2025-07-22 05:49

MUMBAI, July 22 (Reuters) - The Indian rupee was marginally stronger on Tuesday and dollar-rupee forward premiums ticked up as concerns over the economic fallout of U.S. President Donald Trump's trade war drove U.S. Treasury yields, the greenback and crude oil prices lower. The rupee ticked up to 86.2650 per U.S. dollar by 11:10 a.m. IST, slightly higher than its close at 86.2925 in the previous session. Sign up here. The dollar index was steady at 97.9 in Asia trading after falling 0.6% on Monday, tracking a decline in U.S. Treasury yields that saw the 10-year yield touch a near two-week low of about 4.35%. Short-term U.S. Treasury yields declined as well, which helped boost far-tenor dollar-rupee forward premiums. The 1-year dollar rupee implied yield rose to an over two-week high of 2.03%, while a fall in rupee liquidity in the banking system helped lift very near-tenor dollar-rupee swap rates. Indian assets largely sidestepped a media report that a trade deal between India and the U.S. is unlikely before August 1 with equities and the rupee clinging to slight gains while the yield on the benchmark 10-year bond was little changed. Steep reciprocal levies on exports to the U.S. are slated to go into effect next month with India likely to face a 26% charge in the absence of a deal. "The rupee’s trajectory remains tilted toward further weakness, with both the 86.00 and 86.20 levels now breached. This opens the door for a move toward 86.50–86.80," said Amit Pabari, managing director at FX advisory firm CR Forex. In addition to uncertainty on global trade dynamics, muted foreign portfolio flows have also been a sore point for the rupee. Overseas investors have net sold about half a billion dollars of local stocks in July so far while year-to-date outflows stand at nearly $9.5 billion. https://www.reuters.com/world/india/drop-us-treasury-yields-helps-indian-rupee-2025-07-22/

2025-07-22 05:39

Beijing signals it will intervene in producer price wars Expectations grow for a new round of industrial capacity cuts Local government incentives may curb Beijing's efforts, analysts say Stimulating consumer demand still key to fight deflation BEIJING, July 22 (Reuters) - China's hardened rhetoric against price wars among producers is raising expectations Beijing may be about to kick off industrial capacity cuts in a long-awaited, but challenging, campaign against deflation that carries risks to economic growth. Communist Party leaders pledged this month to step up regulation of aggressive price-cutting, with state media running its harshest warnings yet against what it describes as a form of industrial competition that damages the economy. Sign up here. These signals echo Beijing's supply-side reforms a decade ago to reduce the production of steel, cement, glass and coal, which were crucial to ending a period of 54 consecutive months of falling factory gate prices. This time, however, the fight against deflation will be much more complicated and poses risks to employment and growth, economists say. The trade war with the U.S. meanwhile is intensifying price wars, squeezing factory profits. Challenges Beijing didn't face last decade include high private ownership, misaligned incentives at local and national level, and limited stimulus options in other economic sectors to absorb the job losses resulting from any capacity cuts. Beijing sees employment as key to social stability. Exporters and even the state sector are already shedding jobs and cutting wages, while youth unemployment runs at 14.5%. "This round of supply-side reform is far, far more difficult than the one in 2015," said He-Ling Shi, economics professor at Monash University in Melbourne. "The likelihood of failure is very high and if it does fail, it would mean that China’s overall economic growth rate will decline." Economists expect that any efforts by Beijing to reduce capacity will be undertaken in small, cautious, steps, with officials - keen to achieve annual economic growth of roughly 5% - keeping a close eye on spillover effects. An expected end-July meeting of the Politburo, a decision-making body of the Party, might issue more industry guidelines, although the conclave rarely delivers a detailed implementation roadmap. Analysts expect Beijing to first target the high-end industries that it once billed as the "new three" growth drivers, but which state media now singles out for fighting price wars: autos, batteries and solar panels. Their expansion accelerated in the 2020s as China redirected resources from the crisis-hit property sector to advanced manufacturing to move the world's No.2 economy up the value-chain. But China's industrial complex, a third of global manufacturing, looks bloated across the board. Most sectors have capacity utilisation rates below the 80% "healthy" level, Societe Generale analysts said, blaming weak domestic demand and an investment-driven growth model that favours producers over consumers. U.S. and EU officials have repeatedly complained that this model is flooding global markets with cheap goods made in China and endangers their domestic industries. A foreign chemicals company manager surnamed Jiang, who asked for partial anonymity to discuss the industry, said overcapacity in her sector was evident as early as 2023, yet firms continue to expand. "If money is cheap and abundant, any company thinks it won't go bankrupt and can crush competitors to death," Jiang said. LOCAL INCENTIVES For all the state support manufacturers receive, most are privately owned, unlike the raw material producers Beijing trimmed last decade, largely through blunt administrative orders. Reducing capacity now requires a less predictable process of curbing subsidies, cheap land supply, preferential loans or tax rebates, then letting markets pick winners and losers. But the local officials who would have to implement this have the opposite incentive: developing industry champions that draw supply chain investments and employment to their region. "Local governments, in their efforts to transform the local economy, encouraged firms to invest in these new sectors," like solar or batteries, a policy adviser said on condition of anonymity due to the topic's sensitivity. "There’s nothing inherently wrong with transformation and upgrading, but the problem is that everyone is targeting the same few sectors," said the adviser, adding that the U.S. trade war has exposed such industries as being "too big." Yan Se, deputy director of the Institute of Economic Policy at Peking University, said local government resistance would turn "important and necessary" capacity cuts into a long-term, gradual process that won't end deflationary pressure on its own. Stimulating demand would work better, Yan told a conference last week. FOREVER BLOWING BUBBLES Producer prices dropped for the 33rd month in June. China faces a painful trade-off between a deeper and shorter stretch of price falls as output cuts trigger job losses and a longer run of overcapacity and deflation that delays the blow to employment, economists say. Macquarie estimates last decade's reforms chopped tens of millions of jobs. But an ambitious project to redevelop shanty-towns across China, estimated by Morgan Stanley at 10 trillion yuan ($1.4 trillion), offered displaced workers new ones. Manufacturing is now much less labour intensive. Still, jobs will be lost, and "there's no way" other economic sectors, also facing weak consumer demand, can absorb the shock, said Monash University's Shi. In another echo from last decade, high-level talk of urban redevelopment re-emerged last week. But any new investment in that area would likely be too small to compensate for lost industrial activity and jobs. "I don't think we can expect real estate to digest job losses from supply-side reforms anymore," said John Lam, head of Greater China property research at UBS. "It was used for that in the past and it created overcapacity in our sector," said Lam. Authorities "don't seem to be going in that direction, which I think is correct." ($1 = 7.1772 Chinese yuan renminbi) https://www.reuters.com/business/autos-transportation/industrial-pruning-wont-pull-china-out-deflation-quickly-last-time-2025-07-22/

2025-07-22 05:34

Japan's Nikkei rises in relief rally after priced-in election US dollar subdued as investors await tariff clarity Fed independence remains a worry for investors SINGAPORE, July 22 (Reuters) - Asian share markets drifted lower after scaling a near four-year peak on Tuesday ahead of a slate of corporate earnings, while investors took stock of tariff negotiations between the U.S. and its trading partners. The dithering mood is set to continue in Europe where the focus will be on earnings from firms including SAP (SAPG.DE) , opens new tab and UniCredit (CRDI.MI) , opens new tab. EUROSTOXX 50 futures and DAX futures both dipped 0.5%, while FTSE futures eased 0.3%. Sign up here. MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) , opens new tab hit its highest level since October 2021 in early Asian hours but was last down 0.4%. The index is up nearly 16% this year. The S&P 500 (.SPX) , opens new tab and the Nasdaq (.IXIC) , opens new tab notched record-high closes on Monday. The Japanese markets returned to action after a holiday on Monday following the weekend's election where the ruling coalition suffered a defeat in upper house elections, although Prime Minister Shigeru Ishiba vowed to remain in his post. Japanese shares (.N225) , opens new tab, (.TOPX) , opens new tab briefly jumped at the open but reversed course to trade lower by Tuesday afternoon, as the election results were largely priced in and were not as bad as investors had feared. The yen rallied 1% on Monday, recouping some of the losses from past weeks and was last slightly weaker at 147.73 per dollar. Kristina Clifton, an economist at the Commonwealth Bank of Australia, said the weakening of Ishiba's leadership will open the door to more fiscal expansion that is negative for Japanese assets, including the yen. "The bottom line is longer term Japanese government bond yields and JPY can fall if concerns about Japan’s fiscal spending deepen." Investor focus has been on tariff negotiations ahead of the August 1 deadline with the European Union exploring a broader set of possible countermeasures against the United States as prospects for an acceptable agreement with Washington fade. The most important deals for the global outlook are with the EU and Japan, CBA's Clifton said. "The USD reaction to the announcement of trade deals with these countries would depend on the details of the deals in our view," Clifton added, noting the dollar could turn down again against the euro and the British pound. The euro was steady at $1.1689, after rising 0.5% in the previous session but still away from the near four-year high it touched at the start of the month. The single currency is up 13% this year as investors look for alternatives to U.S. assets bruised by tariff uncertainties. The dollar index , a measure against six other key currencies, was at 97.905. Investors are awaiting results this week from Wall Street giants Alphabet and Tesla (TSLA.O) , opens new tab, as well as from European heavyweights LVMH (LVMH.PA) , opens new tab, and Roche (ROG.S) , opens new tab, as uncertainty over tariffs clouds the outlook. The rumblings around the Federal Reserve's independence and whether U.S. President Donald Trump will fire Fed Chair Jerome Powell have kept investors on tenterhooks in recent weeks. Trump appeared near the point of trying to fire Powell last week, but backed off with a nod to the market disruption that would likely follow. U.S. Treasury Secretary Scott Bessent said on Monday the entire Federal Reserve needed to be examined as an institution and whether it had been successful, further exacerbating concerns about the independence of the U.S. central bank. The Fed is widely expected to hold rates steady in its July meeting but might lower rates later in the year. Market focus will be squarely on Powell's speech later on Tuesday for clues about when the Fed might ease policy. Goldman Sachs strategists expect the Fed to deliver three consecutive 25-basis-point cuts starting in September, "provided inflation expectations remain in check amidst worries about Fed independence." In commodities, Brent crude futures fell nearly 1% to $68.56 a barrel, while U.S. West Texas Intermediate crude slipped 1% to $66.51 per barrel. https://www.reuters.com/world/china/global-markets-update-1-wrapup-1-2025-07-22/

2025-07-22 05:23

Currencies trade in tight range Yen holds on to gains after Japan's upper house election result Investors eyeing progress in more trade talks SINGAPORE, July 22 (Reuters) - The U.S. dollar traded in a tight range on Tuesday after a brief fall at the start of the week, as investors watched out for any progress on talks ahead of an August 1 deadline for countries to strike trade deals with the U.S. or face steep tariffs. The yen mostly held on to gains from the previous session following results from a weekend upper house election in Japan that proved no worse than what had already been priced in, with focus now on how quickly Tokyo can strike a trade deal with Washington and Prime Minister Shigeru Ishiba's future at the helm. Sign up here. The Japanese currency was last a touch weaker at 147.57 a dollar, after rising 1% on Monday in the wake of the election outcome. The bruising defeat suffered by Ishiba and his ruling coalition also drew just a modest response in the broader Japanese market, which returned from a holiday. "The initial relief for the yen that the ruling coalition did not lose even more seats and that Prime Minister Ishiba plans to hang on to power is likely to prove short-lived," said MUFG senior currency analyst Lee Hardman. "The pick-up in political uncertainty in Japan could complicate reaching a timely trade deal with the U.S., posing downside risks for Japan's economy and the yen." With just slightly more than a week to go before the August 1 deadline, U.S. Treasury Secretary Scott Bessent said on Monday that the administration is more concerned with the quality of trade agreements than their timing. Asked whether the deadline could be extended for countries engaged in productive talks with Washington, Bessent said President Donald Trump would make that decision. Uncertainty over the eventual state of tariffs globally has been a huge overhang for the foreign exchange market, leaving currencies trading in a tight range for the most part, even as stocks on Wall Street have scaled fresh highs. "Nothing that happens on August 1 is necessarily permanent, so long as the U.S. administration remains willing to talk, as was indicated in Trump's letters from two weeks ago," said Thierry Wizman, global FX and rates strategist at Macquarie Group. The dollar was last steady after slipping in the previous session due in part to the yen's rise and a dip in U.S. Treasury yields, leaving sterling trading 0.13% lower at $1.3474. The euro eased slightly to $1.1689, with focus also on a rate decision by the European Central Bank later this week, where expectations are for policymakers to stand pat on rates. The European Union is exploring a broader set of possible counter measures against the United States as prospects for an acceptable trade agreement with Washington fade, according to EU diplomats. Against a basket of currencies, the dollar rose slightly to 97.882, having fallen 0.6% on Monday. Also weighing on investors' minds were worries about the Federal Reserve's independence, given Trump has repeatedly railed against Chair Jerome Powell and urged him to resign because of the central bank's reluctance to cut interest rates. "Our base case remains that solid U.S. data and a tariff- driven rebound in inflation will keep the FOMC on hold into 2026, and that the resulting shift in interest rate differentials will drive a continued rebound in the dollar in the next few months," said Jonas Goltermann, deputy chief markets economist at Capital Economics. "But that view is clearly at the mercy of the White House's whims." Elsewhere, the Australian dollar eased to $0.65215, while the New Zealand dollar fell 0.09% to $0.5963. Minutes of the Reserve Bank of Australia's latest policy meeting out on Tuesday showed policymakers judged that lowering interest rates for a third time within four meetings was not consistent with the strategy of a cautious and gradual easing. https://www.reuters.com/world/africa/us-dollar-indecisive-investors-await-more-tariff-clarity-2025-07-22/

2025-07-22 05:21

ECB's policy decision due on Thursday Dollar hovers near over one-month low Palladium down more than 1% July 22 (Reuters) - Gold prices climbed on Tuesday to their highest level in more than a month, supported by a weaker U.S. dollar and lower Treasury yields, as investors looked for progress in trade talks ahead of an August 1 deadline. Spot gold was little changed at $3,389.98 per ounce, as of 0503 GMT. Earlier in the session, bullion hit its highest level since June 17. Sign up here. U.S. gold futures held their ground at $3,402.90. "Gold's move on the upside has been pretty much supported by positive technicals and as well as reinforced by a broad base of dollar weakness," OANDA senior market analyst Kelvin Wong said. The U.S. dollar index (.DXY) , opens new tab was hovering near a more than one-week low against its rivals, making greenback-priced gold less expensive for other currency holders. Benchmark 10-year U.S. Treasury yields hit a more than one-week low on Monday. USD/US/ The European Union is exploring a broader set of possible countermeasures against the United States as prospects for an acceptable trade agreement with Washington fade, according to EU diplomats. U.S. President Donald Trump has threatened 30% duties on imports from Europe if no agreement is signed before the August 1 deadline. "There could be a possibility that U.S. and the respective trading partners may not agree to the terms and condition and that potentially could see a bit of uncertainty and there could be some hedging activities by market participants going forward," Wong said. Also on radar, the European Central Bank is expected to hold interest rates steady at 2.0% following a string of cuts at the end of its policy meeting on July 24. The U.S. Federal Reserve's monetary policy is scheduled for next week. Traders are pricing about a 59% chance of a rate cut by the Fed in September, according to the CME FedWatch Tool. Gold tends to perform well in a low-interest-rate environment. Spot silver fell 0.5% to $38.71 per ounce, platinum added 0.3% to $1,442.55 and palladium fell 1.3% to $1,250.19. https://www.reuters.com/world/china/gold-over-one-month-high-weak-dollar-bond-yields-lift-appeal-2025-07-22/

2025-07-22 04:55

Prospects of big spending, weak yen could push up inflation Some in BOJ already wary of mounting inflationary pressure Japan may compile big spending package amid opposition calls Weak yen may be decisive nudge for further rate hikes TOKYO, July 22 (Reuters) - Japan's election outcome may put the central bank in a double bind as prospects of big spending could keep inflation elevated while potentially prolonged political paralysis and a global trade war provide compelling reasons to go slow on rate hikes. Lingering political uncertainty may also weaken the yen and push up import costs, some analysts say, adding to mounting price pressures that conflict with the Bank of Japan's current approach to stand pat until the political storm calms. Sign up here. The rising cost of living was among factors that led to the bruising defeat of Prime Minister Shigeru Ishiba's ruling coalition in upper house elections on Sunday. With inflation holding above the BOJ's 2% target for over three years now, some BOJ board members have already warned of growing price pressure. Junko Koeda recently argued for the need to monitor second-round effects from rising rice costs. Another board member, Hajime Takata, said this month the BOJ must resume rate hikes after a temporary pause as Japan was on the cusp of achieving the bank's 2% target. "If upward inflation risks heighten, the BOJ may need to act decisively as a guardian of price stability," its hawkish policymaker Naoki Tamura said late last month. Now a minority in both chambers of parliament, Ishiba's ruling camp must compromise with opposition parties, which have called for tax cuts and bigger spending, to pass legislation. In a nod to such calls, Ishiba said on Monday he would stay on as prime minister and work with other parties on measures to cushion the blow to households from rising inflation. While a cut to the consumption tax would leave a huge hole in Japan's worsening finances, doing so would require passing legislation through parliament and take time. More likely would be for Japan to compile an extra budget in autumn to fund payouts and tax breaks. The size could exceed last year's 14-trillion-yen ($95 billion) package given heightening opposition demands for bolder steps, analysts say. "A supplemental budget this fall to help firms cope with U.S. tariffs was expected even before the vote. Now, opposition parties may demand a larger package," said David Boling, a director at consulting firm Eurasia Group. YEN MOVES KEY To be sure, Japan's economy may need the fiscal boost after shrinking in the first quarter and seen taking a hit from U.S. tariffs that are already hurting its mainstay automobile sector. But market worries over Japan's huge debt and political instability could weaken the yen, and cast doubt on the BOJ's view cost-push pressure will ease later this year, analysts say. "With Ishiba signaling his resolve to stay on as premier, markets are now in a wait-and-see mood. But that doesn't mean the chance of yen declines has disappeared, as the election definitely weakened administration's standings," said Tsuyoshi Ueno, an economist at NLI Research Institute. Unlike other major economies, Japan's inflation-adjusted real interest rates remain deeply negative due to the slow pace at which the BOJ rolled back a decade-long, massive stimulus. After raising short-term interest rates to 0.5% in January, Governor Kazuo Ueda has signaled a pause in rate hikes until there is more clarity on the economic impact of U.S. tariffs. Given the risk from U.S. tariffs, many analysts now expect no rate hike for the rest of this year. But staff BOJ estimates suggest its policy rate must rise at least to 1% to reach levels that neither stimulates nor cools growth. In the end, a renewed yen decline could be the next decisive nudge towards further rate hikes, some analysts say. Although the BOJ is guaranteed by law independence from government interference, it has historically been sensitive to political developments. Its massive stimulus in 2013 was deployed after intense pressure from then premier Shinzo Abe to reverse a strong yen and beat deflation. The BOJ's exit from ultra-loose policy last year came after a flurry of calls from politicians to help stem sharp yen falls that were pushing up import costs. "For the BOJ, the biggest concern is how the election could change the government's focus on economic policy, and how markets could react," said a source familiar with its thinking. Veteran BOJ watcher Mari Iwashita sees the chance of a rate hike in October if the yen, now around 147 to the dollar, falls below 150 and puts upward pressure on prices. "Sustained yen weakness would push up underlying inflation, so could be a key trigger for policy action," said Iwashita, who is executive rates strategist at Nomura Securities. ($1 = 147.4300 yen) https://www.reuters.com/business/finance/how-japans-election-outcome-muddles-bojs-policy-path-2025-07-22/