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China’s holdings of U.S. Treasuries skid to 12-year low; Japan also cuts holdings

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© Reuters. FILE PHOTO: U.S. and Chinese flags are seen in front of a U.S. dollar banknote featuring American founding father Benjamin Franklin and a China’s yuan banknote featuring late Chinese chairman Mao Zedong in this illustration picture taken May 20, 2019. REU

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) – China’s holdings of U.S Treasuries tumbled in April to their lowest since May 2010, data showed on Wednesday, with Chinese investors likely cutting losses as Treasury prices fell after Federal Reserve officials signaled sizable rate hikes to temper soaring inflation.

Chinese holdings dropped to $1.003 trillion in April, down $36.2 billion from $1.039 trillion the previous month, according to U.S. Treasury Department figures. China’s stock of Treasuries in May 2010 was $843.7 billion, data showed.

The reduction in Treasury holdings may also have been aimed at diversifying China’s foreign exchange holdings, analysts said.

The Chinese sales contributed to a drop in overall foreign holdings of Treasuries in April that helped propel yields higher. U.S. benchmark 10-year Treasury yields started April with a yield of 2.3895%, and surged roughly 55 basis points to 2.9375% by the end of the month.

Japan’s holdings of U.S. Treasuries fell further in April to their lowest since January 2020, amid a persistent decline in the yen versus the dollar, which may have prompted Japanese investors to sell U.S. assets to benefit from the exchange rate.

Japanese holdings fell to $1.218 trillion in April, from $1.232 trillion in March. Japan remained the largest non-U.S. holder of Treasuries.

Overall, foreign holdings of Treasuries slid to 7.455 trillion, the lowest since April 2021, from $7.613 trillion in March.

On a transaction basis, U.S. Treasuries saw net foreign outflows of $1.152 billion in April, from net new foreign inflows of $48.795 billion in March. This was the first outflow since October 2021.

The Federal Reserve, at its policy meeting in March, raised benchmark interest rates by a quarter of a percentage point.

It lifted rates by 50 bps in May, but at the June policy meeting on Wednesday lifted rates by a hefty 75 bps to stem a disruptive surge in inflation. The Fed also projected a slowing economy and rising unemployment in the months to come.

In other asset classes, foreigners sold U.S. equities in April amounting to $7.1 billion, from net outflows of $94.338 billion in March, the largest since at least January 1978, when the Treasury Department started keeping track of this data. Foreign investors have sold stocks for four consecutive months.

U.S. corporate bonds, on the other hand, posted inflows in April of $22.587 billion, from March’s $33.38 billion, the largest since March 2021. Foreigners were net buyers of U.S. corporate bonds for four straight months.

U.S. residents, meanwhile, decreased their holdings of long-term foreign securities, with net sales of $36.7 billion, data showed.

Economy

Wall Street ends down, pulled lower by growth stocks

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© Reuters. FILE PHOTO: A trader works on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., June 22, 2022. REUTERS/Brendan McDermid

By Stephen Culp

NEW YORK (Reuters) – U.S. stocks closed lower on Monday, with few catalysts to sway investor sentiment as they approach the half-way point of a year in which the equity markets have been slammed by heightened inflation worries and tightening Fed policy.

The major U.S. stock indexes lost ground after oscillating earlier in the session, with weakness in interest rate sensitive megacaps such as Amazon.com (NASDAQ:AMZN), Microsoft Corp (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL) Inc providing the heaviest drag.

“The reason for lack of direction this week and next week is investors are looking for what’s going to happen in the second quarter reporting period,” said Sam Stovall, chief investment strategist of CFRA Research in New York.

All three indexes are on course to notch two straight quarterly declines for the first time since 2015. They also appear set to post losses for June, which would mark three consecutive down months for the tech-heavy Nasdaq, its longest losing streak since 2015.

The S&P was on track to report its fifth worst year-to-date price decline since 1962 as of Friday, Stovall said.

“Every time the SPX rose by more than 20% in a year it fell by an average of 11% starting relatively early in the new year. And all years where the decline started in the first half got back to break even before the year was out.”

“No guarantee that’s going to happen this year, but the market could surprise us to the upside,” Stovall said.

Rising oil prices helped put energy stocks out front, with economically sensitive smallcaps and semiconductors and transports also outperforming the broader market. [O/R]

Economic data surprised to the upside, with new orders for durable goods and pending home sales beating expectations and adding credence to U.S. Federal Reserve Chairman Jerome Powell’s assertion that the economy is robust enough to withstand the central bank’s attempts to rein in decades-high inflation without sliding into recession.

The Dow Jones Industrial Average fell 62.42 points, or 0.2%, to 31,438.26, the S&P 500 lost 11.63 points, or 0.3%, to 3,900.11 and the Nasdaq Composite dropped 93.05 points, or 0.8%, to 11,514.57.

Among the 11 major sectors of the S&P 500, eight ended the session in negative territory, with consumer discretionary suffering the largest percentage loss. Energy stocks were the clear winners, gaining 2.8% on the day.

With several weeks to go until second-quarter reporting commences, 130 S&P 500 companies have pre-announced. Of those, 45 have been positive and 77 have been negative, resulting in a negative/positive ratio of 1.7 stronger than the first quarter but weaker than a year ago, according to Refinitiv data.

Shares of retail stock trading platform Robinhood (NASDAQ:HOOD) Markets rose 14.0% after media reports said Goldman Sachs (NYSE:GS) changed the stock to “neutral” from “sell”.

But the broker double downgrade of cryptocurrency exchange Coinbase (NASDAQ:COIN) Global Inc’s shares to “sell” from “buy”, sent its stock sliding 10.8%.

Advancing issues outnumbered declining ones on the NYSE by a 1.17-to-1 ratio; on Nasdaq, a 1.02-to-1 ratio favored decliners.

The S&P 500 posted one new 52-week high and 29 new lows; the Nasdaq Composite recorded 24 new highs and 84 new lows.

Volume on U.S. exchanges was 10.91 billion shares, compared with the 12.95 billion average over the last 20 trading days.

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Economy

Albemarle plans major U.S. lithium processing plant

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© Reuters. FILE PHOTO: A sign at the approach road leads to Albemarle’s lithium evaporation ponds at its facility in Silver Peak, Nevada, U.S., January 9, 2019. REUTERS/Ernest Scheyder/File Photo

By Ernest Scheyder

PHOENIX, Ariz. (Reuters) -Albemarle Corp plans to build a lithium processing plant in the United States that would produce as much of the electric vehicle battery metal as the entire company produces today, a bullish bet on America’s all-electric future, an executive said on Monday.

The plan reflects Albemarle (NYSE:ALB)’s emerging strategy to lead the U.S. lithium renaissance, from mine development to processing to manufacturing types of the metal used to make high-end EV batteries.

Eric Norris, head of Albemarle’s lithium division, said the company has seen a major shift in the last nine months in the United States with an “unprecedented” number of EV manufacturing plants announced, a harbinger the company believes will fuel a surge in lithium demand.

The company as a result aims to build a processing plant with 100,000 tonnes of annual capacity in the U.S. Southeast somewhere within rail access of a major port, Norris said.

“There isn’t enough (lithium) supply yet to supply the ambitions of the U.S.,” Norris told the Fastmarkets Lithium Supply and Battery Raw Materials conference in Phoenix, Arizona. “This (processing plant) will be essential for our success in the future.”

Albemarle is in active discussions with automakers on buying supply from the facility, Norris said. Albemarle already supplies Tesla (NASDAQ:TSLA) Inc, as well as several other major automakers.

While Albemarle had spoken vaguely in the past about building a U.S processing plant, it used Monday’s conference to announce the specific plan and said it will be key as the company aims to boost its overall lithium production capacity fivefold to 500,000 tonnes annually by 2030.

The U.S. plant would be of a similar design to a processing plant Albemarle recently opened in Kemerton, Western Australia, though it would need to cost less than Kemerton, whose costs ballooned far above its initial target of $1.2 billion, Norris said.

Albemarle plans to self-fund the facility, though it could apply for U.S. Department of Energy loans, he said.

The plant would be supplied from lithium extracted from the company’s Kings Mountain mine in North Carolina, which is currently mothballed but may reopen as soon as 2027.

The Kings Mountain facility would likely compete with a planned lithium mine and processing complex in a nearby North Carolina county from Piedmont Lithium Inc (O:PLL), which faces regulatory and local pushback.

Unlike Piedmont’s mine, Kings Mountain would be a reopening of a facility that closed in the 1980s, a distinction that Norris said he expects to work in Albemarle’s favor.

“This is an existing mine in a town that is very mining oriented,” Norris said. “We’re very present in the community.”

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Economy

Dollar retreats as markets rethink Fed rate bets, eye ECB hikes

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© Reuters. FILE PHOTO: U.S. dollar banknotes are displayed in this illustration taken, February 14, 2022. REUTERS/Dado Ruvic

By Hannah Lang

WASHINGTON (Reuters) – The U.S. dollar struggled versus its major rivals on Monday as softening inflation expectations prompted a reassessment of the prospects for aggressive interest rate hikes but volatile markets cushioned a broader decline.

Aggressive rate hike bets have boosted the dollar with an index rising to a near two-decade high of 105.79 earlier this month. But with some high-frequency data indicators showing economic momentum starting to cool and a broader drop in commodity prices, investors are becoming cautious.

“It’s hard for Wall Street to confidently say there is a bottom in place, so a lot of traders are still looking to fade whatever rallies emerge,” said Edward Moya, senior market analyst at OANDA.

Against its rivals, the dollar edged 0.12% lower to 103.9. Earlier this month, it hit 105.79, its highest since late 2002.

Futures pricing shows traders now anticipating the U.S. Federal Reserve’s benchmark funds rate stabilizing around 3.5% from March next year, a pullback from pricing in rates zooming to around 4% in 2023.

“Today is a consolidation day,” said Marc Chandler, chief market strategist at Bannockburn Global Forex LLC.

“I think that we’re just waiting for more data, and that data comes out later this week,” he added, pointing to a readout expected on Friday detailing consumer prices in the euro zone.

Meanwhile, the euro was buoyed by expectations that the European Central Bank will soon raise interest rates for the first time in more than a decade.

“Everyone is looking forward to this first rate hike that we’re going to get from the ECB, and I think that the risks of a dovish hike are fading,” said Moya.

The euro was up 0.27% at $1.0587.

The euro led gainers versus the dollar as the European Central Bank’s annual forum on central banking in Sintra, Portugal, got under way with ECB President Christine Lagarde and U.S. Federal Reserve Chair Jerome Powell both attending the meeting. Markets will watch for any signs of future policy moves.

Commodity currencies came under pressure on Monday as data showed profits at China’s industrial firms shrank again, albeit at a slower pace, in May after a sharp fall in April.

Elsewhere, Russia’s rouble weakened in the interbank market as Russia headed for its first sovereign default since the Bolshevik revolution a century ago.

Cryptocurrencies stumbled, with the world’s biggest cryptocurrency Bitcoin down 1.7% trading at $20,810.34. It fell to as low as $17,588.88 earlier this month.

========================================================

Currency bid prices at 3:26PM (1926 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index 103.9000 104.0300 -0.12% 8.610% +104.2100 +103.6600

Euro/Dollar $1.0587 $1.0558 +0.27% -6.88% +$1.0615 +$1.0550

Dollar/Yen 135.4450 135.2100 +0.17% +17.66% +135.5400 +134.5300

Euro/Yen 143.40 142.69 +0.50% +10.04% +143.4800 +142.0600

Dollar/Swiss 0.9562 0.9586 -0.22% +4.85% +0.9620 +0.9549

Sterling/Dollar $1.2278 $1.2273 +0.07% -9.19% +$1.2332 +$1.2239

Dollar/Canadian 1.2878 1.2888 -0.07% +1.86% +1.2916 +1.2865

Aussie/Dollar $0.6925 $0.6941 -0.22% -4.72% +$0.6958 +$0.6906

Euro/Swiss 1.0122 1.0113 +0.09% -2.38% +1.0157 +1.0104

Euro/Sterling 0.8621 0.8601 +0.23% +2.63% +0.8627 +0.8578

NZ $0.6297 $0.6314 -0.29% -8.01% +$0.6326 +$0.6283

Dollar/Dollar

Dollar/Norway 9.7880 9.8545 -0.57% +11.23% +9.8810 +9.7740

Euro/Norway 10.3671 10.3937 -0.26% +3.54% +10.4415 +10.3601

Dollar/Sweden 10.0809 10.1325 -0.10% +11.79% +10.1422 +10.0480

Euro/Sweden 10.6734 10.6842 -0.10% +4.29% +10.7092 +10.6439

(Reporting Hannah Lang in Washington; additional reporting by Saikat Chatterjee in London; Editing by Muralikumar Anantharaman, Jane Merriman and Susan Fenton)

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