Oil prices tick up as markets zoom in on supply tightness

Sept 14 – Oil prices edged higher on Thursday, after dipping slightly in the previous session, as markets refocused on expectations of tight crude supply for the rest of 2023.

International benchmark Brent futures climbed 17 cents to USD 92.05 a barrel at 12:02 GMT, while US West Texas Intermediate crude (WTI) rose 19 cents to USD 88.71.

Saudi Arabia and Russia’s extension of oil output cuts to the end of 2023 will mean a substantial market deficit through the fourth quarter, the International Energy Agency (IEA) said on Wednesday, as it largely stuck by its estimates for demand growth this year and next.

The Organization of the Petroleum Exporting Countries (OPEC) on Tuesday stuck to its forecasts for robust growth in global oil demand in 2023 and 2024.

Both benchmarks climbed to 10-month highs on Wednesday before data showed a surprise build in US crude and fuel inventories that worried markets about demand.

US crude inventories rose by 4 million barrels last week, confounding analysts’ expectations in a Reuters poll for a 1.9-million-barrel drop. Fuel inventories also rose more than expected as refiners stepped up activity.

On the economic front, investors interpreted the latest reading of US inflation as confirmation the Federal Reserve will not raise interest rates next week and could extend its pause further, buoying hopes of strong oil demand.

Higher interest rates increase borrowing costs for businesses and consumers, which could slow economic growth and reduce oil demand.

(Reporting by Arathy Somasekhar in Houston; Editing by Leslie Adler)

Dollar climbs as Fed expectations remain intact after CPI

NEW YORK, Sept 13 – The dollar index was higher on Wednesday, after US economic data showed inflation increased for August but did little to alter market expectations for the path of rate hikes from the Federal Reserve.

The consumer price index increased by 0.6% last month, the largest gain since June 2022, as gasoline prices jumped, Labor Department data showed. Excluding the volatile food and energy components, the CPI increased 0.3%, moderated by a decline in prices for used cars and trucks.

The data failed to disrupt views the US central bank will hold rates steady at its policy announcement next week at the conclusion of its Sept. 19-20 meeting. The market is pricing in a 97% chance the Fed will keep rates at their current level, up from 92% on Tuesday, according to CME’s FedWatch Tool.

Expectations for a 25-basis-point hike at the November meeting, which had been creeping up this week, slipped to 40.8% from 41.1% a day ago.

“For me, CPI didn’t really change the story that much,” said Marvin Loh, senior global macro strategist at State Street in Boston.

“If you think that they need to go another hike, you still think they need to go another hike. If you think they’re done, there’s probably enough in here where it’s done. Probably more important is how you look at next year’s cuts and most importantly is that there was nothing in today’s number that really changed next year’s cut that much.”

The dollar index, which tracks the currency against a basket of rival currencies, was up 0.19% to 104.79.

Goldman Sachs chief economist Jan Hatzius said in a note on Wednesday the firm does not expect the CPI report to affect the outcome of next week’s meeting in which he sees policy unchanged, and continues to believe the Fed will see a final hike at the November meeting as unnecessary.

Barclays also maintained their call for a pause by the Fed next week, but continue to expect one more hike of 25 basis points by year-end.

Another inflation reading will be released tomorrow in the form of the producer price index (PPI), while retail sales data will also be released.

The euro lost 0.22% to USD 1.073 against the greenback ahead of the policy announcement from the European Central Bank (ECB) on Thursday.

A source with direct knowledge of rate setters’ discussions told Reuters on Tuesday the central bank expects euro zone inflation to remain above 3% next year, supporting the case for a tenth straight interest rate increase this week.

Sterling edged down 0.08% at USD 1.2485, after data showed the UK economy contracted in July at an unexpectedly sharp rate, as gross domestic product shrank 0.5% from June, below expectations for a 0.2% contraction.

The dollar EBS strengthened 0.27% against the yen to 147.45 as the Japanese currency continued to give back a sharp gain on Monday the resulted in the biggest one-day climb for the yen in two months.

Weekend comments from Bank of Japan (BOJ) Governor Kazuo Ueda heightened expectations the central bank could shift away from its negative interest rate policy, sending the yen surging to start the week, but these were subsequently dampened after influential ruling party lawmaker Hiroshige Seko indicated his preference for an ultra-loose monetary policy on Tuesday.

The yen has come under pressure against the dollar as the BOJ remains a dovish outlier among global central banks, especially since the Federal Reserve began its aggressive rate-hike cycle in March 2022.

Traders have been closely watching for any signs of intervention from Japan to shore up the yen since it weakened past the 145 per dollar threshold last month. A year ago, that level led to the first yen-buying intervention by the authorities since 1998.

(Reporting by Chuck Mikolajczak; Editing by Andrea Ricci and Diane Craft)

‘Higher for longer’ rates remain a threat to US stocks after inflation data

NEW YORK, Sept 13 – The latest US inflation data is unlikely to ease worries over persistently high Treasury yields that have gnawed on stocks over the last few weeks, investors said, although many believe the longer-term trend of cooling consumer prices remains intact.

US consumer prices climbed by 0.6% in August, broadly in-line with economists expectations. In the 12 months through August, the CPI jumped 3.7%, though year-on-year consumer prices have come down from a peak of 9.1% in June 2022.

While that data does not necessarily argue for more rate increases, it did little to dispel expectations that the Federal Reserve will leave interest rates at current levels for longer than previously expected, a view that has boosted Treasury yields while dulling the allure of stocks since the equity market peaked in July.

With the S&P 500 already up over 16% year-to-date and stocks richly valued by some metrics, some investors believe equities will struggle to make headway for the rest of 2023.

“As long as inflation continues to be sticky we believe that the market will face more volatility and trade sideways,” said Alex McGrath, chief investment officer for NorthEnd Private Wealth, adding that falling valuations for risk assets may be “the next shoe to drop” for the US stock market.

Futures tied to the Fed’s funds rate now show a 45% chance of at least one rate hike by December, up from a roughly 31% chance seen a month ago. Markets now anticipate that the Fed will cut rates for the first time in July 2024, compared with expectations a month ago that rates would begin falling by March.

The central bank concludes its monetary policy meeting on Sept. 20 and is expected to leave rates unchanged, though some investors believe it may deliver one more increase later this year.

Rising Treasury yields, which move in the opposite direction to bond prices, can be a stumbling block for stocks as they offer investors returns on an asset that is seen as basically risk-free because it is backed by the US government. The benchmark 10-year Treasury yield was up 2 basis points on Wednesday to 4.284%, putting it about 6 basis points below its highest level since 2007.

The S&P 500 is down 3% from its July highs.

“For the bond market the move higher over the past couple of months has been in anticipation that the Fed will be in a higher for longer position, and that is putting a downward pressure on stock multiples” and increasing the risk of volatility, said Kevin Gordon, senior investment strategist at the Schwab Center for Financial Research

JPMorgan has been one of the banks sounding the alarm on stock valuations, with strategists warning in a note on Tuesday that a metric based on real interest rates, which strip out inflation, shows the S&P 500 is over-valued by 14%. Overall, the firm estimates that the current real rate implies a forward price-to-earnings (P/E) ratio of around 15 times to 16 times versus its current ratio of about 20 times.

“Equities are up 16% YTD mostly on multiple expansion while real rates and cost of capital are moving deeper into restrictive territory,” the firm’s equity strategists said in a note. “History suggests this relationship is becoming increasingly unsustainable.”

At the same time, not everyone believes high yields are currently the market’s biggest risk. Charlie McElligott, managing director and cross-asset macro strategist at Nomura, said the market was vulnerable to an “earnings shock” to one of the handful of megacap stocks that have led markets higher this year, such as Nvidia (NVDA). Companies will begin reporting third-quarter earnings next month.

“If [the AI] story starts to lose air it doesn’t matter what the interest rates do because there is so much earnings growth built into their share prices,” he said. “Earnings are what matter from here, particularly with an AI sector that needs to justify expectations.”

(Reporting by David Randall; Editing by Ira Iosebashvili and Sharon Singleton)

Gold eases as dollar strengthens, Fed pause hopes lend support

Sept 13 – Gold inched lower on Wednesday due to a stronger dollar, although growing expectations that the Federal Reserve would leave interest rates unchanged at its policy meeting next week limited downside for the bullion.

Spot gold was down 0.2% at USD 1,909.83 per ounce at 1:51 p.m. EDT (1751 GMT), paring losses after a 0.4% drop following the release of August US consumer price index (CPI) data.

US gold futures settled 0.1% lower at USD 1,932.50 per ounce.

The dollar index rose against its rivals after the US inflation data, making gold more expensive for other currency holders.

The Labor Department data showed headline and core CPI in August rose 0.6% and 0.3%, respectively, from the previous month. Economists were expecting increases of 0.6% and 0.2%, respectively.

The CPI data was largely in line with expectations, hinting that FOMC is expected to hold rates steady, providing a floor for gold, said Chris Gaffney, president at EverBank World Markets.

Traders’ expectations for the Fed leaving interest rates unchanged at its Sept. 19-20 meeting got stronger after the data, with a 61% likelihood of a pause in November as well, according to the CME FedWatch tool.

Higher interest rates boost yields on competing safe-haven US Treasury bonds, drawing investors away from zero-interest-bearing bullion.

“Precious metal investors are less worried about higher inflation and more focused on the opportunity costs associated with holding a non-interest-bearing asset in a rising rate environment,” Gaffney added.

Investors are now looking forward to US August producer prices and retail sales data and the European Central Bank’s rate hike verdict on Thursday ahead of the Fed’s Sept. 20 policy decision.

Silver shed 1.2% to USD 22.83 per ounce, touching a three-week low, while platinum fell 0.9% to USD 901.93. Palladium rose 1% to USD 1,252.70.

(Reporting by Harshit Verma in Bengaluru; Editing by Andrea Ricci, Shinjini Ganguli, and Krishna Chandra Eluri)

US recap: Dollar resumes rise vs EUR, JPY before key US data

Sept 12 – The dollar index rose 0.14% as the previous session’s yen and yuan-led setback faded and the focus shifted to US CPI and retail sales reports on Wednesday and Thursday that could keep a November Fed hike on the table.

Particular focus will be on whether core CPI again rises just 0.2% from the month before, as overall inflation is forecast up 0.6%, led by higher energy prices that have persisted this month and could be harder for the Fed to overlook if they lift inflation expectations.

However, there are some early indications small businesses and consumers are starting to feel the heat from higher rates and tighter credit, as pandemic-related savings dwindle and credit card balances surge.

USD/JPY rose 0.35%, reversing Monday’s sharp slide prompted by BoJ Governor Kazuo Ueda suggesting that an assessment to end negative interest rates might be possible by year-end. But there were lots of contingencies in that outlook and an LDP heavyweight made clear on Tuesday the abiding political preference for ultra-easy BoJ policies.

But even before that, USD/JPY had rebounded because JGB yields remain a small fraction of Treasury yields.

EUR/USD fell 0.17% after finding sellers by the falling 10-day moving average. Though the German ZEW economic sentiment became less negative in August, the current situation index fell to -79.4, its lowest in three years.

Sterling fell 0.2% apiece with the broader dollar rebound. UK employment data hinted at stagflation, as average weekly earnings for the three months to July hit a new high at 8.5%, the unemployment rate rose to its highest in three years and employment surprised with a 207k drop. The data highlights the need for further BoE rate hikes, given core inflation has held near 7% since April.

Aussie fell 0.12% and the yuan was flat, consolidating Monday’s big gains before the important US economic reports.

Aside from the US data, Wednesday brings Japanese corporate goods prices, forecast at 3.2% from a year earlier versus 3.6% in July, UK July GDP, industrial production and trade data and euro zone July industrial production.

(Editing by Burton Frierson; Randolph Donney is a Reuters market analyst. The views expressed are his own.)

Fed meeting comes during historically tough week for US stocks

NEW YORK, Sept 12 – The US stock market could be set for a rocky second half of September, particularly the week after the September 15 monthly options expiration, a Nomura Securities analysis of data going back more than three decades, shows.

The so-called “September Effect,” the apparent trend where US stock market returns are relatively soft in September, has been especially acute for stocks in the week after options expiration, according to Nomura.

In 26 of the last 33 years, the S&P 500 Index fell in the week following the September options expiration, with a median drop of 1%, the analysis showed.

This time around, the week will encompass the Federal Reserve’s monetary policy meeting, set to conclude on Sep. 20. Investors expect the central bank to hold rates steady at the meeting, but are looking for clues on whether policymakers plan to deliver another increase later this year.

Nomura strategist Charlie McElligott said the weakness may be linked to selling related to the fiscal year-end for mutual funds and tax-related selling by households.

Mutual funds often sell stocks in September ahead of the Oct. 31 tax year-end to make their portfolios look more attractive to investors, a process known as “window dressing,” which can weigh on stocks.

Additionally, stocks can come under pressure in September as individual investors may sell to pay their estimated taxes.

The S&P 500 is down 0.9% month-to-date, and investors are bracing for a host of market-moving catalysts in coming days, including Wednesday’s report on US consumer prices.

One potential silver lining: when stock rallied for the January-August period, as they have this year, September tends to be positive, according to an analysis by Tallbacken Capital Advisors.

The overall mean return for all 95 Septembers since 1928 is -1.1%, but screening for those 34 years when the S&P 500 index was up more than 10% through August, the stocks gained 0.3% on average in September, the firm’s data showed.

(Reporting by Saqib Iqbal Ahmed; Editing by Ira Iosebashvili, Alexandra Hudson)

Gold slips on dollar rebound as US inflation test nears

Sept 12 – Gold slipped to a more than two-week low on Tuesday as the dollar rebounded, while investors positioned for the US inflation data on Wednesday.

Spot gold was down 0.5% at USD 1,912.39 per ounce by 1:50 p.m. EDT (1750 GMT), its lowest since Aug. 25. US gold futures settled 0.6% lower at USD 1,935.10.

“People are getting out of the market and waiting to see how the data comes out, and maybe buy gold at a lower price because there’s still (some) safety buying in gold,” said Bob Haberkorn, senior market strategist at RJO Futures.

Making gold more expensive for other currency holders, the dollar index gained 0.2% ahead of the US consumer price index data due on Wednesday, which could influence the Federal Reserve’s interest rate decision.

Headline US inflation climbed 0.6% in August, according to a Reuters poll, versus a 0.2% rise the prior month. However, Americans’ overall views on inflation were little changed in August, the New York Fed reported Monday.

Higher interest rates dull non-yielding bullion’s shine, with traders betting on a roughly 47% chance of a hike in November after a widely expected pause by the Fed next week, according to the CME FedWatch tool.

“Should the inflation figures print above market forecasts, gold prices are likely to depreciate as expectations rise around the Fed having headroom to hike one time this year.” FXTM senior research analyst Lukman Otunuga said.

Traders also awaited the ECB’s rate decision on Thursday. ECB euro short-term rate (ESTR) forwards are pricing a bit more than a 50% chance of a rate hike at this week’s policy meeting.

“Europe’s economy is definitely facing a lot of challenges so eventually safe-haven demand will emerge if investors see that the currency is going to be under pressure,” said Harshal Barot, a senior consultant at Metals Focus.

Silver was flat at USD 23.07 per ounce, platinum rose 1.4% to USD 910.82 and palladium gained 1.5% to USD 1,236.17.

(Reporting by Harshit Verma in Bengaluru; Additional reporting by Stefano Rebaudo in London; Editing by Alexander Smith and Krishna Chandra Eluri)

Oil jumps 2% to near 10-month high as OPEC predicts tight supplies

NEW YORK, Sept 12 – Oil prices jumped about 2% to a near 10-month high on Tuesday on a tighter supply outlook and OPEC optimism over the resilience of energy demand in major economies.

Brent futures rose USD 1.42 or 1.6%, to settle at USD 92.06 a barrel, while US West Texas Intermediate (WTI) crude rose USD 1.55, or 1.8%, to settle at USD 88.84.

Both benchmarks remained technically overbought for an eighth straight day and closed at their highest levels since November 2022.

The Organization of the Petroleum Exporting Countries (OPEC) stuck to its forecasts for robust growth in global oil demand in 2023 and 2024, citing signs that major economies are stronger than expected. OPEC’s monthly report forecast world oil demand will rise by 2.25 million barrels per day (bpd) in 2024.

“Crude prices are rallying after the OPEC monthly report showed the oil market is going to be a lot tighter than initially thought,” Edward Moya, senior market analyst at data and analytics firm OANDA, said in a note.

Keeping supplies tight, Saudi Arabia and Russia last week extended voluntary supply cuts of a combined 1.3 million bpd to year-end. OPEC, Russia, and allied producers are known as OPEC+.

OPEC member Libya shut four of its eastern oil export terminals due to a deadly storm, while OPEC+ member Kazakhstan reduced daily oil output for maintenance.

The US Energy Information Administration (EIA) projected global oil output would rise from 99.9 million bpd in 2022 to 101.2 million bpd in 2023 and 102.9 million bpd in 2024, while world demand will rise from 99.2 million bpd in 2022 to 101.0 million bpd in 2023 and 102.3 million bpd in 2024.

That compares with a record 100.5 million bpd of global oil production in 2018 and a record 100.8 million bpd of world liquids consumption in 2019, according to the EIA’s Short Term Energy Outlook.

EIA said it expects global oil inventories to decline by almost a half million bpd in the second half of 2023, causing oil prices to rise with Brent averaging USD 93 per barrel in the fourth quarter.

In the US, EIA projected crude output would rise from 11.9 million bpd in 2022 to 12.8 million bpd in 2023 and 13.2 million bpd in 2024, while liquids consumption would rise from 20.0 million bpd in 2022 to 20.1 million bpd in 2023 and 20.3 million bpd in 2024.

That compares with a record 12.3 million bpd of US crude production in 2019 and a record 20.8 million bpd of liquids consumption in 2005.

Looking ahead, oil traders are waiting for supply-demand forecasts from the International Energy Agency (IEA) on Wednesday, and US oil inventory data from the American Petroleum Institute (API), an industry group, on Tuesday and from EIA on Wednesday.

Analysts polled by Reuters forecast a draw of about 1.9 million barrels of crude from US stockpiles during the week ended Sept. 8.

That would be the fifth straight weekly draw, the longest such streak since January 2022.

INTEREST RATES AND INFLATION

US consumer price index data for August on Wednesday should hint at the outlook for interest rates. The Federal Reserve is expected to leave rates unchanged at a policy meeting next week, though views are split over whether it will raise rates in November.

The European Central Bank will announce its interest rate decision on Thursday.

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

(Additional reporting by Ahmad Ghaddar in London and Jeslyn Lerh in Singapore; Editing by Emelia Sithole-Matarise, David Goodman, David Gregorio, and Timothy Gardner)

Bond strategists stand ground, say US Treasury yields have peaked

BENGALURU, Sept 11 – The benchmark US 10-year Treasury note yield has peaked in the current cycle, according to a majority of bond strategists polled by Reuters, although most said their conviction around that prediction was weak.

Despite yields rising over the past few months, analysts in a Reuters Sept. 5-11 poll held on to their predictions that sovereign yields will drop over the coming year, suggesting the recent sell-off in the bond market was mostly over.

A near 80% majority, or 23 of 29, who answered an additional question said yields on the 10-year note had already peaked in the current cycle. Bond prices move inversely to yields.

Roughly the same group of strategists said the same thing last month, about two weeks before the benchmark US yield hit a near-16-year high of 4.37%.

Slightly more than half, or 13 of those polled, said their conviction around the forecast was weak, with the remaining 11 saying it was strong.

“There’s a huge degree of uncertainty about the future of base interest rates and what inflation looks like on the other side of the current economic strength,” said Guy LeBas, chief fixed income strategist at Janney Montgomery Scott.

“Until we get a resolution of that, I’m not confident enough to say that we have certainly peaked for this cycle.”

The median forecast for the 10-year Treasury note yield was 3.91% by end-November, a 38 basis point drop compared with 4.29% on Monday. It was forecast to decline to 3.50% in a year.

That was despite the US economy showing little signs of slowing, and expectations the US Federal Reserve will hold its federal funds rate higher for longer.

“Currently there are two forces fighting. In the fourth quarter, we will see a weakening job market put pressure on consumer spending, which is needed to slow growth. This driver will make yields go lower,” said Zhiwei Ren, portfolio manager at Penn Mutual Asset Management.

“But asset managers’ positions are very long on Treasuries already, they don’t have room to buy more duration. If no one steps in to purchase the tremendous supply of Treasuries coming to the market soon, we will have a supply-demand imbalance.”

This could potentially move yields higher, Ren added, a view shared by only a handful of strategists in the poll.

Much will depend on how inflation, still running well over the Fed’s target of 2%, looks in the coming months. US CPI data, due Wednesday, are not expected to change the outlook much.

Still, the two-year Treasury yield, currently at 4.99%, was expected to decline to 4.61% in three months and 3.80% in a year, the survey showed.

The current negative spread between two-year and 10-year yields, a reliable indicator in the past for an oncoming recession, was forecast to stay largely unchanged from around 70 basis points by end-November.

“The yield curve has cruised forward through time in this weird inverted manner for over 12 months now, as rate cuts have gradually been priced further and further into the future,” added LeBas.

“I suspect we will see a similar theme throughout the balance of this year and into the early part of the next, keeping the curve pretty deeply inverted through then.”

Interest rate futures were now pricing in the first rate cut in the second quarter of 2024, compared to the first quarter expected a few weeks ago.

(Reporting by Sarupya Ganguly; Polling by Prerana Bhat, Purujit Arun, and Rahul Trivedi; Editing by Hugh Lawson)

Gold firms on dollar dip as US inflation test looms

Sept 11 – Gold edged up on Monday on a retreat in the dollar, with the focus still squarely on US inflation readings and their likely influence on the Federal Reserve’s interest rate trajectory.

Spot gold climbed 0.2% to USD 1,921.10 per ounce by 2:36 p.m. EDT (1836 GMT), while US gold futures settled 0.2% higher at USD 1,947.20.

The dollar index fell 0.5%, making gold less expensive for other currency holders.

Capping zero-yield gold’s uptick, however, yields on the benchmark 10-year Treasury note edged higher.

Traders were mostly positioning for the US consumer price data (CPI) on Wednesday, given its potential influence on whether the Fed may put rates on hold.

“Gold has started the week on a positive note on some dollar weakness, but prices will likely face some pressure in the near-term with the market expecting one more rate hike this year,” said Edward Moya, senior market analyst at OANDA.

“I don’t think we’ll be getting the green light for investors to become aggressive and getting back into the precious metal very soon.”

According to the CME FedWatch tool, traders predicted a 93% chance of Fed leaving rates unchanged at their Sept. 19 to 20 policy meeting. But the odds also suggested a 41% chance of a hike in November.

Ahead of their next meeting, Fed policymakers have been clear that they are not itching to raise rates, but few among them are ready to declare victory.

For gold futures to climb above USD 2,000 per ounce, the Fed needs to be less hawkish and the dollar index and Treasury yields need to back off, said Phillip Streible, chief market strategist at Blue Line Futures in Chicago.

Silver jumped 0.7% to USD 23.07 per ounce. Platinum added 0.6% to USD 897.79 per ounce and palladium gained 1.3% to USD 1,213.95.

(Reporting by Harshit Verma, Ashitha Shivaprasad, and Brijesh Patel in Bengaluru; Editing by Josie Kao)

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