Yields rise near 5-month highs after jobless claims data, TIPS auction strong

NEW YORK, April 18 – US Treasury yields hovered near their highest levels since November on Thursday as investors weighed steady labor market data and warnings from Federal Reserve officials that the decline in inflation may have stalled.

Yields have jumped near five-month highs this week following stronger-than-expected inflation data last week. Markets are now pricing in a total of 42 basis points in cuts by the end of this year, down from more than 160 basis points in cuts expected in January, and now see the first cut coming in September, according to CME’s FedWatch Tool.

Data from the Labor Department on Thursday showed the number of Americans filing new claims for unemployment benefits was unchanged last week, pointing to continued labor market strength. Initial claims for state unemployment benefits remained at a seasonally adjusted 212,000 for the week ended April 13. Economists polled by Reuters had forecast 215,000 claims in the latest week.

“The extremely steady reads on recent claims data suggest that the trend of solid payroll increases should continue, and that the unemployment rate will remain solidly below 4%,” said Thomas Simons, US economist at Jefferies.

Federal Reserve officials have noted the continued strength of the US labor market as a reason to delay cutting interest rates to avoid a re-acceleration of inflation.

Atlanta Federal Reserve President Raphael Bostic suggested on Thursday that the Fed will not be able to cut rates until the end of the year as inflation returns to the US central bank’s 2% more slowly than many had expected.

“For me, that’s okay … I’m not in a mad dash hurry to get there,” he said.

Bostic was the latest in a number of Fed officials who have sounded a hawkish tone on rates.

Cleveland Federal Reserve Bank President Loretta Mester said on Wednesday that she wants to see more confidence that inflation is easing before the central bank begins cutting rates.

“At some point, as we get more confidence, we will start to normalize policy back to a less restrictive stance, but we don’t have to do that in a hurry,” Mester said.

Fed Governor Michelle Bowman warned in a separate speech on Wednesday that “Progress on inflation has slowed, and … maybe it is even stalled at this point.”

The yield on 10-year Treasury notes was up 5.8 basis points to 4.643% and was hovering near five-month highs. The yield on the 30-year Treasury bond was up 4.1 basis points to 4.740%.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was up 5.6 basis points at 4.988%.

Yields continued to rise, in the opposite direction of prices, despite slightly weaker than expected readings of existing home sales and US leading economic indicators.

The results of the US Treasury’s USD 23 billion auction of US five-year Treasury Inflation-Protected Securities on Thursday were stronger than expected across almost all metrics. The note’s high yield stopped at 2.242%, lower than the expected rate at the bid deadline, which suggested that investors were willing to settle for a lower yield to take the security.

Then bid-to-cover ratio, another measure of demand, was 2.58, slightly above the 2.55 seen in December, but much higher than October’s 2.38. The note’s bid-to-cover ratio was the highest since June 2022.

(Reporting by David Randall; Additional reporting by Gertrude Chavez-Dreyfuss. Editing by Chizu Nomiyama, Josie Kao, and Nick Zieminski)

Gold surges as escalating Middle East tensions bolster demand

April 18 – Safe-haven gold gained on Thursday as persistent tensions in the Middle East added to the metal’s appeal despite robust economic data from the US that raised prospects of fewer interest rate cuts.

Spot gold firmed 1% at USD 2,384.83 per ounce at 1:47 p.m. ET (1747 GMT). Prices touched an all-time high of USD 2,431.29 last Friday.

US gold futures settled 0.4% higher at USD 2,398.

In the Middle East, Israel has signaled it will retaliate to a volley of attacks from Iran despite calls for restrain from Western countries but has not said how.

“When there are geopolitical tensions, the natural response is for investors to flee to gold, which is happening now. If the conflict further escalates, prices could go north of USD 2,500-USD 2,600, and if there is a ceasefire, then they could fall to USD 2,200,” said Everett Millman, chief market analyst with Gainesville Coins.

“Central bank purchases are also placing a floor beneath the prices,” he added.

Bullion’s upside came despite data showing US weekly jobless claims were unchanged at low levels last week. Strong US economic data and hawkish rhetoric from Fed officials have prompted investors to drastically rethink the chances of the Federal Reserve cutting rates any time soon.

Higher interest rates reduce the appeal of holding non-yielding gold.

Bank of China International (BOCI) analyst Xiao Fu said that with rate cut expectations from the Fed coming down and with the natural profit-taking that comes when prices rally quickly, there might be some pressure on gold, but a sharp decline is unlikely.

Spot silver rose 0.3% to USD 28.30 per ounce.

“The silver shortage narrative is gaining attention, with demand consistently outpacing new supply. This imbalance could lead to a significant price adjustment in the future,” said Alexander Zumpfe, a precious metals trader at Heraeus Metals.

“Long-term trends in the silver market remain bullish, and while short-term price movements can be volatile and influenced by futures trading.”

Platinum gained 0.7% to USD 944.25 and palladium added 0.1% to USD 1,027.34.

(Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Tasim Zahid and Alan Barona)

Wobbling US stocks could push volatility-linked funds to ramp up selling

NEW YORK, April 18 – Volatility-linked investment strategies are joining the nascent sell-off in US stocks and could help accelerate declines if market gyrations keep increasing.

Volatility control funds – systematic investment strategies that typically buy equities when markets are calm and sell when they grow turbulent – hoovered up stocks as the S&P 500 marched to record highs this year.

With the S&P 500 now off more than 4% from those levels and the Cboe Volatility Index near its highest point since October, some of these funds are once again becoming sellers.

Though the S&P 500 is still up about 5% year-to-date, further gyrations could trigger more selling from the funds: analysts at Nomura estimate the strategies could dump some USD 45 billion worth of stocks if the S&P 500 averages daily moves of 1% over the next two weeks.

“Their positioning is clearly above average,” said Parag Thatte, a strategist at Deutsche Bank. “There is room for them to pull back in terms of exposure.”

Nomura’s Charlie McElligott estimates that volatility control funds have already started selling, shedding about USD 16.2 billion in equity exposure over the last week.

While that is small compared with the S&P 500’s USD 42 trillion market capitalization, the funds’ tendency to follow market momentum can sometimes exaggerate stock moves, market participants said. Other, slower moving strategies could also join in if volatility increases.

The market’s recent swings were preceded by a long period of calm in which investors piled in to equities, driven by evidence of strong-yet-stable economic growth and expectations that the Fed would deliver several rate cuts this year. The VIX has not risen over the 20 mark – a level associated with healthy demand for portfolio hedges – for 120 sessions, the longest such streak since 2018.

Stock gyrations have increased in recent weeks as hopes for rate cuts fade in the face of stronger-than-expected inflation. Those worries have been exacerbated as a spreading conflict in the Middle East drives up oil prices, threatening to push inflation higher.

Volatility has picked up in other asset classes as well. The MOVE index, measuring expected volatility in US Treasuries, stands at a three-month high following a steady rise in Treasury yields. The Deutsche Bank FX Volatility Index, a measure of currency market swings, has climbed to a near 10-week high in the face of a rally in the US dollar.

“The volatility increase we’re seeing is across asset classes,” said Mandy Xu, head of derivatives market intelligence at Cboe Global Markets. “I think it is the market waking up to potential downside risk.”

One reason that selling from volatility-control funds has not kicked into higher gear so far is that the declines in the S&P 500 have been relatively measured, Barclays strategists wrote.

However, “the funds are quite susceptible to a massive unwinding from the currently high level of equity allocation, particularly if volatility reprices higher in case inflation keeps surprising to the upside, limiting the Fed’s ability to cut rates,” according to Barclays.

Volatility control funds have a relatively short fuse compared with other computer-driven strategies, making them among the first to react when the market landscape changes.

A more pronounced jump in volatility could also activate slower-reacting funds that use volatility as a trading signal, including commodity trading advisers and risk parity funds, piling more pressure on the market as they ramped up selling.

Nomura’s McElligott said CTAs could sell some USD 31 billion in equities if the S&P 500 falls another 2% to around the 4,914 level in the weeks ahead.

One catalyst for such moves could be corporate earnings season, which kicked into gear last week. Investors next week will be bracing for earnings from a slew of technology and growth heavyweights, including Tesla, Meta Platforms, Microsoft, and Google parent Alphabet. The US will also get a look at another inflation measure on April 26, when the personal consumption expenditures index is released.

“Volatility control has been the larger force to date with regard to systematic deleveraging … during this choppy pullback,” McElligott said. “CTAs join the party in the coming weeks if weakness persists.”

(Reporting by Saqib Iqbal Ahmed in New York; Editing by Ira Iosebashvili and Matthew Lewis)

Oil holds near 3-week low as US sanctions interrupt easing tensions

NEW YORK, April 18 – Oil prices held near a three-week low on Thursday as investors weighed robust US jobs data and sanctions on Venezuela and Iran against global demand concerns and easing tensions in the Middle East.

Brent futures rose 17 cents, or 0.2%, to USD 87.46 a barrel by 1:05 p.m. EDT (1705 GMT), while US West Texas Intermediate (WTI) crude rose 38 cents, or 0.5%, to USD 83.07.

On Wednesday, both benchmarks closed at their lowest since March 27.

Increased interest in energy trading boosted open interest in Brent futures LCOTOT on the Intercontinental Exchange to its highest since February 2021 for a second day in a row on Wednesday.

In other energy markets, the drop in US diesel futures to a 15-week low, cut the heating oil crack spread, which measures refining profit margins, to its lowest since April 2023.

In the US, President Joe Biden’s administration said it wants to keep gasoline prices within current ranges as the country heads into its summer driving season.

Meanwhile, the number of Americans filing new claims for unemployment benefits was unchanged at a low level last week, pointing to continued labor market strength.

US labor market resilience, which is driving the economy, together with elevated inflation has led financial markets and some economists to expect the US Federal Reserve could delay cutting interest rates until September.

Lower interest rates would reduce borrowing costs and could spur economic growth and demand for oil.

In Europe, meanwhile, the European Central Bank made it clear that an interest rate cut is coming in June but policymakers continued to differ on moves thereafter or how low interest rates can go before once again starting to stimulate the economy.

In China, the world’s biggest oil importer, senior officials at the central bank said there was still room for the bank to take steps to support the economy, but efforts are needed to prevent cash from sloshing around the banking system as real credit demand weakens.

The world’s second-biggest economy grew faster than expected in the first quarter, but several March indicators, such as property investment, retail sales, and industrial output, showed that domestic demand in China remains frail.

On the supply side, OPEC-member Venezuela lost a key US license that allowed it to export oil to markets around the world, which would hit the volume and quality of its crude and fuel sales.

The US also announced sanctions on Iran, another OPEC member, targeting the country’s unarmed aerial vehicle production after its drone strike on Israel last weekend.

But additional sanctions prevented Iran’s oil industry. Iran is the third largest oil producer in the Organization of the Petroleum Exporting Countries (OPEC), according to Reuters data.

Analysts at energy advisory Ritterbusch and Associates said the sanctions on Venezuela and Iran were already “largely discounted and being shrugged off” by the market.

Investors had been largely unwinding the geopolitical risk premium in oil prices in the last three sessions – during which Brent lost around 3.5% – on the perception that any Israeli retaliation to Iran’s attack on April 13 will be moderated by international pressure.

(Reporting by Scott DiSavino in New York, Robert Harvey in London, Deep Vakil in Bengaluru, Katya Golubkova in Tokyo, and Mohi Narayan in New Delhi; Editing Chizu Nomiyama, Mark Potter, and Josie Kao)

Foreign holdings of US Treasuries hit record high; Japan holdings rise, data shows

NEW YORK, April 17 – Foreign holdings of US Treasuries surged to a record in February, its fifth straight monthly rise, Treasury Department data released on Wednesday showed.

Holdings totaled USD 7.965 trillion, up from a revised USD 7.945 trillion in January. Treasuries owned by foreigners rose 8.7% from a year earlier.

Holdings of Treasuries grew the most in Belgium, by USD 27 billion, to hit USD 320 billion. Japan, the largest non-US holder of Treasuries, increased its US government debt to USD 1.167 trillion, the largest since August 2022 when the country’s holdings were at USD 1.196 trillion.

Investors have been alert to the threat of Japanese intervention in the currency market to boost the yen, which plunged to a 34-year low of 154.79 per dollar on Tuesday.

The Bank of Japan intervened three times in 2022, selling the dollar to buy yen, first in September and again in October as the yen slid toward a 32-year low of 152 to the dollar.

In September and October 2022, Japan’s Treasury holdings declined USD 131.6 billion from USD 1.196 trillion in August.

China’s pile of Treasuries also fell in February to USD 775 billion, data showed. The monthly decline of USD 22.7 billion was the second biggest among the 20 major countries on the Treasury’s list.

Holdings of Treasuries by China, the world’s second-largest economy, have been declining, reaching USD 763.5 billion in February, the lowest since March 2009.

Britain listed its Treasury holdings at USD 700.8 billion, up about USD 9 billion from January.

The benchmark 10-year Treasury yield started February at 3.863% US10YT=RR and ended the month at 4.252%, up nearly 39 basis points. Yields rose as a slew of solid economic data was released that month, reflecting expectations that the Federal Reserve will delay cutting interest rates.

Major US asset classes had inflows during the month, the data showed.

On a transaction basis, US Treasuries posted inflows of USD 88.8 billion, up from USD 46.3 billion in January.

Foreign buying of US corporates and agencies persisted in February, with inflows of USD 52.7 billion and USD 3.7 billion, respectively.

US equities showed a minor inflow of USD 400 million, compared with outflows of USD 15.4 billion in January.

Overall, net foreign acquisitions of long- and short-term securities, as well as banking flows, showed a net inflow of USD 51.6 billion in February, up from outflows of USD 30.8 billion the previous month, Treasury data showed.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Richard Chang)

Investors take breather, FX plots thicken

April 18 (Reuters) – Amid a flurry of commentary from global financial leaders at the International Monetary Fund and World Bank Spring meetings in Washington, and with many markets having undergone huge moves in recent weeks, investors are taking a bit of a time out.

The relentless bond selling of late reversed on Wednesday and pushed yields lower, gold flatlined again, oil tumbled 3% for its biggest fall in over two months, and stocks wobbled.

Whether it’s fatigue (gold), short-covering (bonds), worries about the impact of higher borrowing costs on growth and demand (stocks and oil), or just seeking refuge from the barrage of headlines from Washington, investors are trimming back risk.

This is the backdrop to Thursday’s market open in Asia, where the calendar includes Japan’s tertiary index of industrial activity, unemployment from Australia and Hong Kong, and a speech by Bank of Japan board member Asahi Noguchi.

On the equity front, the correction that appears to be developing in some quarters gathered momentum on Wednesday, despite a notable decline in bond yields and the dollar’s first daily loss in seven.

Japan’s Nikkei 225 index is down 3.6% this week, on course for its biggest weekly drop since December 2022. The S&P 500 fell for a fourth day, is on track for its third weekly loss in a row, and is down 5% since its all-time high last month.

The MSCI Asia ex-Japan index is down year-to-date.

Exchange rates – and by extension trade competitiveness, restrictions, and tariffs – remain under close scrutiny.

President Joe Biden on Wednesday called for sharply higher US tariffs on Chinese metal products, duties of up to 25% on certain steel and aluminum products, in a move that will risk angering Beijing.

Finance leaders from the United States, Japan, and South Korea, meanwhile, agreed to “consult closely” on FX markets in their first trilateral meeting on Wednesday, nodding to concern by Tokyo and Seoul over their currencies’ recent sharp declines.

The agreement in their first trilateral meeting came as receding expectations of a near-term US interest rate cut pushed the yen to 34-year lows, keeping markets on alert on the chance of yen-buying intervention by Japanese authorities.

“We will continue to cooperate to promote sustainable economic growth, financial stability, as well as orderly and well-functioning financial markets,” a joint statement read.

While Japan may not be actively trying to export its way to prosperity, and the yen’s weakness may be justified on relative economic and interest rate fundamentals, seismic terms of trade shifts like this in Asia tend not to go unmatched.

Could Asia be sliding towards a ‘beggar thy neighbor’ wave of competitive FX depreciation? The trilateral US-Japanese-South Korean statement shows officials are acutely aware of the risks.

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

– IMF/World Bank meetings in Washington

– Australia unemployment (March)

– BOJ’s Noguchi speaks

(By Jamie McGeever)

US dollar weakens as market consolidates gains, but uptrend intact

NEW YORK, April 17 – The dollar on Wednesday fell for the first time in six days, as investors consolidated gains after Federal Reserve officials repeated the interest rate-cutting cycle is on hold pending new economic data, while the monetary easing outlook for other major central banks remained unchanged.

The greenback also dropped from 5-1/2-month highs hit on Tuesday. The dollar index was last down 0.4% at 105.89. So far this year, the index has gained about 4.7%.

“I see today’s move as more of a slight correction than anything. To put things into context, the dollar spot index is still just off its highest point since mid-November,” said Helen Given, FX trader at Monex USA in Washington.

“(Fed Chair Jerome) Powell’s panel yesterday was the big market-mover for the week, and now traders appear to be hedging on the other side of the market, so we’re seeing this pullback today. We’re reaching a point where markets have priced in the downshift on cuts from the Fed, so flows are a bit more normalized.”

Top US central bank officials, including Powell on Tuesday, have provided little indication of when rates may be cut, saying instead that monetary policy needs to be restrictive for longer.

Recent data showed the US economy remains stronger than expected, leading investors to reduce their bets on future rate cuts. This was again evident in the Fed’s latest so-called “Beige Book” released on Wednesday. The report indicated US economic activity expanded slightly from late February through early April and companies signaled they expect inflation pressures to hold steady.

Meanwhile, risks of a broadening Middle East conflict have added to the dollar’s safe-haven appeal in the short term.

After last week’s hotter-than-expected reading of US consumer prices, the market has reduced the number of quarter-point rate cuts expected by the Fed this year to less than two. The first is now seen in September, later than a prior June, according to LSEG’s rate app.

A more hawkish view from the Fed has led Treasury yields to move higher and strengthened the dollar’s outlook.

“If for no other reason than the Fed will keep rates elevated, that will attract flows into the US,” said Thierry Wizman, global FX & rates strategist at Macquarie in New York, adding that greater volatility across markets due to higher yields could prompt a flight to quality into the dollar.

In addition, US economic data, unlike China and Europe, is still fairly robust, Wizman added.

Against the yen, the dollar fell 0.3% to 154.32 yen. Part of the decline came after finance leaders from the United States, Japan and South Korea agreed to consult closely on foreign exchange markets in their first trilateral meeting on Wednesday. The statement acknowledged concern by Tokyo and Seoul over their currencies’ recent sharp declines.

“I see a statement like that as both unusual and priming the ground for an intervention from Japanese currency officials rather imminently,” Monex’s Given said. “I could see concrete steps from Japanese authorities as soon as by the end of this week.”

The dollar hit 154.79 yen on Tuesday, its weakest in 34 years.

Market participants raised the bar of a possible intervention by Japanese authorities to prop up the yen, now mentioning the 155 level from the previous 152, even if they believed Japan could step in at any time.

They also believe as long as the yen’s fall is gradual and led by fundamentals, the probability of a Japan intervention is low.

Japan last intervened in the currency market in 2022, spending an estimated USD 60 billion to defend the yen.

Hedge funds have built up their biggest bet against the yen in 17 years, raising the prospect that when Japan’s embattled currency does rebound, the short-covering rally could be a powerful one.

In other currencies, the euro rose 0.5% to USD 1.0667.

European Central Bank policymakers continued to make the case for a rate cut in June on Tuesday as inflation remains on course to ease back to 2% by next year, even if the path for prices still proves bumpy.

(Reporting by Herbert Lash and Gertrude Chavez-Dreyfuss; Additional reporting by Stefano Rebaudo in Milano and Ankur Banerjee in Singapore; Editing by Sam Holmes, Jacqueline Wong, Will Dunham, Ros Russell, Alex Richardson, Deepa Babington, and Jonathan Oatis)

Gold retreats as dimming rate cut expectations overshadow safe haven demand

April 17 – Gold prices edged down on Wednesday, but traded near their record high levels hit last week, as pressure from fading US rate cut hopes overshadowed gains from safe haven demand arising out of geopolitical turmoil in the Middle East.

Spot gold eased 0.2% to USD 2,376.39 per ounce, as of 2:15 p.m. ET (1815 GMT). Prices hit an all-time high of USD 2,431.29 on Friday.

US gold futures settled 0.8% lower at USD 2,388.4.

“Geopolitical uncertainty continues to support gold and if there is any escalation in the situation, then prices could move towards the USD 2,500 range,” said Phillip Streible, chief market strategist at Blue Line Futures in Chicago.

“Gold prices will only come lower if central banks stop buying or if investors go back to a risk-on phase,” he said.

Iran said its military was ready to confront any attack by Israel. Iran carried out its first-ever direct attack on Israel last weekend in retaliation for a suspected Israeli strike on an Iranian diplomatic compound in Damascus on April 1.

Top US central bank officials including Federal Reserve Chair Jerome Powell backed away on Tuesday from providing any guidance on when interest rates may be cut, saying instead that monetary policy needs to be restrictive for longer.

The market is pricing in a 71% chance of a US rate cut by September. Higher interest rates reduce the appeal of holding non-yielding gold.

While gold has largely remained uncorrelated with the US dollar and Treasury yields in the current trend, it may still show short-term responses to movements in both, said FXTM senior research analyst Lukman Otunuga.

Spot silver rose 1.1% to USD 28.39.

The global silver deficit is expected to rise by 17% to 215.3 million troy ounces in 2024 due to a 2% growth in demand led by robust industrial consumption and a 1% fall in total supply, the Silver Institute said.

Spot platinum fell 1.5% to USD 942.79 and palladium rose 1.4% at USD 1,027.56.

(Reporting by Ashitha Shivaprasad, Harshit Verma, and Anjana Anil in Bengaluru; Editing by Vijay Kishore and Shailesh Kuber)

Oil settles down 3% as demand worries outweigh Middle East supply risks

April 17 – Oil prices settled down 3% on Wednesday, pressured by a rise in US commercial inventories, weaker economic data from China, and US progress on Ukraine and Israel aid bills.

Brent futures for June settled down USD 2.73, or 3%, at USD 87.29 a barrel, while US crude futures for May settled down USD 2.67 or 3.1% at USD 82.69 a barrel, their biggest fall since March 20.

Oil prices have softened this week as economic headwinds curb gains from geopolitical tensions, with markets eying how Israel might respond to Iran’s weekend attack.

Analysts do not expect Iran’s unprecedented missile and drone strike on Israel to prompt dramatic US sanctions on Iran’s oil exports.

US crude inventories rose by 2.7 million barrels to 460 million barrels last week, government data showed, nearly double analysts’ expectations in a Reuters poll for a 1.4 million-barrel build.

Oil prices continued to decline after US House of Representatives Speaker Mike Johnson said the text of four bills providing assistance to Ukraine, Israel, and the Indo-Pacific would be filed “soon today,” with a fourth with “other measures to confront Russia, China and Iran” posted later in the day.

“The market was waiting to sell off on indications of calming of tensions in the Middle East … progress on these bills and a three-day delay in Israel’s response to Iran is helping today,” said John Kilduff, partner at Again Capital LLC in New York.

Top Federal Reserve officials including Chair Jerome Powell backed away on Tuesday from providing any guidance on when interest rates may be cut, dashing investors’ hopes for meaningful reductions in borrowing costs this year.

Britain’s inflation rate slowed by less than expected in March, signaling that a first rate cut by the Bank of England could also be further off than previously thought.

However, inflation slowed across the eurozone last month, reinforcing expectations for a European Central Bank rate cut in June.

“A strengthening trend in the US dollar and the ability of crude stocks to increase in the face of reduced Mexican imports and increasing SPR refills are also sending off some bearish vibes,” said Jim Ritterbusch, president of Ritterbusch and Associates LLC in Galena, Illinois.

In China, the world’s biggest oil importer, the economy grew faster than expected in the first quarter, but several other indicators showed that demand at home remains frail.

Elsewhere, Tengizchevroil announced plans for scheduled maintenance at one of six production trains at the Tengiz oilfield in Kazakhstan in May.

(Reporting by Laura Sanicola in Washington; Additional reporting by Deep Vakil in Bengaluru, Ahmad Ghaddar in London, Yuka Obayashi in Tokyo, and Trixie Yap in Singapore; Editing by Marguerita Choy, Richard Chang, and Matthew Lewis)

Oil prices rise as Israel weighs response to Iran attack

April 16 – Oil prices rose on Tuesday amid heightened tensions in the Middle East after Israel’s military chief said his country would respond to Iran’s weekend missile and drone attack amid calls for restraint by allies.

Brent futures for June delivery rose 46 cents, or 0.5%, to USD 90.56 a barrel by 0005 GMT. US crude futures for May delivery rose 43 cents, or 0.5%, to USD 85.84 a barrel.

Oil prices had ended Monday’s session lower after Iran’s weekend attack on Israel proved to be less damaging than anticipated, initially easing concerns of a quickly intensifying conflict that could displace crude barrels.

The attack, which Iran called retaliation for an air strike on its Damascus consulate, caused only modest damage, with missiles shot down by Israel’s Iron Dome defense system.

But Israel’s Prime Minister Benjamin Netanyahu on Monday summoned his war cabinet for the second time in less than 24 hours to weigh how to react to Iran’s first-ever direct attack on Israel, a government source said. That raised market concerns that retaliatory measures could impact oil supply.

Iran produces more than 3 million barrels per day of crude oil as a major producer within the Organization of the Petroleum Exporting Countries (OPEC).

The benchmarks had risen on Friday in anticipation of Iran’s retaliatory assault, with prices soaring to their highest since October.

In China, the world’s biggest oil importer, official gross domestic product figures due on Tuesday are expected to show growth slowed to 4.6% year-on-year from 5.2% in the previous three months. That would maintain pressure on policymakers to unveil more economic stimulus measures that could boost oil prices.

(Reporting by Laura Sanicola in Washington; Editing by Jamie Freed)

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