Oil prices fall 1% on Israel-Hamas ceasefire talks, U.S. inflation concerns

BEIJING – Oil prices fell in early Asian trading on Monday, erasing gains from Friday as Israel-Hamas peace talks in Cairo eased fears of a wider conflict in the Middle East and U.S. inflation data further dimmed the prospects of interest rate cuts anytime soon.

Brent crude futures LCoC1 fell by as much as $1, or 1.1% to $88.50 a barrel before ticking back up to $88.55 at 0149 GMT. West Texas Intermediate (WTI) futures CLc1 were down 84 cents, or 1%, at $83.01 a barrel.

Stepped-up efforts to mediate a ceasefire between Israel and Hamas moderated geopolitical tensions and contributed to the weak opening on Monday, IG market analyst Tony Sycamore said. A Hamas delegation will visit Cairo on Monday for peace talks, a Hamas official told Reuters.

Israel’s foreign minister said on Saturday a planned incursion into Rafah, where more than one million displaced Palestinians are sheltering, could be put off in the event of a deal that involves the release of Israeli hostages.

A White House spokesperson said Israel had agreed to listen to U.S. concerns about the humanitarian effects of the potential invasion.

Markets are also on watch for the U.S. Federal Reserve’s May 1 policy review.

“Also playing a part are some nerves ahead of this week’s Federal Open Market Committee meeting which is expected to come with a more hawkish tone,” Sycamore said.

U.S. inflation rose 2.7% in the 12 months through March, data on Friday showed, above the Fed’s target of 2%. Lower inflation would have increased the likelihood of interest rate cuts, which would stimulate economic growth and oil demand.

“The sticky U.S. inflation sparks concerns for ‘higher-for-longer’ interest rates”, leading to a stronger U.S. dollar and putting pressure on commodity prices, independent market analyst Tina Teng said.

The dollar strengthened on the prospect of higher-for-longer interest rates. A stronger dollar makes oil more expensive for those holding other currencies.

Further weighing on the outlook for oil demand, China’s industrial profit growth slowed down in March, official data showed on Saturday, in the latest sign of frail domestic demand in the world’s second largest economy.

Cumulative profits of China’s industrial firms rose 4.3% to 1.5 trillion yuan ($207.0 billion) in the first quarter from a year earlier, compared to a 10.2% rise in the first two months.

But oil prices could swing higher again if U.S. inventory data and China’s PMI index show improvements this week, Teng said.

Brent had settled up 49 cents and WTI up 28 cents on Friday on concerns about disruptions to supply from events in the Middle East.

The market brushed aside potential supply disruptions stemming from Ukranian drone strikes on the Ilsky and Slavyansk oil refineries in Russia’s Krasnodar region over the weekend. The Slavyansk refinery had to suspend some operations after the attack, a plant executive said.

(Reporting by Colleen Howe; Editing by Sonali Paul)

((colleen.howe@thomsonreuters.com;))

Oil settles higher on supply concerns in the Mideast, economic woes subdue gains

HOUSTON – Oil prices settled higher on Friday, garnering support from tensions in the Middle East, but a strong dollar and US inflation data quashed hopes that the Federal Reserve would cut interest rates soon, giving prices a ceiling.

Brent crude futures settled up 49 cents, or 0.55%, to USD 89.50 a barrel. US West Texas Intermediate crude futures settled up 28 cents, or 0.34%, to USD 83.85 a barrel.

Supply concerns supported prices as tensions continued in the Middle East.

Benjamin Netanyahu, Israel’s prime minister, said any rulings by the International Criminal Court, which is investigating Hamas’ Oct. 7 attacks on Israel and Israel’s military assault on Gaza, would not affect Israel’s actions but would “set a dangerous precedent.”

As tensions escalate, Israel’s military said on Friday that its air force struck in Lebanon’s West Beqaa District and killed a militant who advanced attacks against Israel.

Israel stepped up air strikes on Rafah on Thursday after saying it would evacuate civilians from the city in southern Gaza and launch an all-out assault despite allies’ warnings that doing so could cause mass casualties.

“Israel is not afraid to come and support themselves on their own if they have to, people are watching to see what happens between Netanyahu and Biden,” said Tim Snyder, chief economist at Matador Economics.

“The geopolitical element is not over, the proxy battles going on right now will continue,” and this is still providing support and helping to offset the negative pressure from the inflationary data, Snyder added.

Meanwhile, macroeconomic pressures capped gains after data released on Friday showed growing inflation.

In the 12 months through March, US inflation rose 2.7% after an advance of 2.5% in February. Last month’s increase was broadly in line with economists’ expectations.

The Fed has a 2% inflation target. The US central bank is expected to leave rates unchanged at its policy meeting next week.

“The economic data this morning was enough for market participants to conclude that the Fed is not going to be forthcoming with interest rate cuts any time soon,” said John Kilduff, partner with Again Capital LLC.

“Geopolitical jitters in the market are what is keeping us aloft. Those two competing forces should keep us in check,” Kilduff added.

US Treasury Secretary Janet Yellen told Reuters on Thursday that US GDP growth for the first quarter could be revised higher, and inflation will ease after a clutch of “peculiar” factors held the economy to its weakest showing in nearly two years.

US economic growth was likely stronger than suggested by the weaker quarterly data, Yellen said. Oil prices have flip-flopped since Yellen’s comments and the release of the inflation data on Friday.

Meanwhile, the dollar soared to a fresh 34-year high against the yen on Friday, bolstered in part by the US inflation data.

“Dollar strength is helping to exert negative pressure today,” Kilduff said.

Elsewhere, OPEC Secretary General Haitham Al Ghais said in an op-ed article that the end of oil is not in sight, as the pace of energy demand growth means that alternatives cannot replace it at the needed scale, and the focus should be on cutting emissions, not oil use.

(Additional reporting by Noah Browning and Ahmad Ghaddar in London, and Sudarshan Varadhan in Singapore; Editing by Jason Neely, Mark Potter, David Gregorio, Will Dunham, and Paul Simao)

Global equity funds face fourth week of outflows amid dampened Fed rate cut hopes

Global equity funds recorded outflows for the fourth consecutive week as of April 24, affected by diminishing hopes of rapid Federal Reserve rate cuts this year amid a series of higher-than-expected US inflation readings.

Investors pulled out USD 2.7 billion worth of global equity funds during the week, which was much less than the outflow of USD 23 billion in the previous week.

US equity funds experienced outflows of USD 1.2 billion, while European equity funds saw USD 6.3 billion leave during the week. Conversely, Asian markets, primarily driven by Japanese equity funds, recorded inflows of USD 5.1 billion.

Recent inflation reports surpassed forecasts and tempered market expectations for Federal Reserve rate cuts. The markets now see a 70% likelihood of a cut in September — down from earlier projections of six cuts this year.

Global stocks were heading towards their worst month since September on Friday, with investors cautious ahead of the release of March’s core PCE price index data later in the day for further clues on the US rate outlook.

Among equity sector funds, tech sector funds experienced outflows of approximately USD 770 million during the week, while consumer staples and healthcare funds saw outflows of USD 339 million and USD 275 million, respectively. Conversely, energy and industrial sector funds recorded inflows of about USD 544 million and USD 588 million, respectively.

Meanwhile, global bond funds secured inflows of USD 2.17 billion, significantly higher than the USD 820 million recorded in the previous week.

Government bond funds drew USD 781 million, high-yield bond funds received USD 647 million, and corporate bond funds attracted USD 2.3 billion.

Among commodities, precious metal funds attracted an inflow of USD 205 million, reversing outflows from the previous two weeks, while energy funds experienced a modest outflow of USD 35 million.

Data covering 29,598 emerging market funds (EM) showed a net outflow of USD 782 million from bond funds, which was their second consecutive weekly outflow. EM equity funds saw an outflow of USD 1.6 billion during the week.

(Reporting By Patturaja Murugaboopathy; Editing by Tasim Zahid)

Yields fall as inflation largely meets expectations

Longer-dated US Treasury yields fell on Friday after data showed that inflation gains in March were largely in line with economists’ expectations, easing concerns about the closely watched report showing a much higher-than-expected price jump.

The personal consumption expenditures (PCE) price index increased 0.3% last month for an annual increase of 2.7%. Economists polled by Reuters had forecast the index climbing 0.3% on the month and 2.6% year on year.

Core prices also rose 0.3% during the month, as expected, for an annual gain of 2.8%, above economists’ expectations for a 2.7% increase.

A hotter-than-expected consumer price inflation report for March released earlier this month raised concerns that price pressures will take longer to decline closer to the Federal Reserve’s 2% annual target.

Gross domestic product (GDP) data for the first quarter released on Thursday also showed inflation rising more than previously thought.

“Investors were braced for a still slightly hot inflation number thanks to the first quarter GDP report,” said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.

University of Michigan sentiment data, meanwhile, showed that consumers raised their one-year inflation outlook to 3.2%.

Traders have pushed back expectations on when the Fed is likely to begin cutting rates as price pressures remain elevated.

That repricing may give Fed Chair Jerome Powell room to acknowledge a lower chance of interest rate cuts in the near term after the US central bank concludes its two-day meeting on Wednesday, without roiling the market.

“They’re now in a place where the market is expecting a whole lot less,” said Stephen Gola, head of US Treasuries Sales & Trading at StoneX Group in New York. “If the Fed changes its tone a little bit it’s not going to shock anyone.”

Fed funds futures traders are now pricing in one-and-a-half 25 basis point cuts this year, with the first cut likely in September. That compares to expectations of three cuts at the Fed’s March meeting, which were anticipated to begin as soon as June.

Gola expects Powell to make similar comments after the Fed meeting to those he made last week, when he indicated that monetary policy needs to be restrictive for longer.

“The recent data have clearly not given us greater confidence and instead indicate that it’s likely to take longer than expected to achieve that confidence,” Powell said.

Benchmark 10-year Treasury note yields were last down 4 basis points on the day at 4.671%, after reaching 4.739% on Thursday, the highest since Nov. 2.

Two-year yields were little changed at 4.998%, after peaking at 5.027% on Thursday, the highest since Nov. 14.

The inversion in the yield curve between two- and 10-year notes widened three basis points to minus 33 basis points.

The Treasury Department is also expected to leave most auction sizes unchanged when it announces its refunding plans for the coming quarter next week, and is likely to launch a bond buyback program.

(Reporting By Karen Brettell; Additional reporting by Chuck Mikolajczak; Editing by Kirsten Donovan)

Yields on China ultra-long bonds extend rises as PBOC flags interest rate risks

SHANGHAI – Yields on China’s ultra-long bonds extended their rises on Monday, after sharp jumps last week, as the country’s central bank has flagged interest rate risks to some financial institutions.

Yield on China’s benchmark 10-year government bonds CN10YT=RR rose about two basis points to 2.34% in early trade on Monday, while yield on the 30-year tenor CN30YT=RR edged up about 1.5 bps.

Yields have an inverse relation with bond prices — as the price increases, yield falls.

A branch of the People’s Bank of China (PBOC) told financial institutions to cut leverage and reduce their exposure to long-dated bonds following a feverish rally, sources told Reuters.

(Reporting by Shanghai Newsroom; Editing by Kim Coghill)

US Treasury refunding set to offer relief from supply rises

NEW YORK – The US Treasury Department is expected to offer markets some relief next week when it details refunding plans for the coming quarter, by keeping the size of most of its auctions steady after three quarters of increases.

Investors will focus on an expected debt repurchase program and whether it offers any insights into longer-term financing plans as concerns mount over rapidly rising US debt.

While the Treasury may increase the size of some issues, including the 10-year Treasury Inflation-Protected Securities (TIPS), most auctions are expected to be unchanged.

The pause in auction size increases would likely be positive for investors after larger-than-expected debt needs last year sent bond yields higher and rattled stock markets.

“It shouldn’t be as big of an event risk as it was the past couple of quarters,” said Vail Hartman, US rates strategist at BMO Capital Markets in New York.

The Treasury will give its financing estimate for the coming two quarters on Monday and more detailed plans on Wednesday.

Near-term financing needs are improving due to stronger tax receipts and a less bad than previously expected deficit. At the same time, the Federal Reserve is expected to taper its quantitative tightening program, in which it lets bonds roll off its balance sheet without replacement.

That will also reduce the Treasury’s need to raise cash via Treasury bills, with the issuance of short-term debt in the last nine months of 2024 likely to be net negative, said Angelo Manolatos, macro strategist at Wells Fargo in New York.

A bigger focus will be on the likely launch of a buyback program, in which the Treasury will repurchase bonds for cash management purposes or to support liquidity.

“We think that the buybacks are going to be unveiled next week and we’ll get that first actual schedule,” said Manolatos.

For cash management purposes, the Treasury is likely to buy back shorter-dated debt mainly around major tax payment dates.

For liquidity, it will focus on buying back off-the-run securities, older and less liquid issues trading at a discount.

The US government may give more details on how the program would work, including on selecting issues to repurchase.

Meanwhile, any comments on the Treasury’s longer-term financing plans would be a focus as the rapidly rising US debt gains more attention.

“There are very large upside risks to the deficit in coming years … that’s the important issue for them to address, I just don’t know if necessarily they are going to be addressing them in great detail here because there’s an election looming,” said Gennadiy Goldberg, head of US rates strategy at TD Securities in New York.

TD sees a “significant risk” that the Treasury will need to resume auction size increases next year.

(Reporting by Karen Brettell; Editing by Alden Bentley and Alexander Smith)

Helter-skelter yen, US tech tonic

Asian stocks should open on Monday buoyed by Friday’s tech-led surge on Wall Street, while investors will be scrambling to make sense of the latest twist in the Japanese yen’s extraordinary helter-skelter slide against the dollar and other currencies.

The yen fell to a fresh 34-year low of 157.79 per dollar on Friday after the Bank of Japan left interest rates on hold, as expected, but failed to signal any meaningful concern about the exchange rate.

With the Ministry of Finance still opting not to authorize yen-buying intervention by the BOJ, traders went in full steam. Levels that until recently had been unthinkable, like 160 per dollar or even 170, are no longer so fanciful.

Most observers would probably have expected Tokyo to act by now. It last intervened in September and October 2022 when the dollar was around 146.00 and 152.00 yen, respectively.

But it hasn’t, and there are good reasons for that: contrasting U.S. and Japanese inflation data, yawning U.S.-Japanese yield differentials, and the benefits of weak yen to Japan’s asset markets, corporate profits, tourism, and all-round competitiveness.

On the other hand, speculators are licking their lips. The latest U.S. futures market data on Friday showed that hedge funds are sitting on their largest short yen position in 17 years and second-largest ever.

These CFTC figures are for the week through last Tuesday, and the yen has fallen another 2% since then.

Japanese officials have expressed their disquiet with the yen’s weakness, but the longer that talk is not backed up with action, the more hollow it rings. Will traders have 160.00 dollar/yen in their sights this week? You would think so.

Other countries in Asia are becoming increasingly uncomfortable with exchange rate developments – Indonesia has raised rates to counter the rupiah’s weakness, Vietnam and India have intervened directly in the FX market buying their currencies, and South Korea has indicated it will follow suit.

Looking to the week ahead, the U.S. Federal Reserve’s policy decision on Wednesday may tempt FX and other markets to play it safe for the next few days.

Stocks appear to have shaken off the wobbles after post-earnings rallies in Alphabet and Tesla shares, in particular, boosted a broader recovery on Wall Street. The S&P 500 has recouped half its losses from earlier this month, the Nasdaq and MSCI Asia ex-Japan even more.

Highlights from the Asian economic calendar this week include Chinese PMIs, Bank of Korea meeting minutes, inflation from South Korea and Indonesia, and Hong Kong GDP.

Figures on Saturday from Beijing, meanwhile, showed that industrial profits in China fell 3.5% in March, slowing the cumulative rise in the quarter to 4.3% from 10.2% in the first two months of the year.

Also in China, Tesla CEO Elon Musk on Sunday arrived on an unannounced visit in Beijing, where he met Premier Li Qiang.

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

– Thailand trade (March)

– Singapore unemployment (Q1)

– Singapore business expectations (Q1)

(Reporting and Writing by Jamie McGeever)

Oil prices rise as US official eases market concerns over economic headwinds

Oil prices rose in early trade on Friday, as players took stock of the US Treasury secretary’s comments that the country’s economy is likely in a stronger position than indicated by weak first-quarter data, coupled with supply concerns as conflict continues in the Middle East.

Brent crude futures gained 34 cents, or 0.38%, to USD 89.35 a barrel at 1211 GMT, and US West Texas Intermediate crude futures rose by 33 cents, or 0.39%, to USD 83.90 a barrel.

Treasury Secretary Janet Yellen told Reuters on Thursday that US economic growth was likely stronger than suggested by weaker-than-expected quarterly data.

Yellen said US GDP growth for the first quarter could be revised higher after more data is in hand, and inflation will ease to more normal levels after a clutch of “peculiar” factors held the economy to its weakest showing in nearly two years.

Data showed that economic growth slowed in the first quarter, and before Yellen’s comments, tremors from an acceleration in inflation had weighed on oil prices as investors calculated that the Federal Reserve would not cut interest rates before September.

Personal consumption expenditures (PCE) inflation data for March will be released on Friday, closely tracked by the Fed for its 2% target.

Elsewhere, supply concerns as geopolitical tensions continue in the Middle East also buoyed prices early in the session.

Israel stepped up airstrikes on Rafah after saying it would evacuate civilians from the southern Gazan city and launch an all-out assault despite allies’ warnings this could cause mass casualties.

(Reporting by Georgina McCartney in Houston; Editing by Leslie Adler)

Yen at its weakest in decades as BOJ meets

SINGAPORE – The yen was parked by a 34-year low on the dollar and decade lows on other crosses ahead of a Bank of Japan meeting where interest rates are expected to stay low, while the dollar dipped elsewhere on softer-than-expected US growth data.

The euro rose 0.3% overnight to a two-week high of USD 1.0728 following data showing the US had grown at its slowest pace in nearly two years in the first quarter. The annualized rate of 1.6% missed economist forecasts of 2.4%.

The Australian dollar, which has been boosted by a hotter-than-expected inflation reading this week, briefly topped its 200-day moving average to hit USD 0.6539, before settling to USD 0.6522 in Asia trade on Friday.

The yen, however, fell to its weakest since 1990 at 155.75 per dollar, tracking a sharp rise in US yields as separate figures showed a surge in an inflation measure.

That opened – at the 10-year tenor – a 380 basis point gap over Japanese yields that can be expected to stay wide with US rate cut expectations evaporating and markets now pricing only 34 basis points of cuts in 2024.

The size and persistence of the yield gap have encouraged short yen positions and driven Japanese money into dollar assets such as Treasuries, weighing on the currency.

The yen has slipped past levels at 152 and 155 to the dollar where traders had been wary of pushback or intervention from officials and was last trading at 155.58 per dollar.

Japanese Finance Minister Shunichi Suzuki said on Friday he was closely watching currency moves and prepared to take full steps in response. Short yen positions hit their largest for 17 years last week.

On Thursday the yen made a near 16-year low of 167.06 per euro, and was near those levels in the Asia morning on Friday, and it touched a nine-and-a-half year low of 101.64 to the Aussie dollar.

The Bank of Japan already hiked rates at a landmark meeting in March where it ended years of negative interest rates.

Market expectations are low for any fresh policy shift on Friday, but are keenly watching for changes to inflation projections – which would broadcast an intent to hike rates – or to any guidance on the interest rate outlook.

“The market is not pricing in much from this meeting but it’s important to watch where they set official inflation targets, and whether they revise their forecast,” said Nathan Swami, Citi’s Asia-Pacific head of FX trading in Singapore.

“I’m expecting them to, which then opens up the summer meetings as live.”

Sterling rose 0.4% overnight and was last at USD 1.2507. The New Zealand dollar was a touch firmer in Asia morning trade at USD 0.5960 and has gained in the previous four sessions.

(Reporting by Tom Westbrook; Editing by Christopher Cushing)

Yellen says currency intervention acceptable only in rare situations

WASHINGTON – US Treasury Secretary Janet Yellen said on Thursday the strong dollar reflected the strength of the US economy and high interest rates, insisting that interventions by governments in currency markets were acceptable only in rare circumstances.

Yellen, speaking in an interview with Reuters, acknowledged the strength of the dollar and divergences with other countries, but said the dollar’s rise reflected “the strength of the US economy and the level of interest rates.”

The former chair of the Federal Reserve declined to comment on a possible intervention by Japan to support the yen, which set a 34-year low against the dollar on Thursday, or to state her views on the current level of the yen.

“Our expectation of all major countries – and this is a G7 commitment – is that exchange rates will be market-determined,” Yellen said, adding that the goal was to ensure that market interventions to deal with disorderly markets or excessive volatility would occur only rarely and be consulted in advance.

Yellen’s remarks came in an interview with Reuters and followed a trilateral statement last week with the finance ministers of Japan and South Korea centered on the weakness of the two key trading partners’ currencies.

The three ministers, in a rare warning, said they agreed to “consult closely” on foreign exchange markets, acknowledging concerns from Tokyo and Seoul over their currencies’ recent sharp declines.

Receding expectations of a near-term US interest rate cut have pushed the yen to its weakest in more than three decades, keeping markets on alert for the chance of an intervention by Japan to prop up the currency.

Some analysts said Washington’s acknowledgment of the currency concerns from Tokyo and Seoul may lay the groundwork for intervention.

(Reporting by Alessandra Galloni, Andrea Shalal, and David Lawder; Writing by Dan Burns; Editing by Andrea Ricci)

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