By Lucy Craymer

WELLINGTON (Reuters) -The New Zealand jobless rate hit a two-year high in the June quarter as strong demand for labour was met by a jump in the number of people looking for work, helping keep a lid on wage pressures and thus interest rates.

Data released by Statistics New Zealand on Wednesday highlighted that the country's labour market remains tight but there are signs that is easing with the unemployment rate climbing to 3.6% from 3.4% in the prior quarter.

At the same time, the underutilisation rate increased with part-timers looking for more hours.

Economists expect the Reserve Bank of New Zealand (RBNZ) to leave its official cash rate (OCR) unchanged later this month at 5.5% and say signs of a little loosening in the drum-tight labour market should provide some comfort for the central bank.

"Developments in both the unemployment rate and wages will likely leave the Bank comfortable with the broad story underpinning the projections in the May Monetary Policy Statement," said Westpac senior economist Darren Gibbs.

With the economy in a technical recession, the RBNZ signalled in May it was done with hiking rates for the foreseeable future as it expected employment pressures and inflation to ease.

However, the central bank will likely remain concerned about the potential for wage inflation, tracking at 4.3% in the second quarter, to become entrenched, economists say.

Statistics New Zealand said the labour force participation rate at 72.4% and the employment rate at 69.8% were both the highest rates recorded since the survey began.

New Zealand has experienced strong migration in the past 12 months after reopening its borders following COVID-19, but Statistics New Zealand said recently most of the growth in the working age population had come from those within New Zealand.

Following the release of the data there was little market reaction with the two-year swaps [NZDSM3NB2Y=] down 4 basis points at 5.44%, and the New Zealand dollar off slightly at $0.6141.

By Xie Yu

HONG KONG (Reuters) - Asian stocks traded lower while U.S. Treasury yields declined on Wednesday, after ratings agency Fitch unexpectedly downgraded the United States' top-tier sovereign credit rating.

MSCI's broadest index of Asia-Pacific shares fell 0.5%. Japan's Nikkei slid by 1.2%, while Australian shares edged down 0.5%.

China's mainland benchmark and Hong Kong's fell by 0.3% and 0.5%, respectively.

Asian stocks were also weighed by declines on Wall Street overnight. U.S. stock futures, the S&P 500 e-minis, pointed 0.2% lower on Wednesday.

Fitch cut the United States by one notch to AA+ from AAA, citing fiscal deterioration, a decision announced after the Wall Street close on Tuesday.

U.S. 10-year Treasury yields declined by about 2 basis points to 4.025% in Tokyo. [US/]

"Most of the Asia turmoil this morning and the Treasury yields move is triggered by the Fitch decision," said Manishi Raychaudhuri, head of Asia Pacific equity research at BNP Paribas (OTC:BNPQY).

"It's kind of a short-term knee-jerk reaction, so we will have to wait and watch for how this pans out."

Investors counterintuitively fled to the relatively safety of sovereign debt from riskier equity markets. Treasuries, whose yields fall when prices rise, were also bought when Standard & Poor's cut the U.S. top "AAA" rating by one notch to "AA-plus" in 2011.

The U.S. dollar moved lower against a basket of major currencies immediately after the announcement, but was up 0.1% as of the Asian morning.

While the investor reaction to the downgrade was relatively contained, it has injected some uncertainty into financial markets.

"This basically tells you is the U.S. government’s spending is a problem. It's an unsustainable budget situation because the economy can't even grow its way out of this problem going forward," said Steven Ricchiuto, U.S. chief economist, Mizuho Securities. "Therefore, they're going to have to either tackle it or accept the consequences of potential further additional downgrades."

Looking beyond the Fitch downgrade, the main area of focus will still be central banks, corporate earnings and, in China specifically, stimulus prospects the geopolitical issues, he said.

The United States publishes fresh data on jobless claims and unemployment later this week.

Oil prices gained on Wednesday, trading near their highest since April, after industry data showed a much steeper-than-expected draw last week in {{8849|U.S. crcrude oil inventories.

West Texas Intermediate crude futures ticked up 1% to $82.18 while Brent crude rose to $85.73 per barrel.

Gold was slightly higher, trading at $1,949.69 per ounce.

By Jamie McGeever

(Reuters) - A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.

A double dose of the U.S. Treasuries and dollar 'pain trade' looks set to put Asian markets on the defensive on Wednesday, with investors also bracing for South Korean inflation figures and an expected interest rate hike from the Bank of Thailand.

The slump in U.S. bonds on Tuesday pushed the 10-year yield above 4.0%, and the 30-year yield above 4.10% for the first time since November, lifting the dollar and sapping any risk appetite investors might have had on the first day of the new month.

Several indicators, from big Wall Street banks' client surveys to futures market positioning data, show investors are not positioned for that. They are heavily 'long' Treasuries and 'short' dollars - moves like Tuesday's will hurt.

They will also add to the volatility and uncertainty evident in some key Asia and Pacific markets, notably Japanese assets following the Bank of Japan's policy tweak, and the Australian dollar after the country's central bank kept rates on hold at 4.10%.

The Aussie dollar's 1.6% slide against the greenback on Tuesday was its biggest fall since the U.S. regional banking shock in early March. The yen has fallen nearly 4% since the BOJ tweaked its seven-year 'yield curve control' policy on Friday.

U.S. investors bringing money back home? If so, Asian and emerging markets will likely come under more selling pressure.

The U.S. earnings season reaches a peak this week with more than 100 companies reporting, including mega tech firms Apple (NASDAQ:AAPL) and Amazon (NASDAQ:AMZN) on Thursday. Tuesday's results were a mixed bag, allowing direction to be led by macro factors.

The Asian economic and policy calendar on Wednesday will be dominated by the Bank of Thailand's expected 25-basis-point interest rate increase to 2.25%, which is likely to mark the end of the tightening cycle.

But analysts don't expect the first rate cut until 2025 - although inflation has eased to 0.23%, below the central bank's target range of 1%-3%, policymakers anticipate a pick up in prices again later this year.

Annual inflation in South Korea, meanwhile, is expected to have slowed to 2.40% in July from 2.70% the month before. If so, that would mark the slowest pace since June 2021 and a significant deceleration from the 6.30% peak a year ago.

Here are key developments that could provide more direction to markets on Wednesday:

- Thailand interest rate decision

- South Korea CPI inflation (July)

- Singapore manufacturing PMI (July)

(By Jamie McGeever; Editing by Deepa Babington)

By Jihoon Lee

SEOUL (Reuters) - South Korea's consumer inflation cooled for a sixth consecutive month in July and by more than expected, official data showed on Wednesday.

The consumer price index stood 2.3% higher in July than a year earlier, after a 2.7% rise in June and compared with a median 2.4% increase forecast in a Reuters survey of economists.

It marked the weakest annual increase since June 2021, according to Statistics Korea, and was the second straight month the consumer price data came in lower than market expectations.

On a monthly basis, the index rose 0.1%, picking up from no change the previous month, but it was also weaker than a 0.2% rise expected by economists.

Broken down by sector, prices of petroleum products were 0.7% lower than the month before, but agricultural prices jumped 4.7%, the biggest in six months, while public utility prices dropped 4.9%.

There were heavy rains in mid-July, disrupting agricultural supplies and causing upward price pressures on some items.

Core inflation, which excludes volatile food and energy prices, slowed to 3.3% on an annual basis from 3.5% the previous month and hit the slowest rise since April 2022.

Last month, South Korea's central bank extended its pause in its tightening cycle to a fourth straight meeting, after the last interest rate hike in January, but said it would maintain a tight stance amid still high prices.

By Stella Qiu

SYDNEY (Reuters) -Australia's central bank on Tuesday held interest rates at 4.1% for a second straight month, saying past increases were working to cool demand, but retained a warning that some more tightening might be needed to curb inflation.

Wrapping up its August policy meeting, the Reserve Bank of Australia (RBA) largely left its economic outlook unchanged from the previous quarter, forecasting headline inflation would return to within its 2-3% target range by late 2025, from the current 6%.

Markets had leaned toward a steady outcome given recent data showed inflation had eased for a second quarter and consumer spending was softening. However, economists were more split on the outcome, with 20 out of 36 polled by Reuters expecting a hike. [AU/INT]

The Australian dollar extended earlier declines to be 0.9% lower at $0.6656, and futures jumped as investors scaled back the probability of a further rise at all, with a move in September seen as a less than a 20% chance.

Swaps now implied a risk of around 13 basis points of tightening by year end.

Outgoing Governor Philip Lowe reiterated that higher interest rates were working to cool demand, and would continue to do so, and the pause this month would again provide time to assess the impact of the a 400 basis point jump in rates.

"The recent data are consistent with inflation returning to the 2–3% target range over the forecast horizon and with output and employment continuing to grow," said Lowe, adding that further tightening will be dependent on data and the evolving risk assessment.In a relief for policymakers, headline inflation slowed more than expected in the second quarter while retail sales posted their biggest fall this year in June.

With markets suspecting rate hikes might be already done, incoming Governor Michele Bullock, who assumes her role in September, will be in charge of steering a slowing economy and engineering any rate cuts, analysts say.

MIGHT BE DONE

Governor Lowe also removed any reference to a "narrow" path to a soft landing in which inflation eases without unemployment rising dramatically.

Indeed, the economy is already slowing to sub-par levels, with the RBA forecasting growth would ease to 1.75% next year and average a little above 2% in 2025, while the jobless rate would tick up to 4.5% late next year, mostly unchanged from previous estimates.

Commonwealth Bank of Australia (OTC:CMWAY), which had forecast a hike to 4.35% on Tuesday, now expects the RBA to be on hold for an extended period of the year.

"While the RBA retains a tightening bias, we expect the hurdle to another rate hike is high. It would take an upside surprise to the economic data from here... for the RBA to shift its assessment of the outlook," said Belinda Allen, a senior economist at CBA.

However, risk remains that services inflation, including surging rents, stays sticky. The labour market has so far defied expectations for a slowdown while house prices continued to climb in July, a positive wealth effect for consumers.

Both National Australia Bank (OTC:NABZY) and Goldman Sachs (NYSE:GS) now see a hike in November, bringing the cash rate to 4.35%, compared with expectations for two hikes before.

"I am a bit surprised about the RBA's over-relaxed tone with the backdrop that Australia's inflation rate today is now on the top tier of the developed economies," Hebe Chen, markets analyst at IG, told Reuters Global Markets Forum.

"If the labour markets turn out more resilient than expected, the chance for RBA to extend the tightening to 2025 is also a possibility that can't be ruled out."

By Kevin Buckland

TOKYO (Reuters) - Asian stocks hovered close to a sixteen-month peak on Tuesday and oil held near recent highs as investors found more cause for cheer over global economic prospects than reasons to worry, even as data showed risks remain.

The dollar hit a three-week high against the yen as investors continued to seek clarity on the Bank of Japan's recent adjustment to its yield curve control and what that might mean for monetary policy.

The Aussie dollar slumped after the Reserve Bank kept rates unchanged, even as it suggested more tightening may be needed in the future.

MSCI's broadest index of Asia-Pacific shares edged slightly higher, inching back toward the high reached Monday, which was its strongest level since April of last year.

Japan's Nikkei provided support, gaining 0.83% on the back of a weaker yen.

U.S. E-mini stock futures also pointed to a small rise after the S&P 500 ticked up 0.15% overnight.

"We're in a kind of economic nirvana, with an incredibly resilient economy, solid earnings reports and cooling inflation," said Tony Sycamore, a markets analyst at IG in Sydney.

"A little more than halfway through the year, it feels like we're in a very good spot."

Signs of a peaking out in European inflation on Monday echoed the narrative in the United States, providing more evidence that the biggest central banks are nearing the end of their tightening cycles.

However, China's stumbling post-pandemic recovery remained in focus after a surprise contraction in manufacturing in a private-sector survey released Tuesday.

Hong Kong's Hang Seng shed early advance to be about flat, with its property subindex flipping from gains to slide 1.47% as investors took profits after the previous day's rally, built on stimulus hopes.

An index of mainland Chinese blue chips drooped 0.36%.

"At this point, we remain sceptical that there will be any big-bang stimulus package forthcoming," said Alec Jin, investment director of Asian equities at abrdn.

"Investors are still waiting to see some meaningful comeback in high frequency indicators."

The positive U.S. narrative also faces some crucial tests this week, with several closely watched jobs reports due, culminating with monthly payrolls on Friday.

Corporate earnings later in the day include global bellwether Caterpillar (NYSE:CAT).

In currencies, the U.S. dollar index - which measures the currency against six major peers - rose as high as 102.07 for the first time since July 10.

That was aided by a continued retreat in the yen to a three-week low of 142.84 per dollar, as investors looked past the BOJ's surprise tweak of its 10-year yield ceiling to view changes to the negative short-term rate as a still distant prospect.

A closely watched auction of 10-year notes saw relatively weak demand, although the yield reacted little, sticking around 0.6%, well back from the new de facto cap at 1%.

The Aussie weakened as much as 0.9% to $0.66575 after the RBA opted to keep policy steady for a second meeting running. Markets had priced 70% odds for no action, and 30% probability of a hike.

"It's unsurprising that the knee-jerk reaction is negative, but I wouldn't expect it to be onwards and downwards for Aussie," said Ray Attrill, head of FX strategy at National Australia Bank (OTC:NABZY), who predicts a recovery toward $0.70 in coming weeks if risk sentiment stays positive.

"On a valuation basis, (Aussie) is looking pretty cheap."

Oil prices were little changed on Tuesday, trading near a three-month high reached on Monday, on signs of tightening global supply, as producers implement output cuts, and strong demand in the United States, the world's biggest fuel consumer.

Brent crude futures for October were down 0.2% or 18 cents at $85.25 a barrel. Front-month Brent settled at its highest since April 13 on Monday.

U.S. West Texas Intermediate crude was at $81.64 a barrel, down 0.2% or 16 cents from the previous session's settlement, which was its highest since April 14.

By Ann Saphir

(Reuters) -U.S. banks reported tighter credit standards and weaker loan demand from both businesses and consumers during the second quarter, Federal Reserve survey data released on Monday showed, evidence that the central bank's interest-rate hike campaign is slowing the nation's financial gears as intended.

The Fed's quarterly Senior Loan Officer Opinion Survey, or SLOOS, also showed that banks expect to further tighten standards over the rest of 2023.

"The most cited reasons for expecting to tighten lending standards were a less favorable or more uncertain economic outlook, an expected deterioration in collateral values, and an expected deterioration in credit quality of CRE (commercial real estate) and other loans," the Fed said.

The Fed has raised interest rates by 5.25 percentage points since March 2022, and its surveys and hard data have shown banks have been slowing their lending in response.

Monday's SLOOS report - which Fed policymakers had in hand last week when they decided to deliver an 11th interest-rate hike after skipping one at their June meeting - suggests credit tightening is ongoing.

"You've got lending conditions tight and getting a little tighter, you've got weak demand, and ... it gives a picture of a pretty tight credit conditions in the economy," Fed Chair Jerome Powell said last week when asked about the survey results.

But it does not point to a rush to tighten of the kind that some Fed policymakers had worried would occur after the banking turmoil in March and that might have made them skittish about further policy tightening ahead.

Still, it could threaten the Fed's "soft-landing" scenario.

"The degree of tightening in recent quarters looks pretty significant by broad historic standards," wrote JPMorgan (NYSE:JPM) economist Daniel Silver, noting that in the past such tightening has generally been associated with recessions. The data "are not a guarantee of a recession to come, but the tightening evident as of late suggests that the economy should slow."

TIGHTER TERMS

The survey showed a net 50.8% of banks tightened terms of credit last quarter for commercial and industrial (C&I) loans to medium and large businesses, up from 46% in the prior survey. For small firms, a net 49.2% of banks said credit terms were stiffer, versus 46.7% in the last survey.

Both measures fell short of the 70%-plus levels reached at the height of the pandemic in 2020; excluding that period, they were the largest increases since the Fed's first-quarter report in 2009, during the Great Financial Crisis.

Demand for C&I loans remained weak, though not to the degree reported in the previous survey covering the first three months of the year when banks said business demand for credit was the softest since 2009. In the latest survey, conducted in the last two weeks of June, the net share of banks reporting stronger demand from large and medium firms was -51.6%, compared with -55.6% in the prior period and from small firms was -47.5%, up from -53.3%.

On the consumer slate, credit terms continued tightening and demand slackening, though in some categories conditions were somewhat improved from the first quarter.

For instance, the net percentage of banks reporting greater willingness to make consumer installment loans was -21.8% versus the first quarter's -22.8%, which had been the lowest outside of the pandemic since 2008. Smaller net shares of banks reported tightening standards for auto loans, though terms for credit cards did tighten somewhat.

While still weak, demand for auto loans was the least soft in four quarters, while demand for credit card loans was essentially flat after two straight negative quarters.

By Ankur Banerjee

SINGAPORE (Reuters) - The yen slipped to a fresh three-week low on Tuesday as traders pondered the Bank of Japan's steps last week to tweak its yield curve control policy, while the Australian dollar was soft ahead of the Reserve Bank of Australia's policy decision.

The yen has been on a wild ride since Friday, when the BOJ took another step toward a slow shift away from decades of massive monetary stimulus, saying it would offer to buy 10-year Japanese government bonds at 1.0% in fixed-rate operations, instead of the previous rate of 0.5%.

The Asian currency touched a low of 142.80 per dollar. It was last at 142.66 per dollar, down 0.26%. Japan's benchmark 10-year government bond yield surged on Monday to a nine-year high, leading the central bank to conduct additional purchase operations to cap its rise.

"Markets could test just how 'flexible' the BOJ will be in the months ahead," said Carlos Casanova, senior Asia economist at UBP in Hong Kong, in a note, adding the subtle changes suggest that the BOJ may be gearing up to changing the YCC target in 2023.

"As the new line in the sand is 1%, it would make sense to broaden the YCC band by this level."

Investor attention during Asian hours will be on the policy decision from the Reserve Bank of Australia.

Markets generally expect policymakers to hold rates steady but a slim majority of economists favour a hike, arguing that inflation is likely to remain sticky for quite some time. The Australian dollar eased 0.06% to $0.672, having risen 0.8% in July.

Commonwealth Bank of Australia (OTC:CMWAY) strategist Kristina Clifton said the RBA decision is likely to be another close call, noting history shows that if the RBA hikes when they are not fully expected to then the Aussie can rise around 0.8%.

"However, we expect any post RBA strength in Aussie to be short lived given the weak global economic outlook." 

Meanwhile, Federal Reserve survey data released on Monday showed U.S. banks reported tighter credit standards and weaker loan demand from both businesses and consumers during the second quarter.

The Fed's quarterly Senior Loan Officer Opinion Survey, or SLOOS, also showed that banks expect to further tighten standards over the rest of 2023, adding to further evidence that rising interest rates are having an impact on the economy.

Tight lending standards can amplify the effects of rising interest rates and contribute to a U.S. recession later this year, CBA's Clifton said.

Against a basket of currencies, the dollar rose 0.059% at 101.93, flirting with a fresh three-week peak. The index fell 1% in July.

Meanwhile, Sterling was last at $1.2827, down 0.08% on the day, having gained 1.1% in July. Bank of England's policy meeting on Thursday is in the spotlight, with markets evenly divided between a 25- and 50-basis-point increase.

The euro was down 0.06% at $1.0986, while the kiwi eased 0.14% to $0.620.

BEIJING (Reuters) -China on Monday announced export controls on some drones and drone-related equipment, saying it wanted to safeguard "national security and interests" amid escalating tension with the United States over access to technology.

The restrictions on equipment, including some drone engines, lasers, communication equipment and anti-drone systems, will take effect on Sept. 1, the commerce ministry said.

The controls also affect some consumer drones, and no civilian drones can be exported for military purposes, a ministry spokesperson said in a statement.

"China's modest expansion of the scope of its drone control this time is an important measure to demonstrate our stance as a responsible major country, to implement global security initiatives, and maintain world peace," the unidentified spokesperson said.

Authorities had notified relevant countries and regions, the spokesperson said.

China has a large drone manufacturing industry and exports to several markets, including the United States.

The Department of Defense and Commerce Department did not immediately respond to requests for comment.

Congress in 2019 banned the Pentagon from buying or using drones and components manufactured in China.

U.S. lawmakers have said that more than 50% of drones sold in the U.S. are made by Chinese-based company DJI, and they are the most popular drone used by public safety agencies.

DJI said on Monday it always strictly complied with and enforced laws and regulations of the countries or regions in which it operates, including China's export control regulatory requirements.

"We have never designed and manufactured products and equipment for military use, nor have we ever marketed or sold our products for use in military conflicts or wars in any country," the drone maker added.

A German retailer in March 2022 accused DJI of leaking data on Ukrainian military positions to Russia, which the company rejected as "utterly false".

China's commerce ministry said in April this year that U.S. and Western media were spreading "unfounded accusations" that it was exporting drones to the battlefield in Ukraine, adding the reports were an attempt to "smear" Chinese firms and it would continue to strengthen export controls on drones.

The drone export curbs come after China announced export controls on some metals widely used in chipmaking last month, following moves by the United States to restrict China's access to key technologies, such as chipmaking equipment.

By Kevin Buckland

TOKYO (Reuters) - Japan's benchmark bond yield soared to a nine-year high and the yen rallied after the Bank of Japan's decision on Friday to conduct its yield curve control (YCC) policy more flexibly.

The BOJ maintained guidance allowing the 10-year yield to move 0.5% around the 0% target, but said those would now be "references" rather than "rigid limits".

To drive the point home, in a second fixed rate bond-buying operation on the day, the central bank offered to purchase the 10-year note at a yield of 1.0%, instead of the previous rate of 0.5%.

"By raising the upper limit for the fixed rate operations to 1%, the BOJ effectively widened the 10-year target band," said Naomi Muguruma, senior market economist at Mitsubishi UFJ (NYSE:MUFG) Morgan Stanley (NYSE:MS) Securities. "It made a stealth move in that sense."

Policymakers left the short-term interest rate target at -0.1.

The 10-year JGB yield spiked to 0.575% for the first time since September 2014 before easing slightly to 0.55%. Ten-year JGB futures dived to the lowest since mid-March at one point.

The yen, which swung violently immediately after the announcement as traders struggled to fully grasp its implications, eventually extended gains against the dollar to be up as much as 1.05% at 138.05. It had initially flipped to a 1.2% loss, sliding as far as 141.20. It last stood at 139.08.

The announcement came right before stocks reopened for the afternoon session, and the Nikkei share average began by aggressively paring the morning's losses before then reversing course and diving as much as 2.6%. The benchmark index ended the day down just 0.4% at 32,759.23.

The Nikkei was buoyed by financial shares, with the Tokyo Stock Exchange's banking index surging 4.6% to an eight-year high on the prospect of a steeper yield curve that would revive profit from lending.

The Nikkei's top seven stocks were all banks or life insurers, led by a 8.2% jump for Resona Holdings.

"The policy decision is indeed ambiguous," which explains the initial volatility across asset classes, said Richard Kaye, a portfolio manager at Comgest, which manages $4.3 billion under its Japanese funds.

However, Kaye said he is avoiding the "tired" bank trade.

"We focus rather on the stabilisation of the yen, which has been a hostage of the sovereign yield gap with the U.S., and therefore domestic economy beneficiaries in Japan," particularly small caps, he said.

The BOJ has been under pressure from investors all year to loosen yield controls, with wages and consumer prices rising. Data released on Friday showed core consumer inflation in Japan's capital remained well above the central bank's 2% target.

In its updated outlook report, the BOJ raised this year's core consumer inflation forecast to 2.5% from the 1.8% projected in April, but cut its fiscal 2024 forecast to 1.9% from 2.0% and maintained its 1.6% estimate for 2025.

At the same time, the central bank acknowledged that price expectations were showing signs of heightening again.

"Even though market reaction is choppy, this is a clear sign that the BOJ will take mini steps to tighten policy if inflation pressures remain," said Charu Chanana, a strategist at Saxo Markets in Singapore.

"Effectively, markets will test the 1% cap and that can be bullish for the yen."