Oil near flat as extreme cold’s hit to US output offsets China data

NEW YORK, Jan 17 – Oil prices were near flat on Wednesday as severe cold that disrupted some US oil production offset disappointing economic growth in China that stoked worries about energy demand.

Brent crude futures settled down 41 cents to USD 77.88 a barrel. US West Texas Intermediate crude futures (WTI) gained 16 cents at USD 72.56.

In North Dakota, a top oil-producing US state, below-zero degrees Fahrenheit temperatures caused oil output there to fall by 650,000 to 700,000 barrels per day (bpd), more than half its typical output, the state said.

Those supply concerns caused US crude futures to pare losses late in the session, after earlier falling by over USD 1 a barrel, said Andrew Lipow, president of Lipow Oil Associates.

US domestic crude stockpiles rose last week by 480,000 barrels, according to market sources citing American Petroleum Institute figures on Wednesday.

US government data on inventories is due Thursday.

Weakening prices on Wednesday, China’s economy in the fourth quarter expanded by 5.2% year on year, missing analysts expectations and calling into question forecasts that Chinese demand will fuel 2024 global oil growth.

The economic data “doesn’t end the headwinds over crude oil demand, the Chinese outlook for 2024 and 2025 is still bleak,” said Priyanka Sachdeva, senior market analyst at Phillip Nova.

“(The) oil industry was backing the notion that, despite a bumpy recovery, oil demand from China has been resilient and will likely reach record levels in 2024.”

Still, China’s oil refinery throughput in 2023 rose 9.3% to a record high, indicating elevated demand even if it lagged some analysts’ expectations.

Other signs of steady Chinese demand have also appeared.

Investors kept an eye on naval and air conflicts in the Red Sea, which so far has not supported oil prices despite mounting concern about tankers having to pause or reroute, raising shipping costs and slowing deliveries.

Tensions remained high after the US mounted fresh strikes against Iran-aligned Houthi militants in Yemen on Tuesday after a Houthi missile hit a Greek vessel.

The International Energy Agency (IEA) expects oil markets to be in a “comfortable and balanced position” this year, despite Middle East tensions amid a rising supply and slowing demand growth outlook, its executive director Fatih Birol told the Reuters Global Markets Forum.

An optimistic OPEC stuck to its forecast for relatively strong growth in global oil demand in 2024. OPEC said that 2025 will bring a “robust” increase in oil use, led by China and the Middle East.

The US dollar hovered near a one-month high after comments from Federal Reserve officials lowered expectations for aggressive interest rate cuts. A stronger greenback reduces demand for dollar-denominated oil from buyers using other currencies.

(Reporting by Stephanie Kelly in New York, Paul Carsten in London, Muyu Xu in Singapore and Colleen Howe in Beijing; Editing by Marguerita Choy, David Gregorio, and Nick Zieminski)

Countdown to China GDP

Jan 17 – A raft of top-tier Chinese economic indicators for December, culminating in Q4 and 2023 GDP, takes center stage in Asia on Wednesday, with global markets under heavy selling pressure from a sharp rise in the dollar and US bond yields.

The MSCI Asia Pacific ex-Japan equity index slumped 1.8% on Tuesday – its steepest fall in nearly six months – and Wall Street’s slide will help ensure that sentiment remains fragile on Wednesday.

Asian stocks ex-Japan are now down 5% this year, and emerging market stocks are off to their worst start to a year since 2016.

Global risk appetite was dented after Federal Reserve Governor Christopher Waller on Tuesday indicated interest rate cuts could come later and be implemented more slowly than markets have been positioning for.

This is likely to spill over into Asia on Wednesday, where the focus will be centered on the Chinese economic ‘data dump’. Indonesia’s central bank also announces its latest interest rate decision.

Reuters polls suggest annual investment and industrial production growth rates in China held steady in December from the previous month, while retail sales growth slowed. The latest house price and unemployment figures will also be released.

On the broader GDP level, quarterly growth is expected to have slowed to 1% in the October-December period from 1.3%, while the annual rate of growth rose to 5.3% from 4.9%, largely due to base effects.

Chinese Premier Li Qiang in Davos on Tuesday said GDP growth was probably around 5.2% last year. He also said China is open for business, notable comments in light of China recently posting the first quarterly deficit in foreign direct investment since records began in 1998.

At a private lunch in Davos on Tuesday Li and People’s Bank of China Governor Pan Gongsheng later met business and finance leaders, including JP Morgan CEO Jamie Dimon, Bank of America CEO Brian Moynihan, and Blackstone CEO Steve Schwarzman.

Beijing may be on a charm offensive, but it will need the data to pay ball if it is to have any chance of succeeding.

Full-year growth is expected to slow to 4.6% in 2024 from 5.2% last year, with risks probably tilted to the downside – the property crisis is rumbling on, consumer and business confidence is weak, local government debt is high and rising, and deflation looms large over the economy.

Bank Indonesia, meanwhile, is expected to keep its key interest rate unchanged at 6.00% on Wednesday. With inflation within BI’s 2023 target range of 2.0% to 4.0% for seven months and falling, markets are pricing in the first rate cut in the third quarter.

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

– China house prices, investment, retail sales, industrial production, unemployment (December)

– China GDP (Q4 and 2023)

– Indonesia interest rate decision

– Japan tankan services index (January)

(By Jamie McGeever)

Dollar rallies to one-month high as Fed cut outlook dims

NEW YORK, Jan 16 – The dollar jumped in a volatile session on Tuesday as investors dialed back expectations for a March rate cut from the US Federal Reserve, fueled in part by comments by Board Governor Christopher Waller.

Markets are pricing in a 66.9% chance of a rate cut of at least 25 basis points (bps) in March from the Fed, compared with an 81% view in the prior session according to CME’s FedWatch Tool.

The dollar index, which tracks the greenback against a basket of currencies of other major trading partners, was up 0.73% at 103.38, after climbing as high as 103.42, its highest level since Dec. 13. The index was on track for its biggest one-day percentage gain since Jan. 2.

The dollar added to gains on the session after Waller said the US is “within striking distance” of the Federal Reserve’s 2% inflation goal, but that the central bank should not rush toward cuts in its benchmark interest rate until it is clear that lower inflation will be sustained.

“(Waller) said there’s no reason to move as quickly as they have in the past, cuts should be methodical and careful,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

“Waller is important because he is a hawk, he is obviously confirming what we already know and everybody at the Fed recognizes – that we have reached a peak.”

Chandler also noted the dollar had essentially traded sideways for the last two weeks, with oversold and technical conditions at the end of last year now being alleviated.

Goldman Sachs said in a note that while they have not changed their view the Fed will deliver a series of three consecutive cuts beginning in March, Waller’s comments increased the risk the central bank could cut somewhat later or might prefer to cut once per quarter from the outset.

While the dollar was stronger throughout the session, the greenback briefly cut gains after a weak report on the manufacturing sector in the New York region.

The euro was down 0.72% at USD 1.0869 and poised for its steepest one-day percentage drop in two weeks as comments from European Central Bank policymaker Joachim Nagel on Monday attempted to curb expectations of early rate cuts.

Several policymakers from the ECB on Tuesday maintained a cloud of uncertainty over the timing of the moves, although interest rates are still likely to come down this year.

Also supporting the dollar was a climb in US bond yields on Tuesday after Monday’s holiday, with the 10-year up 11.9 basis points at 4.0695%,

An ECB survey on Tuesday showed consumer expectations of euro zone inflation three years ahead fell in a November poll to 2.2% from 2.5%.

Sterling was last down 0.79% at USD 1.262 after data showed British wage growth slowed sharply in the three months through November, supporting the idea that the Bank of England will cut rates heavily this year.

The dollar was 1.04% higher against the Japanese yen, at 147.26, after hitting 147.31, matching its highest level since Dec. 7. Data showed Japan’s wholesale price index stayed flat in December from a year ago, with the rate of change slowing for the 12th straight month, taking pressure off the Bank of Japan to back away from its monetary stimulus measures soon.

In cryptocurrencies, bitcoin rose 1.39% to USD 43,272. It has fallen about 6% since the Securities and Exchange Commission said it approved 11 applications for the first US-listed exchange traded funds (ETFs) to track bitcoin.

(Reporting by Chuck Mikolajczak in New York; Editing by Andrea Ricci and Matthew Lewis)

US yields rise as central banks push back on rate cuts

NEW YORK, Jan 16 – US Treasury yields rose on Tuesday, reversing the bullish tone at the end of last week after central bankers in Europe and the United States pushed back against market expectations of imminent interest rate cuts.

Yields, which move inversely to prices, were higher across the curve after weakness in European bonds on Monday spurred by European Central Bank officials pushing back on market bets on rate cuts. US markets were closed on Monday for a national holiday.

A report over the weekend showed Atlanta Fed President Raphael Bostic said inflation could “see-saw” if the central bank cuts rates too soon. Meanwhile, on Tuesday, Fed Governor Christopher Waller said the path of policy change must be carefully calibrated, not rushed.

Fed funds futures traders on Tuesday were pricing for over 150 basis points in rate cuts this year, but assigned a 60% chance of a rate cut in March after Waller’s speech, down from about 70% earlier.

The mismatch between market expectations and indications from the Federal Reserve, which has penciled in 75 basis points of cuts in 2024, is likely to continue to cause swings in yields, said Doug Huber, vice president for investment strategies at Wealth Enhancement Group.

“There’s the questions of when rates get cut and how many are there … to us that will set us up for an environment where we’re anticipating more volatility in rates,” he said.

While higher compared to their close last week, yields declined on Monday after the New York Federal Reserve’s Empire Manufacturing survey came much lower than expected.

Benchmark 10-year yields were last seen at 4.037%, up from a 3.95% close last week. Two-year yields, which more closely reflect monetary policy expectations, were at about 4.21%, up from 4.138% on Friday.

The curve comparing two and 10-year yields steepened to minus 17.8 basis points, the least inverted it has been since early November. That part of the Treasury yield curve, when inverted, is generally seen as a sign of an upcoming recession.

(Reporting by Davide Barbuscia; Editing by Nick Zieminski and Jonathan Oatis)

Gold dips over 1% as dollar, yields rise on hawkish remarks by Fed’s Waller

Jan 16 – Gold prices fell over 1% on Tuesday, pressured by a firmer dollar and higher US Treasury yields after Federal Reserve Governor Christopher Waller’s hawkish remarks on interest rate cuts this year, but safe-haven buying limited bullion’s downside.

Spot gold was down 1.3% at USD 2,027.26 per ounce as of 2:36 p.m. ET (1936 GMT), after gaining in the previous three sessions.

US gold futures settled more than 1% lower at USD 2030.2.

“Strong gains in the US dollar index are pressuring the gold market as well as a rise in US Treasury yields today on this first day back from the three-day holiday weekend,” said Jim Wyckoff, senior analyst at Kitco Metals.

“However, one could argue that losses in gold are not bad compared to how strong the dollar is as tensions in the Middle East are keeping a floor under the prices.”

The dollar index rose nearly 1% to a more than one-month high, making bullion less attractive for other currency holders, while yields on the benchmark US 10-year Treasury notes also gained.

Waller said the United States was “within striking distance” of the Fed’s 2% inflation goal, but the central bank should not rush towards cuts in its benchmark interest rate until it is clear lower inflation will be sustained.

The Fed bank is widely expected to hold its policy rate steady at the end of its Jan. 30-31 meeting. Traders see a 67% probability of an interest rate cut in March, according to the CME Fedwatch tool.

Elsewhere, European Central Bank officials also pushed back against market expectations for rapid rate cuts this year.

Spot silver fell 1.2% to USD 22.93 per ounce.

Platinum declined 2.1% to USD 895.56 and palladium slipped 3.8% to USD 934.32, marking its lowest level in over one month.

(Reporting by Anushree Mukherjee in Bengaluru; Editing by Sharon Singleton and Emelia Sithole-Matarise; Editing by Shailesh Kuber)

Japan Inc.’s value boost plan lacks key endorsement

SINGAPORE, Jan 16 – The Tokyo Stock Exchange’s big push to improve shareholder value is missing some big names. On Monday, the bourse released a long-awaited list meant to showcase which companies have taken steps to improve capital efficiency. Just 40% of the 1,656 prime-listed firms made it, underscoring the long road ahead for Japan Inc to lift valuations. But what’s more disappointing is the omission of many influential corporate titans.

Marquee names like Toyota Motor, Fast Retailing, Nintendo, and SoftBank Group are conspicuously absent. The 20 largest companies whose names are missing from the list make up about a quarter of the Nikkei 225’s market value.

Toyota said its plan for “growth with stakeholders” was effectively the same as what the bourse was requesting. The company may have a point: the stock has returned some 62% over the past year, outperforming a 42% return in the broader index.

It also reported a record operating profit in its second quarter and announced a big buyback to please investors. Even so, in a consensus-driven country, if corporate leaders can’t be bothered to heed the TSE’s calls, then efforts to spur smaller laggards into action will be harder.

The good news is that the publication will be updated on a monthly basis. Rising peer pressure and shareholder activism, including recent campaigns in Seven and Fujitec Co., should help, then. The Topix, already up 6% this year, is outperforming all other major global indices. The rally can only be sustained if Japan Inc’s heavy hitters start taking Tokyo’s corporate governance efforts seriously.

(By Anshuman Daga; Editing by Robyn Mak and Katrina Hamlin)

China stocks rise as investors await GDP data; HK shares fall

SHANGHAI, Jan 16 – China stocks ended higher on Tuesday as investors awaited annual economic growth data due out on Wednesday for further direction, while Hong Kong shares hit a more than one-year low, dragged down by losses in technology and property stocks.

** China’s blue-chip CSI300 Index closed up 0.6%, while the Shanghai Composite Index gained 0.3%. Hong Kong’s benchmark Hang Seng Index closed down 2.2%, hitting the lowest level since November 2022.

** Unlike the US stock market, China’s stock market has a high dispersion among individual stock performances, Herald Van Der Linde, head of Asia Pacific equity strategy at HSBC, said at a media briefing on Monday.

** “So, the strategy I think is the best to adopt is to go deep and look for individual companies that have growth that is structural and not sensitive to what happens either in the broad economy or the broad market,” he said.

** Meanwhile, investors are awaiting China’s 2023 full-year gross domestic product figures to see whether the country beats its around 5% economic growth target for last year.

** December activity data due on Wednesday is also in focus to see if the economy gained momentum heading into 2024.

** Chinese transportation stocks hit a one-month high, rising for the fourth session as investors bet the escalating Red Sea crisis will push up crude freight prices, generating windfall profit for oil tankers and shipping companies.

** Tourism stocks continued their rally, rising 1.9%.

** Local investors have shifted their attention to overseas markets. China AMC Nomura Nikkei 225 Index ETF traded in Shanghai has seen market premium over its net asset value reach a record high this week.

** In Hong Kong, tech shares slumped 2.3%.

(Reporting by Shanghai Newsroom; Editing by Subhranshu Sahu)

Gold frail as dollar, yields dim shine

Jan 16 (Reuters) – Gold prices were subdued on Tuesday as the dollar and Treasury yields rose, while traders waited to hear from a slew of US Federal Reserve speakers this week for more clarity on the central bank’s rate cut prospects.

Spot gold was down 0.3% at USD 2,048.70 per ounce, as of 0758 GMT. US gold futures rose 0.1% to USD 2,053.00.

The dollar has strengthened ahead of Christopher Waller’s speech, which is arguably the bigger event for the week, said Matt Simpson, a senior analyst at City Index.

The dollar index touched a 10-day high, making bullion less attractive for other currency holders, while yields on benchmark US 10-year Treasury notes rose above 4%.

At least six Fed officials are due to speak this week, with Governor Christopher Waller scheduled to deliver a speech on the economic outlook before the Brookings Institution at 1600 GMT.

“With multiple rate cuts having been priced in by market, I wouldn’t be surprised if Waller feels inclined to push back…a move back to USD 2035 (for spot gold) could be plausible,” Simpson said.

At the end of its Jan. 30-31 meeting, the US central bank is expected to hold its policy rate steady.

Traders are betting on six rate cuts of 25 basis points each this year, with about a seven-in-ten chance that the first one could come as soon as March, according to LSEG’s interest rate probability app, IRPR.

Lower interest rates increase non-yielding bullion’s appeal.

Elsewhere, European Central Bank officials pushed back against market expectations for rapid rate cuts this year.

According to Reuters technical analyst Wang Tao, spot gold may retrace to USD 2,042 per ounce, after its repeated failures to break resistance at USD 2,060.

Spot silver fell 0.3% to USD 23.13 per ounce, platinum declined 0.7% to USD 908.59, and palladium slipped 0.8% to USD 963.38.

(Reporting by Harshit Verma in Bengaluru; Editing by Subhranshu Sahu, Rashmi Aich and Sohini Goswami)

Oil steadies as stronger dollar counteracts Red Sea disruptions

NEW YORK, Jan 16 – Oil prices were little changed on Tuesday, pressured as the dollar jumped to its highest in a month but supported by jitters about the impact on energy supplies from escalating tensions in the Middle East.

Global benchmark Brent crude futures rose 14 cents, or 0.2%, to settle at USD 78.29 a barrel. At the session high, Brent futures were up by a dollar a barrel.

US West Texas Intermediate crude futures (WTI) ended at USD 72.40 a barrel, down 28 cents, or 0.4%, from Friday’s settlement. US markets were closed for a public holiday on Monday.

“Oil prices are looking for a direction,” said Rob Thummel, managing director at energy investment firm Tortoise Capital.

Weighing on prices, the US dollar hit a one-month high as investors dialed back expectations of an interest rate cut by the Federal Reserve in March. A stronger greenback dents demand for dollar-denominated oil among buyers using other currencies.

Forecasts for milder weather later in January in the major US production hubs also weighed on prices, said Jay Hatfield, portfolio manager at InfraCap in New York.

Warmer weather could dampen demand for heating oil, a refined product used to warm homes in parts of the US Northeast and Midwest, Hatfield noted.

Meteorologists projected weather in the US Lower 48 states would switch from colder than normal this week to mostly warmer than normal from Jan. 22-31.

Oil prices drew support from signs of escalating tensions in the Middle East, as the US military carried out a new strike in Yemen against four Houthi anti-ship ballistic missiles.

Houthi attacks on Red Sea shipping have been disrupting global movement of goods through the key trading route.

“Tensions in the Middle East are rising so the geopolitical risk premium in oil prices should be rising as well,” Tortoise Capital’s Thummel said.

Concerns of the conflict spreading throughout the region grew on Tuesday, as Iran’s striking of targets in the semi-autonomous Kurdistan region of Iraq triggered a diplomatic dispute. Iran also attacked Islamic State positions in Syria.

Despite the escalation, oil traders appear to be waiting for hard evidence of supply disruption before they push prices higher, said Fiona Cincotta, analyst at City Index.

Global energy trader Gunvor Group expects oil prices to hold at current levels and does not expect a major impact to oil production from the Red Sea disruptions, its CEO told Reuters on the sidelines of the World Economic Forum in Davos.

(Reporting by Shariq Khan; additional reporting by Robert Harvey, Arathy Somasekhar, and Trixie Yap; editing by David Gregorio and Marguerita Choy)

Japan’s equity juggernaut rolls on

Jan 16 – Another day, another leap to a fresh 34-year peak. Is there anything that will stop the Japanese equity juggernaut?

There isn’t much on the Asian economic and policy calendar to give markets a steer on Tuesday – volume will pick up as US markets reopen after the Monday holiday – but Japanese producer price figures could give Japan bulls pause for thought.

Or the green light for another whoosh higher.

The consensus view in a Reuters poll of economists suggests the year-on-year disinflation in the country’s goods-producing sector seen over the last year flipped into outright deflation in December.

The annual rate of goods inflation is expected to fall to -0.3% in December from 0.3% in November, sliding below zero for the first time since February 2021. A year ago in December 2022, prices were rising at a 10.2% annual rate.

These figures will be closely scrutinized. Easing producer price pressures will likely keep consumer inflation on its downward path toward the Bank of Japan’s 2% target, relieving the pressure on the central bank to “normalize” policy.

The Japanese bond market reflects the extent to which investors are rethinking the BOJ policy path, with the two-year yield on Monday falling below zero for the first time since July.

The Nikkei 225 index registered its sixth consecutive rise on Monday through 36,000 points. The cumulative gain in those six sessions is almost 10%, so perhaps a hotter-than-expected producer price report will be the catalyst for some profit-taking.

On a longer-term horizon, the market may be ripe for a correction too. Otavio Costa at Crescat Capital notes that the Japanese stock market cap is around 150% of GDP, which he reckons makes it one of the most overvalued in the world.

In China, meanwhile, the central bank on Monday surprised markets by keeping its medium-term policy rate steady, dashing hopes for a cut to shore up the country’s uneven post-pandemic recovery.

The People’s Bank of China disappointed market expectations for a cut as it held the rate on almost 1 trillion yuan worth of one-year medium-term lending facility (MLF) loans to some financial institutions unchanged at 2.50%. The MLF was last cut in August 2023, from 2.65%.

The PBOC is in a tight spot. The economy needs stimulus but cutting rates will probably push the already weak yuan even lower, which could risk domestic capital flight and deter investment from overseas.

The onshore yuan weakened anyway on Monday, sliding to a one-month low of 7.1813 per dollar, an indication of just how delicate the PBOC’s task is.

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

– Japan corporate goods prices (December)

– Australia consumer sentiment (January)

– South Korea import, export prices (December)

(By Jamie McGeever; Editing by Lisa Shumaker)

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