2024-02-26 06:28

NEW YORK, Feb 26 (Reuters) - The dollar was mostly lower on Monday ahead of U.S. durable goods orders and an inflation reading this week that could provide more information on how soon the Federal Reserve may begin cutting interest rates. The dollar index , a measure of the greenback against a basket of currencies, was last down 0.2% at 103.78 - though the U.S. currency strengthened 0.1% to 150.71 against the Japanese yen . In cryptocurrencies, ether rose 8% at $3,177, while bitcoin gained 6.89% at $54,506. U.S. durable goods data is due Tuesday, while January's U.S. personal consumption expenditures price index, which is the Fed's preferred measure of inflation, will be released Thursday. The market has recently reduced expectations for the size and how soon it expects the Fed to cut rates, as the U.S. economy remains strong. Markets have all but ruled out a cut at the Fed's March meeting and have recently pushed back expectations for a cut to June from May, CME's FedWatch Tool showed, following strong U.S. consumer and producer price data. Inflation figures in the euro zone, Japan and Australia also land this week, alongside a rate decision from the Reserve Bank of New Zealand (RBNZ) and China PMI surveys. "The market is a bit cautious and the key driver for dollar/yen is U.S. yields," Marc Chandler, chief market strategist at Bannockburn Global Forex in New York, said. "In Q4 of last year, the market got very aggressive about the Fed easing and in the first half of Q1, the market adjusted, interest rates rose and the dollar rose. That adjustment is over, and I think we'll begin seeing weak economic data beginning with tomorrow's durable goods orders." Japan's nationwide consumer prices also are due on Tuesday and are forecast to show core inflation slowed to an annual rate of 1.8% in January, the lowest since March 2022. That would complicate the Bank of Japan's (BOJ) plans to end negative interest rates in coming months, keeping the yen under pressure in the near term. The euro was last up 0.3% at $1.0852, after gains against the dollar in eight of the last nine trading sessions. European Central Bank officials have reiterated their focus on inflation in the euro zone, particularly the service sector and wage growth. ECB President Christine Lagarde told European lawmakers in Strasbourg that wage growth remains robust across the euro zone but firms may be absorbing some of this increase via lower profit margins rather than raising prices. A major driver behind the euro's strength has been the narrowing gap between where traders believe U.S. and euro zone interest rates will finish the year. Only two weeks ago, investors were assuming the Fed would cut rates by around 80 basis points this year, compared with around 100 bps from the ECB. By Monday, that gap had all but disappeared. https://www.reuters.com/markets/currencies/dollar-firms-ahead-busy-data-week-with-us-inflation-focus-2024-02-26/

2024-02-26 06:05

NEW YORK, Feb 26 (Reuters) - A sell-off in the U.S. government bond market is picking up speed, as a strong economy whittles away at hopes for imminent interest rate cuts from the Federal Reserve. Over the last month, investors have roughly halved the number of cuts they expect the Fed to deliver in 2024, amid booming job growth and stubborn inflation that have made the U.S. central bank hesitant to ease monetary policy too soon. That has exacerbated losses in bonds, complicating the outlook for investors who had bet Treasuries would rise as the Fed cut borrowing costs. Yields on the benchmark 10-year Treasury, which move inversely to bond prices and are guided in-part by interest rate expectations, have shot to 4.35%, their highest level since the end of November. "Coming into 2024, nobody thought that inflation could go anywhere but down. It was a slam dunk that you would win by just positioning in bonds," said Craig Brothers, senior portfolio manager and co-head of fixed income at Bel Air Investment Advisors. Now, "that trade is not working." Federal funds futures on Friday showed investors pricing in roughly 80 basis points of interest rate cuts this year, compared to some 150 basis points that had been expected at the beginning of January. Expectations of when the first of those cuts will come have been pushed to June, from March. At the same time, the 10-year Treasury yield is up around 50 basis points from its December lows. Treasury prices hit a 16-year low in October only to come screaming back on expectations that the Fed was done raising interest rates and would move to cutting them this year. Minutes from the Fed's most recent monetary policy meeting showed officials concerned about cutting rates too soon and broad uncertainty over how long the central bank's benchmark overnight interest rate should stay in the current 5.25%-5.50% range. A chorus of Fed speakers in recent weeks have reiterated that view. The Fed's hesitation to ease policy "is going to make it very hard for rates to fall much further from here, so fast money will have a tough time holding that position," said Rich Familetti, chief investment officer of U.S. total return fixed income at SLC Management. "The pain trade is higher rates and we will likely experience that." 'MORE VOLATILITY' Strategists at BofA Securities are among those anticipating further losses in the bond market. The investment bank earlier this month said the 10-year yield could rise to about 4.5% in coming weeks as interest rates did not appear to be "overly restrictive." Zhiwei Ren, a portfolio manager at Penn Mutual Asset Management, believes yields could go as high as 4.75% this year. "We are underweight duration, we think yields can go higher ... and this will cause more volatility in markets," he said. Others have been looking at ways to protect against the possibility of a further decline in Treasuries. Anthony Woodside, head of U.S. fixed income strategy at LGIMA, has recommended his clients hedge their bond portfolios with Treasury Inflation-Protected Securities, which he expects to provide protection if inflation continues to rise. Still, there are many who don't believe the selloff in the Treasury market will last. The U.S. central bank late last year projected 75 basis points of rate cuts this year - a forecast Fed Chair Jerome Powell said earlier this month was still likely in line with policymakers' views. The expected direction of rates is more important than the timing of rate cuts, said Vishal Khanduja, co-head of the Broad Markets Fixed Income team at Morgan Stanley Investment Management. He believes the recent surge in yields is a "mid-cycle correction" and that interest rates will eventually decline, bolstering the case for owning bonds. "Even though it's a bumpy road, the direction of travel for inflation and the Fed is downwards," he said. https://www.reuters.com/markets/rates-bonds/slam-dunk-treasury-trade-becomes-test-patience-yields-march-higher-2024-02-26/

2024-02-26 05:38

A look at the day ahead in European and global markets from Wayne Cole It's all about inflation this week with markets pricing in upside risk for the core U.S. reading, and a downside chance for European and Japanese consumer prices. The Federal Reserve's favoured core measure of personal consumption expenditures (PCE) prices is forecast to rise 0.4%, with a risk of 0.5% m/m, when it wasn't that long ago markets had been hoping for a nice tame 0.2% increase. Some of this is the "January effect" which sees prices for many goods and services rise at the start of the year, notably for healthcare. The bull run on Wall Street will also play a part by pushing up the cost of portfolio management. Indeed, the core services ex-housing PCE measure, which Fed members like to reference, could well rise 0.6% m/m for the biggest gain since December 2021. The six-month annualised pace could thus climb to around 2.5%, after two months of running just below 2%, which is a major reason the market has pushed out the expected timing of the first Fed rate cut to June from May. There are at least 10 Fed speakers out this week, including the influential New York Fed chief John Williams, while Chair Powell gives his Senate testimony on March 7. The headline CPI for the European Union on Friday is seen slowing to 2.5% from 2.8%, with the core at 2.9% versus 3.3%. That will almost certainly lead the ECB to lower its inflation forecasts at its March meeting, although the market sees almost no chance of a rate cut then. Futures probability is around one-in-three for an April easing, and almost fully priced for June. Inflation reports from Germany, France and Spain out on Thursday will serve as an appetiser for the main feast. Japan's CPI is out on Tuesday and is forecast to slow to an annual 1.8%, from 2.3% in December, although the core core measure is seen at 3.3% and still above the Bank of Japan's 2% target. Such a slowdown in inflation would seem to argue against a policy tightening, yet BOJ officials have been putting more weight on rising wages, leading markets to wager it will lift rates to zero in March or April from the current -0.1%. The Treasury market also faces a tough week of new supply with $127 billion of two- and five-year notes due later on Monday, and another $42 billion in seven-year paper due on Tuesday. And there is a non-trivial risk some U.S. government agencies could be shut down if Congress cannot agree on a borrowing extension by Friday. Friday brings the release of the February China PMI, where analysts are tipping a slight improvement to 49.5, while the U.S. ISM survey of manufacturing is also forecast to rise to 49.5. Key developments that could influence markets on Monday: - UK CBI Distributive Trades for Feb - Bank of England Deputy Governor Sarah Breeden and chief economist Huw Pill speak - Participation by ECB president Christine Lagarde in plenary debate on the ECB Annual Report - Fed Bank of Kansas City President Jeffrey Schmid speaks on the economic and monetary policy outlook https://www.reuters.com/markets/europe/global-markets-view-europe-2024-02-26/

2024-02-26 05:19

Feb 26 (Reuters) - South Africa's Sasol (SOLJ.J) , opens new tab reported on Monday a decline of 34% in half-year profit, mainly due to weaker oil and petrochemical prices as well as higher costs. Sasol, the world's biggest producer of fuels and chemicals from coal and gas, said its headline earnings per share (HEPS) - the most common profit measure in South Africa - was 20.37 rand ($1.06) in the six months to Dec.31, down from 30.90 rand in the corresponding 2022 period. The company declared an interim dividend of 2 rand per share, down from 7 rand previously. ($1 = 19.3077 rand) https://www.reuters.com/business/energy/safricas-sasol-reports-34-decline-half-year-profit-2024-02-26/

2024-02-26 04:54

MUMBAI, Feb 26 (Reuters) - The Indian rupee rose slightly on Monday on dollar inflows, although month-end demand for the greenback from importers, including local oil companies, was likely to limit gains, traders said. The rupee was at 82.9025 against the U.S. dollar as of 10:20 a.m. IST, up 0.04% from its close at 82.9375 in the previous session. The dollar index was near 104 while most Asian currencies weakened, with the Indonesian rupiah down 0.2% and leading losses. Continuous inflows in the bond market should aid the rupee but do not expect it to rise substantially amid month-end demand from importers, a foreign exchange trader at a state-run bank said. Oil companies were seen bidding for dollars during early trading on Monday, the trader added. Meanwhile, dollar-rupee forward premiums recovered slightly, with the one-year implied yield up 2 bps at 1.74% after falling to its lowest level since December on Friday. While the bias "favours rupee bulls," local dollar demand should keep the rupee rangebound between 82.75 and 83.10 in the near term, Dilip Parmar, a foreign exchange research analyst at HDFC Securities said. Investor focus will be on a string of remarks from U.S. central bank officials scheduled to speak this week and the core personal consumption expenditures (PCE) price index - the Federal Reserve's preferred measure of inflation. "At some point, I think it will be appropriate to pull back on restrictive monetary policy, likely later this year," New York Fed President John Williams said in an interview with Axios published on Friday. Investors are currently pricing in a 20% chance of a Fed rate cut in May, down from nearly 90% a month earlier, according to CME's FedWatch tool. https://www.reuters.com/markets/currencies/rupee-edges-higher-oil-companies-dollar-demand-likely-cap-gains-2024-02-26/

2024-02-26 04:45

Feb 25 (Reuters) - Goldman Sachs raised its summer 2024 Brent peak forecast by $2 a barrel to $87 as disruptions in the Red Sea contribute to modestly larger-than-expected draws in OECD commercial stocks, the bank said in a note dated Sunday. "OECD commercial stocks on land have drawn somewhat faster than expected as the redirection of flows away from the Red Sea has increased inventories on water." Despite the Red Sea escalation, Goldman expects Brent to stay in the $70-90 range, noting that the muted price volatility despite the ongoing Middle East and Ukraine wars reflected a modest geopolitical risk premium. The elevated spare capacity would allow OPEC+ to offset disruptions in most scenarios, while robust non-OPEC supply growth is likely to nearly keep pace with solid global demand growth, Goldman said. The bank continues to project oil demand growth at 1.5 million barrels per day (bpd) in 2024, with a downgrade in China demand balanced by upgrades in India and the United States. Goldman also expects OPEC+ policymakers to announce an extension of output cuts in early March to keep the market in a moderate deficit, which it sees at 0.5 million bpd in the first quarter and 0.4 million bpd in the second quarter. The bank still expects full extensions of the OPEC+ cuts through the second quarter of this year, followed by a gradual and partial phase-out of the latest package starting third quarter. Goldman forecasts Brent to average $80 in 2025, while a sustained drop below $70 would likely require both much weaker demand and a shift in Saudi strategy, which seems unlikely based on Saudi economic incentives, it added. Brent crude futures fell 35 cents to $81.27 a barrel by 0417 GMT in Asian trading hours, while U.S. West Texas Intermediate crude futures (WTI) declined 33 cents to $76.13 a barrel. https://www.reuters.com/business/energy/goldman-sachs-lifts-its-brent-summer-peak-forecast-87-barrel-2024-02-26/