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Tag Archives: CRU
Shares and bonds nervy as rate-hike week looms
LONDON, Jan 30 (Reuters) – Stock markets worldwide halted their January rally on Monday, pausing for breath at the start of an agenda-setting week of central bank rate hikes and data releases that will clarify if progress has been made in the battle against inflation.
Investors expect the Federal Reserve will raise rates by 25 basis points on Wednesday, followed the day after by half-point hikes from the Bank of England and European Central Bank, and any deviation from that script would be a real shock.
Europe’s benchmark STOXX index fell 0.8% on Monday morning, echoing a slight dip in MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS), which has surged 11% in January so far as China’s reopening bolsters sentiment.
The U.S. Nasdaq index is likewise on course for its best January since 2001, a rally that will be tested by earnings updates from tech giants this week.
U.S. stocks were set to follow the nervous Monday mood with S&P 500 futures down 1% and Nasdaq futures falling 1.3%, as investors await guidance later in the week on the Federal Reserve’s policy.
Analysts expect a hawkish tone suggesting that more needs to be done to tame inflation. read more
“With U.S. labour markets still tight, core inflation elevated and financial conditions easing, Fed Chair Powell’s tone will be hawkish, stressing that a downshifting to a 25bp hike doesn’t mean a pause is coming,” said Bruce Kasman, chief economist at JPMorgan, who expects another rise in March.
“We also look for him to continue to push back against market pricing of rate cuts later this year.”
There is a lot of pushing to do given futures currently expect rates to peak at 5% in March and to fall back to 4.5% by year end.
Europe offered a brisk reminder that the fight against rising prices is far from over, as bond yields in the region rose sharply on Monday in the wake of stronger-than-expected Spanish inflation data.
The data showing inflation rose 5.8% year-on-year in January, against expectations of 4.7%, pushed up the zone’s benchmark German 10-year government bond yield 7 basis points (bps) to 2.3190%, its highest since Jan. 10.
Italian and Spanish yields also inched up.
The dollar index was flat ahead of the week’s key data, on course for a fourth straight monthly loss of more than 1.5% on growing expectations that the Fed is nearing the end of its rate-hike cycle.
APPLE’S CORE
Yields on 10-year notes have fallen 33 basis points so far this month to 3.50%, essentially due to easing financial conditions even as the Fed talks tough on tightening.
That dovish outlook will also be tested by data on U.S. payrolls, the employment cost index and various ISM surveys.
Reading on EU inflation could be important for whether the ECB signals a half-point rate rise for March, or opens the door to a slowdown in the pace of tightening. read more
As for Wall Street’s recent rally, much will depend on earnings from Apple Inc (AAPL.O), Amazon.com (AMZN.O), Alphabet Inc (GOOGL.O) and Meta Platforms (META.O), among many others.
“Apple will give a glimpse into the overall demand story for consumers globally and a snapshot of the China supply chain issues starting to slowly abate,” wrote analysts at Wedbush.
“Based on our recent Asia supply chain checks we believe iPhone 14 Pro demand is holding up firmer than expected,” they added. “Apple will likely cut some costs around the edges, but we do not expect mass layoffs.”
Market pricing of early Fed easing has been a burden for the dollar, which has lost 1.6% so far this month to stand at 101.85 against a basket of major currencies.
The euro is up 1.5% for January at $1.0878 and just off a nine-month top. The dollar has even lost 1.3% on the yen to 129.27 despite the Bank of Japan’s dogged defence of its ultra-easy policies.
The drop in the dollar and yields has been a boon for gold, which is up 5.8% for the month so far at $1,930 an ounce .
The precious metal was flat on Monday ahead of the slew of key central bank moves and data releases.
China’s rapid reopening is seen as a windfall for commodities in general, supporting everything from copper to iron ore to oil prices.
Oil steadied on Monday after earlier losses, with prices bolstered by rising Middle East tension over a drone attack in Iran and hopes of higher Chinese demand.
Brent crude rose 10 cents, or 0.12%, to $86.76 a barrel by 1200 GMT while U.S. West Texas Intermediate crude added 4 cents, or 0.05%, to $79.72.
Reporting Lawrence White and Wayne Cole; Editing by Christopher Cushing, Arun Koyyur and Christina Fincher
Our Standards: The Thomson Reuters Trust Principles.
Oil falls ahead of OPEC+, U.S. Federal Reserve meetings
SINGAPORE, Jan 30 (Reuters) – Oil prices fell on Monday, giving up earlier gains, as global producers this week will likely keep output unchanged during a meeting this week and investors are cautious ahead of a U.S. Federal Reserve meeting that may spur market volatility.
Brent crude futures fell 20 cents, or 0.2%, to $86.46 a barrel by 0435 GMT while U.S. West Texas Intermediate crude was at $79.57 a barrel, down 11 cents, or 0.1%.
Ministers from the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, known collectively as OPEC+, are unlikely to tweak their current oil output policy when they meet virtually on Feb. 1.
Still, an indication of a rise in crude exports from Russia’s Baltic ports in early February caused Brent and WTI to post their first weekly loss in three last week.
“No change to the OPEC+ output is expected to be announced at this week’s meeting and we expect outlook commentary from the U.S. Fed to be the key driver of the outlook in the near term,” said National Australia Bank analysts in a research note.
Ahead of the Federal Reserve’s policy meeting scheduled on Jan. 31-Feb. 1, the market broadly expects the U.S. central bank to scale back rate hikes to 25 basis points (bps) from 50 bps announced in December, which may ease concerns of an economic slowdown that would curb fuel demand in the world’s biggest oil consumer.
Oil prices earlier gained amid tensions in the Middle East following a drone attack in oil producer Iran and as China, the world’s biggest crude importer, pledged over the weekend to promote a consumption recovery which would support fuel demand.
“It is not really clear yet what’s happening in Iran, but any escalation there has the potential to disrupt crude flow,” said Stefano Grasso, a senior portfolio manager at 8VantEdge in Singapore.
“We have Russia on the supply side and China on the demand side. Both can swing by more than 1 million barrels per day above or below expectation,” said Grasso, formerly an oil trader with Italy’s Eni.
“China seems to have surprised the market in terms of how fast they are coming out of zero COVID while Russia has surprised in terms of resilience of export volume despite the sanctions.”
China resumes business this week after its Lunar New Year holidays. The number of passengers travelling prior to the holidays rose above levels in the past two years but is still below 2019, Citi analysts said in a note, citing data from the Ministry of Transport.
“Overall international traffic recovery remains gradual, with high-single to low-teens digits to 2019 level, and we expect further recovery when outbound tour group travel resumes on Feb. 6,” the Citi note said.
Reporting by Florence Tan and Emily Chow; Editing by Muralikumar Anantharaman and Christian Schmollinger
Our Standards: The Thomson Reuters Trust Principles.
Oil settles mixed after hitting 7-week high on strong China outlook
NEW YORK, Jan 23 (Reuters) – Oil prices settled mixed on Monday, retreating as investors cashed in on a jump to a seven-week high on optimism about a possible recovery in demand of top oil importer China as the economy recovers this year from pandemic lockdowns.
Brent crude settled 56 cents higher at $88.19 a barrel. The session high was $89.09 a barrel, the highest since Dec. 1. U.S. West Texas Intermediate (WTI) crude settled 2 cents lower at $81.62 a barrel, off the session high $82.64 a barrel, the highest since Dec. 5.
Prices pulled back at the end of the session as investors took profits, said Phil Flynn, analyst at Price Futures Group.
Still, the market wants to preserve long positions in case Chinese growth resumes, said Sukrit Vijayakar, director of Mumbai-based energy consultancy Trifecta.
Data shows a solid pick-up in travel in China after COVID-19 curbs were eased, ANZ commodity analysts said in a note, pointing out that road traffic congestion in the country’s 15 key cities so far this month is up 22% from a year ago.
Crude oil prices in much of the world’s physical markets have started the year with a rally as China has shown signs of more buying and traders have worried that sanctions on Russia could tighten supply.
“While the (China) reopening itself will no doubt prove to be complicated, particularly over the holiday season, early indications suggest there has been a rise in activity, meaning the economy could perform better,” said OANDA analyst Craig Erlam.
Brent is expected to move back into a range between $90 and $100 as the oil market tightens, Erlam said.
Demand for products has lifted the oil market and refining margins, Flynn said. The 3-2-1 crack spread , a proxy for refining margins, rose to $42.18 per barrel on Monday, the highest since October.
The European Union and Group of Seven (G7) coalition will cap prices of Russian refined products from Feb. 5, in addition to the price cap on Russian crude in place since December and an EU embargo on imports of Russian crude by sea.
The G7 has agreed to delay a review of the level of the price cap on Russian oil to March, a month later than originally planned, to provide time to assess the impact of the oil products price cap.
In India, crude oil imports rose to a five-month high in December, government data showed on Monday, as refiners stocked up discounted Russian fuel amid a steady increase in consumption in the country.
Reporting by Stephanie Kelly in New York; additional reporting by Ron Bousso in London, Mohi Narayan in New Delhi and Sonali Paul in Melbourne
Editing by David Goodman, David Gregorio and Mark Potter
Our Standards: The Thomson Reuters Trust Principles.
Shares slip as China data stokes economic slowdown fears
LONDON/HONG KONG, Jan 17 (Reuters) – European shares paused their new year rally and Asian equities slipped after China reported weak fourth-quarter economic data on Tuesday, keeping investors on edge over the prospects of a global recession.
The Euro STOXX 600 (.STOXX) lost 0.2%, slipping from its nine-month high hit on Monday. Global equities have enjoyed a rally so far in 2022, spurred by hopes of a rebound in China’s economy and an easing of prices pressures in the United States and Europe.
But the Chinese data showed that the world’s second-biggest economy grew 2.9% in the fourth quarter of last year, beating expectations but underscoring the toll exacted by Beijing’s stringent “zero-COVID” policy.
China’s growth for 2022 of 3% was far below the official target of about 5.5%. Excluding a 2.2% expansion after COVID-19 first hit in 2020, it was the worst showing in nearly half a century.
Asia Pacific shares outside Japan (.MIAPJ0000PUS) widened losses in response, and were last down 0.4%. Shares in Hong Kong’s (.HSI) dropped 0.8% and China’s benchmark CSI300 Index (.CSI300) clawed back losses to close flat.
In Europe, China-exposed financials HSBC (HSBA.L) and Prudential (PRU.L) fell 1% and 0.4% respectively. Economy-sensitive consumer staples such as Unilever and Danone (DANO.PA) also fell more than 1% each.
Market players said investors were taking stock of how economies would expand as inflation peaks and central bank tightening of monetary policy slows, with the China data underscoring doubts over whether it could act as a spur.
“What will be the thing that reinvigorates growth?” said Gaël Combes, head of fundamental research at Unigestion. “China is probably unlikely to provide the lift is has provided in the past, like during the global financial crisis.”
Wall Street was set to open slightly lower after a public holiday on Monday, with E-mini futures for the S&P 500 down 0.3%.
BOJ UNDER PRESSURE
The dollar index bounced from a seven-month low of 101.77 made a day ago, holding at 102.30, while the Japanese yen stayed close to seven-month highs as investors held their breath for a potential policy shift at the Bank of Japan (BOJ).
The yen steadied around 128.51 on Tuesday after hitting a top of 127.22 per dollar on Monday, with traders braced for sharp moves when the Bank of Japan (BOJ) concludes a two-day meeting on Wednesday.
The BOJ is under pressure to change its interest rate policy as soon as Wednesday, after its attempt to buy itself breathing room backfired, emboldening bond investors to test its resolve.
Euro zone bond yields inched up from month lows hit late last week, but trading in bonds globally was cautious ahead of the result of the BOJ meeting.
Across the world, the R-word continues to loom large.
Two-thirds of private and public sector chief economists surveyed by the World Economic Forum in Davos expected a global recession this year, with some 18% considering it “extremely likely” – more than twice as many as in the previous survey conducted in September 2022.
As equities rallied this year, other riskier assets also gained. The No.1 cryptocurrency bitcoin has clocked a gain of about a quarter in January, leaping over 20% in the past week alone, putting in on course for its best month since October 2021. It was last trading flat at $21,208.
Spot gold was down 0.5% at $1909.23 per ounce.
Reporting by Tom Wilson in London and Kane Wu in Hong Kong; Editing by Gerry Doyle, Neil Fullick and Alex Richardson
Our Standards: The Thomson Reuters Trust Principles.
Shares rise, yen climbs as BOJ battles bond bears
SYDNEY/LONDON, Jan 16 (Reuters) – Shares firmed on Monday as optimism over corporate earnings and China’s reopening offset concerns the Bank of Japan (BOJ) might temper its super-sized stimulus policy at a pivotal meeting this week, while a holiday in U.S. markets made for thin trading.
The yen climbed to its highest since May after rumours swirled the BOJ might hold an emergency meeting on Monday as it struggles to defend its new yield ceiling in the face of massive selling. read more
That had local markets in an anxious mood, and Japan’s Nikkei (.N225) slipped 1.3% to a two-week low.
Yet MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) added 0.27%, with hopes for a speedy Chinese reopening giving it a gain of 4.2% last week.
And European shares opened positively with the STOXX 600 (.STOXX) up 0.1% by 0850 GMT driven by healthcare stocks (.SXDP) which gained 0.6%.
Britain’s benchmark FTSE index (.FTSE) edged close to the record high of 7903.50 it hit in 2018, with banks and life insurance companies among the top gainers.
Earnings season gathers steam this week with Goldman Sachs (GS.N), Morgan Stanley (MS.N) and Netflix (NFLX.O) among those reporting.
World leaders, policy makers and top corporate chiefs will be attending the World Economic Forum in Davos, and there are a host of central bankers speaking, including no fewer than nine members of the U.S. Federal Reserve.
The BOJ’s official two-day meeting ends on Wednesday and speculation is rife it will make changes to its yield curve control (YCC) policy given the market has pushed 10-year yields above its new ceiling of 0.5%. read more
The BOJ bought almost 5 trillion yen ($39.12 billion) of bonds on Friday in its largest daily operation on record, yet 10-year yields still ended the session up at 0.51%.
Early on Monday, the bank offered to buy another 1.3 trillion yen of JGBs, but the yield stuck at 0.51%.
“There is still some possibility that market pressure will force the BOJ to further adjust or exit the YCC,” JPMorgan analysts said in a note. “We can’t ignore this possibility, but at this stage we do not consider it a main scenario.”
“Although domestic demand has started to recover and inflation continues to rise, the economy is not heating up to the extent that a sharp rise in interest rates and potential risk of large yen appreciation can be tolerated,” they added.
THE YEN UN-ANCHORED
The BOJ’s uber-easy policy has acted as a sort of anchor for yields globally, while dragging down the yen. Were it to abandon the policy, it would put upward pressure on yields across developed markets and most likely see the yen surge.
The dollar has been undermined by falling U.S. bond yields as investors wager the Federal Reserve can be less aggressive in raising rates given inflation has clearly turned the corner.
The Japanese yen rose to a more than seven-month peak against the dollar on Monday, as market sentiment was dominated by expectations that the BOJ would make further tweaks to, or fully abandon, its yield control policy.
The yen jumped roughly 0.5% to a high of 127.215 per dollar, before easing to 128.6 by 0915 GMT.
The dollar index, which measures the U.S. unit against a basket of major currencies, recovered from a 7-month low touched earlier in the session to be at 102.6 .
Futures now imply almost no chance the Fed will raise rates by half a point in February, with a quarter-point move seen as a 94% probability.
Yields on 10-year Treasuries are down at 3.498%, having fallen 6 basis points last week, close to its December trough, and major chart target of 3.402%.
Alan Ruskin, global head of G10 FX Strategy at Deutsche Securities, said the loosening of global supply bottlenecks in recent months was proving to be a disinflationary shock, which increases the chance of a soft landing for the U.S. economy.
“The lower inflation itself encourages a soft landing through real wage gains, by allowing the Fed to more readily pause and encouraging a better behaved bond market, with favourable spillovers to financial conditions,” Ruskin said.
“A soft landing also reduces the tail risk of much higher U.S. rates, and this reduced risk premia helps global risk appetite,” Ruskin added.
Commodities prices which had rallied last week, dipped on Monday.
The drop in yields and the dollar had benefited the gold price, which jumped 2.9% last week, but the precious metal slipped 0.4% to $1,911 an ounce in early trading on Monday .
Oil prices slid as a rise in COVID cases clouded the prospects for a surge in demand as China reopens its economy.
Brent crude fell 73 cents, or 0.83%, to $84.57 a barrel by 0857 GMT, while U.S. West Texas Intermediate crude CLc1 was down 61 cents, or 0.6%, at $79.24 a barrel.
($1 = 127.8000 yen)
Reporting by Wayne Cole and Lawrence White;
Editing by Shri Navaratnam and Emelia Sithole-Matarise
Our Standards: The Thomson Reuters Trust Principles.
Stocks hold on to gains ahead of U.S. inflation test
MILAN, Jan 12 (Reuters) – World stocks held on to modest gains on Thursday on cautious optimism that U.S. data will confirm inflation is softening, while the yen rose with a report Japan will this month review the side-effects of its ultra-easy policy.
A MSCI gauge of world stocks (.MIWD00000PUS) rose 0.2% to a four-week high by 0831 GMT ahead of core U.S. consumer price inflation, (USCPFY=ECI) which are expected to have slowed to an annual 5.7% in December, from 6% a month earlier. Month-on-month headline inflation is seen at zero (USCPI=ECI).
Bonds held gains, also mirroring hopes of a softer inflation print, and the U.S. dollar was near a seven-month low against a basket of currencies. Europe’s STOXX 600 (.STOXX) equity benchmark index rose 0.4% to its highest since April 2022.
The data due at 1330 GMT is set to have a big impact on markets by shaping expectations of the speed of interest rate hikes in the world’s biggest economy. Markets have priced better-than-even odds that the Federal Reserve raises rates by 25 basis points, rather than 50, at February’s meeting.
“Both the worst and best days for the S&P 500 in 2022 came on days of a CPI release. As such, it’s inevitable that today’s U.S. CPI has the ability to shape the next month,” wrote Deutsche Bank strategist Jim Reid.
“The latest releases have seen two downside surprises on CPI in a row for the first time since the pandemic, which has led to growing hopes that the Fed might achieve a soft landing after all,” he added.
The MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) rose 0.1% after climbing to a seven-month high, while Japan’s Nikkei (.N225) was steady.
S&P 500 futures were broadly steady following gains for Wall Street indexes on Wednesday. Boston Federal Reserve bank leader Susan Collins told the New York Times that she was leaning towards a 25 basis point hike.
Optimism for a more benign rates outlook and a pickup in demand as China emerges from strict COVID restrictions kept oil prices near one-week peaks.
Brent crude futures topped $83 on Thursday before retreating slightly to trade flat on the day at 82.67 a barrel.
U.S. Treasuries added a little to Wednesday’s gains, sending benchmark 10-year yields down 4.4 basis points (bps) to 3.514%. German 10-year yields , the benchmark for the euro zone, fell 7 bps to 3.509%.
CHINA HOPES
Along with hopes that Western central banks will be gentler, investors are also banking on a recovery in China to help global growth, and are eyeing a potential policy shift in Japan.
The Bank of Japan stunned markets last month by widening the band around its 10-year bond yield target, a move that triggered a sudden rise in yields and a jump in the yen.
On Thursday. Japan’s Yomiuri newspaper reported the BOJ will review the side-effects of Japan’s ultra-easy settings sooner than expected – at next week’s policy meetings – and that it may take additional steps to correct distortions in the yield curve.
The yen rose as much as 0.9% and was last at 131.75 per dollar. Ten-year Japanese government bond futures fell to almost eight-year lows.
Foreign exchange markets elsewhere were holding their breath ahead of the U.S. CPI data while China’s reopening kept a bid under Asia’s currencies. The dollar index added 0.1% to 103.23, not far off a seven-month low of 102.93 hit this week. The yuan traded near five-month highs at 6.7555 per dollar.
China on Thursday reported consumer price falls in December and a larger-than-expected drop in factory gate prices – underscoring weakness in demand – which investors are betting will recover over the coming months.
“It’s not enough for China to come out of COVID to really turn the whole world economy around,” said Steven Wieting, chief investment strategist and chief economist at Citi Global Wealth Investments. “But it really weighs in the opposite direction.”
Reporting by Danilo Masoni in Milan and Tom Westbrook in Singapore
Our Standards: The Thomson Reuters Trust Principles.
Global shares retreat after Fed inflation nudge
LONDON, Jan 10 (Reuters) – Global shares fell for the first time in three days on Tuesday, after comments from two Federal Reserve officials injected a note of caution over the U.S. rate outlook, knocking equities, commodities and other risk assets.
The MSCI All-World index (.MIWD00000PUS) fell 0.2%, but remained in sight of Monday’s three-week high, while the dollar – a gauge of investor risk appetite – edged up against a basket of major currencies.
In the past six weeks, China has dismantled its zero-COVID policy even as cases have surged around the country, which has given markets a bumpy ride as investors weighed up the economic benefits of reopening against the impact to activity from the wave of infections.
Adding to that has been a sense of optimism that inflation has peaked, especially in the United States, and, as such, the Fed will not have to raise rates as much as many had feared.
However, with consumer price pressures still well above the central bank’s target of 2%, two Fed officials on Monday issued a stark reminder that interest rates will have to keep rising, no matter what investors have priced in.
“The market is trying to get one step ahead of the Fed, but it’s not actually listening to what it’s saying. And the Fed is being quite clear with its message – that rates are going to push higher and they’re going to stay higher for longer,” CityIndex strategist Fiona Cincotta said.
“If we look at expectations of inflation later this week – the big focus – core inflation is still expected to remain high. It doesn’t matter which way you look at it. It’s still higher than the target the Fed is aiming for,” she said.
U.S. consumer price data, due on Thursday, is expected to show headline inflation slowed to 6.5% in December from 7.1% in November.
The data could be key to setting expectations for what happens with rates at the Fed’s next policy meeting and beyond.
San Francisco Fed President Mary Daly told the Wall Street Journal she would pay close attention to Thursday’s data and both 25- and 50-basis point hikes were options for her. Atlanta Fed President Raphael Bostic said his “base case” was for no rate cuts this year or next.
“The main theme overnight was cautiousness in the equity space as stocks pared gains after hawkish comments from two Fed officials. Raphael Bostic and Mary Daly said the Fed would likely hike (interest) rates to above 5% and hold them there for some time,” Commerzbank said in a note.
Fed Chair Jerome Powell addresses a conference on central bank independence later on Tuesday and investors will likely scour his remarks for any signal on monetary policy.
“Given that the recent rebound in equity markets and fall in bond yields and the US dollar is loosening financial conditions, today might offer an opportunity for Fed chairman Jay Powell to reset the narrative slightly,” CMC Markets chief strategist Michael Hewson said.
FRAGILE CHINA
In Europe, the STOXX 600 (.STOXX), which on Monday hit its highest in eight months, fell 0.7%, led by a decline in industrials. London’s FTSE 100 (.FTSE) lost 0.2%, while Frankfurt’s DAX (.GDAXI) fell 0.5%.
U.S. stock index futures , fell 0.3%, indicating Wall Street could open a touch lower after a volatile session the previous day.
The dollar carved out gains against the Australian dollar , which is highly sensitive to the Chinese economy and has gained 3.5% in the last three weeks alone, based on the optimism around reopening.
The Aussie was last down 0.5% at $0.6877, while the offshore yuan lost 0.1% against the dollar to trade around 6.7913. It reached its strongest level since mid-August the previous day.
The dollar index rose 0.2%. The euro was flat, while the pound fell 0.3%. The yen fell 0.1% against the dollar to 132.06, even after data showed a faster pick-up in Tokyo inflation that could prompt the Bank of Japan to tighten monetary policy more quickly.
Strategists at BlackRock, the world’s largest asset manager, on Tuesday said they expected the Chinese economy to grow by 6% this year, which should cushion the global slowdown as recession hits developed-market economies. But any bounce may be fleeting.
“We don’t expect the level of economic activity in China to return to its pre-COVID trend, even as domestic activity restarts. We see growth falling back once the restart runs its course,” Wei Li, who is global chief investment strategist for the BlackRock Investment Institute, wrote in a note.
Copper eased back from six-month highs , as bullishness from China’s emergence from COVID-19 was offset by concern about the risks of a broader global downturn.
London Metal Exchange copper futures fell 0.5% to $8,813 a tonne, having hit their highest in over six months on Monday, while zinc fell 0.7% and lead dropped 2%.
Oil pared earlier losses, but concern persisted that China returning to more normal activity may not translate into a boom in energy demand.
“The social vitality of major Chinese cities is rapidly recovering, and the restart of China’s demand is worth looking forward to. However, considering that the recovery of consumption is still at the expected stage, the oil price will most likely remain low and range-bound,” analysts from Haitong Futures said.
Brent crude futures were last up 0.4% to $80.00 a barrel. The oil price is about 2.3% below where it was a year ago and 45% below the highs around $139 after Russia invaded Ukraine last February.
Additional reporting by Selena Li in Hong Kong; Editing by Muralikumar Anantharaman, Angus MacSwan and Chizu Nomiyama
Our Standards: The Thomson Reuters Trust Principles.
Oil jumps 3% on demand optimism as China borders reopen
LONDON, Jan 9 (Reuters) – Oil extended gains on Monday, rising more than 3% after China’s move to reopen its borders boosted the outlook for fuel demand and overshadowed global recession concerns.
The rally was part of a wider boost for risk sentiment supported by both the reopening of the world’s biggest crude importer and hopes for less-aggressive increases to U.S. interest rates, with equities rising and the dollar weakening.
Brent crude was up $2.38, or 3.03%, at $80.95 a barrel by 1312 GMT while U.S. West Texas Intermediate crude rose $2.36, or 3.2%, to $76.13.
“If recession is avoided, global oil demand and demand growth will remain resilient,” said Tamas Varga of oil broker PVM, adding that developments in China were the main reason for Monday’s gains.
“The gradual reopening of the Chinese economy will provide an additional and immeasurable layer of price support,” he said.
The rally followed a drop last week of more than 8% for both oil benchmarks, their biggest weekly declines at the start of a year since 2016.
As part of a “new phase” in the fight against COVID-19, China opened its borders over the weekend for the first time in three years. Domestically, about 2 billion trips are expected during the Lunar New Year season, nearly double last year’s and 70% of 2019 levels, Beijing says.
In oil-specific developments, China issued a second batch of 2023 crude import quotas, according to sources and documents reviewed by Reuters, raising the total for this year by 20% from the same time last year.
Despite Monday’s oil rebound, there is still concern that the massive flow of Chinese travellers could cause another surge in COVID infections while broader economic concerns also linger.
Those concerns are reflected in oil’s market structure. Both the near-term Brent and U.S. crude contracts are trading at a discount to the next month, a structure known as contango, which typically indicates bearish sentiment. ,
Reporting by Alex Lawler
Additional reporting by Florence Tan and Jeslyn Lerh
Editing by David Goodman
Our Standards: The Thomson Reuters Trust Principles.
Asia shares up on Fed rate wagers, China reopening lifts yuan
SYDNEY, Jan 9 (Reuters) – Asian shares rallied on Monday as hopes for less aggressive U.S. rate hikes and the opening of China’s borders bolstered the outlook for the global economy.
MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) rose 2.0% to a five-month top, with South Korean shares (.KS11) gaining 2.2%.
Chinese blue chips (.CSI300) added 0.7%, while Hong Kong shares (.HSI) climbed 1.4%. China’s yuan also firmed to its highest since mid-August under 6.8000.
Japan’s Nikkei (.N225) was closed for a holiday but futures were trading at 26,215, compared with a cash close on Friday of 25,973.
S&P 500 futures added 0.2% and Nasdaq futures 0.3%. EUROSTOXX 50 futures gained 0.6%, while FTSE futures firmed 0.3%.
Earnings season kicks off this week with the major U.S. banks, with the Street fearing no year-on-year growth at all in overall earnings.
“Excluding Energy, S&P 500 EPS (earnings per share) is expected to fall 5%, driven by 134 bp of margin compression,” wrote analysts at Goldman Sachs. “Entering reporting season, earnings revision sentiment is negative relative to history.
“We expect further downward revisions to consensus 2023 EPS forecasts,” they added. “China reopening is one upside risk to 2023 EPS, but margin pressures, taxes, and recession present greater downside risks.”
A sign of the strain came from reports Goldman would start cutting thousands of jobs across the firm from Wednesday, as it prepares for a tough economic environment. read more
In Asia, Beijing has now opened borders that had been all but shut since the start of the COVID-19 pandemic, allowing a surge in traffic across the nation. read more
Bank of America analyst Winnie Wu expects China’s economy, the second-largest economy in the world, to benefit from a cyclical upturn in 2023 and anticipates market upside from both multiple expansion and 10% EPS growth.
FADING THE FED
Sentiment on Wall Street got a boost last week from a benign blend of solid U.S. payroll gains and slower wage growth, combined with a sharp fall in service-sector activity. The market scaled back bets on rate hikes for the Federal Reserve.
Fed fund futures now imply around a 25% chance of a half-point hike in February, down from around 50% a month ago.
That will make investors ultra sensitive to anything Fed Chair Jerome Powell might say at a central bank conference in Stockholm on Tuesday.
It also heightens the importance of U.S. consumer price index (CPI) data on Thursday, which is forecast to show annual inflation slowing to a 15-month low of 6.5% and the core rate dipping to 5.7%.
“We at NatWest have lower than consensus CPI forecasts, and if right that will likely solidify the market pricing of 25bps vs 50bps,” said NatWest Markets analyst John Briggs.
“In context, it should still be seen as a Fed that is still likely to hike a few more times and then hold rates high until inflation’s decline is guaranteed – to us that means a 5-5.25% funds rate.”
Friday’s mixed data had already seen U.S. 10-year yields drop a steep 15 basis points to 3.57%, while dragging the U.S. dollar down across the board.
Early Monday, the euro was holding firm at $1.0673 , having bounced from a low of $1.0482 on Friday. The dollar eased to 131.48 yen , away from last week’s top of 134.78, while its index was flat at 103.600 .
The Brazilian real had yet to trade after hundreds of supporters of far-right former President Jair Bolsonaro were arrested after invading the country’s Congress, presidential palace and Supreme Court. read more
The drop in the dollar and yields was a boon for gold, lifting it to an eight-month peak around $1,877 an ounce .
Oil prices were steadier, after sliding around 8% last week amid demand concerns.
Brent bounced 80 cents to $79.37 a barrel, while U.S. crude rose 78 cents to $74.55 per barrel.
Reporting by Wayne Cole; Editing by Bradley Perrett and Christopher Cushing
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