2024-08-20 06:07

SHANGHAI/SINGAPORE, Aug 20 (Reuters) - China left benchmark lending rates unchanged at a monthly fixing on Tuesday, in line with market expectations. WHY IT'S IMPORTANT The steady monthly LPR fixings met market expectations, as shrinking interest margins at lenders hampered continued easing efforts after China lowered a string of key interest rates a month earlier. BY THE NUMBERS The one-year loan prime rate (LPR) was kept at 3.35%, while the five-year LPR was unchanged at 3.85%. In a Reuters survey of 37 market participants conducted this week, all respondents expected both rates to stay unchanged. CONTEXT Most new and outstanding loans in China are based on the one-year LPR, while the five-year rate influences the pricing of mortgages. China surprised markets by cutting major short- and long-term interest rates in July, its first such broad move in almost a year, signalling policymakers' intent to strengthen economic growth. The sequence of the rate cuts also showed the PBOC's monetary framework had changed, shifting the short-term rate to being the main signal guiding markets, traders and analysts said. China's bank lending tumbled more than expected last month, hitting the lowest in nearly 15 years, dragged down by tepid credit demand and seasonal factors and raising expectations that the central bank may deliver more easing steps. KEY QUOTES Economists at Goldman Sachs: "The expansionary fiscal policy, along with other support including continued monetary policy easing, is needed to stem further weakening in domestic demand and to ensure real GDP growth stays close to 5% year-on-year in the second half of this year. We believe the growth target is important to the authorities and recent policy communications have indicated so." They expect one 25-basis-point reserve requirement ratio (RRR) cut in the third quarter, followed by another 10-basis-point policy rate cut in the fourth quarter of this year. Sign up here. https://www.reuters.com/markets/asia/china-leaves-key-lending-benchmarks-unchanged-expected-2024-08-20/

2024-08-20 05:39

NEW YORK/LONDON, Aug 20 (Reuters) - Global stocks hovered near their highest in a month on Tuesday, while the dollar hit an eight-month low, as investors focused on bets that the U.S. Federal Reserve could offer further hints of imminent interest rate cuts. With the data calendar relatively light across major economies this week, all eyes are on Wednesday's release of the Fed's July meeting minutes and Chair Jerome Powell's speech at Jackson Hole on Friday for clues on the outlook for U.S. rates. Fed policymakers have in recent days signalled possible easing in September, priming markets for a similar tone from Powell and other speakers at the annual meeting of global central bankers in Jackson Hole, Wyoming. "Markets believe that once the Fed starts cutting rates it will pursue a predictable strategy of reducing them at every, or almost every, meeting over the next 12 months," said Nicholas Colas, co-founder of DataTrek Research LLC. "While that might sound like an aggressive, even worrisome, expectation, consider that eight 25 basis point reductions would only take Fed Funds to 3.25% – 3.50%. That’s still above the Fed’s own estimate of the neutral rate of interest," Colas said. Investors hope that monetary policy easing is in the offing to help support stock markets. The S&P 500 (.SPX) , opens new tab shed modest gains earlier in the day to finish down 0.2%, the Nasdaq Composite (.IXIC) , opens new tab lost 0.3%, and the Dow Jones Industrial Average (.DJI) , opens new tab eased 0.2%. That kept a MSCI index for global stocks (.MIWO00000PUS) , opens new tab unchanged near its strongest level in over a month. "Should they acknowledge the U.S. economy's disinflation path, it will confirm a September rate cut," Thierry Wizman, a global currency and rates strategist at Macquarie, said about the Fed. "Markets will likely turn on the extent to which Powell opens the door for the possibility of a 50 basis point cut at one of the next three FOMC meetings." In line with expectations of lower rates, the benchmark 10-year Treasury yield fell to 3.818%. Futures markets are fully pricing in a 25 basis point cut from the Fed in September, with around a 25% chance of a 50 basis point cut. In Europe, the STOXX 600 index (.STOXX) , opens new tab lost 0.5%, having recovered most of the losses seen after a weak U.S. labour market report prompted worries about the health of the economy. "Since the report, we've had number after number after number suggesting that a recession in the U.S. economy is not around the corner," said Josephine Cetti, chief investment strategist at Nordea, citing strong U.S. retail sales, upbeat business surveys, improving jobless claims numbers and a benign inflation reading. "The recession fears have been dampened over the last couple of weeks and the market has rebounded a lot," Cetti added. MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) , opens new tab hit a one-month high before giving up some gains to trade 0.3% higher. Japan's Nikkei 225 (.N225) , opens new tab rose to its strongest level in over two weeks, closing up 1.8%, but Chinese blue-chips (.CSI300) , opens new tab fell 0.7% on continued worries over the country's gloomy economic outlook. Hong Kong's Hang Seng Index (.HIS) , opens new tab edged down 0.3%. FED EXPECTATIONS DENT DOLLAR Expectations of a dovish Fed outcome this week left the dollar struggling at a near eight-month low against the euro , which peaked at $1.12775 on Tuesday. Sterling briefly touched its highest in over a year and last bought $1.30540. The dollar index was last at 101.41, its lowest since January. Spot gold touched another record high of $2531.60 an ounce, drawing support from a broadly weaker dollar and on expectations of imminent U.S. rate cuts. Against the yen, the dollar was down 0.8% at 145.34 , with traders looking to Bank of Japan Governor Kazuo Ueda's appearance in parliament on Friday, where he is set to discuss the central bank's decision last month to raise interest rates. The BOJ's hawkish tilt had injected huge volatility into markets as investors aggressively unwound yen-funded carry trades, rocking stocks globally. The market turmoil has since abated after BOJ Deputy Governor Shinichi Uchida earlier this month played down the chance of further rate hikes in the near term. "With markets calming, Ueda may change tack and return to talking about normalising interest rates," said Joseph Capurso, head of international and sustainable economics at Commonwealth Bank of Australia. In commodities, oil prices extended earlier losses, with Brent crude last down 0.6% at $77.21 a barrel. U.S. crude fell 0.7% to $74.04 per barrel. Sign up here. https://www.reuters.com/markets/global-markets-wrapup-1-2024-08-20/

2024-08-20 05:32

Aug 20 (Reuters) - The dollar hit a fresh seven-month low on Tuesday with traders bracing for comments from Federal Reserve Chair Jerome Powell due on Friday, which could provide clues about the speed of the U.S. monetary easing cycle. Meanwhile, Sweden's crown fell after swinging up and down in morning trade as the central bank cut rates and said it could speed up policy easing if price pressures did not pick up. It was last down 0.33% at 10.27 versus the U.S. dollar after hitting 10.33 earlier in the session a few minutes after the Riksbank announcement. "None of this (Riksbank statement) is hugely surprising, but it’s still remarkable just how much the central bank’s stance has changed over these past few months," said James Smith, economist at ING. The euro last fetched $1.1078 on Tuesday having touched $1.1087, its highest since Dec. 28 in early trading. The dollar index , which measures the U.S. currency against six rivals, was last at 101.82 after touching its lowest since Jan. 2 of 101.76 earlier in the European session. The focus this week is Powell's speech during an annual gathering of central bankers in Jackson Hole, but minutes of the Fed's last meeting will also be in the spotlight. Some analysts say the next few weeks will likely prove decisive on whether the Fed cuts by 50-75 bps this year or by 150 bps or more. The Jackson Hole conference is the first opportunity for the Fed to push back against the chance of a 50-bps cut at one of the year's three remaining meetings, they add. While labour market deterioration led to expectations for a quicker monetary easing, data since then has been mixed with upbeat retail sales. Still, the U.S. economy remains "susceptible to a recession if there's a financial shock", said Thierry Wizman, global forex and rates strategist at Macquarie. "But that financial shock may not be forthcoming," he added. "In that case, we may stay at below-trend growth and look 'peakish', until the Fed has eased sufficiently." Markets are pricing in a total of 94 bps of Fed rate cuts this year. A slim majority of economists polled by Reuters expect the Fed to ease by 25 bps at each of the remaining three meetings. Expectations for the presidential elections' outcome are also weighing on the greenback. "As her (Kamala Harris) chances of winning some key swing states have improved, traders have abandoned a few of the (Donald) Trump trades, among which was a stronger dollar," Macquarie's Wizman argued. Investors expected the greenback to rise in case of a Trump victory as tariffs would prop up the currency and higher fiscal spending would boost interest rates. UEDA AWAITED The Japanese yen was slightly weaker at 146.98 per dollar, still close to the near two-week high it touched in the previous session but grinding away from the seven-month high of 141.675 it touched at the start of August. Bouts of intervention by Tokyo at the start of last month and a surprise rate hike have pulled the yen away from the 38-year lows of 161.96 it was stuck at in early July and wrong-footed investors who sharply cut their bets against the yen. Investor attention will be on Bank of Japan Governor Kazuo Ueda when he appears in parliament on Friday. Ueda is expected to discuss the BOJ's decision last month to raise rates and the focus will be on whether he sticks to his recent hawkish tone. Analysts said the yen's pace of appreciation will likely be more gradual as the data shows most speculative short positions have been cleared. The latest weekly data to Aug. 13 showed leveraged funds - typically hedge funds and various types of money managers - flipped their long-standing short yen position and are now net long for the first time since March 2021. Barclays recalled that monthly data showed retail investors halved their net short U.S. dollar/yen positions in July as the yen rallied amid a resurgence in BOJ rate hike expectations. (This story has been refiled to fix the spelling of Kamala in paragraph 15) Sign up here. https://www.reuters.com/markets/currencies/dollar-seven-month-low-rate-cut-bets-powell-speech-focus-2024-08-20/

2024-08-20 05:29

Gold is up 22% so far in 2024 Minutes of Fed's July FOMC meeting due Wednesday Holdings of world's largest gold ETF jump to 7-month high Aug 20 (Reuters) - Gold prices extended their record run on Tuesday, holding firm above the key $2,500 level, driven by a weaker dollar and growing investor confidence that the Federal Reserve will likely cut interest rates in September. Spot gold rose 0.3% to $2,510.35 per ounce by 01:44 p.m. ET [1744 GMT], after hitting an all-time high of $2,531.60 earlier in the session. U.S. gold futures settled 0.4% higher at $2,550.6. The dollar index (.DXY) , opens new tab sank to a seven-month low, making gold more attractive for other currency holders, while benchmark U.S. 10-bond yields slipped. "The primary drivers of the gold price move are financial investment demand, particularly with ETF buying improving and overall improved sentiment as the expectations of Fed easing cycle to begin in September," said Aakash Doshi, head of commodities, North America at Citi Research Gold could reach $3,000 per ounce by mid-2025 and $2,600 by the end of 2024, Doshi added. Holdings of SPDR Gold Trust GLD, the world's largest gold-backed exchange-traded fund, jumped to their highest in seven months at 859 tons on Monday. Markets are pricing in about a 71.5% chance of Fed cutting interest rates by 25 basis points in September, according to the CME FedWatch Tool , opens new tab. Traders will be closely monitoring the minutes of the Fed's July policy meeting on Wednesday and Fed Chair Jerome Powell's keynote speech at the Jackson Hole symposium at the end of the week for more cues on rate cuts. Positioning in gold might be overextended, with expectations of significant Fed rate cuts possibly leading to a correction if this narrative is challenged, said Daniel Ghali, commodity strategist at TD Securities. Gold, which tends to thrive in a low-interest-rate environment, has risen more than 20% so far this year and heading for the best year since 2020. "Geopolitical uncertainties, the rise in speculative interest, and substantial global ETF inflows are further fueling the bullish trend in gold," said Joseph Cavatoni, market strategist at World Gold Council. Elsewhere, spot silver fell 0.2% to $29.42 per ounce, platinum eased 0.5% to $949.05 and palladium fell 0.5% at $927.00. Sign up here. https://www.reuters.com/markets/commodities/gold-steady-near-record-high-investors-seek-more-fed-cues-2024-08-20/

2024-08-20 05:17

38 of 40 economists expect rates to be on hold at 3.50% on August 22 BENGALURU, Aug 20 (Reuters) - The Bank of Korea will keep its key interest rate at 3.50% on Thursday and cut it next quarter after the U.S. Federal Reserve likely begins easing in September, according to a Reuters poll. The benchmark rate has been at 3.50% since January 2023. With inflation rising 2.6% in July from an 11-month low of 2.4% in June, moving further away from the central bank's 2% target, the BOK may need to see prices stabilising before it starts to ease policy. The Korean won , which has lost over 3% against the dollar this year and is one of the worst-performing emerging market currencies in 2024, was also likely to prevent the BOK from leapfrogging the U.S. Federal Reserve's first rate cut, which is widely expected to come in September. A strong majority of economists, 38 of 40, in the Aug. 13-19 poll forecast the central bank would keep its base rate unchanged at 3.50% on Aug. 22. The remaining two predicted a 25 basis point cut to 3.25%. Although two board members said in July they were open to rate cuts, economists cautioned such a move could exacerbate house price increases in Seoul, heightening concerns in a country with one of the world's highest household debt-to-GDP ratios, at 104.3% in the first quarter. "The BoK will continue to signal a more dovish stance, albeit cautiously, given persistent concerns about rising home prices and the associated financial stability risks," wrote Krystal Tan, economist at ANZ Bank. "Our base case is still for the BoK to kick off its rate easing cycle in October, following a likely Fed pivot in September. The government is also set to tighten debt service ratio regulations from September, which should help contain growth in household debt." Median forecasts showed no change to interest rates this quarter but predicted a 25 basis point cut to 3.25% in the October-December quarter. This outlook was largely unchanged from a July survey. Among economists who provided an outlook until the end of 2024, 27 forecast the rate would be at 3.25%, while eight predicted 3.00%. "We think the BOK will cut rates in October, with inflation higher than expected there is no urgency... to cut as soon as August. Also, house prices in Korea (are) actually quite high at the moment," said Kelvin Lam, senior economist at Pantheon Macroeconomics. The BOK has cited growth in household debt and rising home prices as key factors it is monitoring before opening the door to rate cuts. House price increases accelerated in July, with prices in Seoul increasing the most in over four years. Going into next year, the BOK was expected to cut rates by an additional 75 basis points, bringing its interest rate to 2.50% by the end of 2025, the poll showed. (This story has been refiled to fix the wording in the headline) Sign up here. https://www.reuters.com/markets/asia/bank-korea-stay-pat-thursday-first-rate-cut-seen-oct-2024-08-20/

2024-08-20 04:32

A look at the day ahead in European and global markets from Rae Wee There's a lot hinging on Federal Reserve Chair Jerome Powell's speech at the end of this week but, until then, stocks look set for a buoyant ride as investor confidence builds for dovish rhetoric from the world's most powerful central banker. Asian shares touched a one-month peak on Tuesday and stock futures largely point to a positive open when London and New York wake up. Even Japan's Nikkei (.N225) , opens new tab shrugged off the weight of a stronger yen and hit its highest in more than two weeks. A chorus of Fed speakers has in recent days signalled their intent for a September rate cut, which makes it all the more unlikely that Powell will deviate from the script on Friday when he addresses the central bank's annual gathering at Jackson Hole, Wyoming. Markets are already fully priced for 25 basis points of easing next month, so the focus will be on whether Powell offers clues on the possibility of an even bigger cut, and what he says about the outlook for the world's largest economy. Elsewhere, Sweden's central bank announces a policy decision later on Tuesday, where analysts expect rates to be lowered by a quarter percentage point. They see two more cuts likely before the end of the year. Canada will report figures for July inflation, which is seen slowing to 2.5% on an annual basis from 2.7% in June. That would likely cement the case for further rate cuts from the Bank of Canada. In Asia, China left its benchmark lending rates unchanged at a monthly fixing on Tuesday, as expected, given shrinking interest margins at lenders that have limited Beijing's easing efforts. Key developments that could influence markets on Tuesday: - Germany producer prices (July) - Fed's Bostic, Barr speak - Riksbank rate decision - Canada inflation report (July) Sign up here. https://www.reuters.com/markets/europe/global-markets-view-europe-2024-08-20/