Oil prices ease as investors assess impact of Israel-Hamas war

By Yuka Obayashi

TOKYO, Oct 16 (Reuters) – Oil prices eased in early Asia trade on Monday, reversing last Friday’s rally as investors waited to see if the Israel-Hamas conflict draws in other countries, which could drive up prices further and deal a fresh blow to the global economy.

Brent futures LCOc1 fell 36 cents, or 0.4%, to $90.53 per barrel and U.S. West Texas Intermediate (WTI) crude CLc1 dropped 37 cents, or 0.4%, to $87.32 a barrel by 2215 GMT on Sunday.

Both benchmarks rose nearly 6% on Friday, posting their highest daily percentage gains since April, as investors priced in the possibility of a wider Middle East conflict.

Brent also recorded a weekly gain of 7.5%, its biggest such increase since February. WTI climbed 5.9% for the week.

The conflict in the Middle East has had little impact on global oil and gas supplies, and Israel is not a big producer.

But investors and market observers are assessing how the conflict could escalate and what it might mean for supplies from nearby countries in the world’s top oil producing region.

Israel’s Prime Minister Benjamin Netanyahu vowed on Sunday to “demolish Hamas” as his troops prepared to move into the Gaza Strip in pursuit of Hamas militants whose deadly rampage through Israeli border towns shocked the world.

Inside Gaza’s narrow and crowded streets, conditions were deteriorating as deaths from Israeli air strikes rose. Bodies were stored in ice cream freezer trucks because moving them to hospitals was too risky and cemeteries were full.

With fears of the conflict spilling further, U.S. Secretary of State Antony Blinken continued his tour of Middle East states, seeking to prevent escalation and secure the release of 155 hostages Israel says were taken by Hamas back into Gaza.

(Reporting by Yuka Obayashi, editing by Deepa Babington)

((Yuka.Obayashi@thomsonreuters.com; +813-4520-1265;))

Global markets watch for fallout as Middle East tensions rise

WASHINGTON, Oct 15 – The Israeli-Hamas war has sharpened focus on rising geopolitical risks for financial markets, as investors wait to see if the conflict draws in other countries with the potential to drive up oil prices further and deal a fresh blow to the world economy.

Israel’s Prime Minister Benjamin Netanyahu vowed on Sunday to “demolish Hamas” as his military prepared ground operations in Gaza to root out the militant group, whose deadly rampage through Israeli border towns stunned the nation.

S&P 500 E-Mini futures edged up after they opened on Sunday, last up 0.2%, while oil prices were virtually unchanged.

Trading had been choppy in the last week as Wall Street worried about whether other countries such as Iran would get involved, but investors were directing most of their attention to interest rates and issues related to the US economy.

“As long as the war remains relatively localized, US investors are keeping an eye on the Middle East but focused on the Federal Reserve and the earnings season,” said Paul Nolte, market strategist for Murphy & Sylvest in Elmhurst, Illinois.

Oil futures had leaped nearly 6% on Friday, as investors priced in the possibility of a wider Middle East conflict. The first indicator of reaction to weekend developments will likely come when oil starts trading in Asia later on Sunday.

“It looks like we’re headed for a massive ground invasion of Gaza and a large-scale loss of life,” said Ben Cahill, senior fellow in the Energy Security and Climate Change Program at the Center for Strategic and International Studies (CSIS). “Anytime you have a conflict of this scale, you will have a market reaction.”

The market reaction in the past week has been relatively muted, though Israel’s shekel currency took a big hit.

“I have no clue whether markets will remain relatively well behaved,” said Erik Nielsen, group chief economics adviser at UniCredit. “It almost certainly depends on whether this latest conflict remains localized or whether it escalates into a broader Middle Eastern war.”

The S&P 500 fell 0.5% on Friday. Safe-haven assets saw buying with gold up more than 3% on Friday and the US dollar touching a one-week high.

An expanding conflict would also likely cause inflation and, as a byproduct, interest rates around the world to accelerate further, said Bernard Baumohl, chief global economist at The Economic Outlook Group in Princeton, New Jersey.

However, while inflation and rates in other countries will likely rise in this worst-case scenario, the United States could be the exception as foreign investors pour capital into what they deem a safe haven during global conflict, Baumohl noted.

“Interest rates could go down,” he said. “Expect the dollar to strengthen.”

In Europe, economists said the bar for another rate hike from the European Central Bank was high.

The war between the Islamist group Hamas and Israel poses one of the most significant geopolitical risks to oil markets since Russia’s invasion of Ukraine last year.

“If the Ukraine war taught us anything, it’s not to underestimate the effect of geopolitics,” Nomura European economist George Moran said on the bank’s week ahead podcast.

Other energy markets could be impacted, as seen in recent developments such as Chevron halting natural gas exports through a major subsea pipeline between Israel and Egypt.

Rising oil prices are unlikely to have a significant impact on US gas prices or consumer spending, analysts noted.

The situation, however, bears monitoring, said Jack Ablin, chief investment officer at Cresset Capital.

“If all of a sudden either oil production is cut or oil transport is disrupted then that certainly creates problems not just for economies but for markets too,” he said.

Oil, shares of oil companies and commodities in general, and gold in particular could serve as effective hedges for investors, Ablin said.

(Reporting by Matt Tracy in Washington, Saqib Iqbal Ahmed and Sinéad Carew in New York, and Dhara Ranasinghe in London; Editing by Megan Davies, Deepa Babington, and Jamie Freed)

Investors zero in on health of consumer with retail sales, earnings

NEW YORK, Oct 13 – Investors in the coming week will get a look at the state of US consumers – whose spending drives around two-thirds of the economy – with a US retail sales report and earnings due from Procter & Gamble, Netflix, and a slew of banks.

Durable consumer spending has been a key reason for the economy’s resilience in the face of higher interest rates, with a better-than-expected economy supporting stocks this year. The S&P 500 is up about 13% year-to-date, though it has retreated roughly 6% from highs reached in late July.

Retail sales data, due out on Tuesday, may have to walk a tightrope to satisfy investors. A number that is far stronger than expected could stir fears of a rebound in inflation and bolster worries that the Federal Reserve will need to keep rates elevated for longer.

Conversely, a weak number could reignite concerns of an economic downturn that the US has so far managed to avoid, despite the Fed raising borrowing costs to their highest levels in decades.

“It’s hyper-important to us because that’s really what has been resilient in this economy,” said Art Hogan, chief market strategist at B Riley Wealth. “We really want to see what consumers are doing versus what they’re saying.”

Retail sales are expected to have risen 0.3% on a monthly basis in September, according to economists polled by Reuters.

As third-quarter earnings season heats up, investors are also on guard for signs that the conflict between Israel and Hamas is widening. Investors headed to safe-haven assets such as Treasuries and gold on Friday amid worries the conflict could intensify over the weekend.

There have been some signs that consumer strength may be wavering. A survey on Friday showed US consumer sentiment deteriorated in October, with households expecting higher inflation over the next year. The third straight monthly decline in sentiment reported by the University of Michigan was nearly across all demographic groups.

Major US banks on Friday warned the economy was slowing as customers depleted their savings.

“There are a lot of questions around how the consumer is holding up,” said Walter Todd, chief investment officer at Greenwood Capital.

As earnings reports arrive, investors will also focus on comments from bank executives about whether Americans are defaulting on loans and paying back credit card debt. Bank of America BAC.N reports results on Tuesday, with a number of regional banks expected in the coming week as well.

Earnings reports from other industries will also offer views on consumer behavior. They include consumer products giant Procter & Gamble, electric vehicle maker Tesla, streaming company Netflix, casino operator Las Vegas Sand, and America Airlines Group.

Todd, of Greenwood Capital, is focused on insight from companies about the cumulative effect of “higher inflation and higher rates on the consumer.”

“Throw on top of that the student loan payments kicking back up, that should all put incremental pressure on their ability to potentially spend,” he said.

To be sure, a strong retail sales number could also spark concerns, potentially renewing worries that a too-hot economy will push the Fed to take a more hawkish interest rate stance.

Such an outcome could extend a rise in Treasury yields that has pressured stocks in recent weeks. The US 10-year benchmark yield currently stands at 4.65%, after hitting a 16-year high earlier this month.

Jack Ablin, chief investment officer at Cresset Capital, said he is looking for the benchmark Treasury yield to come “off the boil” and fall to around 4.5%, boosting investors’ appetite for risk.

“If indeed we see waning strength in consumer spending, that will likely take some of the pressure off interest rates and the Fed,” Ablin said. “The conclusions from the consumer next week, I think, is going to be bad news is good news.”

(Reporting by Lewis Krauskopf; Editing by Ira Iosebashvili and Jonathan Oatis)

Safe-haven gold rallies over 3% as Middle East conflict intensifies

Oct 13 – Gold prices jumped more than 3% on Friday and were poised for their best week in seven months as the intensifying conflict in the Middle East sent investors scurrying for safe-haven assets.

Zero-yield bullion got an additional fillip from expectations that the US interest rates may have peaked.

Spot gold was up 3.2% at USD 1,928.15 per ounce by 0309 p.m. ET (1908 GMT). US gold futures settled 3.1% higher at USD 1,941.50. Prices were up 5.2% for the week.

Investors kept a tab on developments in the Middle East conflict, which has unnerved markets since the start of the week.

Israel said its infantry and tanks had carried out raids inside the Gaza Strip, its first announcement of a shift from an air war to ground operations to root out Hamas fighters a week after their deadly rampage in southern Israel.

This fueled inflows into assets considered to be safe havens such as gold.

“Investors are fleeing to safe havens as the risks of Middle East tensions grow,” said Edward Moya, senior market analyst at OANDA.

“If the geopolitical situation gets gloomier, there is a good chance that gold prices could go to the USD 2,000 levels this year. We have come from mid-USD 1,800s to mid-USD 1,900s, USD 2,000 is just a fraction of that.”

US consumer prices increased in September amid higher costs for rent and gasoline, but underlying inflation is slowing, data showed on Thursday.

Apart from the conflict, “despite yesterday’s warmer-than-expected (US) inflation report, currently there is an expectation that the Fed will not hike rates in the November meeting, which is also helping (gold) prices,” said David Meger, director of metals trading at High Ridge Futures.

Traders currently see around a 69% chance of the Fed leaving interest rates unchanged this year, according to the CME Fedwatch tool.

Spot silver climbed 4% to USD 22.72 per ounce, on track for its first weekly gain in three.

Platinum rose 1.4% to USD 880.42, while palladium dropped 0.3% to USD 1,141.24 and was set for a weekly decline.

(Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Alexander Smith and Sherry Jacob-Phillips)

Gold trades below two-week highs as US inflation data stokes rate worries

Oct 13 – Gold prices edged up on Friday but traded below two-week highs hit in the last session, as a bigger-than-expected jump in US consumer prices boosted bets interest rates would stay high for longer, lifting dollar and bond yields from their recent lows.

FUNDAMENTALS

* Spot gold was up 0.2% to USD 1,872.20 per ounce by 0058 GMT, after touching its highest level since Sept. 27 at USD 1,884.79 on Thursday. US gold futures GCcv1 added 0.1% to USD 1,884.70.

* Gold is still on track for a more than 2% rise this week, the most since mid-March, as military clashes between Israel and the Palestinian Islamist group Hamas boosted demand for safe-haven bullion.

* Gold is seen as a safe-haven investment during times of economic uncertainty, but as it yields no interest, it tends to lose its attraction when interest rates rise.

* US Treasury yields rose and the dollar strengthened, while global stock markets fell after data on Thursday showed US consumer prices increased in September amid a surprise surge in rental costs.

* Traders see a stronger chance the US Federal Reserve would end up delivering another interest-rate hike this year, and keep rates higher for longer next year.

* Fed Bank of Boston President Susan Collins said the latest inflation data underscores uneven progress toward restoring price stability, reiterating her view that the central bank might have to raise rates again to combat inflation.

* European Central Bank policymakers expressed cautious optimism on Thursday that inflation was on its way back to 2% even without more rate hikes.

* In other metals, spot silver rose 0.3% to USD 21.90 per ounce, platinum fell 0.2% to USD 866.68 and palladium shed 0.4% to USD 1,139.73.

(Reporting by Swati Verma in Bengaluru; Editing by Rashmi Aich)

Dollar holds on to gains after firm US inflation; focus turns to China data

TOKYO, Oct 13 – The dollar remained firm on Friday, putting pressure across a basket of currencies as stronger-than-expected U.S. consumer inflation revived prospects that the Federal Reserve will have to keep rates higher for longer.

US consumer prices were pushed higher by a jump in rental costs in September, data showed on Thursday. Although steady moderation in underlying inflation pressures supported expectations that the Fed would not hike interest rates next month, the data did raise the chance of rates staying elevated for some time.

“CPI data for September reveal further challenges with the ‘last mile’ in pushing inflation persistently back towards the 2% target,” said David Doyle, Macquarie head of economics, in a note.

The dollar index, which measures the US currency against six of its major peers, sat at 106.49 in the Asian morning.

The boost to the greenback overnight saw the yen sliding back toward the sensitive 150-line briefly touched last week, with the Japanese currency last at 149.75 per dollar.

Markets fear Japanese authorities may intervene if the yen weakens past the 150 level, considered by some market traders as a line-in-the-sand that could spur action from Tokyo as it did last year.

On the day, markets are also focused on a handful of economic data from China out later in the Asian morning, including trade data, consumer inflation and producer prices for September.

“Given the shift in language from China’s central government about more significant fiscal stimulus…investors will welcome signs that the data provides ample scope to allow for more of it,” said Kyle Rodda, senior financial market analyst at Capital.com, in a note.

Bloomberg News reported earlier in the week that China is considering raising its budget deficit for 2023 as the government prepares to unleash a new round of stimulus to help the economy meet the official growth target.

Ahead of the data, the offshore Chinese yuan was flat versus the greenback at USD 7.3075.

The Australian dollar, which often trades as a proxy for China growth, stood at USD 0.6321, while the kiwi fell to USD 0.59275.

Elsewhere, the euro ticked up nearly 0.1% to USD 1.0536 after taking a tumble overnight against the dollar.

Sterling was last trading at USD 1.21885.

(Reporting by Brigid Riley. Editing by Shri Navaratnam)

Oil climbs as US sanctions, stockpile forecasts, raise supply concerns

TOKYO, Oct 13 – Oil prices rose on Friday after the US tightened its sanctions programme against Russian crude exports, raising supply concerns in an already tight market, and global inventories are forecast to decline through the fourth quarter.

Brent futures rose 36 cents, or 0.4%, to USD 86.36 per barrel and US West Texas Intermediate (WTI) crude CLc1 gained 53 cents, or 0.6%, to USD 83.44 a barrel at 0052 GMT.

Brent is set for a weekly gain of 2.1%, while WTI is set to climb 0.8% for the week, after both contracts surged on Monday on the potential for disruptions to Middle Eastern exports after Hamas’ attack on Israel over the weekend threatened a possible wider conflict.

Prices gave back some of those gains during week. But, on Thursday, the US imposed the first sanctions on owners of tankers carrying Russian oil priced above the G7’s price cap of USD 60 a barrel, to close loopholes in the mechanism designed to punish Moscow for its invasion of Ukraine.

Russia is the world’s second-largest oil producer and a major exporter the tighter U.S. scrutiny of its shipments could curtail supply.

Also on Thursday, the Organization of the Petroleum Exporting Countries (OPEC) kept its forecast for growth in global oil demand, citing signs of a resilient world economy so far this year and expected further demand gains in China, the world’s biggest oil importer.

“Supply side issues remained the focus in the crude oil market,” Daniel Hynes, senior commodity strategist at ANZ, said in a note on Friday, adding that prices during early trade on Friday rose on the stronger U.S. sanctions enforcement.

“Sentiment was also boosted after OPEC said it expects crude stockpiles to slump by 3 (million barrels per day) this quarter. That assumes that there are no further supply disruptions emanating from the Israel-Hamas war,” Hynes said.

Markets are awaiting data on China’s producer price index, consumer price index and trade activity in September that is due later on Friday for further signs where the world’s second-biggest economy is heading.

(Reporting by Katya Golubkova; Editing by Christian Schmollinger)

Gold climbs as markets await US CPI data to gauge Fed’s stance

Oct 12 – Gold prices hit two-week highs on Thursday as the dollar and Treasury yields stumbled ahead of an eagerly awaited US inflation report that could throw some light on the Federal Reserve’s cautious tilt on interest rates.

Spot gold rose 0.3% to USD 1,879.25 per ounce by 0541 GMT, its highest level since Sept. 27. US gold futures were up 0.3% to USD 1,892.30.

The dollar index and US Treasury yields were rooted near two-week lows, making non-interest-paying gold more attractive.

Minutes of the Fed’s September meeting showed growing uncertainty around the path of the US economy pushed policymakers into a newly cautious stance last month, a position reaffirmed by top Fed officials in a series of statements this week.

“We are almost at the end of interest rate hikes and there could probably be a last one of 25 basis points, which would not have a significant impact on the market because this is largely expected,” said Brian Lan, managing director at Singapore dealer GoldSilver Central.

“But one thing for sure is that people would be expecting interest rates will still continue to remain high … so precious metals price will remain (broadly) subdued.”

High interest rates raise the opportunity cost of holding non-yielding bullion, which is still down over 9% from near record highs hit in May. Investors still see a 26% chance of a rate hike at the Fed’s December meeting.

The consumer price index data, which is expected to show inflation moderated last month, is due later in the day and comes after data on Wednesday showed U.S. producer prices increased more than expected in September, but underlying inflation pressures at the factory gate continued to abate.

Elsewhere, spot silver firmed 0.4% to USD 22.15 per ounce, platinum advanced 0.8% to USD 891.84 and palladium gained 0.7% to USD 1,175.29.

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

Oil falls over 2% after Saudi pledge; investors keep wary eye on Israel

NEW YORK, Oct 11 – Oil prices fell over 2% on Wednesday as fears of disruption to supplies due to conflict in the Middle East receded a day after top OPEC producer Saudi Arabia pledged to help stabilise the market.

Brent LCOc1 futures fell USD 1.83, or 2.1%, to settle at USD 85.82 a barrel. U.S. West Texas Intermediate crude fell USD 2.48, or 2.9%, to settle at USD 83.49.

Brent and WTI had surged by more than $3.50 per barrel on Monday over concern the clashes between Israel and Palestinian Islamist group Hamas could escalate into a broader conflict that would disrupt global oil supply.

Prices settled slightly lower on Tuesday after Saudi Arabia said it was working with regional and international partners to prevent an escalation, and reaffirmed its efforts to stabilise oil markets.

“Both WTI and Brent retreated yesterday as concerns of a sudden and unexpected supply disruption have been swept aside for now,” PVM analyst Tamas Varga said.

Trading house Mercuria sees oil prices reaching $100 a barrel if the situation in the Middle East escalates further, deputy CEO Magid Shenouda said on Wednesday.

“The only thing that is becoming clear for energy traders is that the road for the global growth recovery is getting rockier,” said Edward Moya, senior market analyst at OANDA, noting the “U.S. consumer is weakening (and) Germany might be headed for a deeper recession.”

In Europe, the German government confirmed it expects the economy to contract by 0.4% this year because of persistently high inflation.

Russia and Saudi Arabia met in Moscow on Wednesday, when Russian President Vladimir Putin said that OPEC+ coordination will continue “for the predictability of the oil market.”

OPEC+ is the partnership between the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia.

Putin also urged companies to prioritise the Russian domestic market. The country’s ban on gasoline and some diesel exports was rolled back again last week as diesel exports that arrive at ports by pipeline were permitted.

In the U.S., producer prices increased more than expected in September amid higher costs for energy products and food, but underlying inflation pressures at the factory gate continued to abate.

US investors will be looking ahead to the release of the Federal Reserve’s September policy meeting minutes due later on Wednesday for clues on future interest rate decisions.

Interest rate hikes to tame inflation can slow economic growth and reduce oil demand.

US Treasury Secretary Janet Yellen said that she still expected the U.S. economy to experience a soft landing, despite “additional concerns” brought about by the situation in Israel.

Uncertainty around the path of the US economy pushed Federal Reserve officials into a cautious stance at their meeting last month, according to minutes of the Sept. 19-20 session.

In a report, the US Energy Information Administration (EIA) projected global oil inventories would fall by 200,000 barrels per day in the second half of 2023 from voluntary output cuts from Saudi Arabia, along with reduced production targets among OPEC+ countries.

Exxon Mobil agreed to buy US rival Pioneer Natural Resources in an all-stock deal valued at USD 59.5 billion that would make it the biggest producer in the Permian shell, the largest U.S. oilfield.

Analysts in a Reuters poll forecast US crude inventories rose by 500,000 barrels in the week ended Oct. 6.

On US supply, industry data showed crude stocks rose by about 12.9 million barrels in the week ended Oct. 6, according to market sources citing American Petroleum Institute figures on Wednesday.

EIA will release data on stockpiles on Thursday.

(Reporting by Nicole Jao in New York; Additional reporting by Robert Harvey, Laura Sanicola and Muyu Xu; Editing by Sharon Singleton, John Stonestreet, Rod Nickel, Cynthia Osterman and Deepa Babington)

Fed pivot reality check for emerging markets?

Oct 12 – A look at the day ahead in Asian markets from Jamie McGeever, financial markets columnist.

Unexpectedly high US producer price inflation figures on Wednesday could cool this week’s rally in emerging market and Asian stocks, with local attention on Thursday turning to Indian consumer inflation.

Indian CPI for September tops the regional calendar, which also includes Indian trade data, bank lending, corporate goods inflation and machinery orders form Japan, and the latest snapshot of industrial production from Malaysia.

On the corporate front Fast Retailing – the Japanese operator of global clothing chain Uniqlo – is expected to report a full-year profit of 374.6 billion yen USD 2.52 billion, which would be a new record.

But the tone of trading across Asian markets on Thursday may be a little more cautious than some of the headline moves on Wednesday indicate, and may also hinge on the US yield curve.

Emerging market stocks on Wednesday had their best day since July 25 and the MSCI Asia ex-Japan index rose over 1% for its best day in more than a month.

Most of these gains were fueled by a powerful short-covering rally in U.S. Treasuries that triggered a sizeable decline in government bond yields around the world, especially at the back end of the curve.

But ugly US producer inflation data at the US open on Wednesday – monthly, annual, headline and core readings were all higher than expected – was a reality check for those betting the Fed is all but done raising rates.

The US yield curve flattened more on Wednesday than any single day since March 16, but for ‘good’ and ‘bad’ reasons.

The initial ‘bull’ flattening in Asia and Europe, led by strong buying of long-dated bonds, that pushed long yields sharply lower, flipped after the US PPI data to ‘bear’ flattening, led by selling of two-year bonds and rise in short-dated yields.

But this flipped back again after the latest Fed minutes were released, paving the way for a late flourish on Wall Street and positive close for the three main indexes.

The ‘pivot’ message from Fed officials this week has been pretty strong and consistent, and Governor Christopher Waller on Wednesday was the latest to beat that drum. The minutes also suggested policymakers are turning more cautious on rates.

But the PPI number could give traders in Asia pause for thought, especially with U.S. CPI due out later on Thursday.

India’s CPI report, meanwhile, is expected to show a steep fall in annual inflation last month to 5.50% from 6.83%, with moderating food price rises and government subsidies offseting a surge in the cost of crude oil.

(By Jamie McGeever; Editing by Josie Kao)

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