Oil prices settle higher on Middle East tensions

HOUSTON, Jan 5 – Oil prices settled higher on Friday as US Secretary of State Antony Blinken began a week-long sweep through the Middle East in an attempt to contain regional tensions stoked by the Israel-Hamas conflict.

Brent crude futures settled up USD 1.17, or 1.51%, at USD 78.76 a barrel. US West Texas Intermediate crude futures finished up USD 1.62, or 2.24%, at USD 73.81.

Crude rebounded from losses on Thursday triggered by hefty increases in US gasoline and distillate stocks, and both benchmarks ended the first week of the year higher.

“With the tensions in the Middle East, the geopolitical trading premium has to get pushed higher,” said John Kilduff, partner at Again Capital LLC. “It’s hard for traders to fight the headlines.”

Shipping giant Maersk said it will divert all vessels away from the Red Sea for the foreseeable future, warning customers of disruptions.

A US government report showing employment grew in December would support demand in the coming year, Kilduff said.

US employers hired more workers than expected in December while raising wages at a solid clip, prompting financial markets to dial back expectations that the Federal Reserve would start cutting interest rates in March.

Non-farm payrolls increased by 216,000 jobs last month, the Labor Department said. Economists polled by Reuters had forecast payrolls rising by 170,000 jobs.

“Strong employment should point to strong demand for fuel,” Kilduff said.

Bank of America said it was taking a defensive stance toward oil stocks because of the long-term price forecast for oil.

It said it expects the USD 70-USD 90 a barrel Brent trading range in place since OPEC+ intervened to hold, adding that “a permanently backward oil curve steepened by spare capacity” is a headwind for sector value.

Oilfield services company Baker Hughes said the count of active drilling rigs – oil and natural gas rigs combined – fell by one last week to 621, the third decline in four weeks.

Crude oil drilling rigs were up by one at 501 while natural gas drilling rigs fell by two to 118.

Money managers cut their net long US crude futures and options positions in the week to Jan. 2, the US Commodity Futures Trading Commission (CFTC) said on Friday.

The speculator group cut its combined futures and options position in New York and London by 33,051 contracts to 51,215 during the period.

(Reporting by Erwin Seba; Additional reporting by Robert Harvey and Noah Browning in London and Sudarshan Varadhan in Singapore; Editing by David Gregorio, Jonathan Oatis, Alexander Smith, David Goodman and David Gregorio)

Global money market funds see big demand as rate cut euphoria fades

Jan 5 – Investors moved hefty amounts into global money market funds in the seven days leading to Jan. 3 as caution set in ahead of key US employment reports which may influence expectations of Federal Reserve rate cuts.

According to LSEG data, investors poured a massive USD 111.44 billion into global money funds on a net basis during the week, the biggest weekly amount since March 22, 2023.

US unemployment data on Thursday indicated a still resilient US labor market, tempering prospects of deep rate cuts by the Federal Reserve this year. The release of monthly US payrolls figures later in the day would further influence expectations about the timing and pace of rate cuts.

Both US and European money market funds witnessed aggressive buying as they drew USD 56.92 billion and USD 56.05 billion, respectively, in inflows. Asian money market funds, however, witnessed USD 3.86 billion worth of outflows.

Conversely, global equity funds recorded about USD 230 million worth of outflows after having received USD 15.95 billion in inflows in the previous week.

The industrials sector funds led outflows, with a net USD 292 million leaving, followed by USD 247 million and USD 242 million worth of respective net selling in metals & mining, and healthcare.

In the bond market, global bond funds received USD 9.72 billion, the most significant weekly inflow since Dec. 6. Corporate bond funds continued to attract interest with USD 1.49 billion in inflows, a second consecutive week of net buying.

Notably, US short-term government bond funds attracted USD 3.2 billion, marking their first weekly inflow in nine weeks. However, global high-yield bond funds experienced about USD 108 million in net selling, their first weekly outflow in three weeks.

Among commodities, investors pulled a net USD 805 million out of precious metal fund, breaking their four-week-long buying string. Energy funds also had about USD 20 million worth of outflows.

Data encompassing 29,076 funds in the emerging markets showed that equity and bond funds both attracted inflows for a second successive week, totalling USD 1.05 billion and USD 1.59 billion, respectively.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Tomasz Janowski)

Wave of debt sales adds to January nerves in euro zone bond markets

LONDON, Jan 5 – A 150 billion euro (USD 165 billion) deluge of government bond sales in January is fueling unease in euro area bond markets, a foretaste of a potentially record amount of public debt that markets will have to absorb this year.

Bond yields, which move inversely to prices, have started 2024 higher after plunging in November and December. Germany’s 10-year yield, the eurozone benchmark, has risen to just over 2% from a one-year low of 1.896% last week.

A trimming of investor bets on how much and how early central banks will cut interest rates this year has driven the bond selloff. Now adding to it, are concerns that markets will struggle to digest another year of hefty government debt sales.

ING estimates that the euro area will issue around 150 billion euros of debt this month alone as governments seek to take advantage of the recent yield fall and investors look for new-year opportunities. There is 72 billion euros of net supply when redemptions are factored in.

Inflation has driven eurozone states to increase welfare payments and public sector wages, while higher borrowing costs are adding to their interest bills, keeping debt issuance high.

A similar amount of debt was issued in January last year, but it’s now coming after a powerful rally that looks like it’s nearing an end, said Societe Generale interest rates strategist Jorge Garayo.

“The current (yield) levels, they look difficult for the market to digest the amount of supply that is going to be coming,” he said. “For us, supply will be a worry and should have an upward impact on yields.”

Michael Weidner, co-head of global fixed income at Lazard Asset Management, said one concern is that governments plan to issue a large amount of longer-dated debt.

Longer-dated bonds are generally viewed as more risky, so investors typically demand a premium to hold them.

“We believe there will be more issuance in (longer-dated bonds), and how much duration the market’s ready to absorb is a bit of a question mark given the level of yields,” said Weidner.

Germany plans to issue 10-year bonds this month, and Spain has already sold a 30-year maturity.

ECB FACTOR

Adding to investors’ worries is the fact that the European Central Bank (ECB), a hoover of government debt over the last decade, is extricating itself from the market.

The ECB announced in December it would start to reduce its 1.7 trillion euro pandemic-era bond purchase program – PEPP – by 7.5 billion euros a month in the second half 2024. It is already winding down another of its asset purchase schemes.

When so-called quantitative tightening is taken into account, markets could have to absorb a record 675 billion euros of government debt this year, Barclays estimates, up 25 billion euros on last year.

Weidner said he expects the gap between Italian and German bond yields DE10IT10=RR to widen as Germany tries to bear down on its debt levels and the ECB, which has been a crutch for Italian bonds, steps out of the market.

At around 168 basis points, that spread has widened roughly 10 bps over the past week but was still below peaks seen in recent years.

Not everyone is concerned. Joost van Leenders, senior investment strategist at Van Lanschot Kempen, said inflation and central banks will continue to drive bond markets.

“The economic and inflation cycles tend to be far more important than concerns about bond issuance,” he said. “Bond yields have fallen because inflation has fallen.”

Governments will still be able to issue debt, said RBC Capital Markets’ chief European macro strategist Peter Schaffrik, especially as they also plan to redeem plenty of bonds, returning money to investors.

“I don’t think there will be any failed auctions or anything like that, it’s just a question of the yield concession that the market demands.”

(Reporting by Harry Robertson; Editing by Dhara Ranasinghe and Toby Chopra)

Dollar down, but not ready to give in yet – FX analysts

BENGALURU, Jan 5 – The US dollar’s recent slide appears to be short-lived as some speculators have already reduced bets for aggressive Federal Reserve interest rate cuts this year, according to a Reuters poll of strategists who still say it will be weaker in a year.

Market expectations that the Fed will start easing policy as early as March were tempered when minutes from December’s policy meeting showed most policymakers agreed borrowing costs need to remain high for some time, suggesting a March cut is less likely.

After the release, the dollar rose against a basket of currencies and is already up around 1% for the year following a 5% dip in the previous two months.

Interest rate futures on Wednesday were pricing in a roughly 66% chance the Fed starts cutting in March, down from 87% a week ago, according to CME FedWatch. Any further pullback in bets is likely to give the currency a leg up in the near term.

“In the short run, we think the dollar could gain a bit, mainly because we think the market is being too aggressive at pricing in Fed rate cuts…our base case is the Fed will wait until May before cutting,” said Brian Rose, senior economist at UBS Global Wealth Management.

“We have seen the dollar rebounding a bit in recent days and the dollar could be stable or maybe a bit higher in the near term.”

Making clear the dollar has not yet been decisively knocked off its perch, a majority of analysts, 36 of 59, said the greater risk to their three-month forecast was the dollar trades stronger against major currencies than they currently predict. The remaining 23 said the risk was it could trade weaker.

However, most said the dollar will slip against major currencies in 12 months as the Fed’s latest dot plot predictions show three interest rate cuts by year-end.

“Beyond the very short term, we still expect a further dollar decline to materialize this year as the deterioration in the economic outlook forces (a) large (amount of) Fed cuts,” said Francesco Pesole, FX strategist at ING.

But any depreciation in the first half of this year will be moderate compared with the last couple of months, he said.

The euro, which rose over 3% last year, its first yearly gain since 2020, was expected to capitalize on narrowing interest rate differentials and rise over 2% to trade around USD 1.12 in 12 months. It was trading at USD 1.09 on Thursday.

Among other major currencies, the Japanese yen, which has dropped about 30% in the past three years, was forecast to gain 6.6% to change hands at around 135/dollar in a year.

Sterling, which had a strong showing last year, gaining over 5.0%, was predicted to rise over 1.5% to USD 1.29 by year-end. The Aussie and New Zealand dollars were expected to strengthen around 4% and 2.2%, respectively.

(Reporting by Hari Kishan; Polling by Mumal Rathore, Indradip Ghosh, and Susobhan Sarkar; Editing by Ross Finley and Jonathan Oatis)

All eyes on US employment report to set the tone

Jan 4 – Asian markets must wait over the weekend to trade on US December employment data, the first globally significant economic release of 2024 that comes out after they close on Friday.

But if subdued US trade on Thursday is any indication, investors will be content to keep their powder dry Friday. Wall Street tried to steady from its two-day selloff and the Dow eked out a gain for the second time this week. But there was no obvious inclination to resume the late 2023 buying spree, while Treasuries leaned toward risk-off, though not enough to hump benchmark yields decisively back over 4.0%.

That underpinned the dollar, especially against the yen which also had a Nikkei selloff, an earthquake, and a deadly aircraft collision to reckon with on its first day back from a holiday break.

Against the yen, the greenback rose to two-week peaks, climbing for three straight days. The dollar was last up 0.9% at 144.52 yen.

It rose against the Chinese yuan to 7.1776, reaching the highest price since December 13 in US trade. The Australian dollar fell to its lowest price since December 18.

Thursday’s ADP National Employment report showed US private employers hired more workers than expected in December. Other reports showed the labor market cooling. The question for financial markets is whether Friday’s nonfarm payrolls release solidifies current futures betting on five or more rate cuts by the Fed, starting in March.

The yield on 10-year Treasury notes was up 8.8 basis points to 3.995%. Its yield, which moves in the opposite direction of prices, briefly traded above 4% Wednesday, but has not maintained that level since falling below 4% in mid-December. Yields of the benchmark 10-year are up about 15 basis points over the first three trading days of the new year.

“The market is ahead of itself and is not listening to what the Fed is saying,” said Judith Raneri, a portfolio manager at Gabelli Funds.

The yield on 10-year Treasury note was up 8.8 basis points at 3.995%. It has taken a couple halfhearted runs at clearing 4% this week but has not maintained that level since falling below it in mid-December.

What that means today for JGBs and other Asian government debt is not glaringly obvious but Japanese yields did tick higher on Thursday in a catch up with Treasuries after the extended market holiday.

In related news, Citigroup said it aimed to launch its China investment banking unit as early as the end of this year, with about 30 staff.

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

– Japan consumer confidence (December)

– US Nonfarm Payrolls and Unemployment(December)

(Reporting by Alden Bentley, additional reporting by David Randall)

Yields march higher following better-than-expected labor data

NEW YORK, Jan 4 – US Treasury yields extended gains on Thursday, with the benchmark 10-year yield hovering around 4%, as data suggesting the US labor market remains strong tempered expectations of an interest rate cut by the Federal Reserve at its March meeting.

Futures markets are now pricing in a 35% chance that the Fed will keep rates at their current range of 5.25% to 5.5%, up from a 13% chance a week ago, according to CME’s FedWatch Tool. Markets estimate a 60% chance of a 25-basis-point rate cut in March.

The number of Americans filing initial claims for unemployment benefits, known as jobless claims, fell more than expected to 202,000 last week, below consensus estimates of 216,000, according to the Labor Department. New state unemployment benefit claims rose by 12,000 last week to 218,000.

At the same time, US private employers hired more workers than expected in December, according to the ADP National Employment Report. Private payrolls increased by 164,000 jobs last month, the largest monthly increase since August.

“People are looking at the labor market data and starting to second-guess whether that is enough for the Fed to cut rates,” said Matthew Routh, a portfolio manager at Barrow Hanley Global Investors.

The yield on 10-year Treasury notes was up 8.6 basis points to 3.993%. Its yield, which moves in the opposite direction of prices, briefly traded above 4% Wednesday, but has not maintained that level since falling below 4% in mid-December. Yields of the benchmark 10-year are up about 15 basis points over the first three trading days of the new year.

The yield on the 30-year Treasury bond was up 8.2 basis points at 4.139%. The two-year US Treasury yield, which typically moves in step with interest rate expectations, was up 6.7 basis points at 4.385%.

Minutes from the Fed’s December policy meeting released Wednesday showed a majority of policymakers see benchmark rates trimmed by at least three-quarters of a percentage point by the end of the year. Markets, meanwhile, are pricing in six rate cuts over the same time, totaling 140 basis points.

“The market is ahead of itself and is not listening to what the Fed is saying,” said Judith Raneri, a portfolio manager at Gabelli Funds. At the same time, increased corporate bond issuance will likely increase volatility in the fixed income market overall, she said.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at -39.9 basis points. It fell to a low of -43.2 on Wednesday.

January 4 Thursday 3:30 PM New York / 2030 GMT

	Price	Current Yield %	Net Change (bps)
Three-month bills	5.235	5.3928	-0.006
Six-month bills	5.055	5.274	-0.003
Two-year note	99-191/256	4.3845	0.067
Three-year note	100-158/256	4.1492	0.079
Five-year note	99	3.9729	0.081
Seven-year note	98-132/256	3.9955	0.084
10-year note	104-24/256	3.9931	0.086
20-year bond	106	4.2974	0.085
30-year bond	110-108/256	4.1385	0.082

(Reporting by David Randall; editing by Jonathan Oatis)

Gold gets a breather as US payrolls loom; palladium slips

Jan 4 – Gold held steady on Thursday after four sessions of decline as investors braced for the US non-farm payrolls data that could influence the Federal Reserve’s interest-rate path, while palladium prices slipped on a dim long-term demand outlook.

Spot gold edged up 0.2%, to USD 2,044.39 per ounce by 2:50 p.m. ET (1950 GMT), a day after hitting its lowest since Dec. 21. US gold futures settled up 0.4%, at USD 2,050.00.

“The gold market bulls need a fresh new spark to jump-start a price rally,” said Jim Wyckoff, senior analyst at Kitco Metals.

“(But) if the jobs data comes in stronger, that will put some pressure on prices and probably dial back (market) expectations for Fed interest rate cuts.”

The US non-farm payrolls report is due on Friday.

Data on Thursday showed that US weekly jobless claims fell more than expected last week and US private employers hired more workers than expected in December, pointing to persistent strength in the labor market.

Traders are pricing in about a 65% chance of a rate cut from the Fed in its March policy meeting, according to the CME FedWatch tool.

Lower interest rates decrease the opportunity cost of holding non-yielding bullion.

The minutes of the Fed’s last meeting, released on Wednesday, revealed a growing conviction among officials that inflation was under control and a concern that “overly restrictive” monetary policy posed threats to the economy.

“With the Fed implementing several rate cuts this year, this should bring back financial investors via ETF and bar demand and lift the price of gold to USD 2,250 per ounce by the end of the year,” said UBS analyst Giovanni Staunovo.

Silver rose 0.2% to USD 23.00 per ounce, after hitting a three-week low earlier, while platinum was down 1.7%, at a two-week low of USD 954.28.

Palladium fell about 3% to USD 1,035.49, extending its losing streak for the eighth session as concerns that the growing popularity of electric vehicles would destroy
long-term demand unraveled some of the December gains that followed the UK’s expansion of sanctions against Russian-origin metal.

(Reporting by Sherin Elizabeth Varghese and Hissay Bhutia in Bengaluru, additional reporting by Deep Vakil in Bengaluru; Editing by Andrea Ricci, Sriraj Kalluvila, and Pooja Desai)

Gold rises as dollar slips; focus on jobs data for Fed cues

Jan 4 – Gold prices rose on Thursday as the dollar edged lower, while investors looked out for more U.S. jobs data to gauge the Federal Reserve’s next steps on its monetary policy.

Spot gold was up 0.3% at USD 2,047.19 per ounce, as of 0659 GMT, after hitting its lowest since Dec. 21 on Wednesday. US gold futures rose 0.6% to USD 2,054.50 per ounce.

The dollar index ticked down by 0.1%, making gold more attractive for other currency holders.

“The fundamental thing to reasonably support gold is the US economy that is likely to slow down this year and rate cuts that are likely to arrive,” said Kyle Rodda, a financial market analyst at Capital.com.

However, waning expectations of early interest rate cuts this year are putting downward pressure on gold prices and it would be the case over the next few days as well, said Rodda.

Futures markets see a 72% chance that the Fed could begin cutting rates in March, compared with a 90% chance a week ago, according to CME’s FedWatch Tool.

Minutes of the Fed’s Dec. 12-13 meeting released on Wednesday showed officials were convinced inflation was coming under control but also noted an elevated degree of uncertainty about the rate cut outlook.

Lower rates decrease the opportunity cost of holding non-yielding bullion.

US manufacturing contracted further in December, though the pace of decline slowed, while job openings fell for a third straight month in November, pointing to easing labour market conditions.

Investors now await the weekly jobless claims data due at 1330 GMT and the non-farm payrolls report on Friday for further clarity on how much room the Fed has to lower rates.

Spot silver rose 0.2% to USD 23.01 per ounce, while platinum slipped 0.4% to USD 967.01. Palladium fell 0.1% to USD 1,065.30.

(Reporting by Harshit Verma in Bengaluru; Editing by Mrigank Dhaniwala and Rashmi Aich)

Oil extends gains on Middle East supply worries

SINGAPORE, Jan 4 – Oil prices rose on Thursday, adding to solid gains in the previous session on persisting concerns over Middle Eastern supply following disruptions at a field in Libya and heightened tensions around Israel-Gaza war.

Brent crude rose 53 cents, or 0.7%, to USD 78.78 a barrel by 0730 GMT, while US West Texas Intermediate crude futures rose 66 cents, or 0.9%, to USD 73.36.

Both benchmarks rose by around 3% to settle higher for the for the first time in five days on Wednesday, with WTI seeing the biggest daily percentage gain since mid-November.

“A confluence of headlines around further tensions in the Red Sea and a full shutdown of Libya’s Sharara oilfield from local protests have renewed concerns about global oil supply disruptions,” said Yeap Jun Rong, market strategist at IG.

On Wednesday, local protests forced a full shutdown of production at Libya’s Sharara oilfield, which can produce up to 300,000 barrels per day. The field, one of Libya’s largest, has been a frequent target for local and broader political protests.

Earlier on Tuesday, Hamas’ deputy leader was killed in a strike in Beirut – the first strike to hit the Lebanese capital in almost three months of near daily fire between the Israeli military and Iran-backed Hezbollah that had been confined to the border region.

Shipping concerns in the Red Sea lingered after Yemen’s Iran-backed Houthis said on Wednesday they had “targeted” a container ship bound for Israel. U.S. Central Command said the militant group had fired two anti-ship ballistic missiles in the southern Red Sea the previous day.

The market was also supported by data from the American Petroleum Institute, showing U.S. crude stocks fell by 7.4 million barrels in the week ended Dec. 29, which was double the drawdown that analysts polled by Reuters had expected.

Weekly data from the Energy Information Administration, the statistical arm of the U.S. Department of Energy, is due at 11:00 a.m. (1600 GMT) on Thursday, delayed by a day due to the New Year’s holiday on Monday.

Meanwhile, the Organization of the Petroleum Exporting Countries (OPEC) said on Wednesday that cooperation and dialogue within the wider OPEC+ producer alliance will continue, after OPEC member Angola said it would leave the bloc last month.

A meeting of the group has been announced for Feb. 1 to review implementation of its latest oil output cut.

Analysts at Goldman Sachs expect Brent to range between USD 70 and USD 90 a barrel in 2024 based on flexible OPEC+ supply, a low risk of recession, and opportunistic strategic petroleum reserve purchases by China and the U.S.

Geopolitical risk scenarios will remain a key upside risk to the forecast, the analysts added in a Jan. 3 client note.

(Reporting by Andrew Hayley in Beijing and Jeslyn Lerh in Singapore; Editing by Sonali Paul and Michael Perry)

Oil settles lower on massive US fuel inventory builds

Jan 4 – Oil settled lower on Thursday in a choppy see-saw session, as massive weekly gasoline and distillate stock builds overshadowed a larger-than-expected crude stock draw.

Brent crude settled down 66 cents, or 0.8%, to USD 77.59. During the session it both rose and fell over USD 1. US West Texas Intermediate crude futures settled down 51 cents, or 0.7%, to USD 72.19.

Low fuel demand and large inventory increases in data from the US Energy Information Administration weighed on prices.

Gasoline stocks rose by 10.9 million barrels to 237 million barrels, their highest week-on-week rise in more than 30 years.

Distillate stocks rose last week by 10.1 million barrels to 125.9 million barrels. Distillate product supplied, a proxy for demand, fell to its lowest level since 1999, EIA data showed.

“The key Northeast region is still indicating relatively mild temperatures well into the 3rd week of this month in likely limiting diesel gains,” said Jim Ritterbusch, president of Ritterbusch and Associates LLC in Galena, Illinois.

While crude inventories drew by 5.5 million barrels in the week, EIA data showed, much of that reflects shipping disruptions in the Red Sea, said Bob Yawger, director of energy futures at Mizuho.

“The situation in the Red Sea has forced a lot of refiners and buyers of crude oil to go to the United States rather than sail their boat around the Horn of Africa,” Yawger said.

Shipping concerns lingered after Yemen’s Iran-backed Houthis on Wednesday said they had “targeted” a container ship bound for Israel. US Central Command said the militant group had fired two anti-ship ballistic missiles in the southern Red Sea the previous day.

Downbeat economic data sent prices lower earlier in the session. Eurozone business activity shrank in December. German inflation rose, possibly offering the European Central Bank an argument in favor of keeping interest rates steady for some time.

Both oil benchmarks gained about 3% on Wednesday to settle higher for the first time in five days. Oil also found support from American Petroleum Institute data showing crude stocks fell by 7.4 million barrels, double the expected drawdown.

On Wednesday two explosions killed nearly 100 people and wounded scores at a ceremony in Iran to commemorate commander Qassem Soleimani, who was killed by a US drone in 2020. Iran has vowed revenge.

(Reporting by Laura Sanicola; Editing by Elaine Hardcastle and David Gregorio)

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

Inflation Update: Prices rise even slower in May

Monthly Recap: BSP to outpace the Fed in rate cuts