Oil settles up 1% as OPEC report dampens demand concerns

BENGALURU, Nov 13 – Oil prices rose by more than 1% on Monday after OPEC’s monthly market report eased worries about waning demand and a US probe into suspected violations of Russian oil sanctions raised concerns about potential supply disruptions.

Brent crude futures rose by USD 1.09, or 1.3%, to settle at USD 82.52 a barrel, while US West Texas Intermediate (WTI) crude futures also gained USD 1.09, or 1.4%, to settle at USD 78.26 a barrel.

In a monthly report, OPEC said oil market fundamentals remained strong and blamed speculators for a drop in prices. OPEC made a slight increase to its 2023 forecast for global oil demand growth and stuck to its relatively high 2024 prediction.

“The OPEC monthly oil market report appeared to push back against demand concerns, referencing overblown negative sentiment around Chinese demand while raising demand growth forecasts for this year and leaving them unchanged for next,” Craig Erlam, senior market analyst at OANDA, said in a note.

Oil prices were also lifted by reports of the US Treasury Department cracking down on Russian oil exports, UBS analyst Giovanni Staunovo said.

Treasury sent notices to ship management companies for information on 100 vessels it suspects of violating Western sanctions on Russian oil, a source who has seen the documents told Reuters.

The US Energy Information Administration (EIA) said last week the country’s crude oil production this year will rise by slightly less than expected and demand will fall. On Monday, the EIA forecast US oil output would decline in December for the second consecutive month.

Weak economic data last week from No. 1 crude importer China fed fears of faltering demand. Chinese refiners asked for less supply for December from Saudi Arabia, the world’s largest exporter.

Still, oil prices may have found a bottom after they slid about 4% last week and recorded their first three-week declining streak since May, said Fawad Razaqzada, an analyst at City Index.

“Given that oil prices have weakened in the last few weeks, Saudi Arabia and Russia will likely continue with their voluntary supply cuts into next year. This should therefore limit the downside potential,” Razaqzada said.

Last week, top oil exporters Saudi Arabia and Russia, part of the group known as OPEC+, confirmed they would continue with additional voluntary oil output cuts until the end of the year as concerns over demand and economic growth continue to drag on crude markets.

The next OPEC+ meeting is scheduled for Nov. 26.

(Reporting by Shariq Khan, Paul Carsten, Yuka Obayashi and Colleen Howe; Editing by David Goodman, Susan Fenton, and David Gregorio)

Bargain or trap? US bank stock outlook hinges on Fed’s path

NEW YORK, Nov 10 – Bargain hunters are swirling around beaten-down shares of US banks, even as skeptical investors say the sector’s problems are likely to persist for some time.

The S&P 500 bank index is down around 11% in 2023, a year that began with the failure of Silicon Valley Bank and several other lenders in the worst banking crisis since 2008. The broader S&P 500, by contrast, is up around 15%.

Bank stocks are at an all-time low compared with the S&P 500 based on relative prices, according to data from BofA Global Research. That tumble has made their valuations attractive to some investors: the sector trades at eight times forward earnings, less than half of the 19.7 valuation of the S&P 500.

“Right now, you can’t say for sure whether the attractive valuations are merely a value trap,” said Quincy Krosby, chief global strategist at LPL Financial, referring to a term describing stocks that are cheap for good reason.

One key factor for bank stocks is whether the Federal Reserve is close to wrapping up a monetary tightening cycle that has brought the highest US interest rates in decades.

Elevated rates allow lenders to charge customers higher interest. But they also increase the allure of short-term bonds and other yield-generating investments over savings accounts, while hurting demand for mortgages and consumer lending.

Few investors believe more rate increases are in store. Yet signs the Fed may keep rates around current levels through most of next year have weighed on bank stocks. Nevertheless, some contrarian investors appear to be moving into the sector: the Financial Select Sector SPDR Fund received net inflows of USD 694.59 million in the week ending on Wednesday, its best weekly showing in more than three months.

This month, analysts at BofA Global Research said investors should “selectively” add exposure to bank stocks in anticipation of an interest rate peak. Most risks to the sector stem from higher rates, they said, including margin pressure due to rising deposit costs and problems with commercial real estate.

Famed investor Bill Gross said last week he believed the sector had hit bottom and added he was holding a number of regional bank stocks, fueling sharp rallies in their shares.

“We think there is a lot of hidden value in banks if you are selective,” said Neville Javeri, a portfolio manager at Allspring Global Investments who is overweight banks relative to the S&P 500 in the portfolios he manages.

Javeri believes larger banks have significantly cut costs and are poised to raise dividends and increase buybacks, helping them weather a period of slower loan growth.

Among stocks recommended by BofA’s analysts are shares of Goldman Sachs and Fifth Third Bancorp.

Investors are awaiting US consumer price data next week, for a glimpse of how the Fed is faring in its fight to keep lowering inflation from last year’s multi-decade highs. A sharper-than-expected fall could bolster the case for the central bank to cut rates sooner.

Many investors and analysts remain pessimistic about bank stocks.

Historically high mortgage rates have weighed on lending. Overall, about 61% of all outstanding mortgages have an interest rate below 4%, according to the Apollo Group, leaving consumers little incentive to refinance or move. The average contract rate on a 30-year fixed-rate mortgage dropped in the week ended Nov. 3 by a quarter percentage point to 7.61%, the lowest in about a month.

Meanwhile, analysts have been cutting growth estimates for financials, which includes not only banks but insurance companies, as the Fed maintains it will keep rates higher for longer. This could hurt mortgage loan growth.

The financial sector is expected to post earnings growth of 6.2% in 2024, nearly half of prior estimates from April that showed 11.4% earnings growth, according to LSEG data.

“You don’t have any certainty that you’ve seen the worst of it and things are getting better,” said Jeff Muhlenkamp, lead portfolio manager at Muhlenkamp & Company.

(Reporting by David Randall; Additional reporting by Bansari Mayur Kamdar; Editing by Ira Iosebashvili and David Gregorio)

US bond funds rack up biggest weekly inflow in three months

Nov 10 – US investors poured a massive sum into bond funds in the seven days leading to Nov. 8 on hopes of a turnaround in Treasury bond prices following the Federal Reserve’s decision to keep interest rates unchanged.

A report from the US Labor Department indicating a slowdown in job growth in October, also lifted bond prices last week. The yields on the benchmark 10-year US Treasury bonds, which move inversely to prices, hit a five-week low of 4.484% last Friday.

According to LSEG data, US bond funds amassed a net USD 3.61 billion worth of inflows during the week, the biggest amount since July 5.

US high yield bond funds saw a significant boost in demand as they received a net USD 6.29 billion, the biggest weekly inflow since mid-April 2020.

Investors also poured about USD 867 million and USD 687 million, respectively into general domestic taxable fixed income, and loan participation funds, while pulling a net 1.92 billion out of US short/intermediate government & treasury funds.

Meanwhile, US equity funds secured USD 1.9 billion, the first weekly inflow in eight weeks.

Small-cap funds were notably in demand as they received USD 1.96 billion, the biggest amount since June 14. Additionally, large-cap funds saw USD 930 million worth of net purchases but mid-, and multi-cap funds had outflows of USD 661 million and USD 396 million.

By sector, tech and financial sector funds attracted USD 1.25 billion and USD 594 million, respectively, while consumer staples had an outflow of USD 500 million on a net basis.

At the same time, US money market received USD 6.47 billion, about a tenth of USD 56.1 billion worth of net purchase in the previous week.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Toby Chopra)

Global equity funds draw massive inflows as rate worries ease

Nov 10 – Global equity funds saw a significant uptick in demand in the week through Nov. 8 as investor sentiment improved following the decision of major central banks to keep policy rates unchanged.

A shift in rate hike expectations and a report from the US Labor Department indicating a slowdown in job growth in October further eased treasury yields, loosening financial conditions.

Investors poured a net USD 5.63 billion into global equity funds during the week, registering their biggest weekly net purchase since Sept. 13.

European, and US equity funds had purchases of USD 2.92 billion and USD 1.9 billion respectively. Asia drew just USD 708 million, the smallest amount since Aug. 16.

The technology sector stood out, securing USD 1.3 billion in inflows, its highest since early July. Financials also saw positive movements with USD 354 million in inflows, but consumer staples experienced outflows of about USD 571 million.

Money market funds continued to attract investors for the third consecutive week, with net inflows of about USD 53.75 billion.

Global bond funds broke a three-week streak of outflows, registering USD 6.73 billion in net purchases.

Reflecting improved risk appetite, high-yield bond funds saw substantial inflows of around USD 6.43 billion, the biggest weekly gain since mid-June 2020.

Government bond funds also experienced net purchases of about USD 2.76 billion. In contrast, global short-term bond funds faced approximately USD 4.44 billion in outflows.

In the commodities sector, precious metal funds continued to attract interest, garnering USD 73 million in net purchases for a second consecutive week. Energy funds also maintained their appeal with USD 54 million in inflows, marking three weeks of consecutive gains.

Emerging market data, encompassing 29,633 funds, indicated a net sell-off of USD 1.73 billion in EM equity funds, extending a 13-week withdrawal streak. In contrast, EM bond funds received USD 592 million – their first weekly inflow in 15 weeks.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Andrew Heavens)

European shares decline as Powell stamps out rate peak hopes

Nov 10 – European shares fell on Friday, hurt by higher bond yields, with comments from US Federal Reserve chief Jerome Powell pouring cold water on investor optimism over a peak in interest rates and bets around rate cuts.

The pan-European STOXX 600 fell 0.4% by 0810 GMT, although it remained poised for a second weekly gain.

Fed officials including Powell on Thursday expressed uncertainty in their battle against inflation and added that they would tighten policy further if need be.

The comments, perceived as hawkish by markets, follow European Central Bank and Bank of England policymakers also pushing back against expectations around rate cuts.

Richemont CFR.S shed 3.0% after the Swiss luxury group reported weaker-than-expected earnings, while Diageo slid 8% as the Johnnie Walker whisky maker expects organic operating profit growth to decline in its current financial year’s first half.

GN Store Nord jumped 13.1% to top the STOXX 600 following third-quarter results and forecast.

(Reporting by Ankika Biswas in Bengaluru; Editing by Varun H K)

Oil prices settle up as Iraq backs more output cuts from OPEC+

NEW YORK, Nov 10 – Oil prices gained about 2% on Friday as Iraq voiced support for OPEC+’s oil cuts ahead of a meeting in two weeks and as some speculators covered massive short positions ahead of weekend uncertainty.

Still, prices settled with weekly losses of 4%, their third straight weekly decline.

“This was the perfect technical storm. We came into this week with an almost record short position and now we’re seeing some short covering going into the weekend,” said Phil Flynn, an analyst at Price Futures Group.

Flynn noted that in addition to Iraq’s comments, Saudi Arabia and Russia confirmed this week that they would continue oil output cuts through year-end.

In the US, energy firms cut the number of oil rigs operating for a second week in a row to the lowest since January 2022, energy services firm Baker Hughes said. The rig count points to future output.

Brent futures rose USD 1.42, or 1.8%, to settle at USD 81.43 a barrel, while US West Texas Intermediate (WTI) crude rose USD 1.43, or 1.9%, to settle at USD 77.17.

Brent and WTI notched their third straight weekly losses for the first time since May, although both benchmarks exited technically oversold territory.

“Concerns about demand have replaced the fear of production outages related to the Middle East conflict,” analysts at Commerzbank said.

Weak Chinese economic data this week increased worries of faltering demand. Refiners in China, the largest buyer of crude from Saudi Arabia, the world’s largest exporter, asked for less supply for December.

US consumer sentiment fell for a fourth straight month in November and households’ expectations for inflation rose again.

US Federal Reserve Bank of San Francisco President Mary Daly said she is not ready to say yet whether the Fed is done raising rates, echoing Fed Chair Jerome Powell’s comments on Thursday.

Higher interest rates can reduce oil demand by slowing economic growth.

In Britain, the stagnating economy failed to grow in the July-to-September period but did avoid a recession, according to the UK’s Office for National Statistics.

UPCOMING OPEC MEETING

OPEC+, the Organization of the Petroleum Exporting Countries and allies including Russia, will meet on Nov. 26.

Iraq’s oil ministry said Baghdad is committed to the OPEC+ agreement on determining production levels.

Chances Saudi Arabia will extend its output cut into the first quarter of 2024 “is certainly increasing given renewed market concerns about Chinese demand and the broader macro outlook,” RBC Capital Markets analyst Helima Croft said.

Analysts at Capital Economics said OPEC+ might cut supply further if prices continue to fall.

“We are sticking with our forecast of Brent ending both this year and next year at around USD 85 per barrel,” the research firm said in the note.

(Reporting by Scott DiSavino in New York, Ahmad Ghaddar in London, and Sudarshan Varadhan in Singapore; Editing by Nick Macfie, Kirsten Donovan, and David Gregorio)

Some investors see Powell’s hawkish lean as response to looser financial conditions

Nov 10 – A hawkish lean from Federal Reserve Chair Jerome Powell chilled a recent rebound in stocks and bonds, with some investors suggesting the central bank was pushing back against loosening financial conditions.

Speaking at an International Monetary Fund conference on Thursday, Powell said the Fed would “not hesitate” to tighten monetary policy if needed and that the fight to restore price stability “had a long way to go.”

Though the comments did not go much beyond those given after the Fed’s Oct. 31 – Nov. 1 monetary policy meeting, some investors believe Powell’s tone was more hawkish compared with those earlier remarks, which contributed to last week’s powerful rebound in stocks and Treasuries.

By contrast, the S&P 500 fell 0.8% on Thursday, snapping an eight-day winning streak that was its longest in two years. Yields on the benchmark 10-year Treasury, which move inversely to bond prices, rose 12 basis points, their largest one-day gain in three weeks.

“Powell seemed to be course-correcting some of the dovish comments from last week and circling back to the idea that the Fed is prepared to raise rates again if they need to,” said Charlie Ripley, senior investment strategist for Allianz Investment Management.

Some investors said Powell may have been leaning against a recent loosening of financial conditions that has come as yields have tumbled in recent weeks. The benchmark 10-year Treasury yield has fallen nearly 40 basis points to 4.63%, from a 16-year high of just above 5%.

Evidence of the dynamic between yields and financial conditions – factors that reflect the availability of funding in an economy – was on display in last week’s 0.5% decline in the Goldman Sachs Financial Conditions Index, its sixth-biggest weekly drop since 1990.

Average rates on 30-year mortgages, which move together with Treasury yields, fell 25 basis points last week, the largest weekly tumble in nearly 16 months. Meanwhile, the S&P 500 is up 5.5% from its October lows.

“The noticeable drop in yields from last week may have caused some caution at the FOMC, which then led Chair Powell … talking up yields again,” said Spencer Hakimian, CEO of Tolou Capital Management, a New York-based macro hedge fund.

“If their concept is to have tighter financial conditions, they can’t really let those yields go down. They need them to stay restrictive in order to not actually have to raise rates,” he said.

Sonal Desai, chief investment officer of Franklin Templeton Fixed Income, echoed that sentiment, saying the Fed was trying to calm “an exuberance” it unintentionally created in the markets.

“The rally of the markets both in equity and fixed income unwound the financial conditions tightening to a large degree,” Desai said. “This is Powell pushing back against markets trying to put into his mouth the words ‘mission accomplished.'”

At the same time, the weakest auction for 30-year Treasuries since August 2011 also hit government bond prices. Yields on the 30-year Treasury recently stood at 4.77%, from a low of 4.6% earlier this week.

“The rates market was still somewhat jittery after the auction so higher yields were the path of least resistance,” said Vassili Serebriakov, a foreign exchange strategist at UBS.

Investors are awaiting US consumer price data next week, which could show how the Fed is faring in its fight to keep lowering inflation from last year’s multi-decade highs.

“Chairman Powell issued a warning to investors too giddy on the prospect of rate cuts next year,” said Jeffrey Roach, chief economist for LPL Financial, in a note. However, “next week’s inflation data should provide some salve for the markets as headline inflation will likely be soft from easing energy prices.”

(Reporting Davide Barbuscia and David Randall; Additional reporting by Saqib Iqbal Ahmed and Karen Brettell; Writing by Ira Iosebashvili; Editing by Sam Holmes)

Gold poised for second week of declines on hawkish Powell remarks

Nov 10 – Gold prices dropped on Friday and were on track for a second consecutive week of declines, weighed by a stronger US dollar and Treasury yields after hawkish remarks from Federal Reserve Chair Jerome Powell.

Spot gold fell 0.2% to USD 1,954.60 per ounce by 0758 GMT after hitting its lowest since Oct. 18 on Thursday. US gold futures fell 0.5% to USD 1,959.70.

Gold has slid 1.9% so far this week, on track for the biggest weekly decline in more than a month.

“Gold has been consolidating below USD 2,000 since the beginning of November, after getting ahead of itself. However, I remain bullish for the year-end as long as it stays above USD 1,900,” said Hugo Pascal, a precious metals trader at InProved.

Denting market expectations of a peak in U.S. interest rates, Fed officials, including Powell, said on Thursday they still aren’t sure that rates are high enough to finish the battle with inflation.

Following Powell’s comments, the benchmark 10-year US Treasury yield rose from more than one-month lows, making non-yielding bullion less attractive for investors.

Traders pushed out bets on the Fed’s first rate cut to June of next year, from May earlier. Higher rates raise the opportunity cost of holding gold, which yields no interest.

Meanwhile, the dollar index was heading for its biggest weekly gain in over three months, making gold more expensive for holders of other currencies.

“On the technical front, USD 1,940 looks very important support level for gold. If we break that, we’re looking at another test at USD 1,900,” said Ilya Spivak, head of global macro at Tastylive.

Palladium slipped 1.7% to USD 975.19 per ounce, its lowest since 2018, and was set for its worst week in 11 months.

Platinum fell 0.2% to USD 857.58 and was headed for its worst week since mid-June, 2021. Silver fell 0.1% to USD 22.61.

(Reporting by Brijesh Patel and Anjana Anil in Bengaluru; Editing by Rashmi Aich, Varun H K, Eileen Soreng and Savio D’Souza)

Powell dishes out cold reality check

Nov 10 – Asian markets are set to end the week with a bump on Friday, after Fed chief Jerome Powell the day before warned that US interest rates may need to rise further to win the war on inflation.

Powell’s remarks were a swift reality check for those who had become increasingly convinced that the Fed’s tightening campaign was over – the 10-year US Treasury yield had gone as low as 4.4750% late in the Asian session on Thursday, but closed the US day at 4.63%.

The three main US equity indices quickly sank, and ended between 0.7% and 1% lower on the day. If Asian and emerging stocks follow Wall Street’s lead, they will close the week in the red.

The rebound in US bond yields on Thursday boosted the dollar, which is quietly resuming its climb higher. It is now up four days in a row, eyeing its best week since early September, and has appreciated in 14 of the last 17 weeks.

Since mid-July, it has gained 6.5% on a broad basis. One of the dollar’s best runs has been against the Japanese yen – the dollar is now up more than 10% in that period to within one yen of the three-decade-high near 152.00 yen hit late last year.

Traders remain on high alert for yen-buying intervention from Japanese authorities, but that could just as easily come against the euro, which rose to a fresh 15-year high on Thursday of 161.80 yen.

The last time euro/yen was that high in August 2008, euro/dollar was USD 1.50 (it’s USD 1.0650 today), dollar/yen was 110.00 (it’s over 150 yen today) and the US-Japanese 2-year yield gap was 150 basis points (today it is almost 500 bps).

It’s pretty clear that, from a fundamental and yield spread perspective, the yen is much weaker today than it was then and that the dollar is much stronger. This may be one of the reasons why Tokyo seems reluctant to intervene.

Bank of Japan Governor Kazuo Ueda said on Thursday the central bank will proceed carefully in exiting ultra-loose monetary policy to avoid causing huge volatility in the bond market.

Ueda said Japan was making progress towards sustainably achieving the central bank’s 2% inflation target, but said there is “still some distance to cover” before the BOJ can fully scrap its yield curve control and negative interest rate policy.

Sentiment towards China, meanwhile, suffered another blow on Thursday after inflation figures showed that consumer prices swung lower in October.

On the political front, Chinese Vice Premier He Lifeng and US Treasury Secretary Janet Yellen hold talks in San Francisco. Yellen called for “open and substantive” discussions on the US-China economic relationship.

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

– New Zealand manufacturing PMI (October)

– India industrial production (September)

– Australia central bank issues statement on monetary policy

(By Jamie McGeever; Editing by Deepa Babington)

Gold holds some gains after Fed’s Powell speaks; palladium sinks

Nov 9 – Gold held on to some gains on Thursday after Federal Reserve Chair Jerome Powell reiterated the need for higher interest rates to rein in inflation, while auto-catalyst palladium fell below the USD 1,000 an ounce level for the first time since 2018.

Spot gold was up 0.4% to USD 1,957.62 per ounce by 4:15 p.m. ET (2115 GMT). US gold futures settled up 0.6% at USD 1,969.80.

Prices rose as much as 0.8% earlier in the session, after touching their lowest since Oct. 18.

Powell said Fed officials “are not confident” that interest rates are yet high enough to finish the battle with inflation, sending the US dollar and Treasury yields higher.

“Powell’s comments are less dovish than hoped which has prevented a further advance in gold, though it has broken a three-day losing streak,” said Tai Wong, a New York-based independent metals trader.

“Gold seems likely to stay in a range under USD 2,000 as geopolitics is still exercising an outsized influence.”

Bullion has fallen over USD 40 after hitting USD 2,000 last week when escalating tensions in the Middle East boosted safe-haven inflows.

Silver was up 0.4% to USD 22.6.

“Gold could move above USD 2,100 in the second quarter of 2024 and the catalyst will be the Fed needing to start cutting rates,” said Bart Melek, head of commodity strategies at TD Securities.

Traders pushed out bets on the Fed’s likely first interest-rate cut to June of next year from May earlier.

Lower interest rates boost zero-yield bullion’s appeal.

Palladium slipped 5.5% to USD 992.69, hitting its lowest level since 2018.

“Large short positions have exacerbated the downside risk for palladium,” Standard Chartered analyst Suki Cooper said.

“In the near term, supply curtailments have not materialized and demand has been weaker than expected following the UAW strike action.”

Platinum fell 0.8% to USD 859.49.

(Reporting by Ashitha Shivaprasad, Anushree Mukherjee, and Deep Vakil in Bengaluru; Editing by Shinjini Ganguli, Krishna Chandra Eluri, and Shounak Dasgupta)

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