By Rae Wee

SINGAPORE (Reuters) - Gold prices rose on Monday, attracting some safe haven bids, while oil prices were choppy after Iran's retaliatory attack on Israel over the weekend stoked fears of a wider regional conflict and kept traders on edge for what comes next.

U.S. stock futures ticked higher after major indexes ended sharply lower on Friday as results from major U.S. banks failed to impress. [.N]

Iran had, late on Saturday, launched explosive drones and missiles at Israel in retaliation for a suspected Israeli attack on its consulate in Syria on April 1, marking its first direct attack on Israeli territory.

The threat of open warfare erupting between the arch Middle East foes and dragging in the United States has left the region on tenterhooks, as U.S. President Joe Biden warned Prime Minister Benjamin Netanyahu the U.S. will not take part in a counter-offensive against Iran.

Israel said "the campaign is not over yet".

Global markets struggled for direction early in Asia on Monday after the weekend developments in the Middle East, as oil prices edged broadly lower in volatile trade, gold jumped and the dollar held broadly steady. [FRX/]

Brent crude futures eased 0.25% to $90.21 per barrel, while U.S. West Texas Intermediate crude futures fell 0.35% to $85.36 a barrel. [O/R]

Gold rose 0.7% to $2,359.92 an ounce, after having scaled a record of $2,431.29 on Friday. The yellow metal has climbed some 14% for the year thus far. [GOL/]

"Everything seems pretty well contained," said Chris Weston, head of research at Pepperstone. "From a very simplistic perspective, the actions from Iran haven't really surprised anyone, they're very much in line with what we were pricing late last week.

"What may be causing a slight move up in the gold price... is the idea that we could see another counter response from Israel, and if that was to happen... that could cause risk (assets) to move down."

Elsewhere, U.S. 10-year Treasury futures edged slightly lower with an implied yield of 4.53%, while the dollar held near a 34-year high against the yen at 153.27.

The euro and sterling were similarly pinned near five-month lows. [FRX/]

A continued run of resilient U.S. economic data, particularly last week's hotter-than-expected inflation report, has prompted investors to reset their expectations of the pace and scale of rate cuts from the Federal Reserve this year as inflation proves stickier than previously thought.

Futures now point to about 50 basis points worth of easing expected this year, a huge pull back from the 160 bps that was priced in at the start of the year.

That sea change in the rate outlook has in turn sent the dollar on a tear and U.S. Treasury yields surging, with the two-year yield rising above 5% for the first time since November last week. [US/]

"We have updated our forecasts for the U.S. FOMC, pushing out the timing of the start of the interest rate cutting cycle to September 2024, from July previously," said Kristina Clifton, a senior economist at Commonwealth Bank of Australia (OTC:CMWAY).

"The U.S. CPI has been stronger than expected over the first three months of 2024. We expect that it will take a string of inflation prints of 0.2%/month or lower to give the Fed confidence that inflation can stay sustainably lower and that interest rates do not need to remain at a restrictive level."

A slew of Fed policymakers are due to speak this week, including Chair Jerome Powell, who could give further clarity on the future path of U.S. interest rates.

In stock markets, S&P 500 futures and Nasdaq futures each rose 0.3% in early Asia trade, reversing some of the heavy losses in U.S. equities on Friday.

All three major indexes had registered losses on the week, weighed down by lacklustre bank earnings and the evolving expectations for Fed policy.

"At the end of the day, what we're seeing at the moment is the market is really trying to understand what's going on. Their visibility to price risk in this market has become a bit more troublesome, and I think when you don't have that visibility, you do get higher volatility. That's kind of where we are," said Pepperstone's Weston.

Bitcoin was last more than 2% lower at $65,547, after falling below $62,000 on Sunday. The world's largest cryptocurrency scaled a record high last month thanks to flows into new spot bitcoin exchange-traded funds and expectations of imminent Fed rate cuts. [FTX/]

FRANKFURT (Reuters) - Economists are sticking to their view that inflation in the euro zone will fall to 2% and stay there, a European Central Bank poll showed on Friday, in comforting news as the ECB prepares to cut interest rates.

The ECB's latest Survey of Professional Forecasters (SPF) put inflation at 2.4% this year and 2.0% in 2025, 2026 and in the longer term -- unchanged from the previous round of the poll three months earlier.

Revisions to economic growth forecasts were minimal, with GDP seen expanding by 0.5% this year, 1.4% next year and in 2026, and 1.3% thereafter.

The ECB held interest rates at a record high on Thursday but signalled it could start cutting as soon as June, even though stubbornly high U.S. inflation could stop the U.S. Federal Reserve from following close behind.

The SPF's results are based on responses from 61 economists at European companies and financial institutions polled between March 18 and 21.

By Maria Martinez

BERLIN (Reuters) - German inflation eased in March, helped by a drop in energy and food prices, final data from the federal statistics office showed on Friday.

Inflation in Europe's largest economy slackened in March to 2.3%, its lowest level since June 2021. German consumer prices, harmonised to compare with other European Union countries, had risen by 2.7% year-on-year in February.

Core inflation in Germany, which excludes volatile food and energy prices, was at 3.3% in March, down from 3.4% in February.

Underlying inflation is closely watched by the European Central Bank to gauge the durability of price pressures.

By Andrea Shalal

WASHINGTON (Reuters) - IMF chief Kristalina Georgieva on Thursday said higher U.S. interest rates were not great news for the rest of the world and could become a worry if they continued for a long time, but she thought the U.S. Federal Reserve was acting prudently.

Georgieva, speaking at an event hosted by the Atlantic Council, said the U.S. government could also look at taking other measures to ensure that the U.S. economy was not overheating, but gave no details.

"Higher interest rates for the rest of the world is not great news. Higher interest rates make the U.S. more attractive so financial flows come here and that leaves the rest of the world somewhat struggling," she said.

Higher rates also drove the value of the dollar higher, which meant other countries' currencies were weaker.

"If it continues for a long time, it could become a bit of a worry in terms of financial stability," she said.

Consumer level inflation data for March released on Wednesday was unexpectedly strong, casting further doubt on the Fed’s current forecast of rate cuts at some point later this year.

The unfavorable price pressure data comes as other reports also pointed to sturdier inflation over the start of the year, challenging the Fed’s most recent projections that penciled in three rate cuts this year.

Minutes from the U.S. Federal Reserve showed officials worried that progress on inflation may have stalled, and a longer period of tight monetary policy would be needed to tame it in the world's largest economy.

Investors who had earlier expected a rate cut in June now see September as a likelier timing for the easing cycle to begin, following a third consecutive stronger-than-forecast reading on consumer inflation.

Georgieva said the U.S. economy had been successful because it was more innovative, opening space for entrepreneurship at a time of accelerating technological change.

The U.S. labor market had also held up well, with labor supply boosted by immigration, which in turn helped keep wage growth under control, she said.

The Biden administration's Inflation Reduction Act and earlier COVID aid had helped support growth, she said, adding that the International Monetary Fund saw some scope for the U.S. government to address lingering inflation and work toward a soft landing for the economy.

"So fasten your belts," she said. "At some point we will be landing."

By Kevin Yao

BEIJING (Reuters) - China's economy likely grew 4.6% in the first quarter from a year earlier - the slowest in a year despite tentative signs of steadying, a Reuters poll showed on Thursday, maintaining pressure on policymakers to unveil more stimulus measures.

Gross domestic product (GDP) in the world's second-biggest economy is also expected to grow at a subdued 4.6% pace in 2024 year-on-year, according to the median forecast of 86 economists polled by Reuters, falling short of the official target of around 5.0%.

Analysts are forecasting an even slower rate of growth for 2025 of 4.4%

The first-quarter growth forecast compares to 5.2% in the previous three months and is the lowest since the January-March quarter in 2023, underlining the strains in the economy despite stronger than expected January-February data on factory output and retail sales, as well as exports.

Analysts expected growth to pick up to 5.0% in the second quarter, but policymakers have their work cut out in trying to shore up confidence and demand.

China's economy has struggled to mount a strong and sustainable a post-COVID bounce, burdened by a protracted property downturn, mounting local government debts and weak private-sector spending.

The government has unveiled fiscal and monetary policy measures in a bid to achieve what analysts have described as an ambitious 2024 GDP growth target, noting that last year's growth rate of 5.2% was likely flattered by a comparison with a COVID-hit 2022.

"The economy has yet to recover," Ting Lu, chief China economist at Nomura, said in a note. "The property sector is still on the decline, the risk of another fiscal cliff is on the rise, geopolitical challenges are likely to sustain, and growth might face downward pressure again over the next few months."

Fitch cut its outlook on China's sovereign credit rating to negative on Wednesday, citing risks to public finances as Beijing channels more spending towards infrastructure and high-tech manufacturing, amid a shift away from the property sector.

China's consumer inflation cooled more than expected in March, while producer price deflation persisted, suggesting policymakers may need to launch more stimulus to spur demand.

On a quarterly basis, the economy is forecast to expand 1.4% in the first quarter, quickening from 1.0% in October-December, the poll showed.

The government is due to release first quarter GDP data, along with March activity data, at 0200 GMT on April 16.

MORE POLICY SUPPORT NEEDED

The Asian Development Bank (ADB) on Thursday raised its forecast on China's 2024 economic growth to 4.8% from 4.5% previously, citing stronger household consumption.

"Effective measures to resolve property sector problems and strengthen private investment and household consumption should be enhanced this year to support growth momentum," the bank said.

The People's Bank of China (PBOC) has pledged to step up policy support for the economy this year and promote a rebound in prices.

Analysts polled by Reuters expected the central bank to cut the banks' reserve requirement ratios (RRR) by 25 basis points (bps) in the third quarter, following a 50-basis point cut earlier this year, which was the biggest in two years.

Xuan Changneng, a deputy governor of the PBOC, said in late March that there was still room for cutting RRR.

Consumer inflation will likely pick up to 0.7% in 2024 from 0.2% in 2023 - well below the government's target of around 3%, and rise further to 1.6% in 2025, the poll showed.

Some analysts believe the central bank faces a challenge as more credit is flowing to production than into consumption, exposing structural flaws in the economy and reducing the effectiveness of its monetary policy tools.

(For other stories from the Reuters global long-term economic outlook polls package:)

(Polling by Devayani Sathyan, Anant Chandak and Milounee Purohit; Reporting by Kevin Yao; Editing by Shri Navaratnam)

By Michael S. Derby

NEW YORK (Reuters) -The Federal Reserve is preparing in short order to slow the rate at which it sheds Treasury securities from its balance sheet, with policymakers generally favoring cutting the recent pace by roughly half in an effort to extend the process of shrinking holdings and reducing the risk of market trouble.

According to minutes released on Wednesday of the Fed's latest policy meeting, held on March 19-20, officials are thinking about the future of their balance sheet winddown, known as quantitative tightening, or QT, with an eye toward the 2017 to 2019 period, when they last engaged in a similar process that ended up with significant market tumult.

Due to that experience, officials last month “broadly assessed it would be appropriate to take a cautious approach," and "the vast majority of participants thus judged it would be prudent to begin slowing the pace of runoff fairly soon.”

The Fed is currently allowing up to $60 billion per month in Treasury bonds and up to $35 billion per month in mortgage bonds to mature and not be replaced as part of the QT agenda.

“Participants generally favored reducing the monthly pace of runoff by roughly half from the recent overall pace,” the minutes said, and officials aim to do this by tweaking the runoff of Treasuries and leaving in place the cap on mortgage bond runoff. For a variety of reasons, the Fed has struggled to see mortgages run off at the desired pace. And as it ultimately wants as close to an all-Treasuries securities portfolio as it can get, it's government securities that will see the biggest effect in the looming taper.

By slowing the pace of the contraction, the minutes said officials believe they may gain some flexibility in how far they can reduce overall holdings, with the minutes noting "the decision to slow the pace of runoff does not mean that the balance sheet will ultimately shrink by less than it would otherwise."

Capital Economics economists said in a note that against the $95 billion monthly cap over the last 12 months the central bank had averaged a $76 billion per month drawdown, with the shortfall tied to mortgages. Based on the guidance in the minutes, "officials appear to be considering cutting the Treasury-specific run-off to $30 billion per month," and given current levels of banking sector reserves, a reduced-speed QT will likely run for another year, the research firm said.

As for when the Fed will shift gears, J.P. Morgan economist Michael Feroli said “we continue to believe that the committee will announce a halving of the Treasury cap at the next FOMC meeting in early May, with implementation occurring in mid-May.”

RUNOFF REVISIONS

Fed officials had to a large degree already hinted at the planning effort revealed in the meeting minutes. The current QT process has sought to unwind a massive expansion in Fed holdings that kicked off with the arrival of the coronavirus pandemic.

Starting in the spring of 2020, the Fed aggressively bought Treasury and mortgage securities, first to steady troubled markets and then to provide stimulus when the federal funds rate was at near zero levels and could be cut no further.

The purchases caused the size of Fed holdings to more the double, with the balance sheet moving from $4.4 trillion in March 2020 to $9 trillion by the summer of 2022. Later that year, the Fed embarked on its QT effort which has allowed the Fed to shed about $1.5 trillion from its holdings.

The Fed’s goal for the drawdown is to drain liquidity from the financial system, moving from what it views as abundant reserves to ample ones. Fed officials have been unable to define what level “ample” will be but believe it leaves enough liquidity in the financial system to allow for normal volatility in money market rates and firm central bank control over the federal funds rate.

Ahead of the Fed meeting, officials had been hinting at what is to come, and what the slowdown in the runoff might accomplish.

“A slower but still meaningful pace will provide more time for banks and money market participants to redistribute liquidity and for the FOMC to assess liquidity conditions,” Dallas Fed President Lorie Logan said on April 4. Before taking the leadership spot at the Dallas Fed, Logan ran the process of implementing monetary policy at the New York Fed.

Speaking after the FOMC meeting last month Fed Chair Jerome Powell said officials are taking the debate in discrete steps. For now, “what we’re really looking at is slowing the pace of runoff,” Powell said on March 20. “we’re not discussing all the many other balance sheet issues. We will discuss those in due course,” he said.

By Satoshi Sugiyama and Yoshifumi Takemoto

TOKYO (Reuters) -Japanese Finance Minister Shunichi Suzuki said on Thursday that authorities would not rule out any steps to deal with excessive exchange-rate swings after the dollar surged to a 34-year high against the yen.

"We are not just looking at (dollar/yen) levels themselves such as 152 yen or 153 yen (per dollar) but also analysing their background," Suzuki told reporters. "We are looking with a high sense of urgency," he added.

Suzuki also said excessive currency moves are not desirable and that it was important for currencies to move in a stable manner reflecting fundamentals.

Speaking in parliament, Suzuki later said while the weak yen had both merits and demerits, he was always concerned about its impact on prices.

His comments came after the yen weakened past 153 per dollar, the lowest since 1990, following Wednesday's release of strong U.S. inflation data. The dollar stood at 152.90 yen in Asia on Thursday.

Market participants have been on alert for any signs of yen intervention from Japanese authorities.

Japan last intervened in the currency market in 2022, first in September and again in October, to prop up the yen.

Earlier in the day, Japan's top currency diplomat Masato Kanda said recent yen moves were rapid and that he would not rule out any steps.

But Suzuki and Kanda both declined to say whether the yen's overnight falls were deemed excessive and did not escalate his warning to take "decisive action" against sharp yen declines.

"I don't have any particular (dollar/yen) level in mind but excessive volatility has a negative impact on the economy," Kanda, who is vice finance minister for international affairs, told reporters.

"Recent moves are rapid. We'd like to respond appropriately to excessive moves, without ruling out any options," he said.

"We are always prepared to respond to any situation," Kanda said when asked whether authorities were preparing to intervene in the currency market to prop up the yen.

"Compared with 2022 when Japan intervened to stem a weak yen that broke past 145 to the dollar, Japanese authorities seem to lack determination to defend the yen this time around," Masafumi Yamamoto, chief FX strategist at Mizuho Securities, said.

"Given that the dollar's strength reflects a solid U.S. economy and interest rate differentials between Japan and the United States are wide open, Japanese authorities may feel it would be useless even if they intervene now."

By Balazs Koranyi and Francesco Canepa

FRANKFURT (Reuters) - The European Central Bank is all but certain to keep borrowing costs at a record high on Thursday but is likely to signal that a rate cut could come as soon as June, given a sharp slowdown in inflation and continued economic weakness.

The ECB has kept interest rates steady since September but has already signalled that cuts are coming into view, with policymakers awaiting a few more comforting wage indicators before pulling the trigger.

The only complication could be if the U.S. Federal Reserve delayed its own policy easing, although even that might slow but not stop the ECB given a widening gap in performance of the world's biggest economy and the 20-country euro zone.

The currency bloc is now in its sixth straight quarter of economic stagnation and the labour market is starting to soften. Meanwhile, the U.S. economy continues to grow above trend, its labour market remains tight and inflation rose more than expected last month, raising the risk of price growth getting stuck.

"June feels like a compromise between (ECB) doves and hawks," Deutsche Bank said in a note.

"The hawks accept that the inflation outlook has improved but don't want to rush into easing as soon as April. The doves may be pleased the hawks are not opposing cuts and are happy to wait until June for a stronger consensus on a cut."

Policymakers have pointed to a June cut in the 4% deposit rate so often that investors consider it an effective pre-commitment and any walking back would risk damaging the ECB's credibility.

But ECB President Christine Lagarde is likely to avoid any talk of what happens beyond June, especially as there is little consensus yet on how far and fast interest rates need to fall.

Markets have priced in 80 basis points of cuts this year, or between three and four moves, but these expectations have moved in a wide range.

FED IN SIGHT

Fuelling rate-cut talk, consumer price inflation fell to 2.4% last month and could ease back to the ECB's 2% target before year-end, well ahead of the bank's own 2025 projection.

Meanwhile rapid wage growth, seen by the ECB as the single biggest inflation threat, is slowing, labour markets are softening, investment is weak and bank lending stagnant, all pointing to a further decline in price pressures.

"We think the ECB might stop slightly above neutral and we are forecasting a 2.25%-2.50% terminal rate," Antonio Villarroya at Santander (BME:SAN) CIB said.

"As a result, the ECB would need to cut 150-175bp in slightly over three quarters. Therefore, the room for skipping/pausing looks very limited and we think a 25bp cut/meeting is the most likely scenario."

Most others, however, see slower moves, with the ECB skipping a meeting or two - possibly July or October, when it does not publish new inflation and growth projections.

The Fed could also disrupt the ECB's plans.

While the U.S. central bank is still keeping three rate cuts on the table for this year, markets are increasingly doubtful given the remarkable strength of the American economy and upside surprises in inflation. Cuts too close to November's U.S. elections might also risk fuelling accusations of political interference.

The ECB insists that it sets policy independently, but prolonged divergence with the Fed, which traditionally sets the pace for the global economy, could be counterproductive.

Faster ECB rate cuts would weaken the euro and push up yields as funds flow across the Atlantic, so markets would simply undo some of the ECB's work.

A June rate cut would pre-empt the Fed in any case but the ECB will be careful not to get too far ahead.

"Imagining policies diverging for longer is more difficult, because ultimately whatever drives decisions at the Fed will spill over to Europe and affect the euro zone as well," Danske Bank economist Piet Haines Christiansen said.

MANILA (Reuters) - Developing Asia's growth this year is expected to be slightly stronger than previously forecast as healthy domestic demand in many economies offsets the property-driven slowdown in China, the Asian Development Bank (ADB) said on Thursday.   

The ADB nudged up its 2024 growth forecast for Developing Asia to 4.9% from 4.8% projected in December, but warned of persistent challenges such as rising geopolitical tensions, including in the Middle East, that could disrupt supply chains and reignite inflation. 

The Manila-based lender's 2024 growth forecast was slightly weaker than the region's 5.0% growth in 2023. Growth for 2025 was also forecast at 4.9%.   

"Growth in developing Asia will remain robust this year, in spite of uncertainty in the external environment," ADB Chief Economist Albert Park said in the Asian Development Outlook report. 

"The end of interest-rate hiking cycles in most economies as well as continued recovery in goods exports from an upturn in the semiconductor cycle will support growth," Park said. 

China remains a weight on the regional growth outlook as a protracted property crisis and other challenges keep the world's No.2 economy from mounting a strong economic revival, the ADB said.

ADB Principal Economist John Beirne, in a briefing ahead of the report's release, said Wednesday's cut by Fitch of its outlook on China's sovereign credit rating to negative was concerning for investor sentiment.

"It can have additional problems that are already apparent in the property sector, and certainly it's not helpful when we consider local government debts and sustainability of debt and cost of sovereign borrowing," Beirne said.

The ADB forecast China would grow 4.8% in 2024. That is higher than its 4.5% estimate made in December, but slower than growth of 5.2% in 2023. 

It expects the Chinese economy to lose more steam next year, with growth seen slowing to 4.5%, "driven by the weak property market and amplified by fading domestic consumption growth after last year's reopening", the ADB said. 

The ADB forecast regional inflation would slow to 3.2% in 2024 from 3.3% in 2023, and ease further to 3.0% in 2025.

GDP GROWTH 2022 2023 2024 2024 2024 2025

    SEPT DEC APR APR

Caucasus and 5.2 5.3 4.7 4.6 4.3 5.0

Central Asia

East Asia 2.9 4.7 4.2 4.2 4.5 4.2

China 3.0 5.2 4.5 4.5 4.8 4.5

South Asia 6.6 6.4 6.0 6.0 6.3 6.6

India 7.0 7.6 6.7 6.7 7.0 7.2

Southeast 5.7 4.1 4.8 4.7 4.6 4.7

Asia

Indonesia 5.3 5.0 5.0 5.0 5.0 5.0

Malaysia 8.7 3.7 4.9 4.6 4.5 4.6

Myanmar 2.4 0.8 3.2 n/a 1.2 2.2

Philippines 7.6 5.6 6.2 6.2 6.0 6.2

Singapore 3.8 1.1 2.5 2.5 2.4 2.6

Thailand 2.5 1.9 3.7 3.3 2.6 3.0

Vietnam 8.0 5.0 6.0 6.0 6.0 6.2

The Pacific 7.9 3.5 2.9 2.9 3.3 4.0

Developing 4.3 5.0 4.8 4.8 4.9 4.9

Asia

INFLATION   

Caucasus and 12.9 10.5 8.0 8.4 7.9 7.0

Central Asia

East Asia 2.3 0.6 2.1 2.1 1.3 1.6

China 2.0 0.2 2.0 2.0 1.1 1.5

South Asia 8.0 8.4 6.6 6.7 7.0 5.8

India 6.7 5.5 4.2 4.2 4.6 4.5

Southeast 5.3 4.1 3.3 3.5 3.2 3.0

Asia

Indonesia 4.1 3.7 3.0 3.0 2.8 2.8

Malaysia 3.4 2.5 2.7 2.7 2.6 2.6

Myanmar 27.2 22.0 8.2 n/a 15.5 10.2

Philippines 5.8 6.0 4.0 4.0 3.8 3.4

Singapore 6.1 4.8 3.0 3.0 3.0 2.2

Thailand 6.1 1.2 2.3 2.3 1.0 1.5

Vietnam 3.2 3.3 4.0 4.0 4.0 4.0

The Pacific 5.2 3.0 4.5 4.5 4.3 4.1

Developing 4.4 3.3 3.5 3.6 3.2 3.0

Asia

SYDNEY (Reuters) - Australian business conditions were little changed in March as sales and employment held steady in the face of decade-high interest rates, a survey showed on Tuesday, while price pressures eased slightly from elevated levels.

The survey from the National Australia Bank (OTC:NABZY) (NAB) showed its index of business conditions dipped 1 point to +9, continuing its trend of above-average activity for much of the past year.

Its volatile measure of business confidence rose 1 point to +1.

The survey's measure of business sales held steady at +14 and employment remained unchanged at +6, although profitability fell 4 points to +6.

Capacity utilisation dipped to 83.2%, from 83.4%, suggesting supply and demand are coming into better balance, albeit at an incremental pace.

"Fundamentally, it tells us that firms have continued to be a bit concerned about the outlook even as the economy has remained resilient," said NAB's chief economist Alan Oster, adding that there was some positive news in the retail and construction sectors for the month.

Quarterly growth in retail prices eased to a still elevated 1.3%, after jumping to 1.4% in February in a possible red-flag on the persistence of inflation pressures. Growth in purchase costs fell to 1.4% from 1.8%.

"This aligns with our expectation that progress on bringing inflation back to target will be gradual from here, and we expect that to be further reinforced by the Q1 CPI result later in April," said Oster.

The Reserve Bank of Australia (RBA) left interest rates unchanged at 4.35% last month and softened its stance by dropping a tightening bias. However, it did not rule anything in or out on policy.

Markets are wagering that rates have peaked but any relief won't come until around November.