Oil settles down on US jobs data, steepest weekly loss in 3 months

NEW YORK – Oil prices settled lower on Friday, and posted their steepest weekly loss in three months as investors weighed weak US jobs data and possible timing of a Federal Reserve interest rate cut.

Brent crude futures for July settled 71 cents lower, or 0.85%, to USD 82.96 a barrel. US West Texas Intermediate crude for June fell 84 cents, or 1.06%, to USD 78.11 a barrel.

Investors were concerned that higher-for-longer borrowing costs would curb economic growth in the US, the world’s leading oil consumer, after the Federal Reserve decided this week to hold interest rates steady.

For the week, Brent declined more than 7%, while WTI fell 6.8%.

US job growth slowed more than expected in April and the annual wage gain cooled, data showed on Friday, prompting traders to raise bets that the US central bank will deliver its first interest rate cut this year in September.

“The economy is slowing a little bit,” said Tim Snyder, economist at Matador Economics. “But (the data) gives a path forward for the Fed to have at least one rate cut this year,” he said.

The Fed held rates steady this week and flagged high inflation readings that could delay rate cuts. Higher rates typically weigh on the economy and can reduce oil demand.

The market is repricing the expected timing of possible rate cuts after the release of softer-than-expected monthly jobs data, said Giovanni Staunovo, an analyst at UBS.

US energy companies this week cut the number of oil and natural gas rigs operating for a second week in a row, to the lowest since January 2022, Baker Hughes said in its closely followed report on Friday.

The oil and gas rig count, an early indicator of future output, fell by eight to 605 in the week to May 3, in the biggest weekly decline since September 2023. The number of oil rigs fell seven to 499 this week, in the biggest weekly drop since November 2023.

Geopolitical risk premiums due to the Israel-Hamas war have faded as the two sides consider a temporary ceasefire and hold talks with international mediators.

Further ahead, the next meeting of OPEC+ oil producers – members of the Organization of the Petroleum Exporting Countries and allies including Russia – is set for June 1.

Three sources from the OPEC+ group said it could extend its voluntary oil output cuts beyond June if oil demand does not increase.

Money managers cut their net long US crude futures and options positions in the week to April 30, the US Commodity Futures Trading Commission (CFTC) said.

(Additional reporting by Ahmad Ghaddar and Deep Kaushik Vakil in London and Sudarshan Varadhan in Singapore; Editing by Barbara Lewis, Mark Potter, Laila Kearney, Paul Simao, Emelia Sithole-Matarise, and David Gregorio)

US small caps struggle as elevated interest rates take a toll

NEW YORK – The prospect of interest rates remaining elevated as the Federal Reserve battles inflation is further clouding the outlook for shares of smaller US companies, which have lagged broader markets this year.

Small-cap stocks surged at the end of 2023, as expectations grew that the Fed was done raising interest rates and would soon begin easing monetary policy. That would be a welcome change for smaller companies, which rely more heavily on debt financing and consumer spending.

But stubbornly strong inflation has eroded prospects of rate cuts this year, and small-cap stocks have suffered as a result. The Russell 2000 is up just 0.4% year-to-date, far less than the S&P 500’s 7.5% gain. Earnings are also expected to be shaky, giving investors little reason to shift allocations from larger companies and other, less risky parts of their portfolios.

“Investors are skeptical right now about small cap stocks because of higher rates and stickier inflation, and they need greater clarity that the Fed will be cutting rates this year before moving in,” said Michael Arone, Chief Investment Strategist for State Street’s SPDR Business, who has been buying small caps in anticipation of rate cuts later in the year.

The case for smaller stocks may have improved over the last few days. US employment data on Friday showed that jobs growth, while still relatively robust, slowed last month, easing fears that rates will remain elevated for the rest of the year. The Russell 2000 was up about 1% on the day.

On Wednesday, Fed Chairman Jerome Powell said he still believed rates were heading lower this year, despite stubborn inflation.

Futures markets on Friday showed investors pricing in around 45 basis points of interest rate cuts this year, from less than 30 priced in earlier this week. That remained far lower than the 150 points they had priced in January.

Stronger-than-expected earnings in the coming weeks could help allay investor concerns. Overall, the Russell 2000 is expected to post earning growth of -8.4% over the most recent quarter, compared with a 10.2% earnings growth rate for the S&P 500, according to LSEG data. At the same, the Russell 2000 is trading at a forward price-to-earnings ratio of 22 compared with 20 times earnings multiple for the S&P 500, making small-caps more expensive.

“The earnings pickup we expected has just not been there,” said David Lefkowitz, CIO Head of US Equities at UBS Global Wealth Management, who has been overweight small caps since December. “I still think the preference for small makes sense, but it depends on your rate view.”

Among the notable small-cap companies reporting in the week ahead are nutrition company Bellring Brands BRBR.N, gambling company Light & Wonder, and oil and natural gas company Permian Resources.

Larger caps reporting next week include Walt Disney, Wynn Resorts, and Akamai Technologies, as US corporate earnings season continues.

Despite the encouraging developments of the last few days, few believe the path to rate cuts is clear.

Jill Carey Hall, equity & quant strategist at Bofa Global Research, said investors buying small caps should focus on companies positioned to withstand an extended Fed pause, including those with higher percentages of fixed dent and comparatively low leverage.

“It’s too soon to price in more rate cuts,” said Timothy Chubb, chief investment officer at Girard. “One number doesn’t make a trend. Overall, the Fed is getting the evidence it needs.”

(Reporting by David Randall; Editing by Ira Iosebashvili and David Gregorio)

Gold resumes retreat despite soft jobs report as traders book profits

Gold fell to a one-month low on Friday despite weaker-than-expected US jobs data, extending a correction from last month’s stellar rally as investors booked profits while geopolitical risks eased.

Spot gold fell 0.1% to USD 2,300.38 per ounce as of 1:45 p.m. ET (1745 GMT), and logged its second consecutive weekly fall.

US gold futures settled little changed at USD 2,308.6.

Prices quickly gave up gains after jumping as high as USD 2,320.78 immediately after the release of data showing US nonfarm payrolls increased by 175,000 jobs last month, lower than economists’ forecast of 243,000.

“Gold’s initial surge on the Goldilocks employment report attracted a fair amount of profit-taking, which suggests bulls are growing more cautious after April’s remarkable rally and a rather ordinary response after Powell’s friendly comments on Wednesday,” said Tai Wong, a New York-based independent metals trader.

Though the jobs data reinforced expectations that the Federal Reserve will start cutting interest rates this year, which should be supportive for zero-yield bullion, this prompted investors to switch to riskier assets instead.

The sentiment is “risk on”, translating into lesser demand for gold, said Chris Gaffney, president of world markets at EverBank.

Gold also seemed to largely ignore a resultant slide in US Treasury yields.

Safe-haven bullion has retreated 5.7%, or about USD 140, since hitting a record high of USD 2,431.29 in April, driven by flare-ups in the Middle East and strong central bank buying.

“There are concerns that gold could retreat further if Asian buying doesn’t re-appear. It could fall as far as USD 2,150 without doing any real damage to the long-term chart,” Wong added.

Caught in gold’s slipstream, silver fell 0.9% to USD 26.46, and marked a weekly decline.

However, platinum gained 0.8% to USD 957.05, and posted a weekly gain, while palladium also rose 0.8% to USD 943.37.

(Reporting by Rahul Paswan and Harshit Verma in Bengaluru; editing by Arpan Varghese, Tasim Zahid, and Alan Barona)

Dollar drops as employers add fewer jobs than expected in April

NEW YORK – The dollar fell to a three-week low against the yen on Friday after data showed that US jobs growth slowed more than expected in April and annual wage gains cooled, boosting bets that the Federal Reserve will cut rates twice this year.

Employers added 175,000 jobs last month, below economists’ expectations for a 243,000 increase. Wages increased 3.9% in the 12 months through April, below expectations for a 4.0% gain after rising 4.1% in March.

The unemployment rate rose to 3.9% from 3.8%, still staying below 4% for the 27th straight month.

“The data’s soft across the board from the Fed’s perspective,” said Jason Pride, chief of investment strategy and research at Glenmede in Philadelphia.

Fed funds futures traders raised bets that the Fed would cut rates twice this year, with 49 basis points of easing now priced in, up from 42 basis points before the data.

“The market at this point is so hoping that the Fed can cut rates this year and did not want one of the hot numbers coming in. Today’s report certainly offers them a cooler read of the labor landscape,” said Quincy Krosby, chief global strategist at LPL Financial in Charlotte.

Still, the report itself is unlikely to sway Fed policy unless the trend continues.

“An unemployment rate of 3.9% is not something disastrous. This indicates an economy that is not declining dramatically, but it definitely indicates a looser labor market,” said Pride. “It gives the Fed some hope, but it does not establish the trend for them.”

The Fed said at the conclusion of its two-day meeting on Wednesday that sticky inflation meant that it would take longer to cut rates.

Other data on Friday showed that the US services sector contracted in March, while a measure of prices paid by businesses for inputs jumped, a worrisome sign for the outlook on inflation.

The dollar index was last down 0.21% at 105.08 after earlier reaching 104.52, the lowest since April 10. The euro gained 0.31% to USD 1.0758.

The greenback weakened 0.51% to 152.84 Japanese yen and got as low as 151.86, the weakest since April 10.

The yen surged late on Wednesday and on Monday, both in light trading conditions, in moves that traders and analysts attributed to intervention by Japanese authorities.

Japanese finance minister Shunichi Suzuki said on Friday that authorities may need to smooth any excessive yen moves that hurt households and companies.

The yen is on track for its best weekly percentage gain against the greenback since November 2022, after Japanese authorities also intervened in October 2022 to shore up the currency.

The Japanese currency reached a 34-year low of 160.245 on Monday as it suffers from a wide interest rate differential with the United States.

In cryptocurrencies, bitcoin gained 4.71% to USD 61,481.66.

(Reporting By Karen Brettell; Additional reporting by Ankika Biswas and Caroline Valetkevitch; Editing by Sharon Singleton and Alex Richardson)

US equity funds witness outflows for fifth week in a row

US investors were net sellers of equity funds for a fifth successive week in the seven days to May 1, exercising caution ahead of the Federal Reserve’s policy decision and scaling back expectations for interest rate cuts that were prevalent at the start of the year.

According to LSEG data, investors shed a net USD 5.48 billion worth of US equity funds, extending the weekly selling trend into a fifth consecutive week.

Fed Chair Jerome Powell kept rates steady on Wednesday, signaling future rate cuts but cautioning they might be delayed due to persistent inflation in the first quarter.

However, US large-cap equity funds were in demand, recording approximately USD 1.2 billion in net purchases during the week — marking the second consecutive weekly inflow, buoyed by strong earnings from Alphabet, and Microsoft.

Meanwhile, US small-cap, mid-cap, and multi-cap funds experienced net outflows of USD 2.14 billion, USD 1.08 billion, and USD 637 million, respectively.

By sector, investors withdrew USD 790 million, USD 684 million, and USD 295 million from the healthcare, consumer discretionary, and industrial sectors, respectively.

US bond funds attracted approximately USD 674 million in net purchases, marking the second consecutive week of inflows.

US mortgage funds received a substantial USD 1.35 billion, marking the largest weekly inflow since January 2023. Loan participation and municipal debt funds also recorded net purchases of USD 665 million and USD 515 million, respectively, during the week.

Meanwhile, investors withdrew approximately USD 2.66 billion from US short/intermediate government and treasury funds, ending a four-week buying streak.

Money market funds secured USD 26.53 billion in a second successive week of net buying.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; editing by Jonathan Oatis)

US yields fall as Fed’s rate cut view in focus, ahead of payrolls

NEW YORK – US Treasury yields slipped on Thursday, with investors continuing to digest the Federal Reserve’s less-than-hawkish stance after Wednesday’s policy meeting that suggested interest rate cuts were very much on the table even though inflation remained stubbornly above the 2% target.

Earlier in the session, US yields rose due to stronger-than-expected labor market data that reinforced the view that the Fed will delay cutting interest rates to later this year.

In afternoon trading, the benchmark 10-year yield slid to a more than one-week low of 4.567%. It was last down 1.4 basis points (bps) at 4.576%.

The yield on the 30-year Treasury bond was slightly up at 4.725%.

On the shorter end of the curve, the two-year Treasury yield, which typically reflects interest rate moves, was down 5.8 bps at 4.881%.

Treasury yields got an initial boost after a report showed unit US labor costs – the price of labor per single unit of output – jumped to a 4.7% rate in the first quarter after being unchanged in the previous three months. Labor costs increased at a 1.8% pace from a year ago.

Those moves have now faded in the afternoon as investors braced for Friday’s US nonfarm payrolls report for April. The forecast is 243,000 new jobs, down from 303,000 the previous month, but a still-lofty number. The rise in average earnings is expected at 0.3%, unchanged from the previous month, according to a Reuters poll.

“Markets have returned to digesting what happened yesterday with the Fed and the refunding announcement,” said Will Compernolle, macro strategist at FHN Financial in New York, referring to the quarterly outlook by the US Treasury for debt issuance in the May to July period.

“A lot of the rally today (yields lower) was driven by essentially eliminating the possibility of a rate hike. The Fed’s reaction function to higher inflation is going to be extend the pause longer than consider a hike.”

The Fed on Wednesday kept interest rates steady, but noted that it does not expect to cut them any time soon until it has gained greater confidence that inflation is moving sustainably toward its 2% target.

Fed Chair Jerome Powell was also less hawkish, echoing the central bank statement that kept the fed funds rate at the 5.25% to 5.50 range.

“Certainly, the labor market and inflation data have not only provided the Fed with no urgency to consider easing monetary policy anytime soon, but they have also called into question whether any rate cuts are needed at all,” wrote Kevin Flanagan, head of fixed income strategy at WisdomTree in his latest blog.

“As a result, the voting members apparently believe they can just sit back and be patient. Looking ahead, though, you get the sense that Chairman Powell is itching to cut rates, but the data needs to lead him there.”

The US yield curve, meanwhile, steepened or narrowed its inversion. The spread between US two- and 10-year yields was minus 30.8 bps, from minus 33.6 bps late on Wednesday.

This curve, effectively a “bull steepener,” shows a scenario in which short-term interest rates are falling faster than the long-dated ones. This suggests that the Fed’s next move is to lower interest rates.

Post-data and after Powell’s press briefing on Wednesday, US rate futures have priced in a 68% chance of a rate cut in November, rising to 80% in December, according to CME’s FedWatch tool.

The rate futures market has also priced in just one rate cut of 25 bps this year, from as much as six at the beginning of 2024.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Will Dunham and Jonathan Oatis)

Oil settles near 7-week lows, focus shifts to economy

NEW YORK – Oil prices settled on Thursday near their lowest level in seven weeks, narrowly mixed and under pressure from weaker global demand, rising inventories, and fading hopes for a quick cut in US interest rates.

US West Texas Intermediate crude futures fell 5 cents to settle at USD 78.95 a barrel, the lowest since March 12. Global benchmark Brent crude futures also hit the lowest since early March, then bounced off session lows to settle 23 cents, or 0.3%, higher at USD 83.67 a barrel.

Both benchmarks closed below their 200-day moving average, which is the key technical indicator of a bear market shift in crude oil prices, StoneX oil analyst Alex Hodes said.

Oil investors have grown worried about a possible economic slowdown in the US, as the war between Israel and Hamas continues without any major hit to Middle Eastern oil supplies.

On Wednesday, oil prices fell more than 3% after the US government reported a surprise jump in crude oil stocks and the Fed left interest rates unchanged citing stubborn inflation.

“Now it’s all a story of demand as risk premium from tensions in the Middle East seen last month morphs into residual risk,” said Gaurav Sharma, an independent oil analyst in London.

A slump in worldwide diesel demand is also feeding concerns about slowing oil demand growth in big economies. Gasoil stocks, which include diesel, rose by more than 3% in Europe’s Amsterdam-Rotterdam-Antwerp refining and storage hub during the week to Thursday, data from consultancy Insights Global showed.

Diesel demand in the US Gulf Coast refining hub, also called PADD 3, is estimated to be below the prior three-year range, Hodes said. “The bearish kicker is that even with these inventory builds, production of distillates in PADD 3 is at its lowest level since the start of March,” he added.

US ultra-low sulfur diesel futures fell to their lowest since July 2023 for the third session on the trot.

Supporting prices, the Organization of Petroleum Exporting Countries and allies (OPEC+) could extend output cuts if demand fails to pick up, three sources from the group told Reuters.

Traders were watching whether lower oil prices would spur the US government to replenish strategic reserves.

“The oil market was supported by speculation that if WTI falls below USD 79, the US will move to build up its strategic reserves,” said Hiroyuki Kikukawa, president of NS Trading.

(Reporting by Robert Harvey in London, Deep Vakil in Bengaluru, Mohi Narayan in New Delhi, and Yuka Obayashi in Tokyo; Editing by David Goodman, Jan Harvey, and David Gregorio)

Japan’s May 1 intervention may have cost USD 23.6 billion, BOJ data shows

TOKYO – Japanese officials may have spent some 3.66 trillion yen (USD 23.59 billion) on Wednesday in the latest attempt to pull the yen back from near 34-year lows, Bank of Japan data showed on Thursday.

Japan’s Ministry of Finance may have spent around 6 trillion yen intervening in the market on Monday to prop up the Japanese currency after it dropped to 160.245 per dollar for the first time since April 1990, the data showed.

On Wednesday, the yen was trading at around 157.55 per dollar when it suddenly spiked, strengthening as far as 153 over the following half hour.

The Ministry of Finance each time declined to say whether or not it was behind the yen rallies, only repeating its readiness to step in at any time to stem disorderly moves.

Currency trades take two business days to settle, and Japan’s markets are closed for public holidays on May 6 and May 7.

The central bank’s projection for money market conditions on May 8 indicates a 4.36 trillion yen net receipt of funds, compared with a 700 billion-1.1 trillion yen estimate from money market brokerages that excludes intervention.

“This is a very large sum in a short period of time,” said Shoki Omori, chief Japan desk strategist at Mizuho Securities, referring to the two rounds of apparent intervention this week.

“Now that the MOF has spent roughly 9 trillion yen, it is going to be less easy for them to intervene if the US payrolls or other data come out strong,” providing more momentum for dollar buying, he said. “MOF is getting pushed into a corner.”

Despite the yen’s sudden steep rallies, it remains down some 10% against the dollar so far this year, and was last changing hands at 155.22.

The speed with which the yen has resumed its decline despite such large-scale buying shows how difficult it is to stem the downward momentum.

Analysts point to the gaping gap between Japanese and US government debt yields as the force behind the yen’s slide.

Even after the Bank of Japan raised interest rates for the first time since 2007 in March, policymakers have signaled a go-slow approach to further tightening, which has kept long-term Japanese government bond yields well below 1%.

Equivalent Treasury yields have been pushing towards 5% as a robust economy and stubborn inflation forced markets to scale back their bets on Federal Reserve rate cuts.

Fed Chair Jerome Powell reinforced that idea on Wednesday when he reiterated that it “will take longer than previously expected” for policymakers to become comfortable that inflation will resume the decline towards their 2% target.

(USD 1 = 155.1400 yen)

(Reporting by Kevin Buckland; editing by Jason Neely and Alexander Smith)

Tech giants’ market cap falls on AI doubts, high rates; Alphabet, Tesla gain

The market capitalization of top technology giants fell sharply in April, pressured by diminishing enthusiasm for artificial intelligence and a scaling back of expectations for central bank interest rate cuts.

Microsoft’s market value plummeted by USD 232.5 billion, or 7.4%, ending the month at USD 2.89 trillion. Meta Platforms Inc. also suffered a drop of USD 146.8 billion, or 11.9%, ending at USD 1.09 trillion, following a lower-than-expected revenue forecast and rising expenses associated with burgeoning AI costs.

Nvidia Corp’s market cap fell 4.4% to USD 2.16 trillion, driven by diminishing AI optimism and concerns over slowing revenue growth from competitor chipmakers, with its stock further declining on Wednesday following weak guidance from rival Advanced Micro Devices.

European luxury conglomerate LVMH saw its market cap decline by about 8% to USD 415.1 billion as its first-quarter sales growth slowed to 3%, with higher prices deterring consumer purchases of its high-end products.

Conversely, Alphabet Inc saw its market cap surge 7.3% to USD 2.02 trillion, buoyed by the announcement of its first-ever dividend, a USD 70 billion stock buyback, and first-quarter earnings that exceeded expectations.

Electric car maker Tesla Inc saw its market value increase by 4.4% to USD 584.4 billion, boosted by the removal of regulatory barriers in China that had previously hindered the rollout of its autonomous driving technology.

(Reporting By Patturaja Murugaboopathy and Gaurav Dogra in Bengaluru; editing by Christina Fincher)

Markets loving the Fed, yen loving the BOJ

The dovish waves from Fed Chair Jerome Powell’s press conference on Wednesday continue to wash over world markets, putting Asian stocks on the cusp of a second straight weekly gain and highs not seen in well over a year.

Investor sentiment is positive and risk appetite looks strong going into the Asian open on Friday, after world stocks rose and US bond yields and the dollar fell the previous day.

The upbeat mood may be strengthened by the first quarter results from Apple after the US close on Thursday, as the world’s second most valuable company reported a smaller-than-expected decline in revenue and Chief Executive Tim Cook said he expects a return to sales growth in the current quarter.

The regional economic and corporate calendar is light on Friday – the Australian services PMI, consumer inflation from Thailand, and retail sales from Singapore are the highlights.

Perhaps the most important news for world markets on Friday, apart from the US employment figures for April, will come from Tbilisi, where the Asian Development Bank is hosting its 57th annual meeting.

Japan’s Finance Minister Shunichi Suzuki and Bank of Japan governor Kazuo Ueda are scheduled to hold a press conference on the sidelines of the meeting and if they do face reporters, they will be grilled about Japan’s apparent intervention in the currency market this week buying yen.

Japan likely intervened early on Monday and early on Thursday local time buying yen to stem its rapid decline that culminated in a fresh 34-year low of 160.00 per dollar.

Estimates suggest Tokyo spent just under USD 60 billion in the two yen-buying forays, around the same amount used in the three interventions over September and October 2022, the last time authorities waded into the market.

The targeted action, when market liquidity was particularly thin, appears to have worked, for now at least – the yen hit 153.00 per dollar on Thursday, its strongest since April 15 and up 4.5% from that historic low on Monday.

In Asian equities, meanwhile, Hong Kong stocks go into Friday’s session at a six-month high, having leaped 2.5% on Thursday thanks to gains in local technology, property, and financial stocks. Beijing’s pledge this week to step up economic support has helped underpin sentiment.

The Hang Seng is now up eight days in a row, its best stretch in five and a half years. It still has some way to go to beat that run though – in late 2018 and early 2019 the index rose 14 days in a row, and only had one ‘down’ day in 22.

Mainland China markets are closed on Friday, the last of a three-day holiday.

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

– Australia services PMI (April)

– Thailand consumer inflation (April)

– Japan finance minister, central bank governor press conference

(Reporting and Writing by Jamie McGeever; Editing by Josie Kao)

2024 Mid-Year Economic Briefing: Navigating the Easing Cycle

Investing with Love: A Mother’s Guide to Putting Money to Work

Investor Series: An Introduction to Estate Planning

Policy rate views: Fed expected to do baby steps

Inflation Update: Faster but full-year average within target