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April 4 – Oil prices extended gains on Thursday, settling up more than USD 1 as geopolitical tensions and output cuts outweighed caution about US Federal Reserve rate cuts.

Brent futures for June rose above USD 91 a barrel before settling up USD 1.30, or 1.5%, to USD 90.65. US West Texas Intermediate (WTI) futures for May settled up USD 1.16, or 1.4% to USD 86.59 a barrel.

Both contracts closed on Thursday at their highest levels since October and continued to climb after the session ended, having received support in recent days from heightened geopolitical tensions and potential supply risks.

Oil rose on Thursday following news reports that Israeli embassies across the world have been placed on high alert due to increasing threats of an Iranian attack on Israeli diplomats.

Iran, the third-largest producer in OPEC, has vowed revenge against Israel for an attack on Monday that killed high-ranking Iranian military personnel. Israel has not claimed responsibility for the attack on Iran’s embassy compound in Syria.

In a sharp shift in tone, Washington issued its strongest public rebuke toward Israel on Thursday since the start of its war with Hamas, warning that US policy on Gaza will be determined by whether Israel takes steps to address the safety of Palestinian civilians and aid workers.

The United States on Thursday imposed new Iran-related counter-terrorism sanctions against Oceanlink Maritime DMCC and its vessels, citing its role in shipping commodities on behalf of the Iranian military.

The United States is using financial sanctions to isolate Iran to disrupt its ability to fund its proxy groups and hamper the country’s support for Russia’s war in Ukraine, the Treasury Department said.

Prices were also supported after US Secretary of State Antony Blinken said that Ukraine will eventually join NATO as support for the country remains “rock solid” among member states.

Oil’s recent gains have also followed Ukrainian attacks on Russian refineries that cut fuel supply and news that Mexico’s state energy company Pemex requested its trading unit to cancel up to 436,000 barrels per day of crude exports this month as it prepares to process domestic oil at the new Dos Bocas refinery.

“All of these geopolitical factors happened at once, driving bullish sentiment and ultimately some profit taking,” said Frank Monkham, senior portfolio manager at Altimo LLC.

A meeting of top ministers from the Organization of the Petroleum Exporting Countries and its allies (OPEC+) including Russia, kept oil supply policy unchanged on Wednesday and pressed some countries to boost compliance with output cuts.

The group said some members would compensate for oversupply in the first quarter. It also said Russia would switch to output rather than export curbs.

Investors will look to economic data and monetary policy for potential clues on the outlook for oil demand.

US unemployment claims increased more than expected in the last week, according to Labor Department statistics, as labor market conditions gradually ease.

That came after Federal Reserve Chair Jerome Powell expressed caution on Wednesday about the timing of future interest rate cuts, after recent data has showed higher-than-expected job growth and inflation.

March’s employment report on Friday is likely to show nonfarm payrolls increased by 200,000 jobs in March after rising by 275,000 in February, according to a Reuters survey.

(Additional reporting by Robert Harvey and Paul Carsten in London, Laura Sanicola, and Sudarshan Varadhan; editing by Jason Neely, David Evans, Chris Reese, Tomasz Janowski, and Cynthia Osterman)

 

April 5 – A late and steep reversal on Wall Street on Thursday, sparked by comments from a US Fed official that interest rates may not be cut this year, appears to be souring the mood across Asia on Friday, despite a decline in the dollar and US bond yields.

The S&P 500 had been well in the green for most of Thursday but ended up clocking its biggest loss in nearly two months after Minneapolis Fed president Neel Kashkari’s remarks.

Asian stocks, however, have been pretty resilient lately. They may have lagged benchmark US, Japanese, and world indices on the upside this year, but it’s been two months since the MSCI Asia ex-Japan index last fell three days in a row.

Geopolitics may also be weighing on stocks and supporting bonds. President Joe Biden on Thursday threatened to change Washington’s policy towards Israel if it fails to protect aid workers and civilians in Gaza.

There are several potentially market-moving events in Friday’s regional calendar, including inflation data from the Philippines and Thailand, Australian trade, Japanese household consumption, and the Reserve Bank of India’s policy meeting.

US Treasury Secretary Janet Yellen is also in China for a series of meetings with top Chinese economic officials over the coming days, with trade tensions at the heart of them.

Yellen is expected to say that the flood of Chinese goods onto global markets is too much for the world to absorb, and stress that this is unhealthy for China too. It remains to be seen how receptive Beijing is to her concerns.

China’s exchange rate continues to attract attention. The offshore dollar/yuan has traded above the upper limit of the central bank’s daily band for 10 days, while the onshore dollar/yuan is creeping up towards it.

The gap that widened sharply 10 days ago is narrowing, but is still noticeable.

An eerie calm has descended on the yen, with traders still on Japanese intervention alert.

Bank of Japan Governor Kazuo Ueda signaled that the central bank could raise rates again if exchange-rate moves push up inflation, the Asahi newspaper reported.

The main calendar event in Asia on Friday is the Reserve Bank of India’s policy decision. All 56 economists in a Reuters poll expect the repo rate to be kept unchanged at 6.50%.

There is less consensus on when the first cut will come, with nine of 52 saying next quarter, 24 picking the third quarter, 17 saying the fourth quarter, and the rest expecting it at a later time. .

Meanwhile, Indian Prime Minister Narendra Modi, confident of winning a national election starting this month, has set an ambitious target of roughly doubling the economy and exports this decade, according to a government document seen by Reuters.

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

– India central bank policy meeting

– Thailand inflation (March)

– The Philippines inflation (March)

(By Jamie McGeever)

 

April 4 – Gold prices took a breather on Thursday after hitting an all-time high earlier in the session on expectations for lower US interest rates this year, as investors await more clarity on the timing of the cuts.

Spot gold was steady at USD 2,300.49 per ounce as of 2:50 p.m. EDT (1850 GMT) after hitting a record high of USD 2,304.09 earlier in the day.

US gold futures settled 0.2% lower at USD 2,308.5.

“It’s a continuation of the idea… propagated by the Powell speech the other day that the Federal Reserve is getting set to cut rates,” said Bart Melek, head of commodity strategies at TD Securities.

“That typically is a very accretive thing for gold, particularly since it looks like they (the Fed) are quite prepared to reduce interest rates at a time where inflation is going to be significantly above their 2% target.”

Fed officials including US central bank chief Jerome Powell on Wednesday continued focusing on the need for more debate and data before interest rates are cut, a move financial markets expect to occur in June.

Data showed the number of Americans filing new claims for unemployment benefits increased more than expected last week as labor market conditions gradually eased.

Focus now shifts to US March non-farm payrolls due on Friday which could shed more light on the timing of the Fed’s first rate cut.

Strong central bank buying and safe-haven inflows amid growing geopolitical tensions have boosted demand for gold, helping to drive the price up more than 25% since October.

“It’s heavily overbought and needs to correct to blow some of the froth. Fed cuts are priced in, in my view,” said StoneX analyst Rhona O’Connell.

Elsewhere, spot silver was flat at USD 27.22 per ounce after hitting its highest since June 2021. Platinum rose 0.3% to USD 939.65, and palladium gained 1.6% to USD 1,029.91.

(Reporting by Brijesh Patel in Bengaluru; Editing by Jan Harvey, Ravi Prakash Kumar, and Vijay Kishore)

 

April 3 – Gold prices raced to a record high yet again on Wednesday, after Federal Reserve Chair Jerome Powell reiterated that recent readings on job gains and higher-than-expected inflation do not materially change the overall picture of economic policy this year.

Spot gold rose 0.5% to USD 2,292.31 per ounce as of 1:43 p.m. EDT (1743 GMT) after hitting a record high of USD 2,294.99 earlier in the session.

US gold futures settled 1.5% higher at USD 2,315.

“Gold surged to yet another historic high on elevated trading volume after Powell stresses that ‘bumps’ in the road don’t change the overall rosy picture,” said Tai Wong, a New York-based independent metals trader.

“Powell’s customary cautious approach doesn’t worry gold bulls…I think bulls want to see USD 2,300 and I think more ‘tourists’ are getting involved in the trade.”

Powell said that “if the economy evolves broadly as we expect,” he and his Fed colleagues largely agree that a lower policy interest rate will be appropriate “at some point this year.”

Investors still expect a first rate cut at the Fed’s June 11-12 policy meeting, even as stronger recent economic data has sown investor doubts about that outcome.

Gold, a hedge against inflation and a safe haven during times of political and economic uncertainty, has climbed over 11% so far this year, helped by strong central bank buying and safe-haven demand.

The US jobs report for March is due to be released on Friday, with new inflation data coming next week.

A pair of Federal Reserve policymakers said on Tuesday they think it would be “reasonable” to cut US interest rates three times this year.

“The likelihood of rate cuts is still there, but the data is still really strong. This is an election year, so I don’t think the Fed will want to be held accountable for any kind of market crash,” said Daniel Pavilonis, senior market strategist at RJO Futures.

Silver rose 3.1% to USD 26.92 per ounce and was trading at its highest level in over two years.

Platinum was up 1.7% at USD 931.13, and palladium gained 1.2% to USD 1,015.70.

(Reporting by Anjana Anil and Brijesh Patel in Bengaluru; Editing by Alan Barona and Ravi Prakash Kumar)

 

NEW YORK, April 3 – Wall Street is bracing for a potential bout of stress in money markets by putting some cash on the side ahead of US tax day, when high tax-related outflows could hurt market liquidity.

Tax season, which culminates on April 15 when income tax returns are to be submitted to the US federal government, is typically associated with a drop in financial sector liquidity as individuals draw down cash from bank deposits and money market funds to pay their taxes.

Liquidity, measured by bank reserves at the Federal Reserve and the Fed’s overnight reverse repo facility (RRP) – a favored place for money market funds to park their cash – is still considered abundant, but high capital gains from booming stock markets last year could make outflows particularly sizeable this year, analysts have said, a scenario that could lead to a surge in short-term interest rates.

“It could be bumpy getting over that period,” said Joseph D’Angelo, head of PGIM Fixed Income’s money markets team. “To be defensive … you would effectively manage your maturities in such a way that you make sure you have enough liquidity in front of that date,” he said.

Having more cash available ahead of tax day could also allow fund managers to take advantage of any potential volatility, some of them said, should borrowing costs increase because of higher demand for cash.

Spencer Hakimian, CEO of Tolou Capital Management, a New York-based macro hedge fund, said he would be ready to buy short-term fixed income instruments such as Treasury bills in case of a tax-related liquidity event that would push short-term interest rates higher.

“We’d be a buyer because we think the Fed would intervene in the market,” he said.

The Fed did not immediately respond to a comment request on possible market interventions.

DISTRIBUTION

Any sign of stress will be closely monitored by investors and the Federal Reserve as it could give a sense of the availability of cash in the financial sector after nearly two years of quantitative tightening (QT) – a reversal of the massive central bank bond purchases undertaken to support markets as the coronavirus hit in 2020.

It could also give clues on how quickly the Federal Reserve will slow down its balance sheet shrinkage, a tapering process that Fed Chair Jerome Powell said last month could start soon.

In a previous round of QT in 2019, falling bank reserves led to a surge in the cost that banks and other market players pay to raise overnight loans to fund their trades, forcing the Fed to intervene by injecting liquidity into repo markets.

“There was a liquidity squeeze and the Fed basically had to completely undo all the QT they had been doing for years before that event. Now, they want to avoid that,” said John Velis, head of FX and macro strategy at BNY Mellon Markets. “I think they’re very scarred by that experience,” he said.

The flow of cash from private accounts to the Treasury could be sizeable because of stronger equity market performance in 2023 compared to 2022 and the inclusion of California after a filing extension last year, Velis said. April tax receipts last year amounted to about USD 380 billion, while this year they could go up to USD 600 billion or more, he estimated.

Tax season this year could be disruptive also because while overall liquidity remains abundant it may not be well distributed amongst banks, added Velis.

Powell highlighted the same concern last month: “there can be times when in the aggregate, reserves are ample or even abundant. But not in every part, and those parts where they’re not ample, there can be stress,” he said.

RESERVE BALANCES

Assessing the adequate level of overall reserves is also tricky.

In remarks at the end of the central bank’s rate-setting meeting last month, Powell said the balance sheet shrinkage should end when banking sector liquidity is large enough to navigate periods of stress, but he added there was no rule for what that level would be.

Wall Street’s biggest banks indicated in a recent primary dealer New York Fed survey that the expected levels of reserves needed to ensure the financial system runs smoothly, without a repeat of the 2019 liquidity squeeze, would be around USD 3.1 trillion. Reserves are now at about USD 3.5 trillion.

Because individuals are more likely to take their cash from banks rather than money market funds, bank reserve balances could decline to USD 3.1-3.3 trillion after the April 15 tax-related outflows, JPMorgan fixed income strategists led by Teresa Ho estimated in a recent note.

This would bring reserve balances within the range indicated by primary dealers as the lowest comfortable level of reserves.

“While we don’t necessarily think this will result in a funding crisis … it could shed light on how far QT can continue to run,” the JPMorgan strategists said.

(Reporting by Davide Barbuscia; editing by Megan Davies and Nick Zieminski)