Consolidation, at a dovish inflection point

Nov 16 – A bout of consolidation across Asian markets on Thursday is likely after the previous day’s stellar gains, as investors adjust to what appears to be a decisive moment in the global interest rate and inflation cycle.

There is a growing consensus forming that major central banks’ interest rate-raising cycle is over, a conviction strengthened by a series of inflation reports and other indicators from major economies.

Figures on Wednesday showed that US producer prices fell at their fastest pace since April 2020, and UK consumer inflation undershot all forecasts. Oil prices fell again on Wednesday, and are now down more than 10% year-on-year.

Investors are increasingly pricing in more rate cuts next year, bond yields and the dollar are coming under downward pressure, and stocks and risk assets are buoyant. All in, financial conditions in most countries are loosening.

Some of that reversed on Wednesday – Treasury yields and the dollar rebounded a bit from the previous day’s slump – which may keep a lid on Asian markets on Thursday, even though Wall Street held onto its gains and closed higher.

Investors could be forgiven for taking a breather on Thursday after such as huge rally on Wednesday that saw the MSCI Asia ex-Japan, MSCI Emerging Market index, and Japan’s Nikkei 225 all post their biggest gains in a year, of 2.5% or more.

But they also have other major economic and corporate news to digest, which will inject an extra dose of caution into the trading session.

The economic calendar sees the release of Japanese trade data, machinery orders, and the closely watched ‘tertiary activity index’, as well as Australian unemployment and Chinese house prices.

Japan’s GDP figures on Wednesday were much weaker than expected, leading economists at Barclays and elsewhere to cut their 2023 and 2024 growth forecasts.

But financial conditions in Japan are the loosest since 1990, according to Goldman Sachs, which is partly why the Bank of Japan has stepped up its hawkish rhetoric and may end its negative interest rate policy early next year.

Laying that ground at a time when the economy is shrinking, however, is not ideal.

China’s house price data will be closely watched for signs that the property sector is beginning to stabilize. There are signs of stabilization elsewhere in Chinese markets – the yuan is its strongest in three months against the dollar, and foreigners are increasing their holdings of China’s onshore yuan bonds.

On the policy front, the Philippine central bank is expected to keep its key interest rate unchanged at 6.50% on Thursday, although there’s an outside chance it might hike to 6.75%.

On the corporate front, China’s Alibaba and Lenovo released their latest earnings reports.

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

– Japan trade (October)

– China house prices (October)

– Philippines interest rate decision

(By Jamie McGeever)

Treasury yields rebound from 2 month lows on mixed economic data

NEW YORK, Nov 15 – US Treasury yields rebounded from two-month lows on Wednesday despite signs of slowing inflation after a revision of retail sales data showed strong gains in September.

Overall, retail sales dipped 0.1% last month, slightly less than the 0.3% economists polled by Reuters expected, according to the Commerce Department. Data for September was revised higher to show sales increasing 0.9% instead of the previously reported 0.7% rise.

At the same time, the headline reading of the Producer Price Index was down 0.5% month on month, well below the estimate of a 0.1% rise, following Tuesday’s reading of lower consumer prices. Producer prices rose 0.5% in September.

“It’s this Jekyll and Hyde bond market right now where one moment you’re applauding good inflation data and the next you’re worried about strong economic data,” said Lawrence Gillum, chief fixed income strategist at LPL Financial. “As long as the Fed has the potential to either raise rates again or prolong interest rate cuts you will see these sporadic movements in the bond market.”

The yield on 10-year Treasury notes was up 9 basis points to 4.531%. The yield on the 30-year Treasury bond was up 6 basis points to 4.681%.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was up 10.3 basis points at 4.920%.

Treasury yields, which move in the opposite direction of prices, plummeted on Tuesday following softer than expected consumer inflation data, pushing the 10-year Treasury yield down by its largest daily amount since March.

The mixed economic data Wednesday will likely stall any further large moves in yields, said Ian Lyngen, head of US rates strategy at BMO Capital Markets Fixed Income Strategy Team.

“We expect the market will drift sideways from here and a downward bias in yields will emerge as the weekend approaches,” he said.

November 15 Wednesday 3:35PM New York / 2035 GMT

	Price	Current Yield %	Net Change (bps)
Three-month bills	5.26	5.4197	0.003
Six-month bills	5.21	5.4401	0.005
Two-year note	100-37/256	4.9203	0.103
Three-year note	99-214/256	4.6843	0.113
Five-year note	101-138/256	4.5244	0.103
Seven-year note	101-218/256	4.561	0.103
10-year note	99-192/256	4.5314	0.090
20-year bond	93-152/256	4.8837	0.070
30-year bond	101-24/256	4.6818	0.061

DOLLAR SWAP SPREADS
	Last (bps)	Net Change (bps)
US 2-year dollar swap spread	0.00	0.00
US 3-year dollar swap spread	0.00	0.00
US 5-year dollar swap spread	0.00	0.00
US 10-year dollar swap spread	0.00	0.00
US 30-year dollar swap spread	0.00	0.00

(Reporting by David Randall; Editing by Nick Zieminski and Jonathan Oatis)

Gold steadies as firm dollar counters bets on peak US rates

Nov 15 – Gold steadied below one-week highs on Wednesday, weighed by a stronger dollar, but expectations that the US Federal Reserve is done with hiking interest rates put a floor under prices.

Spot gold fell 0.1% to USD 1,960.49 per ounce by 2:20 p.m. ET (1920 GMT), after touching a one-week peak earlier. US gold futures settled 0.1% lower at USD 1,964.30.

Denting bullion’s appeal, the dollar index was up 0.4%, while benchmark 10-year US Treasury yields rebounded after a revision of retail sales data showed strong gains in September.

Bullion gained nearly 1% in the previous session after data showed that US consumer prices were unchanged in October. US producer prices fell by the most in three-and-a-half years in October, the latest indication of inflation pressures easing.

“The results from CPI and PPI are positive and it continues to support gold prices with the expectation that inflation will continue to pull back adding to the expectations that the Fed is done raising interest rates,” said David Meger, director of metals trading at High Ridge Futures.

The market was certain the US central bank will leave rates unchanged in December, with most traders eyeing rate cuts from May 2024, according to the CME FedWatch tool.

While gold is considered an inflation hedge, rising interest rates dull non-yielding bullion’s appeal.

“With yields back up, gold is lower after the initial spike up. I think the outlook will remain positive for (gold) assets but the moves will be more measured,” said Tai Wong, a New York-based independent metals trader.

Investors also looked at data that showed US retail sales fell in October, though by less than expected, after months of strong gains, pointing to slowing demand that could further strengthen expectations of a rate-hike pause.

Spot silver rose 1.6% to USD 23.45 per ounce, after touching its highest since Oct. 20 earlier.

Platinum was up 1.1% at USD 895.13 and palladium gained 1.5% to USD 1,032.45. Both metals were eyeing their third straight session of gains.

(Reporting by Anushree Mhukerjee and Ashitha Shivaprasad in Bengaluru; Editing by Emelia Sithole-Matarise and Tasim Zahid)

Oil prices dive on big US crude stock build, record output

HOUSTON, Nov 15 – Oil prices tumbled more than 1.5% on Wednesday on a bigger-than-expected rise in US crude inventories and record production in the world’s biggest producer, along with mounting worries about demand in Asia.

Brent futures settled down USD 1.29, or 1.6%, at USD 81.18 a barrel. US West Texas Intermediate crude (WTI) fell USD 1.60, or 2%, at USD 76.66.

WTI’s front month contract was also lower than the second month, or in contango, for the first time since July. Prices for oil six months ahead also looked poised to rise above front month contract.

US crude stocks rose by 3.6 million barrels last week to 421.9 million barrels, according to the US Energy Information Administration (EIA), far exceeding analysts’ expectations in a Reuters poll for a 1.8 million-barrel rise.

The weekly government data, which was not published last week due to a systems upgrade, also showed US crude production was holding at a record 13.2 million barrels per day that it hit in October.

“US supply activity is a headwind for the market, and the US is a problem for OPEC+,” said John Kilduff, partner at Again Capital LLC in New York, adding he does not think Saudi Arabia can cut more output to boost prices.

Top oil exporters Saudi Arabia and Russia, part of OPEC+, the Organization of the Petroleum Exporting Countries and allies, said this month they would continue with their additional voluntary oil output cuts until year-end.

US gasoline stocks showed strong demand with a surprise draw of 1.5 million barrels last week. Diesel inventories fell more than expected at 1.4 million barrels.

The International Energy Agency on Tuesday joined OPEC in raising oil demand growth forecasts for this year, despite projections of slower economic growth in many major countries.

China’s oil refinery throughput eased in October from the previous month’s highs as industrial fuel demand weakened and refining margins narrowed. Still, its economic activity perked up in October as industrial output increased at a faster pace and retail sales growth beat expectations.

Japan’s economy contracted in July-September, snapping two straight quarters of expansion on soft consumption and exports.

US retail sales fell in October for the first time in seven months.

European Union diplomats said Russian oil tankers are not targeted in the European Commission’s proposal for tightening the implementation of a price cap on the country’s crude oil.

Earlier, the Financial Times reported that Denmark will be tasked with inspecting and potentially blocking Russian tankers sailing through its waters under new EU plans as a way of enforcing a USD 60 per barrel price cap on Moscow’s crude.

(Reporting by Arathy Somasekhar in Houston, Paul Carsten in London, and Sudarshan Varadhan and Laura Sanicola; Editing by Marguerita Choy and David Gregorio)

Wall Street rallies as data supports view Fed may be done hiking rates

NEW YORK, Nov 14 – The S&P 500 and Nasdaq posted their biggest daily percentage gains since April 27 on Tuesday as softer-than-expected inflation data supported the view that the Federal Reserve may be done raising interest rates.

The small-cap Russell 2000 index jumped 5.4%, outperforming the broader market, while the rate-sensitive S&P 500 real estate sector gained 5.3% and utilities rose 3.9%. All three registered their biggest daily percentage increases since Nov. 10, 2022.

Data showed US consumer prices were unchanged in October as Americans paid less for gasoline, and the annual rise in underlying inflation was the smallest in two years. In the 12 months through October, the CPI climbed 3.2% – below economists’ estimates – after rising 3.7% in September.

“The clear catalyst was the softer-than-expected inflation report,” said Craig Fehr, head of investment strategy at Edward Jones.

“Getting some softer inflation readings provided markets some additional comfort that the Fed isn’t going to have to put in place a significant amount of additional restrictive policy to continue to bring consumer prices lower.”

Since March 2022, the Fed has hiked its policy rate by 525 basis points to combat high inflation.

The Dow Jones Industrial Average rose 489.83 points, or 1.43%, to 34,827.7; the S&P 500 gained 84.15 points, or 1.91%, at 4,495.7; and the Nasdaq Composite added 326.64 points, or 2.37%, at 14,094.38.

Also, the KBW regional banking index rose 7.5% in its biggest daily percentage rise since January 2021.

“It’s difficult with higher rates with the commercial real estate on their balance sheets,” said Quincy Krosby, chief global strategist at LPL Financial in Charlotte, North Carolina.

Expectations of the Fed cutting rates next year also shifted following the day’s data. US rate futures on Tuesday priced in a 65% chance of a rate cut in May, compared with 34% late on Monday, according to the CME’s FedWatch tool.

Investors also focused on negotiations by US lawmakers over a funding bill as they face an end-of-week deadline to fund the federal government.

Among individual stocks, Snap Inc. shares jumped 7.5% following news that Amazon.com will allow Snapchat users in the United States to buy some products listed on the ecommerce company directly from the social media app.

Home Depot gained 5.4% after the US home improvement chain beat quarterly profit estimates.

Volume on US exchanges was 12.62 billion shares, compared with the 11.09 billion average for the full session over the last 20 trading days.

Advancing issues outnumbered decliners on the NYSE by a 9.80-to-1 ratio; on Nasdaq, a 3.59-to-1 ratio favored advancers.

The S&P 500 posted 45 new 52-week highs and no new lows; the Nasdaq Composite recorded 106 new highs and 139 new lows.

(Reporting by Caroline Valetkevitch; additional reporting by Sruthi Shankar and Amruta Khandekar in Bengaluru; additional reporting by Ankika Biswas; Editing by Shinjini Ganguli and Richard Chang)

To the moon, boosted by US soft landing hopes

Nov 15 – Asian markets open on Wednesday with stocks, risk assets, and investor sentiment around the world soaring after cooling US inflation data on Tuesday looked to close the door on more rate hikes and pave the way for the fabled economic ‘soft landing’.

Some of Tuesday’s US market moves were eye-popping – two- and five-year bond yields plunged more than 20 basis points; the Nasdaq rose more than 2%; the Russell 2000 index rose 5% for its best day in a year; the dollar fell 1.5% for its worst day in a year; and the Aussie and New Zealand dollars both leaped 2%.

This should be rocket fuel for Asia on Wednesday, although there is no shortage of event risk.

Top-tier data releases include third-quarter Japanese GDP and Chinese retail sales, industrial output, investment, and unemployment figures for October, while US and Chinese Presidents Joe Biden and Xi Jinping meet at the Asia Pacific Economic Cooperation forum in San Francisco.

Biden and Xi have only met once before, and this is Xi’s first visit to the US since 2017. Xi is hoping to persuade Biden to ease up on tariffs and export controls aimed at keeping the most advanced semiconductors from being sent to China.

In a separate dinner with business leaders, he will also be looking to boost flagging investment by US firms in China. Foreign investors have pulled huge sums out of China this year as the economy has faltered and tensions with the West have deepened.

Ahead of their talks, China’s yuan climbed to a three-month high of 7.25 per dollar on Tuesday, rising around 0.5% for its biggest one-day gain in two months.

The latest retail sales, industrial output, investment, and unemployment figures for October will give an insight into whether China’s economy is maintaining the surprisingly strong momentum it showed in the third quarter.

Citi’s China economic surprises index has been in positive territory for almost a month, suggesting activity is strengthening or analysts are lowering their expectations. Or a bit of both.

Japan’s economic surprises index, on the other hand, just slumped into negative territory and is the lowest since June. The first reading of third-quarter GDP on Wednesday could lift it again – the bar would appear low enough.

Economists reckon the economy contracted 0.1% from the April-June period and shrank 0.6% on an annualized basis. That would represent a significant slowdown from growth rates of 1.2% and 4.8%, respectively, in the previous quarter.

The corporate focus in Asia on Wednesday turns to the third quarter earnings reports from China’s JD.Com and Tencent Holdings. JD.Com is expected to report a 2.3% increase in revenue to CNY249.258 billion and CNY5.77 earnings per share.

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

– Japan GDP (Q3, preliminary)

– China retail sales, industrial output, investment, unemployment (October)

– Presidents Joe Biden and Xi Jinping meet

(By Jamie McGeever)

Dollar sinks after data shows US inflation cooling

NEW YORK, Nov 14 – The dollar fell more than 1% against major currencies on Tuesday after US consumer price data showed the pace of inflation moderating further in October, increasing the odds that the Federal Reserve is done hiking interest rates.

US consumer prices were unchanged last month amid lower gasoline prices, the Labor Department’s Bureau of Labor Statistics (BLS) said, following a 0.4% rise in September.

In the 12 months through October, the consumer price index (CPI) climbed 3.2% after rising 3.7% in September, BLS said.

The dollar immediately tumbled on the report’s release and Treasury yields plunged. The benchmark 10-year fell below 4.5%, removing a major support to the dollar’s strength this year.

“We think that the dollar will continue to weaken a bit throughout the end of the year, maybe even early into January,” said John Doyle, head of trading and dealing at Monex USA in Washington.

The dollar index, a measure of the US currency against six peers, slid 1.55% to 103.980, on track to its biggest single-day percentage decline since Nov. 11, 2022.

The US currency also was poised for its largest declines since November 2022 against the euro and British pound.

The dollar slipped 1.73% against the euro to USD 1.089, 1.82% against the British pound to USD 1.250 and 1.52% against the Swiss franc to 0.888.

The dollar also fell more than 1% versus the Norwegian krone and more than 2% against the Australian and New Zealand dollars.

The data was welcome news in the market, where many analysts have been predicting the Fed’s interest rate hiking has peaked.

“You can say goodbye to the rate-hiking era,” said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.

But Doyle, among others, cautioned the end of rate hikes did not mean rate cuts would be coming as soon as markets were predicting due to a tight American labor market and resilient US economy that has kept consumers spending.

“I don’t think that they’re going to be itching to cut rates necessarily,” he said, referring to Fed policymakers. “The Fed’s going to feel pretty comfortable to ride it out longer.”

Fed Chair Jerome Powell and other policymakers in recent days have tried to push back against expectations that the US central bank was done with its aggressive rate-hike cycle.

Futures show more than a 68% probability that the Fed cuts its overnight lending rate by 25 basis points or more by next May, according to the CME’s FedWatch tool.

YEN STILL ON INTERVENTION WATCH

The Japanese yen, meanwhile, also gained against the dollar, but less than its peers. The yen JPY= strengthened 0.97% to 150.23 per dollar when earlier coming under pressure after it briefly jumped against the dollar on Monday – having touched a one-year low. The move was attributed to a flurry of trading in options rather than any intervention from Japanese authorities.

DTCC data from LSEG’s Eikon platform shows yen options worth a notional USD 3.5 billion with strike prices between 151.90 and 152 are due to expire between Wednesday and Friday.

Another USD 2.2 billion notional worth of options with strikes between 151.90 and 152 will expire between Nov. 20 and the end of the month.

Japanese authorities in September and October last year intervened in the currency market to boost the yen for the first time since 1998.

“Our base case is that we could have intervention if we break the 152 level for dollar/yen,” said Yusuke Miyairi, an FX strategist at Nomura.

(Reporting by Herbert Lash, additional reporting by Sinead Carew and Chuck Mikolajczak in New York, Alun John in London, Rae Wee in Singapore. Editing by Chizu Nomiyama and Marguerita Choy)

Beware the recoil from funds’ record short Treasuries bet: McGeever

ORLANDO, Florida, Nov 14 – Hedge funds continue to expand their record bearish Treasuries bets at a remarkable rate, but cooling US inflation and expectations that the Federal Reserve will cut interest rates by up to 100 basis points next year could trigger a powerful short-covering rally.

The latest Commodity Futures Trading Commission (CFTC) figures released on Monday, delayed because of the Veteran’s Day federal holiday on Friday, show that speculators dramatically increased their net short positions in two- and five-year Treasuries futures to fresh record levels.

It is unclear exactly what is behind the recent surge. Some experts point to the “basis trade” – a leveraged arbitrage play profiting from price differences between cash bonds and futures – relative value plays on the yield curve, hedges against other trades, or outright directional bets on US interest rates.

Whatever is driving it, the sheer size of the record short positions and the pace at which they are growing suggest the reversal, when it comes, could be powerful.

Following the release of consumer price inflation data for October on Tuesday, the US bond market opened a window into what that might look like. All yields fell sharply, but especially at the short end – two- and five-year yields plunged by 20 basis points or more, marking the latter’s biggest decline since March.

And there is potential for short-covering from CFTC funds that would, all else equal, push yields even lower.

CFTC data for the week ending Nov. 7 show that non-commercial accounts, often seen as a broad grouping of hedge funds and speculators, grew their net short position in five-year Treasury futures by 231,795 contracts to 1.42 million.

That is a record weekly bearish shift, breaking the previous record of 182,686 in the prior week.

Leveraged funds – those more likely to be active in the basis trade – grew their net short position by 149,000 contracts to 2.08 million, a new record. This is the first breakthrough 2 million, and the position has doubled since March.

In the two-year space, non-commercial accounts grew their net short position slightly to a new record 1.454 million contracts, and leveraged funds’ net short position rose substantially to 1.716 million contracts, also a new record.

A short position is essentially a bet that an asset’s price will fall, and a long position is a bet that it will rise. Falling prices for bonds indicate higher yields, and vice versa.

But funds play Treasuries futures for other reasons, such as the basis trade that regulators this year have flagged as a potential financial stability risk. The difference between cash bond and futures prices is tiny, but funds make their money from leverage in the repo market and the sheer volume of trade.

Overnight repo rates have been steady in recent weeks around 5.35%-5.40%, hovering close to the mid-point of the 5.25%-5.50% federal funds target range, as you would expect. Primary dealers’ general collateral overnight lending has risen in recent months, but not dramatically.

If softer inflation and a more dovish US central bank keep yields under downward pressure, funds’ short Treasuries position is likely to come under increasing pressure too.

Economists at Bank of America on Tuesday changed their Fed call and no longer expect a final rate hike in the current tightening cycle, and the bank’s rates strategists recommend going long five-year Treasuries.

“We now think that the hiking cycle is over. The price action today is consistent with our recommendation to be long the UST 5-year point and in 5s30s nominal curve steepeners,” they wrote in a note to clients.

(The opinions expressed here are those of the author, a columnist for Reuters)

(Writing by Jamie McGeever; Editing by Paul Simao)

US Treasury yields have peaked, say strategists for fourth straight month

BENGALURU, Nov 14 – US Treasury yields will fall in coming months, though not as sharply as forecast previously, according to bond strategists polled by Reuters, who said for a fourth month running in even greater numbers that the 10-year note yield had peaked.

Those yield forecast upgrades came after news earlier this month of a ‘blowout’ third quarter for the US economy and signs from Federal Reserve officials they will not be cutting the federal funds rate anytime soon.

The benchmark 10-year Treasury note yield breached the 5% mark last month for the first time since July 2007, more than a full percentage point above its August low of 3.96%.

Yields on 10-year notes have plunged since early October, in part on safe-haven buying on concerns the war Israel launched against Hamas after the Islamist Palestinian group’s Oct. 7 rampage into southern Israel could escalate.

Analysts and bond strategists in a Nov. 8-14 Reuters poll, mostly from sell-side firms, stuck to forecasts of declining yields, albeit less sharply than in polls conducted over the past three months.

The 10-year note yield was forecast to fall 10 basis points to 4.52%, from 4.62% currently, in three months according to the median of 44 strategists, only a fraction of the near-40 basis points falls over a rolling three-month time period in October and September surveys.

“I think 5% is an important psychological level that brings in buyers, and we could drift through that in response to perky inflation or strong labor market data,” said Thomas Simons, senior economist at Jefferies.

“However, I expect the data will take a turn for the worse by January, and more rate cuts will start to be priced into the market, driving yields lower overall.”

The yield was expected to fall to 4.30% by end-April and to 4.00% a year from now, the poll found.

Notably, roughly one-third of respondents expected the yield to tread higher than current levels by end-January, with several big banks on Wall Street changing their views to forecast elevated yields in the near-term.

Yet, when asked whether the 10-year note yield had peaked in the current cycle, an overwhelming 94% majority of respondents, 30 of 32, said it had.

Forecasters were proved incorrect within days of predicting the very same thing in the three previous monthly Reuters polls.

“Why the bond market has been wrong a lot is because they thought the Fed would cut rates pretty aggressively. But, we need to see a hard landing for rates to fall significantly,” said Mike Sanders, head of fixed income at Madison Investments.

Although the timing of the first rate cut has been pushed to mid-2024 from March expected a few months ago, interest rate futures indicate almost 100 basis points of easing through December next year.

The bigger risk to that outlook was for the first rate cut to come later than economists expect, a separate Reuters poll found.

Asked what the main influence on US bond yields would be over the coming six months, analysts were split between a deteriorating fiscal outlook and safe-haven trades.

Other options included quantitative tightening, foreign divestment and the near-term supply of auctioned Treasury debt.

The interest-rate sensitive 2-year Treasury note yield, currently at 5.04%, was expected to decline about 20 basis points by end-January, before falling to 4.00% in a year, according to the survey.

If realized, this would mean a complete reversal of the inverted spread between yields of US 2-year and 10-year Treasury notes – historically a reliable indicator of impending recession – by end-October 2024.

(Reporting by Sarupya Ganguly; Polling by Prerana Bhat, Purujit Arun, Anitta Sunil, and Sujith Pai; Editing by Christina Fincher)

Oil steady; signs Middle East tensions easing offset higher demand forecasts

NEW YORK, Nov 14 – Oil prices were little changed on Tuesday, paring early gains on signs tensions in the Middle East could be easing and uncertainty about US oil inventories.

US President Joe Biden said he was holding daily discussions to secure the release of hostages held by the Hamas militant group and believes it will happen.

Brent futures fell 5 cents to USD 82.47 a barrel, below their USD 84.58 Oct. 6 settlement the day before Hamas attacked Israel. In subsequent weeks, Brent futures traded as high as USD 93.79 per barrel on Oct. 20.

US West Texas Intermediate (WTI) crude held steady at USD 78.26.

“The war premium is going away as it is looking more likely that there will not be a disruption in supply” in the Middle East, said Phil Flynn, an analyst at Price Futures Group.

The White House said Biden’s top Middle East adviser, Brett McGurk, is heading to the region for talks with officials in Israel, the West Bank, Qatar, Saudi Arabia, and other nations.

In early trade, both crude benchmarks rose by over USD 1 a barrel after the International Energy Agency (IEA) boosted its demand growth forecasts and the US dollar fell on data showing inflation was slowing in the world’s biggest economy.

Flynn said crude prices also gave up early gains on Tuesday because the market was uncertain as to what the US oil storage reports would show.

The US Energy Information Administration (EIA) will release its first oil inventory report in two weeks on Wednesday. EIA did not release a storage report last week due to a systems upgrade.

Last week, the American Petroleum Institute (API), a trade group, surprised the market by reporting a huge, bearish 11.9 million barrel build in crude stocks for the week ended Nov. 3. API will release its report for the week ended Nov. 10 later on Tuesday.

For the week ended Nov. 10, analysts forecast energy firms added about 1.8 million barrels of crude into US stockpiles, according to a Reuters poll.

That compares with a 5.4 million barrel withdrawal during the same week in 2022 and a five-year (2018-2022) average build of 1.2 million barrels for this time of year.

DEMAND FORECASTS

The IEA raised its oil demand growth forecasts for this year and next despite an expected slowdown in economic growth in nearly all major economies.

A day earlier, the Organization of the Petroleum Exporting Countries (OPEC) boosted its forecast for 2023 global oil demand growth and stuck to its relatively high projection for 2024.

US consumer prices were unchanged in October as Americans paid less for gasoline, and the annual increase in underlying inflation was the smallest in two years.

Traders bet the US Federal Reserve (Fed) could start cutting interest rates by May, which could boost economic activity and oil demand.

Expectations the Fed could cut interest rates next spring sent the US dollar down to a two-and-a-half-month low against a basket of other currencies. A weaker dollar can boost oil demand by making crude cheaper for buyers using other currencies.

(Reporting by Scott DiSavino in New York, Ahmad Ghaddar in London, and Emily Chow and Trixie Yap in Singapore; Editing by David Goodman, Paul Simao, and David Gregorio)

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