2025-01-14 11:12
A look at the day ahead in U.S. and global markets from Mike Dolan Thanks largely to a stabilisation of bond markets and an ebbing of the super-strong dollar, global stocks caught a rare new year bid on Tuesday with critical inflation and corporate earnings updates now in view. A slightly bizarre narrative developed behind Monday's bounce in stocks, with some citing a Bloomberg report claiming President-elect Donald Trump's team is studying gradual tariff hikes - using emergency legislation to boost import duties 2%-5% per month until they wreak concessions from trade partners. While it may have sown some relief that larger one-off tariff rises are not coming as soon as next week, the prospect of months - or even years - of drip-fed tariff hikes, and serial threats of such, doesn't sound like a recipe for smooth market sailing or easier inflation concerns ahead. Nevertheless, this year's relentless selloff in Treasuries has paused at least over the past 24 hours and a slightly more positive posture there filtered through Wall Street stocks and out across the world overnight. With December producer and consumer price reports due out today and Wednesday, respectively, 10-year benchmark Treasury yields have dialled back from 14-month highs above 4.8% hit on Monday and 30-year 'long bond' yields are balking at 5% for now. Helping the mood on Monday was the release of the New York Fed's December consumer survey, which painted a more mixed picture of public inflation expectations than a sparkier University of Michigan readout last Friday. The latter had aggravated bonds' post-payrolls swoon late last week. The NY Fed poll showed households' expected path of inflation a year from now remained steady at 3%. While the 3-year view rose to 3% from 2.6% in November, the 5-year view ebbed to 2.7% from 2.9%. This saw Fed futures find their feet and the market is back pricing one interest rate cut this year - by October - compared to a scenario early yesterday morning that showed none fully priced for the whole of 2025. A stalling of crude oil prices , which hit four-month highs on Monday on the latest U.S. sanctions on Russia, also calmed the bond market horses a bit. However, annual headline and 'core' U.S. producer price inflation readings due later on Tuesday are expected to see a significant pickup up in 3.4% and 3.8% respectively. And more importantly, tomorrow's consumer price report is expected to show the 'core' annual inflation rate stuck as high as 3.3% last month. Market inflation expectations embedded in Treasury inflation-protected securities are now just a whisker from 2.5% for the first time since October 2023. The NY Fed's estimate of the so-called 'term premium' demanded by investors to hold 10-year Treasuries, meantime, hit almost 65 basis points on Monday for the first time since September 2014. But brief stabilisation in nominal yields has acted as a balm more widely. Even though the tech-heavy Nasdaq (.IXIC) , opens new tab closed lower again on Monday, the S&P500 (.SPX) , opens new tab bounced off its lowest level since the November election day and eked out a small gain by the close. And, with stock gains stretching out across Asia and European bourses, Wall Street futures are up another half percent ahead of Tuesday's bell. The fourth-quarter earnings season starts in earnest on Wednesday, with many of the big banking names kicking the updates off as usual. The dollar (.DXY) , opens new tab stepped back with Treasury yields too, retreating from 2-year highs. Ailing sterling bounced from 14-month lows as British government , opens new tab bonds stabilised in line with Treasuries, with which they have been joined at the hip all year. Chinese stocks were a standout gainer overnight, with the mainland CSI300 (.CSI300) , opens new tab clocking a rise of 2.7% and staging its best day since November 7. With domestic regulators pledging more market support on Monday to address the worst start to a calendar year in a decade, local chip firms also rallied after the U.S. stepped up its tech curbs. But the reports about more gradual U.S. tariff rises may also have helped and traders are awaiting Friday's swathe of monthly economic releases, including fourth-quarter Chinese GDP data. Investments in governments bonds are not risk-free, Chinese central bank official Zou Lan said on Tuesday, warning of a potential market bubble and resulting turbulence if bond yields depart from economic fundamentals. Fast falling Chinese bond yields have been complicating Beijing's efforts to stabilise a weakening yuan and the People's Bank of China suspended treasury bond purchases in January. What's more, the annual travel rush for China's Lunar New Year celebrations officially began on Tuesday, with many taking a break to reunite with family or take a holiday ahead of the Jan 29 new year celebration. Back stateside, the inflation news will dominate sentiment this week, but the release of December retail sales on Thursday will also give an important take on the holiday shopping season. Key developments that should provide more direction to U.S. markets later on Tuesday: * US December producer price report, NFIB Dec small business survey * New York Federal Reserve President John Williams and Kansas City Fed President Jeffrey Schmid both speak Sign up here. https://www.reuters.com/markets/us/global-markets-view-usa-2025-01-14/
2025-01-14 10:27
Jan 14 (Reuters) - The British pound was poised to record a sixth consecutive day of decline against the dollar on Tuesday and hit a fresh 2-1/2-month low versus the euro as concerns about Britain's fiscal sustainability continued to weigh. Heavy government bond supply has put pressure on British asset prices, while inflation concerns have driven bond yields higher on both sides of the Atlantic. Investors will closely watch U.S. inflation readings, which could provide further clues on how stubborn U.S. price pressures are. Producer price figures are due later on Tuesday, with consumer prices on Wednesday. The dollar hovered near its highest level in over two years as traders scaled back wagers on U.S. rate cuts in 2025 after strong economic data. The British currency dropped 0.2% to $1.2175. It hit $1.2097 on Monday, its lowest level since November 2023. Yields on 10-year gilts dropped one basis point to 4.88% after jumping last week amid worries about the government's plans to sell more debt and inflationary pressures in the United States. UK consumer price figures, due on Wednesday, will also be in the spotlight. Analysts argued that sticky inflation could lead investors to price in less Bank of England (BoE) rate cuts in a move which could spell more trouble for the UK market. Higher yields usually reflect a strong economy and attract capital inflows, strengthening the currency. In this case, they may force the government to cut fiscal spending to meet its fiscal rules, potentially weighing on future growth. Britain's finance ministry said last week it would maintain "an iron grip" on public finances in response to a two-day selloff in debt markets. "But the UK economy is weak, persistent inflation keeps monetary policy excessively tight, while higher yields squeeze the government's fiscal policy space," said Paul Mackel, global head of forex research at HSBC, arguing that these themes will continue to swirl and leave the pound exposed. The single currency rose 0.4% to 84.26 pence, its highest level since Nov. 1. Analysts pointed out that UK budget constraints include a stability rule, whereby day-to-day spending must be matched by revenues and an investment rule that public sector net financial liabilities will decline as a proportion of gross domestic product (GDP). Investors will closely watch the outcome of a 4-billion-pound auction of 10-year gilts on Wednesday to gauge investor demand. Sign up here. https://www.reuters.com/markets/currencies/sterling-hits-fresh-2-12-month-low-versus-euro-falls-against-dollar-2025-01-14/
2025-01-14 10:23
MUMBAI, Jan 14 (Reuters) - The Indian rupee weakened to its all-time low on Tuesday due to strong dollar bids spurred by the maturity of positions in the non-deliverable forwards (NDF) market, while likely intervention by the Reserve Bank of India helped cap losses, traders said. The rupee hit a record low of 86.6475 before closing at 86.63 against the U.S. dollar, down from its close at 86.5750 in the previous session. The currency was under pressure through much of the session amid broad-based dollar demand prompted by maturing positions in the NDF market. State-run banks were spotted offering dollars, most likely on behalf of the RBI, while foreign banks' dollar offers also helped limit the rupee's decline, traders said. The currency logged its steepest single-day fall in nearly two years on Monday as the dollar scaled an over two-year high on fading bets of U.S. interest rate cuts this year after a blowout jobs report. "The trajectory of the INR decline has been steeper since Sanjay Malhotra took charge as RBI governor (INR down 2.1% since he began on Dec. 9), raising speculation that the RBI has loosened its grip on the INR," Societe Generale said in a note. The rupee's 1-month implied volatility , a gauge of future expectations, rose to a 16-month peak of 4% on the day. India's central bank intends to be judicious in its use of foreign exchange reserves to mitigate domestic currency market volatility amid strong global headwinds, Reuters reported earlier. The dollar index was last quoted at 109.5, having cooled off its two-year peak, which helped most Asian currencies nudge higher. Investors now await the release of U.S. wholesale and consumer price inflation data due on Tuesday and Wednesday, respectively. Sign up here. https://www.reuters.com/markets/currencies/rupee-hits-record-low-state-run-foreign-banks-dollar-sales-caps-fall-2025-01-14/
2025-01-14 10:17
LONDON, Jan 14 (Reuters) - No decision will be made for at least a couple of years on whether Britain will go ahead with a central bank digital currency for the general public, the Bank of England said on Tuesday, pushing back the timeline for the project. Former Prime Minister Rishi Sunak championed the idea of a digital currency in 2021 when he was finance minister, but the BoE and the current government have been more reluctant and a public consultation attracted widespread privacy concerns. Governor Andrew Bailey said in October that a central bank digital currency was "not my preferred option" but might be needed if British banks did not ensure their payment systems were more attractive than those offered by less regulated tech companies. The BoE said on Tuesday it was starting work with Britain's finance ministry on a potential design for a digital currency, in line with plans in a previous consultation. "After completing the design phase over the next couple of years, including taking account of developments in the wider payments landscape, the Bank and government will assess the policy case for a digital pound and determine whether or not to proceed," the BoE said. In January 2024, the BoE said a decision on whether to go ahead with a digital currency would not be made before 2025 at the earliest. Britain's government has said a digital pound would be private but not anonymous, unlike physical cash. As with existing bank accounts and credit card payments, authorities would be able to track transactions they suspect involve money laundering or finance terrorism. "This legislation would safeguard users' privacy, guaranteeing that neither the Bank nor the government could access users' personal information nor control how households and businesses use their money," the BoE said. Sign up here. https://www.reuters.com/markets/currencies/bank-england-says-it-has-not-taken-decision-yet-potential-digital-pound-2025-01-14/
2025-01-14 10:08
KAMPALA, Jan 14 (Reuters) - The Ugandan shilling was stable on Tuesday, drawing support from subdued hard currency appetite from both interbank players and merchandise importers, traders. At 0927 GMT commercial banks quoted the shilling at 3,693/3,703, compared to Monday's close of 3,695/3,705. Sign up here. https://www.reuters.com/markets/currencies/ugandan-shilling-stable-muted-fx-appetite-2025-01-14/
2025-01-14 10:08
Senior central bank official warns of bond market bubble risk PBOC has suspended treasury bond purchases to stabilize yuan Chinese bond yields keep sliding Deputy governor emphasizes yuan stability measures BEIJING/SHANGHAI, Jan 14 (Reuters) - Investments in governments bonds are not risk-free, a Chinese central bank official said on Tuesday, warning of a potential market bubble and resulting turbulence if bond yields departed from economic fundamentals. Fast falling Chinese bond yields have been complicating Beijing's efforts to stabilise a weakening yuan and the People's Bank of China suspended treasury bond purchases in January, a move seen by investors as an attempt to stop yields from testing new record lows. "If long-term government bond yields cannot accurately reflect economic fundamentals, or if there are big changes in supply and demand ... Considering amplifying effect that some institutions have financial leverage, a spiral effect could be formed by redemptions, greater losses will occur in the short term," Zou Lan, head of the central bank's monetary policy department, told a news briefing in Beijing. The central bank has intensified macro-prudential management, issued risk warnings, suspended treasury bond purchases and switched to other liquidity tools to avoid "exacerbating supply-demand tensions and market fluctuations," Zou said. However, Zou's comments had little impact on the trades, with China's 10-year and 30-year government bond yields falling as much as 3.25 basis points (bps) and 4 bps, respectively, on Tuesday. Against the backdrop of a global bond sell-off, the trend could further widen the gap between Chinese and U.S. government debt yields, adding more unwelcome pressure on the yuan, traders and analysts said. Addressing the same press conference, Xuan Changneng, deputy governor of the PBOC, reiterated that China will continue to take steps to stabilise the yuan at reasonable and balanced levels. "The goal of maintaining the basic stability of the yuan exchange rate will not change," Xuan said. "We have the confidence, conditions and ability to resolutely achieve the goal ... will resolutely correct market pro-cyclical behaviours, resolutely deal with behaviours that disrupt market order, resolutely prevent the risk of exchange rate overshooting." Xuan said that China will also adjust and improve policy implementation force and pace to hit its full-year economic and social development targets. Sign up here. https://www.reuters.com/business/healthcare-pharmaceuticals/merck-says-its-hpv-vaccine-men-was-approved-by-chinas-drug-regulator-2025-01-08/
