2024-10-15 05:16

US-German bond yield gap at its widest since July Goldman reckons spread could hit 200 bps ECB tipped to deliver third rate cut on Thursday LONDON, Oct 15 (Reuters) - A rapid divergence between euro zone and U.S. government bond markets is expected to continue, as an increasingly lacklustre European economy adds to the pressure on the European Central Bank to quickly cut interest rates. The closely-watched gap between U.S. and German 10-year bond yields has risen to its widest since July at around 183 basis points (bps), as U.S. yields have climbed in recent weeks while the German ones have ticked up only slightly. Yields move inversely to prices. "We think these market dynamics have further to run," said Simon Blundell, co-head of European fundamental fixed income at $11.5 trillion asset manager BlackRock, who favours European over U.S. bonds. While September's sharp acceleration in U.S. jobs growth highlights the strength of the U.S. economy, euro area business activity contracted unexpectedly last month. Traders now expect the U.S. Federal Reserve to slow down after a 50-basis point rate cut in September, but the ECB is this week tipped to deliver its third rate cut since June. Goldman Sachs said the U.S.-German bond yield gap is likely to rise to 200 bps, a level last seen earlier this year. "We continue to expect European rates to outperform the U.S, with data weaker and a central bank less willing to front-load," the bank's analysts said in a note. The widening yield gap is already spilling over to other markets, with the euro falling to its lowest level in around two months as higher returns draw investors towards U.S. bonds, boosting the dollar. EUROPE SPUTTERS Germany's finance ministry last week said Europe's largest economy would probably contract for a second year running in 2024. Its once-mighty manufacturing sector continues to struggle in the wake of an energy crisis sparked by the Ukraine war. "The numbers are really not good," said Michael Weidner, co-head of global fixed income at Lazard Asset Management. "Neither the hard numbers that are reported, nor the soft numbers regarding the outlook and various indicators. They all pretty gloomy, and the mood is even worse." France meanwhile has pledged to raise taxes and cut spending as it tries to reduce its budget deficit. While many investors see that as necessary, it will weigh on growth in the euro zone's second largest economy. Reinout De Bock, head of European rates strategy at UBS, said interest rates could fall as low as 1% in the euro zone next year if growth fails to pick up, and said France's deficit reduction would act as a drag. A slowdown in China, a key trading partner, is another concern for investors. In sharp contrast, the blow-out September employment report has allayed fears of a sharp U.S. slowdown and caused investors to scrub out bets that the Fed would lower rates by 50 bps for a second meeting running in November. The Organisation for Economic Cooperation and Development in September said it expected the U.S. economy to expand 2.6% this year and 1.6% in 2025, compared to growth rates of 0.7% and 1.3% in the euro zone. DEEP RATE CUTS Traders expect the ECB to stop cutting rates late next year at roughly 2%, well above the sub-zero levels that prevailed before the coronavirus pandemic. The ECB's main rate is currently 3.5%. Yet Bank of America analysts are skeptical that the euro zone economy can sustain 2% interest rates, a level many economists see as "neutral" - one that neither stimulates nor restrains economic activity. "The world of today does not differ a lot from the world of 2017-2018: private domestic demand remains surprisingly weak," BofA strategists, led by Ralf Preusser, wrote last week. BofA expects European bond prices to rise. Not all investors are gloomy about the euro zone's prospects, as they point to stronger growth in countries such as Spain and Italy. "The European data is OK and actually, relative to expectations, is perking up," said Lloyd Harris, head of fixed income at Premier Miton Investors. Harris said he thinks markets are pricing in too many rate cuts and expects bond yields to tick back up, although by more in the U.S. than in Europe. "The U.S. is just slightly different in that we've got more government expenditure and more willingness to run a larger deficit, and that's what's pushing the U.S. economy forward." Sign up here. https://www.reuters.com/markets/rates-bonds/european-us-bonds-rapidly-diverge-economic-wedge-widens-2024-10-15/

2024-10-15 05:15

U.S. rate futures price in nearly 100% chance of 25-bp cut in November Yen weakness versus dollar eases Dollar initially falls on news of easing Middle East tension NEW YORK, Oct 15 (Reuters) - The U.S. dollar edged higher against most major currencies on Tuesday, resuming the latest uptrend that took it to more than two-month highs fueled by expectations the Federal Reserve will proceed with modest interest rate cuts over the next year and a half. The greenback traded lower for most of the European and U.S. sessions due in part to a decline in risk aversion after media reports said Israel was not willing to strike Iranian oil targets, easing fears of a supply disruption in the Middle East. That pushed oil prices lower and reduced inflation expectations, modestly pressuring the dollar. Analysts, however, said the dollar's recent uptrend still has some ways to go given persistent geopolitical and election uncertainty. "We think the trend for the greenback will remain intact as long as the macro data remains above water," said Boris Kovacevic, global macro strategist, at Convera in Vienna, Austria. "Volatility ... and the U.S. dollar tend to rise in tandem going into the U.S. election, especially with the rise of (former U.S. President) Trump in betting markets and the 50 basis-point (bp) cut being out of the picture for the Fed at least in November. This would be the best case for the dollar in the short term." U.S. data has shown a resilient economy, while inflation in September rose slightly more than expected, leading traders to trim bets on further large rate cuts from the Fed. The U.S. central bank kicked off its easing cycle with an aggressive 50-bp move at its last policy meeting in September but market expectations have shifted to a slower pace of cuts, boosting the dollar. Traders have assigned a nearly 100% chance of a 25 bps cut in November, with just a 0.2% probability of a pause by the Fed, keeping the fed funds rate at the 4.75%-5.0% target range, according to LSEG calculations. The market has also factored 47 bps of rates easing this year, and another 100 bps of cuts in 2025, much lower than the 200 bps reductions priced in before the September Fed meeting. In afternoon trading, the dollar index , which measures the U.S. currency against six rivals, was up 0.1% at 103.26, not far from 103.36, the highest level since Aug. 8 touched on Monday. The dollar was boosted in part by comments from Fed Governor Chris Waller, who called for "more caution" on interest rate cuts ahead. The euro hit its lowest level since Aug. 8 at $1.0882 ahead of the European Central Bank policy meeting on Thursday, where the central bank looks set to deliver back-to-back rate cuts, a move that seemed unlikely at its last meeting in September. It was last down 0.2% at $1.0887. The pound was marginally higher at $1.3068 in the wake of British labor market data showing pay grew at its slowest in more than two years in the three months to August. That pace that should allow the Bank of England to lower interest rates next month. Expectations that sticky inflation would keep the BoE on a gradual rate cut path relative to its peers - the Fed and the ECB - had underpinned the pound's outperformance this year. But shifting bets have pushed it lower in recent weeks, with the pound down over 2% against the dollar for the month. YEN WEAKNESS ABATES The U.S. currency's rise has pushed the yen back toward 150 per dollar, especially after a dovish shift in rhetoric from Bank of Japan Governor Kazuo Ueda and surprising opposition to further rate hikes from new Prime Minister Shigeru Ishiba. That has cast doubts as to when Japan's central bank will next tighten policy, with a very slim majority of economists in a Reuters poll expecting BOJ to forgo raising rates again this year. The dollar fell 0.4% against the yen to 149.25 yen , having risen to 149.98 on Monday, its highest since Aug. 1. So far this month, the dollar has gained 3.8% versus the Japanese currency. Oil-exporting currencies were weaker after crude oil prices plummeted on reports of Israel unwilling to strike Iranian targets. Against the Norwegian crown, the dollar rose 0.3% to 10.827 , while the U.S. currency was flat against the Canadian dollar at C$1.3792. Meanwhile, the Australian dollar fell 0.4% to US$0.6701, while the New Zealand dollar slid 0.3% to US$ $0.6078. China's yuan, both onshore and offshore, weakened to a one-month low against the dollar on Tuesday. Sign up here. https://www.reuters.com/markets/currencies/dollar-over-two-month-high-yen-near-150dlr-2024-10-15/

2024-10-15 04:39

A look at the day ahead in European and global markets from Vidya Ranganathan. Tuesday's top headlines are Wall Street's record highs overnight and Nvidia's (NVDA.O) , opens new tab fresh attempt to dethrone Apple Inc and become the world's most valuable company. The return of excitement around tech, artificial intelligence and corporate earnings has set the tone in Asia, where Tokyo's Nikkei index (.N225) , opens new tab is above 40,000 again, and is likely to propel European stock markets, too. Overnight, the S&P 500 (.SPX) , opens new tab soared to a record high close and the Dow Jones index (.DJI) , opens new tab scaled 43,000 points for the first time, led by chip stocks after a 2.4% jump in AI darling Nvidia and a brisk start to the third-quarter earnings season. Shares of Nvidia closed at their highest ever on Monday, lifting its market value to $3.39 trillion - just below Apple's (AAPL.O) , opens new tab $3.52 trillion and above Microsoft's $3.12 trillion. More bank earnings are due on Tuesday. Bank of America (BAC.N) , opens new tab is expected to report a fall in third-quarter profit, Goldman Sachs (GS.N) , opens new tab is expected to see higher fees from advisory and underwriting services, and Citigroup (C.N) , opens new tab and brokerage firm Charles Schwab also report earnings. Key for Europe among a batch of jobs and inflation data releases is the European Central Bank's survey on bank lending to the euro zone economy, which should feed into expectations for Thursday's policy review. The ECB is set to deliver another quarter-point rate cut on Thursday, a move policymakers were reluctant to flag and traders had given less than a 25% chance when the bank met a month ago. Key developments that could influence markets on Tuesday: Earnings: Bank of America, Goldman Sachs, Charles Schwab, Citi Economic data: UK jobs, France CPI, Eurozone industrial production, German ZEW economic sentiment, ECB bank lending survey Govt debt: Reopening of UK 30-year government debt auction Sign up here. https://www.reuters.com/markets/europe/global-markets-view-europe-2024-10-15/

2024-10-15 04:12

KUALA LUMPUR, Oct 15 (Reuters) - Malaysia's Prime Minister Anwar Ibrahim on Tuesday reiterated that state energy firm Petronas will continue to conduct oil and gas exploration activities in Malaysia's exclusive economic zone (EEZ) in the South China Sea, despite objections from China. This includes exploration activities in Petronas' Kasawari gas development off Sarawak state on Borneo, he told parliament. "We will continue, but we will not close the door on discussions with any country," Anwar said. He said Malaysia had territorial disputes with many of its neighbours, including Thailand, the Philippines, and Indonesia, and said undue focus was placed on its differences with China. "We have issues but these issues do not affect diplomatic relations. These issues do not affect trade relations and close friendships with our neighbours," he said. Anwar said last month Malaysia's exploration activities were within its territory and were not intended to be provocative or hostile towards China, following the media leak of a diplomatic note from Beijing. In the note, carried by a Philippine news outlet, Beijing asserted that Malaysia's oil and gas exploration in the South China Sea breached its territory. China claims sovereignty over almost the entire South China Sea and has deployed a fleet of coast guards deep into Southeast Asia, including the EEZs of Malaysia, Brunei, the Philippines and Vietnam, complicating those country's exploration efforts. China rejects a 2016 ruling by the Permanent Court of Arbitration in the Hague that Beijing's expansive claims had no basis under international law. Petronas's oil and gas projects in the South China Sea have had several encounters with Chinese vessels in recent years. The Asia Maritime Transparency Initiative, a U.S. think tank, said in a report this month that Chinese coast guard vessels have made frequent visits to Malaysian exploratory wells off Sarawak this year, passing as close as 1,000 metres (0.6 mile) from gas production platforms at Timi, Kasawari, and Jerun. Petronas' Kasawari field holds an estimated 10 trillion cubic feet of gas reserves and commenced first production in August this year. Sign up here. https://www.reuters.com/business/energy/petronas-exploration-south-china-sea-will-continue-malaysia-pm-says-2024-10-15/

2024-10-15 03:27

BEIJING, Oct 15 (Reuters) - China's exports to Russia grew 15.7% in September from a year earlier, the fastest pace in nine months and up from a 10.1% gain a month prior, Chinese customs data showed on Monday, following fresh agreements to expand economic cooperation. By contrast the data, in yuan terms, showed that imports from Russia fell 9.2% last month from a year earlier, compared with a 1.1% drop in August, following reports Russian exporters were struggling to process payments with Chinese buyers. In late August, China and Russia signed cooperation agreements in areas such as investment, cross-border cargo transportation and science and technology, during a visit to Moscow by China's second-ranking official Premier Li Qiang. "Bilateral trade has maintained a momentum of growth," Chinese state media cited Li as telling Russian Prime Minister Mikhail Mishustin at the time. "We are confident and also hopeful about further deepening the all-around and mutually beneficial cooperation between our two countries." Chinese carmaker Chery (CHERY.UL) has started assembling cars in Russia at three factories vacated by Western rivals, Reuters reported on Thursday. Trade between China and Russia rose 2.7% in value terms in the first nine months of the year from the same period a year earlier, reaching 1.28 trillion yuan ($180.3 billion). ($1 = 7.1011 yuan) Sign up here. https://www.reuters.com/markets/chinas-exports-russia-grow-september-fastest-pace-nine-months-2024-10-15/

2024-10-15 03:04

MUMBAI, Oct 15 (Reuters) - The Indian rupee is likely to open mostly unchanged on Tuesday, holding near its all-time low, with the dollar making its way to the highest in more than two months. The decline in oil prices alongside expectations that the Reserve Bank of India will intervene are likely to counter the dollar's rally. The 1-month non-deliverable forward indicated that the rupee will open nearly flat from 84.06 in the previous session. The currency dipped to a lifetime low of 84.0750 on Monday. The dollar index touched 103.36 on Monday, the highest level in more than two months. Asian currencies were down with the offshore Chinese yuan weakening to 7.11 to the U.S. dollar and the Japanese yen just shy of 150. The dollar index is now more than 3% higher than its recent lows, following the change in expectations on the size of the Federal Reserve's next rate cut. Investors have priced out the likelihood of another 50-basis-point cut after the robust U.S. jobs report. The dollar is firm with Fed rate cut expectations remaining muted, said Srinivas Puni, managing director at QuantArt Market Solutions. "USD/INR is meandering around the 84 zone, with no real momentum on the upside." The RBI has made it evident that the rupee weakening past 84 does not mean that they were prepared to loosen their stranglehold on the currency, according to traders. The U.S. jobless claims data, due Thursday, is the next key print that the market participants are eyeing, given the Fed's focus on the labour market. OIL PRICES, EQUITY FLOWS Oil prices dropped in Asia trading with Brent crude now down more than 7% from last week's peak. A media report that Israel is willing not to strike Iranian oil targets prompted investors to dump oil futures. Meanwhile, foreign outflows from Indian equities continued with month-to-date sales approaching $8 billion. KEY INDICATORS: ** One-month non-deliverable rupee forward at 84.18; onshore one-month forward premium at 12.5 paise ** Dollar index up at 103.19 ** Brent crude futures down 2.9% at $75.2 per barrel ** Ten-year U.S. note yield at 4.10% ** As per NSDL data, foreign investors sold a net $479.6mln worth of Indian shares on Oct. 11 ** NSDL data shows foreign investors sold a net $120.8mln worth of Indian bonds on Oct. 11 Sign up here. https://www.reuters.com/markets/currencies/rupee-hold-near-all-time-low-amid-dollars-climb-over-2-month-high-2024-10-15/