Crude oil settles lower as hope fades for Chinese demand

HOUSTON, Aug 21 – Brent and US crude oil finished on Monday at a loss, as hopes for Chinese demand faded

“It seems that (China’s recovery) is not going to happen,” said John Kilduff, partner at Again Capital. “It’s doubtful they’re going to be buying. They bought a lot of crude for storage earlier in the year. They’re sitting on a lot of crude.”

Brent crude settled down 34 cents at USD 84.46, a loss of 0.4%. US West Texas Intermediate crude finished at USD 80.72 a barrel for a loss of 53 cents or 0.65%. Earlier in the session, both benchmarks had been up by as much as USD 1.

“Right now, it’s a battle between Saudi production cuts versus demand destruction,” said Robert Yawger, director of energy futures, Mizuho Securities USA.

Gains in crude prices through the summer were driven by the tight balance between crude oil supply and high demand, especially in the US summer driving season, which ends the first of September, and from Latin America.

At the same time, OPEC led by Saudi Arabia, plus Russia have cut production to better match demand, especially from China, which has yet to meet expectations for post-pandemic recovery.

Saudi Arabia said this month its production would remain at around 9 million barrels per day, a cut of about 1 million barrels, through the month of September.

Last week, both front-month benchmark fell 2%, snapping a seven-week winning streak on concerns China’s sluggish economic growth will curb oil demand, while the possibility of further increases to US interest rates also overshadows the demand outlook.

China’s central bank trimmed its one-year lending rate by 10 basis points and left its five-year rate unmoved. That was a surprise to analysts who had expected cuts of 15 bps to both as recovery in the world’s second-largest economy has been slowed by a worsening property slump, weak spending, and tumbling credit growth.

Top exporter Saudi Arabia’s July shipments to China fell 31% from June while Russia, with its discounted crude, remained the Asian giant’s largest supplier, Chinese customs data showed.

China’s crude oil imports from Saudi Arabia are expected to remain depressed through the third quarter, analysts said.

China is drawing on record inventories amassed earlier this year as refiners scale back purchases after prices were driven above USD 80 a barrel by supply cuts implemented by the OPEC+ group comprising the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia.

“We still see a tight oil balance for the remainder of the year, which suggests that prices still have some room to run higher,” said Warren Patterson, ING’s head of commodities research, adding that the dollar was also providing support.

A weaker dollar makes oil purchases less expensive for holders of other currencies, potentially boosting demand.

(Reporting by Erwin Seba in Houston, Natalie Grover and Paul Carsten in London, Florence Tan in Singapore, and Mohi Narayan in New Delhi; Editing by David Goodman, Mark Potter, Barbara Lewis, Nick Macfie, and David Gregorio)

China unveils measures to revive stock market

SHANGHAI, Aug 18 – China’s securities regulator said on Friday it would cut trading costs, support share buybacks and introduce long-term capital as it unveiled a package of measures aimed at reviving the stock market and boosting investor confidence.

The China Securities Regulatory Commission (CSRC) said it was not aware if there would be a cut in stamp duty, a measure which has been hotly discussed recently but is beyond CSRC’s power.

Other measures laid out by the CSRC include boosting the development of equity funds, studying plans to extend trading hours, and improving the attractiveness of listed companies.

The slew of measures come after China’s top leaders vowed in late July to reinvigorate the stock market, which has been reeling amid the country’s flagging economic recovery.

But Friday’s measures are seen by some investors as being incremental.

The measures “will give a short-term lift to a market where investors are extremely pessimistic,” said Pang Xichun, research director at Nanjing RiskHunt Investment Management Co.

“But they won’t change the market fundamentals. A bull market requires genuine policies that would boost credit expansion.”

(Reporting by Shanghai newsroom; Editing by Toby Chopra)

Adjusting to a new, higher yield world

Aug 18 – Japanese inflation grabs the Asian economic data spotlight on Friday as investors close out a bruising week marked by a soaring US dollar, rising global bond yields, and crumbling equity markets.

The gloom enveloping markets will not have been lifted by the news late on Thursday that Chinese property developer Evergrande, the most indebted developer in the world, filed for bankruptcy protection in the US.

With the nominal 10-year US Treasury yield a whisker from printing its highest level since 2007 and the inflation-adjusted ‘real’ yield already the highest since 2009, there is a growing sense that the post-2008 world of ultra-low interest rates and borrowing costs might be gone for good.

At the very least, investors are nervous and scrambling to adjust to the higher yield environment. A poor auction of 20-year Japanese Government Bonds on Thursday – one of the worst in decades, according to some analysts – only deepened the sense of anxiety.

Figures on Friday are expected to show that core consumer price inflation in Japan eased to a 3.1% annual rate in July from 3.3% in June.

The Bank of Japan is in a tight spot. It is reluctant to take another step back from ultra-loose monetary policy until it is sure the economy is out of deflation for good, but the yen’s weakness is raising expectations the BOJ will have to spend billions from its FX reserves to support the currency.

The dollar rose to 146.50 yen on Thursday, and the euro this week rose above 159.00 yen for the first time since 2008.

Japan’s second-quarter growth smashed expectations thanks to booming exports, but July trade figures suggest that engine is already sputtering. Exports fell last month, and perhaps more importantly, shipments to China tumbled 13.4%.

The People’s Bank of China insists it will keep liquidity reasonably ample and retain “precise and forceful” policy to support the economy. But given the tightening of financial conditions around the world, investors remain wary.

The 10-year US Treasury yield is above 4.30%, a whisker from highs not recorded since 2007 and the 10-year real yield at almost 2.0% is already at levels last seen in 2009. The dollar index is at a two-month high and has risen 4% in a month.

This is taking its toll – financial conditions across emerging markets are the tightest since early December, according to Goldman Sachs’s EM financial conditions index, and risk assets are getting pounded.

The MSCI World, Asia ex-Japan, and Emerging Market indexes are all down 11 of the last 13 sessions, and all three are having their worst months since September last year.

The weekend can’t come quickly enough.

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

– Japan inflation (July)

– Malaysia GDP (Q2)

– Malaysia trade, retail sales (July)

(By Jamie McGeever; Editing by Josie Kao)

Dollar rise vs yen a little too fast and furious, but still intact

Aug 17 – USD/JPY’s 8-day run of higher lows and highs, the most since just before 2022’s massive, Japanese intervention-triggered reversal from 32-year highs, pulled back to rising supports with Friday’s Japanese CPI report the next event risk.

USD/JPY’s August advance is running into overbought resistance from 21-day and 10-week Bolli bands and daily RSIs, but the string of higher lows and highs is intact unless Wednesday’s 145.31 low on EBS is breached.

So far, prices have found buyers by the rising hourly cloud top and 100-hour moving average, as well as Thursday’s largest options expiries at 145.50.

US claims data were near forecast, though Philly Fed was a bullish surprise, albeit a small piece of the US puzzle and followed Monday’s big NY Fed miss.

For USD/JPY the next event risk is Friday’s Japan CPI report. Core is forecast at 3.1% from 3.3% in June. With 10-year JGB yields up at their post-BoJ meeting highs, though well below the new 1% yield curve cap, traders will be watching to see if the BoJ again buys JGBs to keep yields in check.

But Treasury yields remain the primary driver as 2- and 10-year yields near their post-pandemic peaks at 5.12% and 4.338%, respectively. If those hold, USD/JPY could correct at least to 145. If they’re cleared, USD/JPY could test resistance near 148.

(Randolph Donney is a Reuters market analyst. The views expressed are his own.)

Gold at 5-month low as higher yields, rate-hike bets dominate mood

Aug 17 – Gold prices slipped to a five-month low on Thursday as factors such as rising Treasury yields, a firm dollar and a hawkish view on interest rates from Federal Reserve officials weighed on investor sentiment.

Spot gold was down 0.3% at USD 1,886.10 per ounce by 1:53 p.m. EDT (1753 GMT), its lowest level since March 13.

US gold futures settled 0.7% lower at USD 1,915.20.

“Gold has been down over the course of the last several sessions due to rising interest rates and bond yields,” said David Meger, director of metals trading at High Ridge Futures, adding, “we did see a bit of bargain-hunting at these levels.”

“We noticed yesterday in response to the FOMC minutes the market portended that the Federal Reserve still might need to be a bit more aggressive than previously expected in regards to continuing to raise rates.”

Minutes of the Fed’s July 25-26 meeting on Wednesday showed most policymakers continued to prioritize the battle against inflation, while few participants cited risks to the economy if rates were pushed too high.

The expectation that US interest rates will likely be higher for longer boosted benchmark 10-year US Treasury yields to their highest since October, making non-yielding bullion less attractive for investors.

Also hurting gold, the dollar held close to its highest level in two months.

Data showed the number of Americans filing new claims for unemployment benefits fell last week, pointing to a still tight labor market.

“Markets are looking for cracks in the US labor market to really change the current trajectory and until such time, bullion may remain under pressure,” DailyFX analyst Warren Venketas wrote in a note.

Silver gained 1.1% to USD 22.64 an ounce, its biggest daily increase since July 31, while platinum rose 1% to USD 890.81. Palladium edged 0.4% higher at USD 1,213.76.

(Reporting by Brijesh Patel and Deep Vakil in Bengaluru; Editing by Keith Weir and Shilpi Majumdar)

China’s sliding yuan could be next ‘black swan event’ for markets, hedge fund EDL says

LONDON, Aug 17 – Hedge fund EDL Capital is betting on further falls for China’s offshore currency and says the yuan’s slide could be the next “black swan event” to rattle world markets, according to an investor presentation this month seen by Reuters.

The US dollar has strengthened roughly 6% against the offshore yuan so far this year and Chinese state banks have been seen selling dollars this week to stem the yuan fall.

Back swan events refer to unexpected developments with far-reaching consequences.

EDL Capital, which manages about USD 1 billion, said factors weighing on the yuan include geopolitical tensions driving Western countries to re-home supply chains that will starve China of foreign investment.

China’s labor market has also grown less competitive versus other Asian countries such as Vietnam and India, while a post-pandemic recovery has sputtered and foreign currency reserves “might be lower than what they are believed to be,” it said.

The hedge fund held a short position in the offshore yuan, the Aug. 2 presentation shows. A way to do this would be via derivatives called options aimed at profiting at certain price levels on dollar strength against yuan weakness, said the presentation, without confirming if EDL is using this strategy.

China, the world’s second-largest economy, is vital to global growth.

An expectation of monetary policy easing in China, juxtaposed with dollar strength, has driven yield differentials between the United States and China to the widest level in 16 years, pressuring the yuan further.

The hedge fund, run by star manager Edouard de Langlade, was up about 8% this year, said the presentation. It is one of the better-performing hedge funds in 2023 that finds trade ideas in macroeconomic signals.

Switzerland-based EDL has made most of its money this year with long positions in Brazilian and Japanese equities and Brazilian rates. Trades on mining, short positions in US equities, and bullish bets on Chinese stocks detracted from fund performance, the presentation showed.

EDL declined to comment when contacted by Reuters.

(Reporting by Nell Mackenzie; Editing by Dhara Ranasinghe and Mark Potter)

US Treasury yields rise to highest since October as rate angst weighs

LONDON, Aug 17 (Reuters) – US government bonds continued to sell off on Thursday, with long-dated yields rising to their highest since October on growing expectations that a resilient economy will keep interest rates higher for longer.

The yield on 10-year US Treasury Inflation-Protected Securities (TIPS), meanwhile, rose to 1.99%, its highest since 2009 in a further sign of expectations policy will remain tight.

Wednesday’s release of the Federal Reserve’s July meeting minutes showed rate setters were divided over the need for more rate hikes, adding to the selling in bond markets.

In London trade, benchmark 10-year Treasury yields last stood at around 4.29%, having touched 4.31% earlier – their highest level since October.

“If you think about the scale of rate cuts that had been priced in, the longer the data holds up, the longer the markets become anxious about what has been priced and has to adjust,” said Derek Halpenny, head of research, global markets EMEA, MUFG.

Renewed bond selling puts Treasury yields back within sight of reaching their highest levels since 2007.

Analysts at ING said it was possible for 10-year yields to rise to 4.5%.

Yields on 30-year Treasuries also touched their highest since October, at around 4.4%, while two-year bond yields were flat at around 4.97%.

Markets are pricing in a roughly 86% chance of the Fed standing pat next month, with a 36% chance a quarter point rate increase at the November meeting.

(Reporting by Dhara Ranasinghe; Editing by Andrew Cawthorne)

Dollar hovers around 2-month high

LONDON/SINGAPORE, Aug 17 – The dollar hovered around a two month-high on Thursday after the Federal Reserve Minutes left the door open for more rate hikes and data this week pictured a resilient US economy.

The Norwegian crown rose from six-week lows against the dollar and the euro on Thursday after Norges Bank raised interest rates, as expected, and said it was likely to hike again in September.

The US dollar index was 0.05% lower at 103.41, after hitting a two-month high of 103.59.

The greenback has drawn support from a recent run of resilient US economic data, which reinforced the view that interest rates will remain high for some time.

Data on Wednesday showed that U.S. single-family home building surged in July and permits for future construction rose, while a separate report revealed production at U.S. factories unexpectedly rebounded last month.

“We’ve got the U.S. staying really resilient still, under the weight of high interest rates,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia (CBA).

In the meantime, inflation – which is stubbornly above the 2% target – will encourage the Fed to “maintain monetary policy at a restrictive level,” she added.

Minutes of the Fed’s July policy meeting showed officials were divided over the need for more rate hikes last month, citing the risks to the economy if rates were pushed too far.

Against the dollar, the Norwegian crown was last up 0.4% to 10.5750, having fallen to as low as 10.66 earlier in the session. It rose 0.3% against the euro to 11.5000, after touching its lowest since July 10.

Elsewhere, the yen edged 0.1% higher at 146.14 after weakening to 146.565 per dollar, its lowest level since November, having come under renewed pressure as a result of interest rate differentials between the United States and Japan’s ultra-low rate environment.

The Japanese currency has come under close watch since it touched the key 145 per dollar level for the first time in about nine months last Friday, crossing into a zone that sparked an intervention by Japanese authorities in September and October last year.

AUSTRALIAN DOLLAR

The Australian dollar sank to a nine-month low, taking its New Zealand counterpart along with it, after data showed that Australia’s employment unexpectedly fell in July while the jobless rate ticked higher.

The Australian dollar was last 0.36% lower at USD 0.6401, having tumbled more than 0.9% to a trough of USD 0.6365 following the employment data release.

The softer reading stoked speculation the Reserve Bank of Australia (RBA) might be done hiking interest rates.

“Cracks are finally appearing in the employment data, and that should clear up any doubt over whether the RBA is done hiking,” said Matt Simpson, senior market analyst at City Index.

“They’re done at 4.1% as far as I’m concerned now, with persistently weak data from China and easing from the (People’s Bank of China) adding to the case of a peak rate.”

The kiwi also touched its lowest level since November and was last down 0.2% to USD 0.5928.

The two antipodean currencies, often used as liquid proxies for the yuan, have also taken a beating over the past few sessions as a result of the darkening outlook over China’s economy.

The offshore yuan hit a nine-month low of 7.3490 per dollar, while its onshore counterpart similarly weakened to a nine-month trough of 7.3113 per dollar.

The euro was flat at USD 1.0875, after falling to a six-week low at USD 1.0862. Sterling was flat against the euro at 85.40 pence, after surging to a one-month high on Wednesday on British inflation data.

Despite a sharp drop in Britain’s headline inflation rate, key measures of price growth monitored by the Bank of England (BoE) failed to ease in July, boosting bets the BoE will keep rates higher for longer.

(Reporting by Joice Alves in London and Rae Wee in Singapore; Editing by Angus MacSwan)

Oil rises as dollar eases, China seeks to soothe economic woes

HOUSTON, Aug 17 – Oil prices rose on Thursday after falling for three straight sessions, as the dollar weakened and China’s central bank sought to bolster the property market and wider economy.

Brent crude futures rose 67 cents, or 0.8%, to USD 84.12 a barrel, while US West Texas Intermediate crude (WTI) was up USD 1.01, or 1.3%, at USD 80.93 a barrel.

Prices fell more than 1.5% in the previous session on worries about China’s embattled economy and the potential for further increases in US interest rates.

China’s central bank said it would keep liquidity reasonably ample and maintain a “precise and forceful” policy to support economic recovery against headwinds.

“Oil traders like the fact that China isn’t going to tolerate weakness in economic activity,” said Naeem Aslam at Zaye Capital Markets.

The dollar index slipped off a two-month high the day after Federal Reserve meeting minutes left the door open for more rate hikes and data this week indicated a resilient US economy.

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

On a bullish note, China made a rare draw on crude oil inventories in July, the first time in 33 months it has dipped into storage.

Data released on Wednesday showed that US crude oil inventories fell by nearly 6 million barrels last week on strong exports and refining run rates.

US gasoline stocks however drew to the lowest in more than two months, US Energy Information Administration data showed on Wednesday. Weekly products supplied, a proxy for demand, rose to the highest since December.

“Travel demand has remained stubbornly strong,” said Dennis Kissler, senior vice president of trading at BOK Financial. Travel demand typically tapers after the US Independence Day holiday on July 4.

Oil looks like it will find a home around the USD 80 level as too many risks to the macroeconomic outlook remain on the table, said OANDA analyst Edward Moya.

(Reporting by Arathy Somasekhar in Houston; Additional reporting by Natalie Grover in London, Katya Golubkova and Sudarshan Varadhan in Singapore; Editing by David Goodman, Christina Fincher, David Gregorio, and Jan Harvey)

Dollar, US yields deliver one-two punch

Aug 17 – Asian market sentiment on Thursday will again be a mix of caution and nervousness, with familiar roots: a supercharged dollar and rising US bond yields, tightening financial conditions, and deepening concern over China.

Wall Street’s steep fall on Wednesday following another batch of bumper US economic data showed that the relentless rise in borrowing costs is weighing more heavily on investors’ psyche than the surprising strength of the US economy.

This will likely feed into the market open in Asia, where the economic calendar on Thursday is pretty full – Japanese trade and machinery orders, Australian and Hong Kong unemployment, and an interest rate decision from the Philippines are all on tap.

The dollar is worth noting. It rose again on Wednesday and is now up 18 sessions out of the last 24. It is on track for its fifth consecutive weekly gain, which would be its best run since April-May last year.

The greenback’s strength has this week pushed the Indian rupee to a record low, the Japanese yen to a 2023 low and into territory where Tokyo intervened heavily last year, and the offshore Chinese yuan within sight of October’s record low.

The twin rise in the dollar and US bond yields is a classic red flag for emerging markets, and this time is no different.

Goldman Sachs’s financial conditions indexes show that Chinese and aggregate emerging market financial conditions have tightened sharply this month, by more than 100 basis points, and are both now the tightest this year.

The People’s Bank of China is responding – on Tuesday it cut rates in a surprise move, and on Wednesday it injected the most short-term cash into the banking system through seven-day reverse repos since February.

But the pressure on Beijing to do more to support the creaking economy can be seen in the 10-year yield’s slide to its lowest since May 2020. Remarkably, China’s 10-year yield is now 170 basis points below the 10-year US Treasury yield, the widest gap since 2007.

Oil prices, which last week hit their highest levels of the year, are now in retreat due to fears over faltering demand from China. Brent and WTI crude are down 4% to 5% this week, both on course to snap seven-week winning streaks.

Good news, perhaps, from the point of view of keeping global inflation in check; not so good news that the world’s growth engine is sputtering badly.

It’s little wonder Chinese and regional shares are feeling the heat. Chinese blue chip shares fell on Wednesday for a fourth day, and the MSCI World and MSCI Asia ex-Japan indexes have now fallen 10 out of the last 12 sessions.

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

– Philippines interest rate decision

– Australia unemployment (July)

– Japan trade (July)

(By Jamie McGeever; Editing by Josie Kao)

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