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Sept 28 – Gold plumbed a six-month low on Thursday as bets for higher-for-longer US interest rates diminished non-yielding bullion’s appeal, while traders shifted focus to inflation readings this week for clues on the Federal Reserve’s strategy.

Spot gold fell 0.7% to USD 1,861.59 per ounce by 2:06 p.m. EDT (1806 GMT), its lowest level since March. US gold futures settled 0.7% lower at USD 1,878.60.

Higher rates soften gold’s appeal as an inflation hedge, and could push prices to USD 1,800, said Daniel Pavilonis, senior market strategist at RJO Futures.

Treasury yields climbed to a 16-year peak, increasing the opportunity cost of holding zero-yield gold.

But a retreat in the US dollar, which makes gold cheaper for overseas buyers, capped further declines in bullion.

Gold’s reaction to data showing the US economy maintained a fairly strong pace of growth in the second quarter, and a separate weekly report showing a slightly lower-than-expected rise in initial jobless claims was fairly muted.

“Gold has completely fallen out of fashion. In the absence of more promising US data on inflation and the labor market, it may remain a tough environment for gold,” Craig Erlam, senior markets analyst at OANDA, wrote in a note.

Minneapolis Fed President Neel Kashkari said on Wednesday it is not clear yet whether the central bank is finished raising rates.

Investors’ focus now turns to data on personal consumption expenditures (PCE), the Fed’s preferred inflation gauge, due on Friday.

“If the PCE data comes really hot, it is going to be bad for the metals as it would mean interest rates need to be raised more,” Pavilonis added.

Spot silver fell 0.2% to USD 22.48 per ounce.

“The next downside price objective for the (silver) bears is closing prices below solid support at USD 22.00,” Jim Wyckoff, senior analyst at Kitco Metals, wrote in a note.

Platinum added 2.1% to USD 905.89 and palladium gained 3.7% to USD 1,267.15.

(Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Devika Syamnath and Shilpi Majumdar)

 

NEW YORK, Sept 28 – Oil futures eased about 1% on Thursday, as traders took profits after prices soared to 10-month highs, and some worried that high interest rates may weigh on oil demand.

On its second to last day as the front-month, Brent futures for November delivery fell USD 1.17 or 1.2%, to settle at USD 95.38 a barrel. Brent November futures expire on Friday.

Brent December futures fell about 1.3% to settle at USD 93.10 per barrel.

US West Texas Intermediate crude (WTI) fell USD 1.97, or 2.1%, to settle at USD 91.71 per barrel.

Earlier, scarce supply and inventory supplies lifted the Brent front-month hit USD 97.69, its highest since November 2022. WTI rose to its highest since August 2022 at USD 95.03.

“Oil was ripe for a pullback. After coming a few dollars short of the USD 100 level, energy traders are quickly locking in profits,” Edward Moya, senior market analyst at data and analytics firm OANDA, said in a note.

Some traders worried high oil prices would stoke inflation, encouraging the US Federal Reserve and other central banks to persist with high interest rates.

“Crude is now serving as a catalyst for bearishness … as investors view high oil prices as reason for the Fed to persist with high rates for longer than originally planned in order to curb inflation,” analysts at energy consulting firm Gelber & Associates said in a note.

The US economy maintained a fairly strong 2.1% pace of growth in the second quarter and appears to have gathered momentum this quarter with a resilient labor market driving strong wage gains.

Growth estimates for the July-September quarter are currently as high as a 4.9% rate. But the fourth quarter could see a sharp slowdown if there is a US government shutdown on Oct. 1.

Fed officials are focused on the super core price measure after hiking the benchmark overnight interest rate by 525 basis points since March 2022 to the 5.25%-5.50% range.

FALLING US INVENTORIES

The premium of the WTI front-month over the second month held near a 14-month high for a second day. The market structure called backwardation occurs when spot prices are higher than future prices, giving energy firms little incentive to pay to store fuel for future months.

On Wednesday, WTI backwardation soared 48% to USD 2.38 a barrel, the highest since the end of July 2022, after government data showed stocks at the Cushing, Oklahoma, storage hub and delivery point for US crude futures, extended their drawdown, also to the lowest since July 2022.

“Cushing storage has shrunk to a historically low level, leading to a further increase in backwardation in the WTI curve,” analysts at Barclays, a bank, said in a note.

“In the absence of a demand shock, it might take a sustained further narrowing of the WTI-Brent spread for a material turnaround in storage level at Cushing to occur,” Barclays said.

Cushing’s levels have slid to near-historic lows due to strong refining and export demand, prompting concerns about quality of the remaining oil.

Meanwhile, tight prompt US supplies have also narrowed the premium of Brent over WTI held near a five-month low after falling to USD 2.87 per barrel on Wednesday, its lowest since late April.

Falling US crude inventories follow combined cuts of 1.3 million barrels per day to the end of the year by Saudi Arabia and Russia, part of OPEC+, the Organization of the Petroleum Exporting Countries (OPEC) and allies.

Russia said its ban on fuel exports will remain in place until the domestic market stabilizes and noted it has not discussed with OPEC+ a possible supply increase to compensate for that fuel export ban.

(Reporting by Scott DiSavino in New York, Natalie Grover in London, Florence Tan in Singapore, and Mohi Narayan in New Delhi; Editing by Marguerita Choy and David Gregorio)

 

Sept 28 – Sometimes markets get up a head of steam and it becomes very difficult to slow the momentum, far less reverse it.

There’s a case to make that this is where markets – US, Asian, and global, across asset classes – find themselves, feeding off each other and accelerating self-fulfilling loops.

Right now, these are ‘doom’ loops – rising US bond yields, a rampant dollar, higher oil prices, tightening financial conditions, deepening growth fears, decreasing risk appetite, and increasingly fragile equity markets.

Wall Street’s performance on Wednesday illustrated this phenomenon – despite plunging the day before, it barely recovered any ground at all. Asian stocks barely clawed back any of the previous days’ losses either, and world stocks racked up a ninth straight decline.

These moves are unlikely to provide a springboard for Asian markets on Thursday, and beyond Australian retail sales there is nothing on the economic or policy calendar likely to do so either.

Recent rebounds in the S&P 500 have been sporadic and limited. The index has risen 0.5% or more only twice this month, and has not posted a gain of 1%. It has fallen at least 0.5% six times, three of those being 1% declines or more.

Meanwhile, US bond yields, the dollar, and oil all rose again on Wednesday, and Treasury yield spreads over other bonds widened. The 10-year US-Chinese spread is now 190 basis points, the widest since 2006, and the 2-year US-Japanese spread is well above 500 bps and pushing the dollar/yen closer to the 150.00 level.

Still no intervention from Japan though.

In China, the turmoil, intrigue, and uncertainty surrounding Evergrande is deepening, as Bloomberg reported on Wednesday that the company’s chairman had been placed under police surveillance.

The world’s most indebted developer with more than USD 300 billion in total liabilities is at the center of an unprecedented liquidity crisis in China’s property sector, which accounts for roughly a quarter of the economy.

China’s creaking property market is depressing world copper prices – often seen as a bellwether for the global economy – so Evergrande’s debt restructuring has implications far beyond China’s borders.

There are signs that Beijing’s steps to boost the economy in recent months may be having an effect. Profits at China’s industrial firms for the first eight months of the year fell 11.7%, but that was down from a 15.5% contraction for the first seven months.

A modest recovery may be underway. But it can take a long time for momentum to build or change course.

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

– Australia retail sales (August)

– Germany CPI inflation (September, prelim)

– Fed Chair Jerome Powell speaks

(By Jamie McGeever; Editing by Josie Kao)

 

Sept 27 – Gold extended declines for the third straight session on Wednesday as appeal for non-yielding bullion took a hit from bets that the Federal Reserve may keep interest rates elevated, while traders hoped for more cues from US inflation numbers this week.

Spot gold dropped 1.4% to USD 1,874.34 per ounce by 1:47 p.m. EDT (1747 GMT), its lowest in over six months. US gold futures settled 1.5% lower at USD 1,890.90.

The prospects of higher-for-longer US rates sent investors scurrying to the safety of the dollar instead, making gold more expensive for overseas buyers.

Further hammering appetite for zero-yield gold, Treasury yields also remained near 16-year highs.

“As long as the narrative remains higher-for-longer, it’s going to continue pressuring precious metals, ” said Ryan McKay, commodity strategist at TD Securities.

“If the (inflation) data continues to come in stronger, that will be another thing that continues to weigh on gold.”

The US personal consumption expenditures (PCE) index, the Fed’s preferred inflation measure, is due on Friday.

However, “If the inflation number falls, we could see some support coming to gold and the expectation of tightening monetary policy could dampen a bit,” said ANZ analyst Soni Kumari.

A “soft landing” for the US economy is more likely than not, Minneapolis Fed President Neel Kashkari said on Tuesday, but there’s also a 40% chance that the Fed will need to raise rates “meaningfully” to beat inflation.

On the flip side, gold continued to find some support from robust physical demand, especially from central banks and in China, although “the near-term dynamics are certainly the Fed,” TD’s McKay said.

Silver was 1.7% lower at USD 22.47 per ounce, a two-week low. Platinum fell about 2.2% to USD 883.94 and palladium was down 0.3% at USD 1,219.48.

(Reporting by Arpan Varghese, Anjana Anil, Deep Vakil in Bengaluru; Editing by Maju Samuel)

HOUSTON, Sept 27 – Oil prices surged 3% on Wednesday to the highest settlement in 2023, after a steep drop in US crude stocks compounded worries about tight global supplies.

Brent crude futures closed up USD 2.59, or 2.8%, at USD 96.55. It breached USD 97 a barrel during the session.

US West Texas Intermediate crude futures (WTI) climbed USD 3.29, or 3.6%, to USD 93.68. The session high was over USD 94.

US crude stocks fell by 2.2 million barrels last week to 416.3 million barrels, government data showed, far exceeding the 320,000-barrel drop analysts expected in a Reuters poll.

Crude stocks at the Cushing, Oklahoma, storage hub, delivery point for US crude futures, fell by 943,000 barrels in the week to just under 22 million barrels, the lowest since July 2022, data showed.

“The market is being led up by storage numbers as we are getting to the minimum operational inventories at Cushing,” said Andrew Lipow, president of Lipow Oil Associates.

Stockpiles at Cushing have been falling closer to historic low levels due to strong refining and export demand, prompting concerns about the quality of the remaining oil at the hub and whether it will fall below minimum operating levels.

Prices fell last week but were rallying again as markets worried about tight supplies heading into winter, following production cuts of 1.3 million barrels a day to the end of the year by Saudi Arabia and Russia of the Organization of the Petroleum Exporting Countries and allies known as OPEC+.

“Until a decision to raise production is made, the global energy market will remain tight,” Ole Hansen, Head of Commodity Strategy at Saxo Bank, said.

The tight supply was reflected in time spreads with front month Brent futures trading at a 42.28 premium over the second month, its highest since October, while on WTI futures, the front month traded at a USD 2.43 premium to the second month, the highest since July 2022.

WTI’s discount to Brent also hit its narrowest since late April.

“The market is overbought and a correction is definitely needed,” said Dennis Kissler, senior vice president of trading at BOK Financial.

Potentially adding to supply tightness, Russian President Vladimir Putin ordered his government to ensure retail fuel prices stabilize after a jump caused by an increase in exports.

In response, his deputy prime minister cited proposals to restrict exports of oil products purchased for domestic use.

The Federal Reserve Bank of Dallas released a survey showing oil and gas activity in three key energy producing US states has been rising with the latest jump in energy prices.

(Reporting by Paul Carsten in London, Arathy Somasekhar in Houston and Emily Chow in Singapore; Editing by Marguerita Choy, Barbara Lewis, and David Gregorio)

 

Sept 27 – Normal service resumed.

Wall Street on Tuesday buckled under the weight of high and rising US bond yields, leading a steep decline in global stocks and risk appetite that looks certain to push Asian markets lower at the open on Wednesday.

A Bank of Thailand interest rate decision and the latest snapshots of Australian consumer price inflation and Chinese industrial profits are the highlights on the region’s economic and policy calendar.

Investor sentiment is weak and fragile.

The three major US equity indexes all lost more than 1% on Tuesday, with the Dow Jones Industrials posting its worst day since March and the S&P 500 and Nasdaq both on track for their biggest monthly losses this year of 5% and 7%, respectively.

The move in Treasuries was nowhere near as big as Monday’s. But another day of curve steepening, and 10-year nominal and real yields rising to new multi-year highs crushed stocks.

Volatility on Wall Street is finally picking up too, and at 19.0 the VIX ‘fear index’ of implied vol is closer to long-term averages. Only a couple of weeks ago it registered its lowest daily close since before the pandemic.

US bond market volatility – a key driver of global market stability and liquidity – had its biggest rise since early July. This will reverberate into Asian markets on Wednesday.

Investors in Asia will also note the significance of US crude oil’s rise on Tuesday after a few days of consolidation, not for the 1% rise in itself, but because it lifts the year-on-year price rise to almost 20%.

Bearing in mind that as recently as June oil was down 45% year-on-year, this is a remarkable turnaround and helps explain why longer-dated bond yields are rising so much.

In Asia on Wednesday, Thailand’s central bank is expected to leave its key policy rate unchanged at 2.25% and likely through 2024, marking an end to a year-long tightening cycle, although a minority of economists polled by Reuters still expect one final hike.

Despite inflation edging up slightly to 0.88% in August, it has been below the central bank’s 1% to 3% target range for four months in a row, suggesting the Bank of Thailand can stop hiking.

Add this to the US dollar’s global tear higher, the Thai baht has slumped to its weakest level since November. It is down almost 4% this month, on track for its second-biggest monthly fall in two years.

Meanwhile, there is still no sign of Japanese authorities intervening in the FX market to support the yen, which hit a new 11-month low closer to the 150 per dollar level.

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

– Bank of Thailand rate decision

– Australia consumer price inflation (August)

– China industrial profits (August)

(By Jamie McGeever; Editing by Josie Kao)