Oil gains nearly 2% as tankers reroute after Red Sea attacks

HOUSTON, Dec 18 – Oil rose nearly 2% on Monday as investors worried about disruptions to maritime trade and supply costs after the Iran-aligned Yemeni Houthi militant group attacked ships in the Red Sea.

A Norwegian-owned vessel was attacked in the Red Sea on Monday and oil major BP said it had temporarily paused all transit through the water. Other shipping firms said over the weekend that they would avoid the route.

Brent crude futures settled higher USD 1.40, or 1.8%, to USD 77.95 a barrel, while US West Texas Intermediate crude rose USD 1.04, or 1.5%, to USD 72.47. Both benchmarks had risen nearly USD 3 earlier in the session.

“There are now the increased supply costs to consider as a growing number of oil tankers are halting all sails through the Red Sea strait,” said Fawad Razaqzada, market analyst at StoneX.

About 15% of world shipping traffic transits via the Suez Canal, the shortest shipping route between Europe and Asia. London’s marine insurance market widened the area in the Red Sea it deemed high risk on Monday, adding to premiums ships pay.

US Defense Secretary Lloyd Austin said Washington was building a coalition to address the Houthi threat and said defense ministers from the region and beyond would hold virtual talks on the issue on Tuesday.

The contracts last week posted a small gain, following seven weeks of decline, after a US Federal Reserve meeting raised hopes that the US central bank’s interest rate hikes are over and cuts are on the way.

However, ample oil supply limited price gains on Monday. Brent and US crude for prompt delivery traded at a discount to future deliveries, signaling a well-supplied physical market.

Prices for US crude to be delivered in January traded as much as 40 cents lower than those for delivery in February, their widest spread since November 2020.

Also adding support, Russia said on Sunday it would deepen oil export cuts in December by potentially 50,000 barrels per day or more, earlier than promised, as the world’s biggest exporters try to support global oil prices.

Russia announced the deeper export cuts after it suspended about two-thirds of loadings of its main export grade Urals crude from ports due to a storm and scheduled maintenance on Friday.

Meanwhile, Saudi Arabia’s crude oil exports in October hit their highest level in four months, data from the Joint Organizations Data Initiative showed.

Markets may also be seeing some short covering, analysts said. Money managers cut their net long US crude futures and options positions in the week to Dec. 12, the 11th straight week of cuts, the US Commodity Futures Trading Commission said on Friday.

US oil output from top shale-producing regions is set to decline in January for the third consecutive month, the US Energy Information Administration (EIA) said, while production from the top Permian basin is set to rise to a record for an eighth straight month.

“Considering today’s rally and the positive action from last week, there’s a chance that oil might have hit rock bottom,” StoneX’s Razaqzada said.

(Reporting by Arathy Somasekhar, Georgina McCartney in Houston, Alex Lawler in London, additional reporting by Florence Tan and Emily Chow; editing by Jason Neely, Paul Simao, Deepa Babington, Chizu Nomiyama, and Cynthia Osterman)

Tech hedge funds soar, piggybacking on Nasdaq rally

NEW YORK, Dec 18 – A number of US equities hedge funds focused on technology are set to post double-digit returns this year, boosted by a powerful rally in the Nasdaq and after being hard hit in 2022, according to performance numbers obtained by Reuters.

San Francisco-based SoMa Equity Partners’ long/short fund, led by chief investment officer Gil Simon, soared 48% this year through November, according to a document, versus a 36% gain in the Nasdaq. Last year, the fund was down 33.9%.

Whale Rock Capital’s long/short rose 28%, compared with a decline of 43% last year, two sources familiar with the matter said. Tiger Global Management’s long/short fund was up 27%, a third source said – it lost 56% last year.

Coatue Management was up 20% through November, a source familiar with the return said. Last year, it was down 19%.

The so-called TMT hedge funds’ (technology, media and telecommunications) performance comes as the Nasdaq surged 41.3% so far this year fueled by investors bets on the prospects of artificial intelligence. That compared with 2022 when the index fell 33%.

This year’s trend has mainly benefited the so-called Magnificent Seven mega-cap growth and technology companies: Apple, Microsoft MSFT.O, Alphabet, Amazon, Nvidia,t Meta Platforms and Tesla.

In a letter to investors seen by Reuters, SoMa Equity told its clients it had holdings in Microsoft, Amazon and Meta. Still, those shares were not among SoMa’s five top contributors to performance in the last quarter. The hedge fund profited the most from exposure to Universal Music Group NV, Wix.Com Ltd, Uber Technologies Inc, Varonis Systems Inc, and Atlassian Corporation, it said.

On the short side, bets against consumer-led shorts related to automotive, travel and luxury spending also helped performance, according to the letter.

On average, TMT long/short hedge funds are up 14.2% this year through November, according to data provider PivotalPath, after tumbling 22.4% in 2022.

The numbers show they are on track for a “semi-magnificent” year as on average they were not able to recover from previous losses or beat the Nasdaq.

Jon Caplis, Chief Executive Officer at PivotalPath, which tracks over $3 trillion in hedge funds, said that TMT hedge funds started this year with a lower exposure to the Nasdaq, as they reduced their risk appetite throughout last year amid mounting losses.

“While the Nasdaq has roared back, gaining 36% through November, being levered down caused TMT managers on average to catch much less of this rally,” he said.

(Reporting by Carolina Mandl, in New York; editing by Jonathan Oatis and Josie Kao)

Wall St Week Ahead: Epic Treasury rally may be running out of fuel as Fed pivot priced in

NEW YORK, Dec 18 – A surge in US government bonds has helped lift stocks and heightened investors’ appetite for risk. Now some are betting that further gains may be harder to come by unless the economy severely weakens, potentially upsetting the narrative of resilient growth that has propelled markets.

An unexpected dovish pivot from the Federal Reserve earlier this week turbocharged the rally in Treasuries, sending benchmark 10-year yields to their lowest level since July. Yields, which move inversely to bond prices, now stand at 3.93%, some 110 basis points from a 16-year high hit in October.

The tumble in Treasury yields has rippled far beyond the bond market as it pulled down rates on mortgages, eased financial conditions and pushed investors into stocks and other risky investments. The S&P 500 is up nearly 15% since its October lows and has risen nearly 23% this year, putting it within striking distance of a record high.

Some investors, however, believe much of the dovish shift from the Fed may already be reflected in Treasury prices. Deeper cuts, they say, would be more likely if a rapidly slowing economy forced the Fed to accelerate its easing – an outcome that would run counter to the “soft landing” outlook that has buoyed stocks in recent months.

“The market is pretty perfectly priced for a soft landing,” said Stephen Bartolini, said lead portfolio manager of the US Core Bond Strategy at T. Rowe Price. “The bulk of the move lower is complete and if we were to push yields from here it would have to be due to expectations that the economy is slipping into recession.”

The Fed’s new projections – published on Wednesday – pencil in a median 75 basis points of cuts next year, taking the fed funds rate to between 4.50% and 4.75%. Traders, by contrast, are betting rates will fall by 150 basis points, according to data from LSEG.

Technical factors may also make it more difficult for the bond rally to sustain itself. The swift move will likely prompt some profit-taking on the part of investors due to concerns that the trade is overcrowded, strategists at BofA Global Research said in a note Friday.

Some Fed officials have begun pushing back against the view that a pivot is imminent. New York Fed President John Williams on Friday said the US central bank is still focused on whether it has monetary policy on the right path to continue bringing inflation back to its 2% target.

“We have seen the easy money on this Fed pivot already made,” said James Koutoulas, chief executive officer at Typhon Capital management, who believes further gains in Treasuries may require a growth scare that sparks a scramble for safe assets. “We expect to chop around a bit in the front of the curve until the economy materially weakens further.”

Investors will be watching economic data next week, including personal consumption expenditures and initial jobless claims that may sway the Fed’s outlook for inflation.

A soft landing, in which growth remains resilient while inflation slows towards the Fed’s target rate, has become the base case scenario for Wall Street firms, including BMO Capital Markets and Oppenheimer Asset Management. The firms see the S&P 500 at 5,100 and 5,200 next year, respectively, compared to its current level of 4719.

Some investors believe yields will continue to fall. Jack McIntyre, portfolio manager for Brandywine Global, said the week’s rapid drop in yields was likely aided by bearish investors unwinding their bets after being caught off guard by the Fed’s pivot.

Short bets against two-year Treasuries hit record levels earlier this month, data from the Commodity Futures Trading Commission showed.

Though yields might pare some of that move in the near-term, McIntyre expects the decline to resume as inflation cools, with the 10-year settling between 3.5% and 3.7% in the middle of next year.

Arthur Laffer Jr., president of Laffer Tengler Investments, is less bullish on government bonds. The swift decline in yields is already loosening financial conditions, potentially making it more difficult for the Fed to cut rates next year without risking a snapback in inflation, he said.

Laffer pointed to data such as the Atlanta Fed’s GDPNow estimate, which shows fourth quarter GDP rising by 2.6%, more than one percentage point higher than in mid-November.

The rally “is overdone and the market has moved too fast,” he said.

(Reporting by David Randall; Additional reporting by Carolina Mandl and Lewis Krauskopf; Editing by Ira Iosebashvili and Aurora Ellis)

Asian IPO market seen brighter in 2024 but elections cast shadows

SYDNEY, Dec 15 – Bankers in Asian equity capital markets are hopeful of a better year in 2024 after a dismal showing for IPOs this year, noting that interest rates have stabilized globally but they add that elections across the region and in the US could crimp demand.

High interest rates, sticky inflation, and geopolitical tensions have seen share sales by Asia Pacific (including Japanese) companies sink by a fifth in value so far this year to USD 229 billion, LSEG data shows. That’s put this year on course to be the weakest since 2012.

The data covers new and secondary share sales, convertible bond issues, and block trades.

But as interest rates in many countries appear to have peaked and talk turns to rate cuts next year, equity capital market (ECM) sentiment has improved in the last few weeks, bankers said.

“We’re in a window right now where the market has factored in a fairly benign macro outlook which could prompt issuers to come. The pipeline is strong,” said Udhay Furtado, Citi’s co-head of Asia equity capital markets.

Evidence of the improvement in sentiment for share sales has been seen in a number of block trade deals in the region over the past few weeks. These include Bain Capital selling down USD 448 million worth of its shares in India’s Axis Bank AXBK.NS this month.

Furtado said, however, that windows for companies to come to market for funds would be “tight and tough to navigate” as elections get underway. As political activity heats up, businesses are typically reluctant to make major deal decisions, wary of potential policy changes.

Elections in the region will kick off with Taiwan next month. Indonesian, South Korean and Indian voters will also head to the polls and the US election will be held in November.

Major deals in the pipeline for next year include Alibaba logistics firm Cainiao’s plan to raise USD 1 to USD 2 billion in a Hong Kong IPO. It would be the first major listing of an Alibaba 9988.HK unit.

Competition for IPOs in Asia is fierce with fees generated from ECM deals accounting for almost 40% of the region’s investment banking wallet versus 25% globally.

CHINA, HONG KONG

China is set to be the world’s busiest IPO market in 2023 for the second year in a row, despite a 35% drop in the value of IPOs to USD 37.3 billion so far this year amid a sputtering economy. Regulators have also sought to slow the pace of mainland IPOs as they work on improving mechanisms in secondary markets.

China’s economic woes as well as US-Sino friction have generally kept foreign investors underweight on Chinese equities this year but moves by Beijing to shore up the economy appear to be having an effect.

“We are still seeing international investors be relatively cautious towards exposure in China, recent policy changes are providing comfort and sentiment is starting to turn a little more positive,” said Sunil Dhuphelia, co-head of ECM for Asia ex-Japan at JPMorgan.

New listings in Hong Kong, which had previously long benefitted from Chinese companies rushing to raise capital in the city, have plunged 36% to about USD 5 billion this year and are on track for their weakest year in least 20 years, according to LSEG data.

For investment banks in Hong Kong, which had bulked up staff during the pandemic when rates were low, the slump has prompted widespread job cuts.

“Going forward, it will be very helpful for facilitating a successful listing in Hong Kong if listing applicants could have more than just a China story,” said Richard Wang, a partner at law firm Freshfields Bruckhaus Deringer who advises on M&A deals.

(Reporting by Scott Murdoch; Editing by Sumeet Chatterjee and Edwina Gibbs)

Pivot party rolls on

Dec 15 – Asian markets are set to end the week on the front foot as another steep slide in the dollar and US bond yields extends the Fed-fueled buying frenzy, although some investors may be tempted to take some chips off the table ahead of the weekend.

The Dow climbed to a fresh all-time high on Thursday and the S&P 500 and Nasdaq made new 2023 highs, while the MSCI emerging market and Asia ex-Japan indexes both rose around 2%.

Unless the MSCI World index slumps around 2.5% on Friday it will chalk up its seventh weekly rise in a row, its best run in six years.

That should provide enough momentum to keep Asia in the green on Friday, although a batch of Chinese economic indicators and central bank decision on one-year lending rates could knock markets off course.

The latest Chinese retail sales, industrial production, business investment, unemployment and house price data for November will be released, and investors will be looking for signs of growth or, in some cases, accelerating growth.

China’s central bank, meanwhile, is expected to keep its one-year lending rate steady but increase liquidity injections.

But sentiment around China’s economy and markets is bleak, and it will take more than a few data points to lift meaningfully. The underperformance of Chinese stocks is the main reason Asian markets have lagged their US and global peers.

Since the last week of October, in which time US and global indexes have jumped 15% or more, the MSCI emerging and Asia ex-Japan indexes have risen 10%.

The Chinese blue chip CSI 300 index is in the red, down 13% this year, and is near a five-year low.

The bullish narrative global markets are running with, however, is that the US economy will achieve its ‘soft landing,’ giving the Fed room to pivot towards rate cuts earlier and more aggressively than many had thought.

That was given an implicit seal of approval by the Fed itself in the revised Summary of Economic Projections.

But as is invariably the case, markets may have overshot. The two-year US yield is down 35 basis points this week, the 10-year yield has crashed below 4% and markets are pricing in 150 bps of Fed rate cuts next year – twice as much as the Fed’s median forecasts indicate.

There are other reasons to warrant caution – the European Central Bank and Bank of England don’t appear to be willing to follow the Fed’s dovish lead, Norway’s central bank raised rates on Thursday, and oil jumped more than 3% on Thursday.

And next week we have the Bank of Japan’s policy meeting, potentially the biggest curveball of the year.

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

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

– Japan flash PMIs (December)

– Australia flash PMIs (December)

(By Jamie McGeever; Editing by Josie Kao)

Gold touches 10-day high as Fed hints at lower US rates next year

Dec 14 – Gold prices touched a 10-day high on Thursday as the US dollar and Treasury yields slipped after the Federal Reserve signaled an end to its monetary policy tightening cycle.

Spot gold rose 0.4% to USD 2,034.31 per ounce by 3:17 p.m. ET (2017 GMT). US gold futures settled 2.4% higher at USD 2,044.90.

“Fed’s dovish pivot was telegraphed over yesterday’s FOMC meeting and very pragmatically gave a green light for markets to price in a more aggressive Fed cutting cycle on the horizon, and we expect that the market will run with it,” said Daniel Ghali, commodity strategist at TD Securities.

“This is extremely positive for gold prices, given that investor demand was one of the missing pieces for the rally to new all-time highs to be sustained.”

Lower interest rates decrease the opportunity cost of holding non-yielding bullion and weigh on the dollar.

The dollar slipped to a four-month low, while the US benchmark 10-year yield dropped to its lowest level since late July.

Seventeen of 19 Fed officials projected lower interest rates by end-2024, after the central bank kept interest rates steady for the third meeting in a row, as was widely expected.

Markets are now pricing in around a 77% chance of a rate cut in March from the Fed, according to the CME FedWatch tool.

The European Central Bank also left interest rates unchanged as expected on Thursday.

Spot silver rose 1.6% to USD 24.13 per ounce, while platinum gained 2.6% to its highest since September at USD 958.51.

Palladium surged 11% to USD 1,102.44, set for its best session since March 2020 after hitting a five-year low earlier this month.

After FOMC, the yield curve started to roll over and investors rushed to buy commodities, which is a major driver for the rise in palladium, said Daniel Pavilonis, senior market strategist at RJO Futures.

(Reporting by Anushree Mukherjee in Bengaluru; Editing by Pooja Desai, Lisa Shumaker, and Krishna Chandra Eluri)

Oil rises on US inventory draw, upbeat demand expectations

Dec 14 – Oil prices rose in Asian trade on Thursday, extending the prior session’s gains, on a bigger-than-expected weekly withdrawal from U.S. crude storage and an improved outlook for demand after the U.S. Fed signaled lower borrowing costs for 2024.

Brent futures rose 41 cents, or 0.55%, to USD 74.67 a barrel as of 0658 GMT. US West Texas Intermediate (WTI) crude climbed 32 cents, or 0.46%, to USD 69.79 a barrel.

The market rose in the previous session on worries about the security of Middle East oil supplies after a tanker attack in the Red Sea.

“Crude oil prices rebounded before the Fed meeting, and the event lifted them further,” said CMC Markets analyst Tina Teng in a client note.

Lower interest rates reduce consumer borrowing costs, which can boost economic growth and demand for oil. The news also sent the dollar falling for three straight sessions to a four-month low, which makes oil less expensive for foreign purchasers.

Prices were boosted by a larger-than-expected draw from the US crude inventory, Teng added.

The US Energy Information Administration (EIA) said energy firms pulled a bigger than expected 4.3 million barrels of crude from stockpiles during the week ended Dec. 8 as imports fell.

Dissipating concerns about demand growth buoyed the market as well, after the Organization of the Petroleum Exporting Countries (OPEC) blamed the latest crude price slide on “exaggerated concerns” about oil demand growth in its latest monthly report released on Wednesday.

Brent futures have dropped about 10% since OPEC+ announced a new round of production cuts on Nov. 30. OPEC+ includes OPEC and allies such as Russia.

Some analysts, however, cautioned about the rising fuel inventories for the week in the United States, which signal waning winter demand.

“It wasn’t all good news, with gasoline and distillate inventories rising,” ANZ analysts Brian Martin and Daniel Hynes said in a client note.

(Reporting by Laura Sanicola and Trixie Yap; Editing by Cynthia Osterman, Gerry Doyle and Edmund Klamann)

Oil rises 3% on IEA demand upgrade, weaker dollar

NEW YORK, Dec 14 – Oil prices rose 3% on Thursday, extending the previous session’s gains, boosted by a weaker dollar and as the International Energy Agency (IEA) lifted its oil demand forecast for next year.

Brent futures settled USD 2.35 higher, or 3.2%, at USD 76.61 a barrel. US West Texas Intermediate (WTI) crude climbed USD 2.11, or 3%, to USD 71.58.

The market has turned around after dropping to hit its lowest in nearly six months during Wednesday’s session.

World oil consumption will rise by 1.1 million barrels per day (bpd) in 2024, the IEA said in a monthly report, up 130,000 bpd from its previous forecast, citing an improvement in the outlook for the US and lower oil prices.

The 2024 estimate is less than half the forecast of the Organization of the Petroleum Exporting Countries (OPEC).

Prices also got a boost as the dollar weakened after the US Federal Reserve on Wednesday signaled lower borrowing costs for 2024.

The dollar fell to a four-month low on Thursday after the US central bank indicated interest rate hikes have likely ended and lower borrowing costs are coming in 2024.

“Obviously the mood for oil has changed dramatically. One of the major catalysts for shaking volatility out of the market was the Federal Reserve,” said Phil Flynn, an analyst at Price Futures Group.

Lower interest rates reduce consumer borrowing costs, which can boost economic growth and demand for oil. A weaker dollar makes oil less expensive for foreign purchasers.

The European Central Bank, meanwhile, pushed back against bets on imminent cuts to interest rates on Thursday by reaffirming that borrowing costs would remain at record highs despite lower inflation expectations.

Oil investors will usher in 2024 with gnawing concerns about slowing economic growth and oversupply, while simmering tensions in the Middle East could spark price volatility.

Benchmark Brent has averaged around USD 80 a barrel this year. A Reuters survey of 30 forecasts from economists and analysts sees Brent crude averaging USD 84.43 a barrel in 2024.

(Reporting by Stephanie Kelly; additional reporting by Dmitry Zhdannikov, Ahmad Ghaddar, and Trixie Yap; Editing by Mark Potter, Kirsten Donovan, Paul Simao, David Gregorio, and Andrea Ricci)

Oil rises on Middle East worries, future cuts to borrowing costs

Dec 14 – Oil prices rose in early Asian trade on Thursday, extending gains from the previous session following a bigger-than-expected weekly withdrawal from U.S. crude storage and signaling from the U.S. Federal Reserve that it would start lowering borrowing costs in 2024.

Lower interest rates cut consumer borrowing costs, which can boost economic growth and demand for oil. The news also sent the dollar falling, which makes oil less expensive for foreign purchasers.

Brent futures rose 46 cents, or 0.6%, to settle at USD 74.72 a barrel by 0007 GMT. US West Texas Intermediate (WTI) crude rose 48 cents, or 0.7%, to settle at USD 69.95.

The market rose last session on worries about the security of Middle East oil supplies after a tanker attack in the Red Sea.

A tanker in the Red Sea off Yemen’s coast was fired on by gunmen in a speedboat and targeted with missiles, the latest incident to threaten the shipping lane after Yemeni Houthi forces warned ships not to travel to Israel.

The US Energy Information Administration (EIA) said energy firms pulled a bigger than expected 4.3 million barrels of crude from stockpiles during the week ended Dec. 8 as imports fell.

In its monthly report, the Organization of the Petroleum Exporting Countries (OPEC)blamed the latest crude price slide on “exaggerated concerns” about oil demand growth.

Brent futures have dropped about 10% since OPEC+ announced a new round of production cuts on Nov. 30. OPEC+ includes OPEC and allies like Russia.

(Reporting by Laura Sanicola; Editing by Cynthia Osterman)

Nasdaq hit by system error affecting stock orders

Dec 13 – Exchange operator Nasdaq NDAQ.O was hit by a system error on Wednesday that impacted stock orders and led to some being canceled.

The incident first started at 2:41 pm ET (1440 GMT) on Dec. 13, 2023 which involved “FIX/RASH ports, according to the Nasdaq website.

“Some customers have seen inaccuracies and delays in the delivery of execution reports. We are working to reach a prompt resolution to deliver the correct execution reports. FIX/RASH was closed down for the rest of the day. The closing cross was completed and all other markets are operating normally,” the exchange operator said in a statement.

“Customers may be seeing mismatches on executions.”

NASDAQ said it will continue to investigate the earlier system issues with FIX/RASH, and send an update once there is a resolution.

The stock exchange did not respond to Reuters’ query on what caused the system error.

(Reporting by Rishabh Jaiswal in Bengaluru; Editing by Sherry Jacob-Phillips)

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