% of Adult Americans should be vaccinated over the coming months. This would allow more businesses to open and more people to go back to work. In that case, the job data could continue to increase or maintain this level over the coming months, strengthening the equities market in the process.

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

Asian Equities Clock Biggest Foreign Outflows Since March 2020

By Gaurav Dogra

Data from stock exchanges in South Korea, Taiwan, Philippines, Thailand, Vietnam, Indonesia and India showed foreigners net sold a combined total of $12.05 billion in regional equities, the highest since March 2020.

“The outflows in May were driven by different reasons in different markets, but the common thread was COVID-19 resurgence,” Manishi Raychaudhuri, Asia-Pacific equity strategist at BNP Paribas, said.

Graphic: Foreign investments in Asian equities: https://fingfx.thomsonreuters.com/gfx/mkt/yzdpxmdrevx/Foreign%20investments%20in%20Asian%20equities.jpg

He said markets such as Taiwan, Thailand and India, which faced a resurgence in COVID-19 cases, were sold down by FIIs in anticipation of decline in consumption and cuts in earnings estimates.

South Korea led outflows, seeing net sales of $7.97 billion last month on concerns over rising inflation, which has reinforced calls for gradual monetary tightening.

Taiwan faced outflows worth $2.1 billion, with the sub-tropical nation dealing with its worst drought in history after no typoons directly hit the island last year, meaning much less rain.

Thai and Indian equities saw net sales of $1.1 billion and $389 million, respectively.

India’s daily infection rates have been falling in recent weeks, offering hope that a devastating second week is ebbing.

However, worries still linger, as just 3% of the country’s population have been vaccinated so far, which is the lowest rates among the 10 countries with the most COVID-19 cases.

BNP Paribas’ Raychaudhuri said he expects foreign flows to improve selectively in a few Asian markets in the second half of 2021, particularly in Taiwan and South Korea.

“Korea and Taiwan should benefit in the medium-term as corporate earnings in both markets are strongly driven by global consumption revival – particularly that in the developed economies – a trend that we believe is likely to last for a while,” he said.

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

Global Corporate Tax Crackdown Gets Ethical Investor Boost

By Sujata Rao and Simon Jessop

After years of negotiations over complex arrangements deployed by big companies, G7 finance ministers meeting in Britain on Friday are expected to declare their support for a global accord to address billions of dollars in lost tax revenue. [L2N2NI198]

This push is backed by some large investors, often state-run, who are scrutinising tax bills as well as profits.

“It’s not about paying more tax, it’s about paying the right amount of tax. We want companies to not engage in practices through transactions and legal structures which contribute to tax evasion,” Kiran Aziz, sustainability analyst at Norway’s KLP which manages $80 billion in pension assets, said.

Research by the charity ActionAid International estimates that taxing Amazon, Apple, Facebook, Alphabet and Microsoft “fairly” on their 2020 profits could potentially generate $32 billion for G20 countries, while a 2018 academic study found global state coffers lose out on $200 billion a year.

The G7 goal is to set rules on taxing cross-border digital activities as well as a minimum tax rate above the level paid if companies channel profits via a low-tax country such as Ireland with its 12.5% corporate levy.

The United States has mooted a 15% rate, down from its original proposal of 21%. [L1N2M71D3] [L8N2MM7I6]

Norway’s $1.3 trillion sovereign wealth fund, which has set the pace on many environmental, social and corporate governance (ESG) issues, recently fired a public salvo over what its CEO said was “aggressive tax planning” and lack of transparency on tax by selling stakes in seven companies, which it did not name.

Many funds interviewed by Reuters said they are escalating talks with companies and, if necessary, will dump shares.

KLP has quizzed around 100 companies, including Silicon Valley giants, joining hands with other Nordic investors.

“We believe taxes should be paid where actual economic value is generated,” Aziz said of so-called “profit-shifting” whereby companies book income from sources like royalties, software or patents, not where it was earned but where tax rates are lower.

While KLP for now sees engagement as more effective than dropping investments outright, some have already gone that far.

Peter Rutter, head of equities at the 150 billion pound ($213 billion) Royal London Asset Management said he had sold or skipped buying shares in some companies on the basis of tax arrangements – often at the behest of his pension clients.

“Corporates doing the right thing by way of taxation is a question we are increasingly getting,” Rutter said.

‘KNOW THE RISK’

Tax has typically played second-fiddle to issues such as climate, pollution and labour rights for investors, while most ESG ratings providers do not assess a company’s tax planning while calculating scores.

Many asset managers enjoy lower tax rates by domiciling funds in countries such as Ireland and Luxembourg.

However, MSCI included tax transparency last November and ESG ratings can be affected if for example tax bills differ significantly from what a company would have paid in its country of operation, its managing director Laura Nishikawa said.

“We are not saying ‘divest now’ but (urging clients) to be an informed investor. You need to know the risk and that’s a fiduciary duty too,” she added.

Many investors are preparing to investigate tax policies more thoroughly, regardless of when rules are tightened.

Dutch asset manager APG is hiring staff and planning to buy specialist data after its main client, pension fund ABP, established a tax and investment policy, senior corporate governance specialist Alex Williams said.

Like KLP, APG has been grilling companies about their tax policies, Williams said. The fund, which manages almost 600 billion euros, recently managed to dissuade the new management of one investee firm from using tax havens.

OCEANS APART?

Investor pressure over tax has largely emanated from Europe, particularly ESG-focused Scandinavia, with an apparent cultural difference among shareholders based in the United States.

U.S. retirement funds CalPERS, CalSTRS and Texas TRS all declined to comment, but an official at one large U.S. asset manager said tax is “not an investor issue” and should “be led by those who ultimately impose the taxes”.

Tech companies have long defended their tax practices. Google, whose European headquarters is in the Irish capital Dublin, says it pays taxes where it is required to do so by law.

Sudhir Roc-Sennet, U.S.-based head of ESG at Vontobel Asset Management, while backing moves to close tax-rate gaps, argues against demonising companies for legally using loopholes.

“It does not make sense for pensioners of the future to reduce their savings pot by asking companies to pay more tax,” Roc-Sennet said.

“Should corporates pay a higher tax rate just because it’s ethical? I don’t think so. As investors, we think companies should operate to the best interest of their shareholders as long as they stay within the legal framework,” he added

While that view remains widespread, accountants KPMG and BDO have warned clients of the risk to reputations and returns should tax rules be tightened.

One thing investors do agree on is that only coordinated action will stop companies using lower tax jurisdictions.

“In the absence of regulation it will be difficult to get companies to move. Turkeys are not going to vote for Christmas,” Fred Kooij, chief investment officer at Tribe Capital, a boutique impact investment firm, said.

($1 = 0.7043 pounds)

(Additional reporting by Tom Arnold and Ritvik Carvalho in London; Ross Kerber in Boston; Editing by Mark John and Alexander Smith)

Asian Stocks Hit Month High, Gold Gains Ahead of U.s. Jobs Data

By Anshuman Daga

European stocks were set for a mixed start, with Euro Stoxx 50 futures up 0.3%, while FTSE futures gave up 0.4%.

The world’s recovery from the COVID-19 pandemic remains patchy with exports reviving but broader economic activity still dampened by new measures to contain fresh outbreaks.

MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.4%, hitting the highest in a month and taking total gains made so far this year to nearly 7%. World equities have risen for a fourth straight month as ample liquidity supported risk taking despite worries about higher inflation.

In Asia, Taiwan’s and South Korea’s indexes notched gains, making up for selling it Japanese, Australian and Chinese markets. South Korea stocks rose as data showed the country’s exports logged their sharpest expansion in 32 years in May. That contrasted with Japanese data that showed companies cutting spending on plant and equipment for the fourth straight quarter. [L2N2NJ009] China’s factory activity expanded at the fastest pace this year in May as domestic and export demand picked up, a business survey showed.

While asset markets have rallied last month, policymakers are focused on tackling inflation at a time when the underlying structural economy has been struggling to gain traction. Markets are also awaiting signals from the Federal Reserve on when it will start tapering its bond-buying programme. “The fixation of the markets now is on inflation and rightly so because of so much of quantitative easing and supply chain disruptions,” said Hou Wey Fook, chief investment officer at DBS Bank.

“It seems to be that tapering should be on the cards. But it will be mild, it’ll be slow and will be very well communicated.” This week’s main event is the U.S. payrolls on Friday with median forecasts at 650,000, but the outcome is uncertain following April’s unexpectedly weak 266,000 gain. Though U.S. inflation data last week was above estimates, another big miss on the jobs front would delay prospects for any wind down of stimulus, analysts say. The dollar languished near multi-month lows versus major peers as traders looked for clues on Fed direction. [USD/]

“The world economy is clearly recovering, and that is going to be bad for the U.S. dollar because it’s a counter-cyclical currency,” said Commonwealth Bank of Australia strategist Joseph Capurso. “The U.S. dollar has been pretty heavy in the last few weeks, and I think it keeps trending lower.” The Australian dollar strengthened as much as 0.5% as Australia’s current account surplus hit a record high and drove upward revisions to economists’ growth forecasts.

But the Aussie later retreated after the central bank left its policy unchanged and stuck with a dovish tone.

The offshore Chinese yuan was steady at 6.3739 per dollar, pulling back from a three-year high of 6.3526 per dollar reached on Monday, after the monetary authority tightened banks’ foreign exchange requirements to stem the currency’s rise. Concerns about global inflation have supported gold, with prices for the yellow metal rising 8% this month, vaulting comfortably above $1,900. On Tuesday, gold prices traded near a five-month high scaled last week. [GOL/] Oil prices rose ahead of an OPEC+ meeting and on optimism that fuel demand will grow in the months ahead with the summer driving season starting in the United States, the world’s top oil consumer. [O/R] Brent crude futures for August added 1.2% to $70.1 a barrel, while U.S. crude rose 1.9% to $67.6.

(Reporting by Anshuman Daga; Additional reporting by Kevin Buckland in Tokyo; Editing by Jacqueline Wong and Sam Holmes)

Inflation Questions Keep Stocks in Check

By Tom Wilson and Swati Pandey

The Euro STOXX 600 lost 0.2%, with German shares down 0.5% and London’s main index making slim losses. France gained 0.1%.

Losses of around 0.2% in energy stocks were offset by 1.2% gains in the mining sector, while British bank HSBC gained 0.1% after a move to exit U.S. retail banking to focus on Asia.

Wall Street futures gauges pointed to losses of around 0.2%.

In focus was U.S. gross domestic product and jobless claims numbers expected later in the day. Investors also held back major bets before the monthly U.S. personal consumption report, due on Friday.

“We still believe inflation will not be transient, but will persist – this is where I think we differ with central banks,” said Jeremy Gatto, a portfolio manager at Unigestion.

For many investors, rising inflation means the U.S. Federal Reserve will slowly but surely edge towards a discussion about tightening monetary policy.

The prospect lent support to the dollar, which has been heavily shorted of late.

The MSCI world equity index, which tracks shares in 49 countries, was flat.

Earlier, MSCI’s broadest index of Asia-Pacific shares outside Japan clawed back losses to trade flat at 695.37, not too far from Wednesday’s high of 696.76, a level last seen on May 10.

TAPER TALK?

Global equities markets have been supported by a concerted effort from major central banks, which have pumped trillions of dollars into financial markets since last year while reiterating their lower-for-longer interest rate stance.

U.S. Federal Reserve Vice Chair Richard Clarida said this week recent inflation pressures would “prove to be largely transitory”, though he did add that policymakers will be at a point to begin discussing tapering in upcoming meetings.

The Fed Vice Chair for supervision, Randal Quarles, suggested that at some stage it will become important for the U.S. central bank to discuss plans to tighten its asset purchase programme.

With tapering on the agenda, the U.S. dollar index held on to Wednesday’s gains and was steady at 89.992.

“Whether (central banks) are going to do something early in the very small way – just to indicate they are starting and do it very gradually – or do something bigger next year, they’re the two really big scenarios for most investors,” said Shaniel Ramjee, senior investment manager at Pictet Asset Management.

The Chinese yuan hit a three-year high as China’s central bank kept to the sidelines.

The euro edged up to $1.22030, after losing ground a day earlier after the European Central Bank’s Executive Board Director Fabio Panetta said it was too early to taper its emergency bond buying programme.

The New Zealand dollar was among the best performing currencies overnight after hints of a 2022 rate hike by the Reserve Bank of New Zealand. On Thursday, it retreated from a three-month top of $0.7317 and was last as $0.7294.

In commodities, gold prices hovered near $1,900 per ounce, after hitting its highest since Jan. 8 at $1,912.50. [GOL/]

(Reporting by Tom Wilson in London and Swati Pandey in Sydney; Editing by Lincoln Feast, Shri Navaratnam & Giles Elgood)

Stocks Slip, Crypto Haemorrhage Deepens Amid Inflation Worries

By Hideyuki Sano

Also weighing on digital coins were new Chinese restrictions on financial institutions providing services related to cryptocurrency transactions.

European stocks are expected to drop, with both Euro Stoxx futures and Britain’s FTSE futures trading about 1% lower.

MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.3% though Hong Kong and South Korea are closed for holidays.

Mainland China’s CSI300 slipped 0.1% while Japan’s Nikkei lost 1.5%.

U.S. S&P futures fell 0.3% in Asia a day after Wall Street stocks slid in late Tuesday trade, unable to sustain gains made after bumper earnings from Walmart and Home Depot.

The S&P 500 on Tuesday lost 0.85%, with telecom shares leading the decline, while the Nasdaq Composite dropped 0.56%.

“Due to supply chain disruptions and labour constraints, there are worries companies may not be able to match their supply with increasing demand,” said Arihiro Nagata, general manager of global investment at Sumitomo Mitsui Bank.

While demand is recovering fast as many developed countries have made progress with COVID-19 vaccination, companies are facing obstacles from shortages of chips, containers, and in the United States workers, too, stoking worries of higher prices.

The Federal Reserve has stuck to the narrative that a recent rise in inflation would be transient and that it therefore should keep its easy monetary policy settings.

The minutes from the Fed’s April meeting, to be published late on Wednesday, are expected to repeat that message.

“Inflation remains the biggest theme, whether it is real and whether the Fed may need to change its policy because of that,” said Kazushige Kaida, head of forex sales at State Street Bank’s Tokyo branch. “At the moment, markets are putting faith, after a fashion, in the Fed’s narrative.”

Yet inflation data from UK and Canada due later on Wednesday could rekindle concerns following an unexpected pickup in U.S. consumer inflation shown earlier this month.

That could hit assets whose prices have been bolstered by monetary easing, including cryptocurrencies, which rose sharply over the past year and are seen by some as exemplifying an excess created by a “wall of money” from central banks.

Bitcoin dropped as much as 10.2% to hit its lowest level since early February, bringing its loss from a peak of $64,895 hit just over a month ago to more than 40% at that point. It last stood 7.5% lower at $39,645.

Ether, the second largest cryptocurrency, shed as much as 15.5%, and a third of its value from its record peak hit last Wednesday. It last changed hands at $3,018, down 10.7%.

While cryptocurrencies were bruised by China’s fresh ban on their transactions, they were not alone in facing pressure.

Some commodities that have benefited from reflation trade have also lost steam, with U.S. lumber futures losing almost 25% in the last three sessions.

Oil prices pulled back also after media reports the United States and Iran have made progress on reviving a deal restricting the OPEC country’s nuclear weapons development, a development that could lead to increased supply from Iran. [O/R]

U.S. crude futures dropped 1.0% to $64.83 per barrel while Brent futures lost 1.0% to $68.05 per barrel.

In the currency market, the dollar stayed under pressure as U.S. yields stayed flat.

The euro hit a near three-month high of $1.22355 while the British pound held firm at $1.4191, staying near a three-month peak touched on Tuesday.

The dollar stood at 108.92 yen after four straight sessions of decline.

Precious metals were solid, with gold hitting its highest level since late January on Tuesday and last stood at $1,867.50 per ounce.

(Reporting by Hideyuki Sano; Editing by Sam Holmes)

Asian Shares Push Higher, Dollar Eases

By Paulina Duran

Equities in Europe and the United States looked set to follow. FTSE futures rose 0.76% and EuroSTOXX 50 futures traded 0.68% higher, while S&P 500 futures were up 0.33%.

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.56% after a mixed session on Monday, still not recouping losses of the last few weeks amid new clusters of COVID-19 cases that are prompting some economies to impose fresh anti-virus restrictions.

Shares in Taiwan, which is seeing a spike in cases, jumped 4.77% as lawmakers said it was in talks with the United States for a share of the vaccine doses President Joe Biden plans to send abroad. That trimmed the index losses in May to 8.4% so far.

Japan’s Nikkei rose as much as 2.3% on solid earnings reports and bargain hunting, while Hong Kong’s stocks were up 1.3%. China’s blue-chip CSI300 index was 0.08% lower.

“This is a bit of a reversal from the pullback last week post the big inflation numbers,” said Chad Padowitz, chief investment officer at Talaria Capital in Melbourne.

“Time will tell whether inflation will be transitory or more pervasive but I think that now that U.S. yields have stabilised, that’s allowed the market to digest some of that,” he said.

“But the reality is we have moved into a higher volatility regime, and because of that we expect to see larger daily movements than in recent years.”

Spot gold traded around $1,869.06 an ounce, near a three-and-a-half month high, after the Empire State Manufacturing Survey, produced by the New York Fed, showed the highest prices paid since the series began in 2001. [GOL/]

“Investors seem to take the view that what matters is that the US economy is recovering, rather than worry too much about the precise strength of the recovery at any particular moment in time,” BofA rates strategists said in a note.

Dallas Federal Reserve President Robert Kaplan on Monday reiterated his view that he does not expect interest rates to rise until next year, helping to reassure markets that the Fed will not tighten early.

But markets are waiting on Wednesday’s release of the minutes from the Federal Reserve’s policy meeting last month, which could shed more light on the policymakers’ outlook on inflation and an economic rebound.

In Australia, minutes of the central bank’s May policy meeting showed it believed wages would likely need to expand “sustainably above 3%” to generate inflation, underscoring how long rates could remain near zero. Wage growth is currently running at just 1.4%.

Australia’s benchmark rose 0.73%, while Singapore stocks gained 1.8% after falling 4.5% last week as the country tightened Covid-19 restrictions in response to a rise in the number of community infections.

MSCI’s gauge of stocks across the globe was pushed 0.34% higher at 700.83.

The dollar teetered near multi-month lows against European currencies as Treasury yields stalled in the wake of Kaplan’s comments.

U.S. Treasury yields traded a third of a basis point wider to 1.6437%, while the two-year yield, which rises with traders’ expectations of higher Fed fund rates, touched 0.1551% compared with a U.S. close of 0.153%.

The dollar index was down 0.096%, with the euro 0.10% higher at $1.2165.

Bitcoin rose 7%, paring some of its steep losses since Tesla boss Elon Musk said would stop taking bitcoin as payment due to environmental concerns about energy used to process transactions. Ether jumped 7.6%.

Oil prices rose, with Brent crude and West Texas Intermediate (WTI) crude both up around 0.4% in Asian trade on expectations of stronger fuel demand as the U.S. and European economies reopen.

(Reporting by Paulina Duran; editing by Richard Pullin and Kim Coghill)

World Shares Resilient, Drugmakers Hit by Biden’s Move on Vaccines

By Hideyuki Sano

MSCI’s broadest gauge of world stocks, ACWI, was up slightly and European stocks are expected to open flat with both Euro Stoxx futures and Britain’s FTSE futures little changed.

Japan’s Nikkei jumped 1.8% as it reopened after a five-day holiday.

But MSCI’s index of Asia-Pacific shares outside Japan lost 0.15% as Chinese shares, also resuming trade for the first time since last week, wobbled. The CSI300 fell 1.3%, led by falls in biotech firms.

China’s healthcare share index dropped more than 4% after U.S. President Joe Biden threw his support behind waiving intellectual property rights for COVID-19 vaccines.

Biden’s move hit U.S. vaccine makers, too, including Moderna, but Wall Street was supported overall by gains in energy and other cyclical shares.

Dow hit a record high overnight, having risen 0.29%, while the S&P 500 added 0.07%.

“This year, both the U.S. and Chinese economy could grow 6% or more. If the world’s two biggest economies are growing that much, clearly that’s positive,” said Norihiro Fujito, chief investment strategist, Mitsubishi UFJ Morgan Stanley Securities.

Against this backdrop, commodity prices are riding high, with copper flirting with 10-year peaks.

Oil prices extended gains to edge near their March tops as crude stockpiles in the United States, the world’s largest oil consumer, fell more sharply than expected.

U.S. crude futures stood at $65.65 per barrel, little changed on the day but just below Wednesday’s two-month high of $66.76. [O/R]

As agricultural products such as corn, soybeans and wheat, have gained sharply in recent weeks, Thomson Reuters CRB index has risen to its highest level since 2015, having gained more than 21% so far this year.

BONDS AND CURRENCIES

Higher commodity prices are fuelling inflation expectations in the bond market.

The U.S. breakeven inflation rate, or inflation expectations calculated from the yield gap between inflation-linked bonds and conventional bonds, rose to as high as 2.48% overnight.

But the U.S. nominal bond yields held relatively stable, with the 10-year U.S. Treasuries yield little changed at 1.584%.

“Bonds were supported partly because the pace of vaccinations has slowed in the States and as real-money investors are starting to buy,” said Naokazu Koshimizu, economist at Nomura Securities.

“The rise in inflation is also driven more by supply constraints than demand, which is why we are seeing rising inflation expectations and a fall in nominal yields,” he added.

In currencies, the Australian dollar briefly dropped as much as 0.6% after China said it was indefinitely suspending all activity under a China-Australia Strategic Economic Dialogue, the latest setback for their strained relations.

It last stood down 0.15% at $0.7734

The British pound was flat at $1.3910 ahead of a central bank policy review.

The Bank of England could slow the pace of its bond buying to allow its quantitative easing programme to last until the end of the year, as it could reach the cap by September at the current pace of buying.

Investors also looked to Scotland’s election that could trigger a showdown with British Prime Minister Boris Johnson over a new independence referendum.

Other currencies were little moved, with the focus on Friday’s U.S. monthly jobs report which is expected to show that nonfarm payrolls increased by 978,000 jobs last month.

The euro stood flat at $1.2004 while the yen changed hands at 109.35 per dollar.

(Editing by Himani Sarkar and Kim Coghill)

The Dollar Consolidates Pre-Weekend Advance

The UK holds local elections, and the US and Canada report employment data at the end of the week. In addition, the earnings season continues, while the US will also announce details of its quarterly refunding plans. Several markets are closed for holidays, including China and Japan (through Wednesday). UK markets are closed for a bank holiday.

After falling 1.15% last week, the MSCI Asia Pacific Index traded heavily today, with only Australia and New Zealand bucking move. Europe’s Dow Jones Stoxx 600 fell for the second consecutive week to the end of April and is struggling to sustain early upticks today. US S&P and Dow futures are trading higher, but the NASDAQ was nearly flat after a mixed performance last week. European benchmark 10-year yields are 1-2 bp firmer.

The US 10-year yield begins the new week around 1.63%. The dollar, which rose sharply ahead of the weekend is narrowly mixed today. Sterling and the Swedish krona are leading European currencies higher, while the yen, and to a lesser extent, the Canadian dollar, are nursing losses. Similarly, among emerging market currencies, eastern and central European currencies are mostly firmer, while Asian currencies are mostly lower, led by a 1% loss of the South Korean won.

The JP Morgan Emerging Market Currency Index is little changed after losing 1% in the last two sessions. Gold is consolidating in last Thursday’s range (~$1756-$1790) and is slightly firmer. Oil prices have slipped lower. Last week, June, WTI tested $65.50 and found support in the $62.90-$63.00 area.

Asia Pacific

Australia reported a small upward revision in April’s manufacturing PMI and a further gain in house prices. The PMI edged up to 59.7 from the preliminary estimate of 59.6 and 56.8 in March. The average in Q1 was 57.0. The rise in house prices is becoming a greater concern to policymakers (in New Zealand and Canada). Prices rose by 1.8% in April after a 2.8% rise in March. Prices have risen steadily since the middle of last year. The average monthly gain over the past six months is 1.5%, while over the past three months, the average has accelerated to 2.2% a month. Tomorrow it reports March trade figures ahead of the central bank meeting.

South Korea is integrated into global supply chains, making its trade figures reported ahead of most other countries a lead indicator. Its April trade figures were released over the weekend, and the 41.1% jump in exports from a year ago exaggerates the strong recovery that is, in fact, taking place. There were two additional working days, which, if adjusted for, still lifted South Korean exports by almost 29.5%.

The second distortion comes from the base effect. The 25.6% year-over-year decline in April 2020 made for a low base. Nevertheless, the takeaway is that the South Korean economy, which returned to its pre-pandemic peak in Q1, is continuing to expand. Exports are averaging about $2.2 bln a day this year. Shipments of semiconductor chips rose by a little more than 30%, and auto exports rose by almost 73.5% from year-ago levels.

Rising South Korean exports to its major trading partners, including China, the US, EU, ASEAN, and Japan, underscore that the global recovery is accelerating. South Korean imports also surged. The nearly 34% year-over-year increase is exaggerated for the same reason imports were flattered. Three forces appear evident. First, South Korea is embarking on a capex cycle for semiconductor chips. Fabrication equipment imports soared by nearly 135%.

Second, importing intermediate goods and components, like display panels, will be used as inputs for exports. Third, the 25% increase in consumer goods imports speaks to the strength of the domestic economy.

The dollar is rising against the yen for the fifth session in the past six again. It reached JPY109.70, its highest levels since April 13, and has met the (61.8%) retracement objective of the decline since peaking near JPY111.00 at the end of March. The JPY110.00-JPY110.10 is the next hurdle. Support is building near JPY109.20.

The Australian dollar retreated from $0.7800 and dipped below $0.7700 at the end of last week. It consolidating in quiet turnover at the lower end of the pre-weekend range. The nearby cap is seen around $0.7740. With Chinese markets closed, the offshore yuan (CNH) weakened for the second consecutive session. It is the first back-to-back decline in three weeks and appears to simply reflect the better tone of the US dollar. The dollar closed at about CNY6.4750 and is trading around CNH6.4760.

Europe

While the final manufacturing PMI was a bit disappointing, the real takeaway is that the eurozone economy is recovering from the Q1 contraction. Moreover, claims about a double-dip recession that the Financial Times called out in a headline are misleading. It is hard to say that it truly recovered from the “first” one. And recall, there is no fixed definition of a recession. Europe’s seven-day vaccination average has surpassed the US and is still accelerating. In the US, nearly all adults who want a vaccine have gotten at least one jab.

EMU’s April manufacturing PMI stands at 62.9 rather than 63.3 of the preliminary estimate and 62.5 in March. It was at 55.2 at the end of last year—slower supply deliveries, which are how the supply chain bottlenecks are expressed with rising prices. German and French flash readings were shaved, and although Italy and Spain showed improvement, it was not quite as much as economists anticipated.

Although last week’s release of Q1 GDP figures takes away some of the interest in the high-frequency data from March, German retail sales were stellar. March retail sales soared by 7.7%, more than twice the median forecast in the Bloomberg survey. Moreover, the February series was revised to show a 2.7% gain instead of 1.2%.

European negotiators appear more restrained than Iranians about the prospect of a deal on the nuclear accord. Separately, Iran’s state television claimed a deal was struck–prisoner swap with the US and UK and as much as $7 bln in funds, which the US quickly denied. Getting the US and Iran back into compliance with the 2015 agreement has ramifications not just for Iran, which apparently has been hit hard by the pandemic, but also for the oil market.

Already, last month, Iranian output is believed to have risen by 200k barrels per day to around 2.5 mln, which would be the largest increase in OPEC. Iran and several small producers were exempt from the OPEC+ output cuts, which are now being slowly reversed. Iran’s capacity is estimated to be a bit higher than 3.5 mln barrels per day, but it needs around 1.2-1.5 mln bpd for its domestic consumption. Estimates suggest Iran has around 70 mln barrels in floating storage. A deal is thought necessary before the end of this month, ahead of the June 18 Iranian elections.

Russia may be withdrawing its forces that had massed on the Ukraine border, but relations with Central and Eastern Europe are the most strained since the annexation of Crimea in 2014. Whatever goodwill Putin sought through is vaccine diplomacy has been undermined its aggressive behavior. Bulgaria and the Czech Republic believe Moscow was behind explosions in arms depots and the 2016 poisoning of an arms dealer.

They expelled some Russian diplomats, and Moscow retaliated in kind, and Prague kicked out more. Of particular note, Lithuania and Slovakia moved in sympathy and also expelled Russian diplomats. There arguably is a lost opportunity for the UK. Eastern and Central European were natural allies for the British on various issues, including a harder line toward Russia. Meanwhile, the Greens, whose fortunes in Germany are rising as the center (CDU/CSU and the SPD) continues to lose support, seems to also take a harder line against Russia (and China).

The euro initially extended its pre-weekend drop but has subsequently rebounded from a little below $1.2015 to about $1.2055 in the European morning. The intraday technicals are stretched, and the $1.2065-$1.2080 area offers a nearby cap. Similarly, sterling successfully tested $1.3800, where a large option (~GBP845 mln) expires tomorrow. It has recovered to around $1.3860, which stretched the intraday momentum indicators.

Resistance is seen in the $1.3860-$1.3880 area. Separately, we note despite a slightly smaller increase than expected in Turkey’s April CPI (17.14% year-over-year from 16.19% in March, and 17.3% median forecast in Bloomberg’s survey), there is little chance that the central bank will cut rates this week. Last week, it raised this year’s inflation forecast. Yet, the drop in the manufacturing PMI (50.4 from 52.6) illustrates how the high rates and pandemic are weighing on the economy. The dollar has traded on both sides of its pre-weekend range against the lira and is firm in the European morning around TRY8.30.

America

The US has a packed economic diary this week, with the April employment report at the end of the week, the highlight. Another gain of around a million jobs is expected. Today features the final April manufacturing PMI report and the initial ISM manufacturing index, and the economists in Bloomberg’s survey look for a 60k jump in manufacturing jobs last month.

The preliminary look at Q1 GDP last week gives good reason to expect a sharp recovery in construction spending in March after a 0.8%, weather-induced decline in February. April auto sales will trickle in over the course of the North American session. Recall that in March, they jumped to a 17.75 mln seasonally adjusted annual rate. It was the most since December 2017. It may be difficult to have sustained that level in April.

Canada sees its manufacturing PMI today, but the Canadian dollar does not seem particularly sensitive to this report. The March merchandise trade balance is out tomorrow, but the week’s highlight is the employment report at the end of the week. In March, Canada grew a dramatic 303k jobs. The risk is of a weaker report. Note that the better part of three rate hikes has been discounted over the next two years.

Mexico reports its PMIs today, but the focus may be on March worker remittances after President AMLO tipped a record of $4.128 bln. Last year, worker remittances were a greater source of capital inflows than Mexico’s trade surplus ($40.6 bln vs. $34.5 bln). The highlight of the week, though, maybe the CPI report and another gain will solidify ideas that its rate cycle is over. Brazil has a full economic diary, including what is expected to be a record trade surplus. Still, little will distract the market from Wednesday’s central bank meeting, which is expected to signal another 75 bp rate hike.

The US dollar has carved out a small shelf against the Canadian dollar in the CAD1.2265-CAD1.2275 range. Initial resistance near CAD1.2320 has already been tested. A break of it could see the greenback firm to around CAD1.2400. Meanwhile, the dollar is extended last week’s 2.1% gain against the Mexican peso that halted a four-week slide. Today’s high near MXN21.3150 is the best level of the US dollar since early April. The next technical target is a little above MXN21.37. At the end of last week, the dollar jumped 1.8% against the Brazilian real to around BRL5.4450. A move above there will target the BRL5.49 area.

This article was written by Marc Chandler, MarctoMarket.

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

Asia Shares Extend Gains on Supportive Fed, Biden’s Stimulus

By Kane Wu

European and U.S. markets were set to open higher as well, with FTSE futures up 0.15%. E-mini futures for the S&P 500 index rose 0.53% and Nasdaq futures advanced 0.87%.

Biden proposed the sweeping new $1.8 trillion plan in a speech to a joint session of Congress on Wednesday, pleading with Republican lawmakers to work with him on divisive issues and to meet the stiff competition posed by China.

He also made an impassioned plea to raise taxes on corporations and rich Americans to help pay for what he called the “American Families Plan” in his maiden speech to Congress. He has also proposed nearly doubling the tax on investment income, which knocked stock markets last week.

Stephen Dover, Franklin Templeton’s chief market strategist in California, said the effect of the tax package on markets is hard to measure for now.

“If it passes, I think it will have an impact on individual stocks that will pay a higher rate of tax or companies with founders that will pay capital gains and could sell stocks,” he said. “I think investors are going to think about whether they want take their gains now and that creates the possibility of short-term volatility now.”

MSCI’s broadest index of Asia-Pacific shares outside Japan built on early gains and was up 0.46% by mid-afternoon.

Australia’s S&P/ASX 200 edged up 0.24%, as strong oil prices lifted energy stocks.

China’s blue-chip CSI300 index was 0.45% higher, while Hong Kong’s Hang Seng index rose half a percentage point. Seoul’s KOSPI was flat while Taiwan shares rose 0.17%.

Markets in Japan were closed for a holiday but Nikkei futures rose 0.35% to 29,055 points.

For the rest of the day, investors will focus on the first estimate of U.S. GDP for the first quarter, which is expected at 13:30 GMT.

Fed Chair Jerome Powell said on Wednesday that “it is not time yet” to begin discussing any change in policy after the U.S. central bank left interest rates and its bond-buying programme unchanged, despite taking a more optimistic view of the country’s economic recovery.

Excerpts of Biden’s speech released in advance by the White House “hit the high points – big infra(structure) spend, talking climate action and vaccines,” said John Milroy, investment adviser at Ord Minnett. “The Fed remains dovish, all very supportive.”

Tech shares got a boost after Apple Inc on Wednesday posted sales and profits ahead of Wall Street expectations, though it warned a global chip shortage could dent iPad and Mac sales by several billion dollars.

Wall Street ended lower on Wednesday. The Dow Jones Industrial Average fell 0.48% to end at 33,820.38 points, while the S&P 500 lost 0.08% to 4,183.18.

The dollar pared up early losses against the yen to 108.61 and the euro gained 0.07% to 1.2132 following the Fed’s decision to maintain supportive policies.

Oil prices extended gains on Thursday after rising 1% in the previous session as bullish forecasts for a demand recovery this summer offset concerns of rising COVID-19 cases in India, Japan and Brazil.

Brent crude for June rose 0.27% to $67.45 a barrel, while U.S. West Texas Intermediate crude for June was at $64.02 a barrel, up 0.25%.

Spot gold added 0.14% to $1,783.85 an ounce.

(Reporting by Kane Wu in Hong Kong; additional reporting by Andrew Galbraith in Shanghai and Scott Murdoch in Hong Kong; Editing by Jacqueline Wong and Kim Coghill)

Asian Stocks Hit One-Month Highs, Bitcoin Climbs

By Swati Pandey

Indicators were positive for Europe as well with futures for Eurostoxx 50 up 0.2% and Germany’s DAX adding 0.1% though those for London’s FTSE were barely changed.

MSCI’s broadest index of Asia-Pacific shares outside Japan went as high as 699.70, a level not seen since March 18. It was last up 0.1% at 696.46.

The index jumped 1.2% last week and is up 5.1% so far this year, on track for its third straight yearly gain.

“The extremely supportive monetary and fiscal policy setting continues to provide a fertile environment for risk assets,” said Rodrigo Catril, senior forex strategist at National Australia Bank.

Australian shares finished unchanged from Friday’s close while New Zealand’s benchmark index gained 0.6% and South Korea’s KOSPI added 0.1%. Japan’s Nikkei turned around its losses to end flat.

Chinese shares, which started in negative territory, recouped losses with the blue-chip index up 2.2%. Hong Kong’s Hang Seng index rose 0.6%.

On Friday, the S&P 500 gained 0.4% to close at a new record high while clocking its sixth straight weekly gain. The Dow finished 0.5%, also at a record high while the Nasdaq climbed 0.1%.

The gains are unlikely to extend further with e-mini futures for the S&P 500 down 0.2%.

This week is off to a quiet start with no major data releases slated on Monday.

Investors will keep their eyes peeled for earnings from IBM and Coca-Cola later in the day. Netflix reports on Tuesday while later in the week American Airlines and Southwest will be the first major post-COVID cyclicals to post results.

The European Central Bank (ECB) meets on Thursday with no changes to rates or guidance expected while preliminary data on factory activity around the globe for April is due on Friday.

Elsewhere, Bitcoin, the world’s biggest cryptocurrency, reversed its losses after plunging as much as 14% on Sunday following speculation the U.S. Treasury may be looking at cracking down on money-laundering activity within digital assets, NAB’s Catril said.

Data website CoinMarketCap cited a blackout in China’s Xinjiang region, which reportedly powers a lot of bitcoin mining, for the selloff.

The retreat in Bitcoin also comes after Turkey’s central bank banned the use of cryptocurrencies for purchases on Friday.

Bitcoin was last up 1%. It has risen more than 90% year to date, driven by its mainstream acceptance as an investment and a means of payment, accompanied by the rush of retail cash into stocks, exchange-traded funds and other risky assets.

In currencies, the U.S. dollar loitered near a four-week low against a basket of currencies as investors increasingly bought into the Federal Reserve’s insistence it would keep an accommodative policy stance for a while longer.

The dollar index measuring the greenback against a basket of six currencies was unchanged at 91.567, not far from its lowest since March 18 touched on Friday.

Against the Japanese yen, the greenback was off 0.2% at 108.52. The euro was a tad lower at $1.1964 while the British pound gained 0.2% to $1.3854. [FRX/]

The risk-sensitive Aussie dollar climbed to $0.7740.

In commodities, oil prices were down with the Brent slipping 22 cents to $66.55 a barrel and U.S. crude falling 19 cents to $62.94.

Gold was up a tad at $1,776.7 an ounce.

(Editing by Michael Perry and Sam Holmes)

Major Stocks around the world fall, COVID-19 new cases strengthening upward

Asian stocks and U.S Stock futures slumped Thursday morning

As rising caseloads of COVID-19 in parts of America and China dampened hopes of a quick global economic recovery from the most damaging disease ever to hit the human race.

“This tightening will likely negatively impact the economic recovery,” Goldman Sachs analysts said of authorities’ moves to lock down parts of the Chinese capital in response to the current outbreak.

S&P 500 mini futures dropped about 1.2% in at Asia’s trading session while the MSCI’s broadest index of Asia-Pacific shares excluding Japan dropped as much as 1% in value.

In addition, Japan’s Stock Index Nikkei 225 lost 1.3% while in China, Chinese blue-chip index CSI300 shares also lost about 0.1% in early trade.

Asian stocks and U.S Stock futures slumped Thursday morning as rising caseloads of COVID-19 in parts of America and China dampened hopes of a quick global economic recovery from the most damaging disease ever to hit the human race.

“This tightening will likely negatively impact the economic recovery,” Goldman Sachs analysts said of authorities’ moves to lock down parts of the Chinese capital in response to the current outbreak.

S&P 500 mini futures dropped about 1.2% in at Asia’s trading session while the MSCI’s broadest index of Asia-Pacific shares excluding Japan dropped as much as 1% in value.

In addition, Japan’s Stock Index Nikkei 225 lost 1.3% while in China, Chinese blue-chip index CSI300 shares also lost about 0.1% in early trade.

In America, the S&P 500 dropped 0.36% yesterday, however, the tech powerhouse index Nasdaq kept its record-breaking momentum by added 0.15% due to hopes of increased demand for various online services such as online video streaming, remote working and cloud-based services due to the epidemic that had restricted human activities globally.

Meanwhile, China’s announced cancellation of flights, shut educational institutions and sealed off some neighborhoods as it increased efforts to limit COVID-19 resurgence that had strengthened fears around Asia’s economic tiger.

“It is a big shock to markets that China, which appears to have successfully quashed the disease, is seeing a second wave. And in the U.S. we see record cases in many states,” said Norihiro Fujito, chief investment strategist at Mitsubishi UFJ Morgan Stanley Securities.

“All this suggests that the more you re-start the economy, the more infections you have. People have thought the economy will quickly recover in July-September after dismal April-June. But that is now becoming uncertain.”

Global Investors according to reports from Reuters rushed to the safety of U.S bonds, with the 10-year U.S. Treasuries yield dropping by 3 basis points to 0.704%.

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