By Tom Westbrook

SINGAPORE (Reuters) - Asian stocks struggled for headway on Wednesday while 10-year U.S. Treasury yields stood at 16-year highs as surging oil prices drive inflation and set the scene for the Federal Reserve to project interest rates staying higher for longer.

Brent crude futures eased from 10-month highs overnight but at $94.26 a barrel are up 30% in three months thanks to Saudi Arabia and Russia vowing to extend output cuts.

Higher energy costs led to a bigger-than-expected spike in Canadian inflation, overnight data showed, lifting the loonie and triggering selling in the Treasury market. [US/]

Benchmark 10-year Treasury yields hit their highest since 2007 at 4.371% overnight and were last at 4.36%.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.2%, as did Japan's Nikkei. Overnight on Wall Street the S&P 500 also slipped 0.2%.

Futures pricing implies almost no chance of a Fed hike at 1800 GMT, but traders, who have begun winding back bets on cuts in 2024 and will be closely focused on the U.S. central bank's economic projections and chair Jerome Powell's news conference.

"The previous dot plot saw many participants expecting a cut in 2024. There is no reason for those dots to significantly move," said Sam Rines, managing director at research firm CORBŪ in Texas.

"The 'risk management' aspect of the Powell presser is likely to be: positive in regard to downward adjustments to the policy rate as or if inflation wanes, (but) negative with respect to threats of future tightening."

The Fed meeting leads a week jammed with central bank meetings and data over the next few days. British inflation figures are due on Wednesday, followed by central bank meetings in Sweden, Switzerland, Norway, Britain and Japan on Thursday.

STERLING STEADY AHEAD OF CPI

Foreign exchange markets have largely been in a holding pattern ahead of the Fed meeting, though the yen has continued to face pressure which early on Wednesday prompted a riposte from Japan's top financial diplomat. [FRX/]

Masato Kanda told reporters that Japanese authorities were always in close communication with U.S. counterparts and that he wouldn't rule out any options if "excessive moves persist."

The yen is down 11% on the dollar this year as expectations firm for U.S. rates to stay high and Japanese rates to stay low. The yen hit a 10-month trough of 147.95 to the dollar late last week and it traded at 147.80 early on Wednesday.

Benchmark 10-year Japanese government bonds remain hemmed around 0% but at 0.72% have been creeping towards the Bank of Japan's adjusted tolerance for yields 1% either side of zero.

The euro held steady at $1.0684. Commodity-exporters' currencies were firm, with the New Zealand dollar holding modest recent gains at $0.5940 after strong dairy price gains at an overnight auction. [NZD/]

China left benchmark lending rates unchanged on Wednesday, as expected, keeping the yuan steady at 7.2946 per dollar. [CNY/]

The Aussie held at $0.6415, while sterling has paused its slide and held at $1.2390 ahead of British inflation data due at 0600 GMT where headline CPI is seen ticking up to 7% year-on-year. [GBP/]

"The risk lies towards stronger outcomes given very strong labour earnings growth," said Commonwealth Bank of Australia (OTC:CMWAY) strategist Kristina Clifton.

"A stronger CPI result can cause financial markets to fully price in a 25 basis point hike for the Bank of England on Thursday and support sterling."

Rising yields have kept a lid on gold prices, with spot gold last trading at $1,929 an ounce. [GOL/]

Wheat prices, which had been driven down by huge shipments from Russia, steadied on expectations of dry weather cutting output in Australia and Argentina. [GRA/]

Investing.com-- The People’s Bank of China held its benchmark loan prime rates at record lows on Wednesday, as it moved to strike a balance between supporting an economic recovery and stemming further weakness in the yuan. 

The PBOC kept its one-year LPR at 3.45%, while the five-year LPR, which is used to determine mortgage rates, was left unchanged at 4.20%. Both rates were at historic lows, after three cuts over the past year.

Markets had broadly expected the PBOC to keep rates on hold, given that it left its medium-term lending rates unchanged last week. 

The LPR is determined by the PBOC based on considerations from 18 designated commercial banks, and is used as a benchmark for lending interest rates in the country.

The PBOC had disappointed markets with a smaller-than-expected cut to the one-year LPR in August, while the five-year LPR was left unchanged. The move came amid growing discomfort in Beijing over weakness in the yuan, which is among the worst-performing Asian currencies this year. 

Weakness in the yuan was driven chiefly by concerns over a slowing Chinese economic recovery this year, as manufacturing activity stalled and as domestic consumption struggled to reach pre-COVID levels.

While this trend has attracted a slew of monetary stimulus measures from the PBOC, it has maintained a largely conservative stance towards cutting interest rates. 

China’s economy showed some signs of improvement through August, particularly in industrial production and consumer spending. Inflationary conditions also improved after the country slipped into deflation earlier this year.

But the overall outlook for the Chinese economy remains dour, especially as it grapples with slowing overseas demand for exports. The country’s real estate sector, which accounts for nearly a quarter of overall economic growth, is also struggling with a brewing debt crisis, which threatens to spill over into the broader economy. 

The yuan also faces an uphill battle from a widening gulf between local and U.S. yields, following a string of interest rate hikes by the Federal Reserve over the past year. The U.S. central bank is expected to keep rates at over 20-year highs for longer, pressuring most Asian currencies. 

By Rodrigo Campos and Harry Robertson

NEW YORK/LONDON (Reuters) -Global debt hit a record $307 trillion in the second quarter of the year despite rising interest rates curbing bank credit, with markets such as the United States and Japan driving the rise, the Institute of International Finance (IIF) said on Tuesday.

The financial services trade group said in a report that global debt in dollar terms had risen by $10 trillion in the first half of 2023 and by $100 trillion over the past decade.

The latest increase has lifted the global debt-to-GDP ratio for a second straight quarter to 336%. A slowdown in growth, alongside a deceleration in price increases, have caused nominal GDP to expand less slowly than debt levels and were behind the debt ratio rise, the report said.

"The debt-to-GDP ratio actually has resumed its upward trajectory," said Emre Tiftik, director of sustainability research at the IIF at a news conference.

"Notably this rise comes after seven consecutive quarters of declining debt ratios and it mostly reflects the impact of easing inflationary pressures."

The IIF said that with wage and price pressures moderating, even if not to their targets, they expect the debt to output ratio to surpass 337% by year-end.

Experts and policy makers have warned in recent months of rising levels of debt, which can force countries, corporations and households to tighten their belts and rein in spending and investments, in turn crimping growth and hit living standards.

More than 80% of the latest build up had come from the developed world with the U.S., Japan, Britain and France registering the largest increases. Among emerging markets, the biggest rises came from the largest economies, namely China, India, and Brazil.

"For the first time in a long time there's a better trend among emerging markets than there has been among developed markets," said Todd Martinez, co-head of the Americas sovereign team at Fitch Ratings, which sponsored the IIF report.

"Developed markets after the pandemic, they're taking longer to get back to their pre-crisis fiscal positions than EM did, and then a lot of them got hit by this energy shock (from the war in Ukraine)."

The report found that household debt-to-GDP in emerging markets was still above pre-COVID-19 levels, largely due to China, Korea and Thailand. However, the same ratio in mature markets has dropped to its lowest level in two decades in the first six months of the year.

"The good news is that consumer debt burdens appear to have remained largely manageable," Tiftik said. "If inflationary pressures persist, the health of the household balance sheet, especially in the U.S., will provide a cushion against further Fed rate hikes."

Markets are not pricing in a U.S. Federal Reserve rate hike in the near future, but the target rate of between 5.25% and 5.5% is currently expected to remain in place until at least May of next year, according to the CME FedWatch tool.

U.S. rates are expected to remain high for a long period, which could pressure emerging markets as needed investment is funnelled to the less-risky developed world.

The Fed is expected to leave rates unchanged on Wednesday, but could signal that it is open to further rate hikes.

JAKARTA (Reuters) - Indonesia's parliamentary budget committee on Tuesday approved President Joko Widodo's budget for 2024, his final year in office with a total spending of 3,325.1 trillion rupiah ($216.27 billion, the committee chair said.

The agreed spending is representing a fiscal deficit equal to 2.29% of gross domestic product or slightly lower than 2023's outlook of 2.30%.

The president had in August proposed spending of 3,304.1 trillion rupiah. The 2024 budget assumes economic growth of 5.2%, unchanged from the government's proposal.

The revenue target was approved at 2,802.3 trillion rupiah ($182.24 billion) or larger than the proposed 2,781.3 trillion rupiah, as the government expects higher income from the oil and gas sector. committee chair Said Abdullah said in a livestreamed meeting with the government on its budget proposal.

The budget committee's decision is expected to be approved by a wider parliamentary vote at a later date.

Other economic assumptions were unchanged from previous approval from the committee earlier this month.

($1 = 15,375.0000 rupiah)

By Huw Jones

LONDON (Reuters) - Most leading euro zone banks have met a January 2024 target for issuing special debt to replenish capital in a crisis, but some need to do more to ensure they can, if necessary, be wound up quickly, a European Union regulator said on Wednesday.

Recent banking crises in the United States, where Silicon Valley Bank collapsed, and in Switzerland where UBS was forced to acquire Credit Suisse, show that banks and regulators need to increase preparedness for rapidly unfolding crises, the Single Resolution Board (SRB) said.

Forcing banks in the EU's banking union to have minimum requirement for own funds and eligible liabilities (MREL) was a lesson from the 2008 global financial crisis where taxpayers had to bail out banks.

MREL debt is written down in a crisis to "bail in" the bank and help stop it from being "too big to fail".

The SRB, which sets MREL targets, said that by the end of 2022, two-thirds of banks met their final target.

The shortfall is 0.3% of total risk exposures or 20.5 billion euros ($21.87 billion). Some 2.7 trillion euros has been issued so far, and 24 banks have an MREL shortfall, though 14 of them have been given an extension until the end of 2024 or 2025 to meet their targets.

"While holding sufficient loss-absorbing resources at all times is key, it is equally important for banks to be able to use these funds in a crisis," the SRB said in a report.

Its focus is shifting to ensuring banks can credibly demonstrate by the end of this year that they can be smoothly "resolved" or wound down, restructured, or sold without disruption to customers.

"The SRB will review whether material shortcomings remain and take remedial action where needed," it said, though there is no sign so far that it will need to intervene.

Evaporating liquidity was a hallmark of recent banking turmoil and is being scrutinised in resolution plans of banks.

"In order to foster consistency across banks’ scenarios to be considered while integrating lessons learnt from recent crisis cases, the SRB will develop further guidance on the assumptions to be used," the watchdog said.

($1 = 0.9373 euros)

GUATEMALA CITY (Reuters) -The United States urges Guatemalan authorities to end their "intimidation efforts" targeting election officials and members of the party voted to power in last month's presidential elections, the U.S. Ambassador to the Organization of American States said on Monday.

Speaking to the OAS permanent council, Ambassador Francisco Mora said the U.S. was concerned about efforts to undermine democracy in Guatemala, including the prosecutor's office recently raiding electoral storage facilities and opening sealed ballots.

"In a healthy democracy, institutions don't tamper with ballot boxes after election results have been officially certified by the appropriate authority," Mora said, adding the act represented "an assault on the rule of law."

Last week, the top prosecutor's office in the Central American country raided facilities run by Guatemala's main electoral tribunal as part of an investigation into the lead-up to the elections which saw anti-graft candidate Bernardo Arevalo and his Semilla Party overwhelmingly come out on top.

Arevalo suspended his participation in the transition of power last week until "necessary institutional (and) political conditions are reestablished."

He said on Monday he would analyze the possibility of restarting the transition process, speaking to press as he presented a legal challenge against the investigation to Guatemala's Supreme Court.

Hundreds of protesters gathered in front of the court to accompany Arevalo, waving flags and holding signs that read "out with the coup-mongers."

More protests are expected to continue on Tuesday, with roadblocks planned throughout the country in support of Arevalo and to demand the resignation of the prosecutor investigating him.

By Andrea Shalal

WASHINGTON (Reuters) - The International Monetary Fund (IMF), the World Bank and Morocco on Monday announced the annual meetings of the two global institutions would proceed in October in Marrakech, despite a recent nearby earthquake that killed more than 2,900 people.

The meeting will take place from Oct. 9-15 in Marrakech, just 45 miles (72 km) from the site of the 6.8-magnitude earthquake on Sept. 8, with some changes to adapt content "to the circumstances," World Bank President Ajay Banga, IMF Managing Director Kristalina Georgieva and Morocco's Economy Minister Nadia Fettah Alaoui said in a joint statement.

Senior IMF and World Bank officials made the decision, first reported by Reuters, at the direct request of the Moroccan authorities who had pressed the global institutions to proceed with the gathering which is expected to bring some 10,000-15,000 to the Moroccan tourist hub.

"As we look ahead to the meetings, it is of utmost importance that we conduct them in a way that does not hamper the relief efforts under way and that is respectful to the victims and the Moroccan people," the three officials said.

"At this very difficult time, we believe that the Annual Meetings also provide an opportunity for the international community to stand by Morocco and its people, who have once again shown resilience in the face of tragedy. We also remain committed to ensuring the safety of all participants.”

Georgieva told Reuters on Friday that Morocco's prime minister told her it would be "quite devastating" for Morocco's hospitality sector if the meetings were moved to a different location.

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) - Foreign holdings of U.S. Treasuries rose in July, data from the Treasury Department showed on Monday, rising for a second straight month despite an uncertain interest rate outlook muddied by a mixed set of economic figures.

Total holdings of U.S. Treasuries climbed to $7.655 trillion in July, up from $7.562 trillion in the previous month. Compared from a year earlier, overseas holdings were up 2.2%.

China's stash of Treasuries dropped to $821.8 billion, the lowest since May 2009, when it had $776.4 billion, data showed.

Analysts said China has been under pressure to defend its weakening currency, the yuan, and the selling of U.S. debt may have been used for intervention purposes to prop it up.

The benchmark 10-year Treasury yield started July at 3.858%, rising 9.9 basis points (bps) to 3.957% by the end of the month.

"There is a huge inflow into U.S. Treasury debt despite a lot of volatility in rates in July," said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities in New York.

"A lot of the increase in foreign holdings was from the Caymans, Luxembourg, Bermuda, which are associated with custodians. So it's difficult to know exactly who the buyers were," he added.

Japan is still the largest non-U.S. holder of Treasuries with $1.112 trillion in July, up from $1.105 trillion in June.

"We saw some buying by Japanese investors despite the fact that on a hedged basis U.S. Treasuries are not particularly attractive," Goldberg said. "That suggests there may be some unhedged buying of Treasuries."

Major U.S. asset classes showed mixed results during the month, data showed.

Net foreign inflows into Treasuries slid to $200 million in July from $57.3 billion in June.

Net foreign flows into U.S. equities also fell, dropping to $28.9 billion in July from $120.4 billion the previous month.

Foreign buying of U.S. corporates and agencies in July notched inflows of $8.4 billion and $8.1 billion, respectively.

Data also showed U.S. residents increased their holdings of long-term foreign securities, with net purchases of $36.8 billion in July.

BEIJING (Reuters) -China's yuan will stabilise after improvements in recent economic data and the bottoming out of domestic prices, state-owned media said on Monday.

China's falling interest rates have effectively stimulated market demand and supported the economic recovery, the Financial News, a publication backed by the People's Bank of China (PBOC) said.

"The exchange rate is a reflection of the overall economy, and internal and external factors," the newspaper said in a commentary published on its official WeChat account.

"With continued improvements in internal and external fundamentals, the yuan exchange rate is stabilising on a firmer footing."

A string of economic data including August credit lending growth, factory output and retail sales showed the world's second-largest economy was picking up steam.

China's consumer prices have returned to positive territory in August while factory-gate price declines slowed.

"With domestic prices showing upward momentum and the dollar nearing the end of its tightening cycle, yield differentials between the United States and China are expected to narrow, and the yuan will show a positive upturn after bottoming out," the state media said.

In the meantime, China's yuan has bounced 0.9% to the dollar since it touched a 16-year low earlier this month, partly due to the central bank's intensified efforts to stem rapid declines. [CNY/]

The PBOC has persistently set firmer-than-expected daily fixing to cap the downside room in the yuan, and it lowered the amount of foreign exchange banks must set aside last week to slow the pace of yuan depreciation.

The U.S. Treasury market, teetering on the brink of a third consecutive year of losses, is keenly awaiting the Federal Reserve's updated forecasts for their benchmark interest rate this Wednesday. The projections, known as the "dot plot," have gained considerable significance in light of the Federal Reserve officials' reticence to provide specific verbal guidance about policy outlook.

The policy meeting scheduled for September 19-20 is particularly crucial, with widespread expectations that the Fed will maintain its current rates. Discussions are likely to center around the duration of these rates.

The dot plot is expected to shed light on two key questions: whether policymakers will stick to their expectation of a further 25 basis-point rate hike by the end of this year, and what degree of easing they foresee for 2024. As of June, they had projected cuts amounting to 1 percentage point.

The recent release of the consumer price index (CPI) has complicated officials' decision-making process. Despite softer CPI gains in recent months, the core monthly gain — excluding volatile energy and food items — accelerated in August. This report may have bolstered a majority of Fed policymakers' inclination to keep one more 2023 hike on their agenda and potentially lean towards three cuts in 2024, rather than four.

Concerns that the Fed might sustain higher rates for longer periods have prompted a decrease in the bond market's own predictions of rate reductions for 2024. Swaps contracts tied to Fed decisions now reflect about 100 basis points of cuts, down from over 150 basis points earlier this year. Traders predict that the effective federal funds rate, currently at 5.33%, will fall to around 4.49% by the end of 2024.

If policymakers maintain a median forecast for one more hike in 2023 and decrease rate cuts for 2024 this week, two-year Treasuries could potentially be sold off. This could disrupt some investors' expectations for a steeper yield curve, i.e., a reduced premium for two-year yields over 10-year ones.

As of last Friday, two-year yields were over 5%, nearing the 16-year high seen in July. Ten-year yields were above 4.3%. The curve has been inverted since mid-2022, signaling the Fed's most aggressive tightening campaign in decades and expectations for an economic downturn.

Some market observers expect the dot plot to reflect only 75 basis points of rate cuts next year, which could prompt the market to adjust its expectations for the Fed's future actions.

Another key Fed projection to monitor on Wednesday is policymakers' median estimate for their policy rate over the long run, which has stood at 2.5% or lower since 2019. These forecasts are expected to provide initial insights into 2026, offering investors additional long-term perspectives.

The five-year overnight index swap rate, traded five years forward and viewed as a market proxy for the Fed's long-run rate, currently stands around 3.72%, up from below 3% in May. This indicates that investors envision the Fed reducing its rates only down to 3.5% over time.

This outlook could pose problems for the overall market, which has just reported its fourth consecutive month of losses. This stagnation represents a significant setback for investors who suffered a record-breaking loss of 12.5% last year — an unprecedented drop in annual data dating back to the early 1970s.

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