Oil edges up on higher US economic growth outlook; China import slump weighs

NEW YORK, Aug 8 – Oil prices edged higher on Tuesday as a US government agency projected a rosier outlook on the economy, but bearish data on China’s crude imports and exports weighed.

Brent crude futures gained 83 cents to settle at USD 86.17 a barrel. US West Texas Intermediate crude rose 98 cents to USD 82.92.

Both contracts had fallen by USD 2 earlier in the session, but prices reversed course after a monthly report from the US Energy Information Administration projected gross domestic product growth to rise by 1.9% in 2023, up from 1.5% in a previous forecast.

The EIA also expects Brent crude oil prices to average USD 86 in the second half of 2023, up about USD 7 from the previous forecast.

US crude production is expected to rise by 850,000 barrels per day (bpd) to a record 12.76 million bpd in 2023, the report added, overtaking the last peak of 12.3 million bpd in 2019.

Crude prices have been rising since June, primarily because of extended voluntary cuts to Saudi Arabia’s production as well as increasing global demand, the EIA said.

“We expect these factors will continue to reduce global oil inventories and put upward pressure on oil prices in the coming months,” the EIA added.

Weighing on prices on Tuesday, however, China’s July oil imports were down 18.8% from the previous month to the lowest daily rate since January, but still up 17% from a year earlier.

Overall, China’s imports contracted by 12.4% in July, far steeper than the expected 5% drop. Exports fell by 14.5%, compared with a fall of 12.5% tipped by economists.

Despite the gloomy data, some analysts were still positive about China’s fuel demand outlook for August to early October.

The peak season for construction and manufacturing activity starts in September and gasoline consumption should benefit from summer travel demand, said CMC Markets analyst Leon Li. Demand is expected to decrease gradually after October, he added.

Last week’s decision by Saudi Arabia to extend a voluntary output cut of 1 million bpd into September, despite Brent rising above USD 80, suggested Riyadh might be targeting a higher price than USD 80, said Vivek Dhar, mining, and energy commodities strategist at Commonwealth Bank of Australia.

Still, some analysts were skeptical about how much supply the cuts were actually taking off the market, as other members of the Organization of the Petroleum Exporting Countries such as Libya and Venezuela have increased production, said Andrew Lipow, president at Lipow Oil Associates in Houston.

“The production cuts have been far less than the announced quota cuts,” Lipow said.

US crude oil stocks rose last week, while gasoline and distillate stockpiles dropped, according to market sources citing American Petroleum Institute figures on Tuesday. API/S

Crude stocks rose by about 4.1 million barrels in the week ended Aug. 4, according to the sources, who spoke on condition of anonymity. Gasoline inventories fell by about 400,000 barrels, while distillate inventories fell by about 2.1 million barrels.

US government data on stockpiles is due on Wednesday.

(Reporting by Stephanie Kelly; additional reporting by Natalie Grover, Emily Chow, and Trixie Yap; Editing by Mark Potter, Alex Richardson, and Jamie Freed)

Awaiting another China exports slump

Aug 8 (Reuters) – Wall Street and world stocks may have shrugged off a spike in long-term US bond yields on Monday, but investors in Asia are likely to be in a more cautious mood on Tuesday as they brace for the biggest fall in Chinese exports since the pandemic.

The median forecast in a Reuters poll of economists is for a 12.5% year-on-year slump in Chinese exports in July, which would follow a 12.4% slide in June and mark the worst reading since February 2020.

China’s July trade data top a heavy regional economic calendar on Tuesday, with current account, bank lending, and household spending reports from Japan, current account data from South Korea, and Australian consumer sentiment also on tap.

Chinese imports are also forecast to have fallen in July, by 5.0% year on year, although that would be less than the 6.8% rate of decline in June. But for the world’s manufacturing and factory engine, the focus is on the alarming weakness in exports.

Chinese factory activity fell for a fourth straight month in July, further depressing the outlook for growth and increasing pressure on Beijing to inject substantial stimulus. The services and construction sectors are also teetering on the brink of contraction.

Citi’s Chinese economic surprises index remains deeply negative, but has crept up off its lows recently. At -54.7, it is at its ‘highest’ level since June 30, but will soon be heading lower again if Tuesday’s trade data disappoint.

Looking at markets and risk appetite more broadly, the trading week got off to a solid start on Monday as investors swatted away another rise in US Treasury yields and a steepening of the yield curve.

The curve steepening was again led by a selloff at the long end and spike higher in long-dated borrowing costs, but was less aggressive than some recent moves. Investors were also heartened to hear New York President John Williams say interest rates could begin to come down early next year.

The S&P 500 and Nasdaq snapped a four-day losing streak, and the Dow jumped more than 1%. Equity and currency market volatility eased back on Monday although bond market volatility was more resilient.

On the corporate front on Tuesday, Japan’s Softbank Group is expected to report a profit of 75 billion yen (USD 525 million) for the April-June period, marking a return to profit after two consecutive years of losses.

Nikon and Mazda are among the raft of Japanese companies also publishing results on Tuesday as the reporting season picks up pace.

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

– China trade (July)

– Japan current account, bank lending, household spending (June)

– Australia consumer sentiment (July)

(By Jamie McGeever)

US recap: Dollar firms after Friday’s NFP dive with CPI up next

Aug 7 (Reuters) – The dollar index was flat after Monday’s initial rebound from Friday’s jobs report induced slide as shorter-term Treasury yields slipped in case Thursday’s US inflation report reinforces expectations the Fed’s tightening cycle is over and rate cuts are likely in 2024.

As with so many US economic releases recently, Friday’s jobs report presented contradictory evidence regarding the state of the labor market, and thus the need for more Fed tightening that generally supports the dollar.

It’s clear the still historically tight labor market is becoming less so, but when it will go from cooler to cold, making Fed cuts far more likely, remains to be seen. That as the economy has so far outperformed expectations in the face of the biggest Fed rate hikes in four decades.

Also, perplexing markets is whether tight policy is needed, regardless of where the labor market is, if inflation continues to trend toward the target.

Fed’s Bowman and Williams put forward hawkish and dovish policy outlooks, respectively, on Monday. That divergence of opinions hints at the Fed leaning toward pausing until there is clear evidence more or less restrictive policy is needed. Whether Thursday’s CPI can break that tie is debatable.

EUR/USD fell 0.05%, unable to better Friday’s initial post-payrolls highs. Last week’s ECB assessment that underlying inflation in the region had likely already peaked came amid ongoing growth concerns exacerbated by Chinese economic anxiety. These risks may need to recede to make another ECB hike a higher probability.

USD/JPY rose 0.5% after the post-payrolls lows attracted buyers above 141.50. That as BoJ meeting minutes hopeful of rising wages was met with lower JGB yields, which remain very low compared to Treasuries.

Sterling gained 0.3% after a weak start, aided by 2-year gilts-Treasury yields spreads rising roughly 9bps and after last week’s price lows held important support following the BoE’s latest rate hike.

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

Gold slips as comments from US Fed governor dent sentiment

Aug 7 (Reuters) – Gold prices were on the back foot on Monday after Federal Reserve Governor Michelle Bowman indicated that additional interest rate hikes would likely be needed to rein in inflation.

Spot gold was down 0.3% at USD 1,936.44 per ounce by 03:28 p.m. EDT (1928 GMT). US gold futures settled 0.3% lower at USD 1,970.00.

Bowman, in remarks prepared for delivery to a “Fed Listens” event in Atlanta that largely repeated comments she made to a banking group on Saturday, said she backed the latest interest rate increase because inflation remains too elevated.

“The dollar index and Treasury yields drafted a bit higher on that and gold futures having a muted to lower reaction,” said Phillip Streible, chief market strategist at Blue Line Futures, in Chicago.

“If we get lower-than-expected CPI data, we could get some of these Fed officials to stop with their hawkish outlook on rate hikes and we have a much better shot at getting some stabilization in prices.”

John Williams, president of the Federal Reserve Bank of New York, expects that interest rates could begin to come down next year, the New York Times reported.

Although gold is seen as a hedge against inflation, higher interest rates increase the opportunity cost of holding non-yielding bullion.

Focus this week will be on US consumer price index (CPI) data due on Thursday that could offer more clarity on the Fed’s policy stance.

“Our expectation is still that the trend points to low inflation and therefore the Fed doesn’t have to hike rates,” UBS analyst Giovanni Staunovo said.

Silver fell about 2.2% to USD 23.09 an ounce, while platinum slipped 0.1% to USD 920.89. Palladium dropped 1.2% to USD 1,241.20.

“Palladium prices could be near a temporary bottom as supply risks could resurface driven by geopolitical tensions,” Intesa Sanpaolo economist Daniela Corsini wrote in a note.

(Reporting by Brijesh Patel and Anjana Anil in Bengaluru; Editing by Maju Samuel and Shailesh Kuber)

S&P 500 quarterly earnings have been upbeat; revenue not so much

Aug 7 (Reuters) – S&P 500 companies have been reporting upbeat bottom lines for the June quarter, but not such impressive increases in their revenue.

With second-quarter reporting season nearly complete, 79% of companies have posted earnings that beat analysts’ expectations, according to fresh data from Refinitiv.

In a typical US earnings season, most companies report results that are higher than analysts’ average estimates, but the number of beats and misses varies by quarter.

This quarter’s beat rate for earnings per share is the highest since the third quarter of 2021, and it suggests an uncertain economy has hurt companies less than feared.

However, nearly 64% of companies have posted revenue that exceeded Wall Street’s expectations, the lowest beat rate for that metric since the first quarter of 2020.

The recent upbeat earnings performance of many S&P 500 companies follows waves of job cuts this year, prompted by worries the US Federal Reserve’s aggressive interest rate hikes might throw the US economy into a downturn.

Major technology-related companies including Meta Platforms (META), Amazon (AMZN), and Alphabet (GOOGL) have laid off tens of thousands of workers, solidifying their profit margins while their revenue continued to grow.

Amazon.com’s stock surged over 8% on Friday after it reported sales growth and profit that both beat Wall Street’s expectations.

In quarterly reporting seasons going back over two decades, 66% of companies have beaten on earnings and 62% have exceeded revenue estimates.

While mostly beating estimates, second-quarter earnings are on track for an overall decline of 4.2% year over year, according to Refinitiv.

Excluding the energy sector, S&P 500 earnings have climbed 2.0%, moving into positive territory for the first time after the four previous quarters.

Second-quarter revenue so far has increased 0.2%, and grown 4.0% excluding energy companies.

(Reporting by Noel Randewich; Editing by Cynthia Osterman)

Oil prices drop 1% on fears of weaker demand

HOUSTON, Aug 7 (Reuters) – Oil prices settled down 1% on Monday, after six straight weekly gains, as investors braced for weaker demand from China and the United States, the world’s two biggest economies.

Brent crude settled 90 cents, or 1.04% lower, at USD 85.34 a barrel. US West Texas Intermediate crude settled down 88 cents, or 1.06%, at USD 81.94 a barrel.

Analysts noted the six straight weekly gains and pointed to the impending early September end of the US summer driving season and lower-than-expected demand from China.

“The China story is the headwind on this market,” said John Kilduff, partner at Again Capital, pointing to a drop in tourism.

“The summer driving season is winding down in the United States,” said Robert Yawger, director of energy futures for Mizuho Securities USA. “If you don’t need as much gasoline, you don’t need as much oil.”

The dollar index rose against major currencies on Monday, recovering from Friday’s losses as a Federal Reserve official made comments supporting additional interest rate hikes. A stronger dollar makes crude more expensive for investors holding other currencies.

Fed Governor Michelle Bowman said additional interest rate hikes will likely be needed to lower inflation to meet the Fed’s 2% target.

Also, Polish pipeline operator PERN said it expects to resume flows on Tuesday on a pipeline that transports oil to Europe, easing worries of supply constraints.

PERN had halted pumping through a section of the Druzhba pipeline after detecting a leak in central Poland on Saturday.

Saudi Arabia, the world’s top oil exporter, last week extended its production cut to the end of September, and said more could follow.

In line with production cuts, Saudi Aramco on Saturday raised the official selling prices for most grades it sells to Asia for a third month in September.

Russia added to the supply tightness with an announcement it will cut oil exports by 300,000 bpd in September.

Chinese economic data this week will be in focus as the market seeks to gauge Beijing’s appetite for more stimulus measures to support the world’s second-largest economy.

Investors will also monitor the US consumer price index reading on Thursday for clues on the Federal Reserve’s monetary policy path.

(Reporting by Erwin Seba; Additional reporting by Natalie Grover, Florence Tan, and Emily Chow; Editing by Louise Heavens, Barbara Lewis, Sharon Singleton, Christina Fincher, Paul Simao, and David Gregorio)

PH may extend reduced import tariffs on rice, other commodities

MANILA, Aug 7 – The Philippines may extend reduced import tariffs on rice and other commodities beyond 2023 to ease pressure on inflation, which remained above target last month, officials said.

The lowered tariffs, also applying to corn and pork imports, are due to expire by the end of the year.

But supply side challenges, including a potential limit on rice shipments from Vietnam – the country’s biggest supplier – and the impact of El Niño dry weather on the local harvest, may warrant keeping tariffs where they are.

“We’re reviewing the possible extension,” Finance Secretary Benjamin Diokno told reporters on Friday in comments embargoed for publication until Sunday night.

Under a modified scheme introduced in 2021, tariffs on rice imported from outside Southeast Asia fell to 35% – in line with the rate for suppliers from inside the region, including Vietnam – from a previous range of 40%-50%.

The “comprehensive” review of tariffs also covers other commodities that could potentially fuel inflation, said Zeno Abenoja, undersecretary and chief economic counselor at the Department of Finance.

Annual headline inflation eased for a sixth straight month in July to 4.7%, still above the official 2%-4% target range, while food inflation fell to 6.3%.

The Philippines, one of the world’s top rice buyers, is encouraging private traders to ramp up imports, though it is worried about supply from Vietnam as other buyers crowd in.

Diokno said the government will expedite measures to mitigate the impact of El Niño on agricultural production and food security.

Such measures could help lessen pressure on the central bank to resume hiking interest rates, said Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona, who joined Diokno’s briefing.

The BSP, which next meets on Aug. 17 to review monetary policy, on Friday said it was ready to resume tightening as necessary to tackle price pressures.

(Reporting by Karen Lema; writing by Enrico Dela Cruz; editing by John Stonestreet)

Oil extends gains, hovers at four-month highs on OPEC+ cuts

SINGAPORE, Aug 7 – Oil prices extended gains on Monday to touch their highest levels since mid-April after top producers Saudi Arabia and Russia pledged to keep supplies down for another month to tighten global markets further and support prices.

Brent crude futures rose 25 cents, or 0.3%, to USD 86.49 a barrel by 0023 GMT, while US West Texas Intermediate crude was at USD 83.05 a barrel, up 23 cents, or 0.3%.

Both contracts notched their sixth consecutive weekly gains last week, the longest winning streak since December 2021 to January 2022.

Several factors have underpinned prices in recent weeks including expectations of US interest rate hikes tapering off, a reduction in OPEC+ supplies and hopes of stimulus boosting oil demand recovery in the world’s top crude importer China after a dismal second quarter.

The world’s top exporter Saudi Arabia on Thursday extended its voluntary production cut of 1 million barrels per day (bpd) to the end of September, adding that it could be extended beyond then or deepened. The kingdom’s production for September will be around 9 million bpd.

Russia said on Thursday would cut oil exports by 300,000 bpd in September. In addition, a Russian warship was last week seriously damaged in a Ukrainian naval drone attack on Russia’s Black Sea navy base at Novorossiysk. The port that handles 2% of the world’s oil supply has resumed operations.

Saudi Arabia’s comments that the cuts may be deepened caught the attention of the market, ANZ analysts said in a note.

Tightening supplies and falling inventories have also seen key physical crude market indicators strengthen in recent weeks, the ANZ analysts added.

In line with production cuts, Saudi Aramco raised on Saturday the official selling prices for most grades it sells to Asia for a third month in September.

OPEC+’s output cuts, China’s stimulus measures, and an improved US economic outlook are supporting crude prices, CMC Markets analyst Tina Teng said in a note, although she said prices were approaching near-term resistance of their April highs.

IG market analyst Tony Sycamore said a sustained break for WTI above USD 84.00 a barrel would open a move towards USD 93.50.

Investors will watch for Chinese economic data this week to gauge Beijing’s appetite for more stimulus measures to support the world’s second-largest economy.

In the US, the number of operating oil rigs fell by four to 525 last week, dropping for an eighth week in a row to their lowest since March 2022, Baker Hughes said in its weekly report on Friday.

(Reporting by Florence Tan; Editing by Jamie Freed)

Asia shares wary ahead of US, China inflation data

SYDNEY, Aug 7 – Asian share markets started in a cautious mood on Monday after a mixed US jobs report sparked a rally in beaten-down bonds, but new hurdles lay ahead in the shape of US and Chinese inflation figures due later this week.

MSCI’s broadest index of Asia-Pacific shares outside Japan were a fraction lower in thin trade, after losing 2.3% last week.

Japan’s Nikkei slipped 1.0% to test its July low. A summary of the last Bank of Japan meeting showed members felt making yield policy more flexible would help extend the life of its super-easy stimulus.

Going the other way, S&P 500 futures added 0.2% and Nasdaq futures 0.3% in early trade.

With roughly 90% of S&P 500 earnings reported, results are 4% better than consensus estimates with more than 79% of companies beating the Street. Results due this week include Walt Disney and News Corp.

Data on US consumer prices due Wednesday are forecast to show headline inflation picking up slightly to an annual 3.3%, but the more important core rate is seen slowing to 4.7%.

Analysts at Goldman Sachs see a downside risk to the numbers in part due to falling car prices, an outcome that might help keep the bond rally alive and kicking.

In China, the market is looking for further signs of deflation with annual consumer prices seen down around 0.5%, and producer prices falling 4%.

Any upside surprises would be a test for Treasuries which bear steepened markedly early last week ahead of a flood of new borrowing. In the event, a mixed payrolls report helped reverse much of the losses, particularly at the short tend.

Futures imply only a 12% chance of a Federal Reserve rate hike in September, and 24% for a rise by yearend.

Michael Gapen, an economist at BofA, cautioned the market was still expecting too much policy easing next year given the recent run of resilient economic data.

“We now expect a soft landing for the U.S. economy, not the mild recession we had previously forecasted,” wrote Gapen.

“While the market implies between 120-160bps of Fed cuts in 2024 we look for only 75bps,” he added. “There’s simply less reason for the Fed to quickly pivot to rate cuts in 2024 when growth is positive and unemployment is low.”

As a result, the bank raised its year-end forecast for two-year and 10-year yields by 50 basis points to 4.75% and 4% respectively.

On Monday, two-year yields were a tick higher at 4.80%, with the 10-year at 4.06%.

The pullback in yields took some steam out of the US dollar, which was idling at 141.90 yen and short of last week’s top of 143.89.

The euro held at USD 1.1000, having bounced from a trough of USD 1.0913 last week.

The dip in the dollar helped gold hold at USD 1,942 an ounce, after Friday’s rally from USD 1,928.90.

Oil prices stood firm having rallied for six straight weeks amid tightening supplies. The 17% climb in Brent combined with upward pressure on food prices from the war in Ukraine and global warming, is a threat to hopes for continued disinflation across the developed world.

Brent LCOc1 rose 17 cents to USD 86.41 a barrel, while US crude gained 12 cents to USD 82.94.

(Reporting by Wayne Cole;
Editing by Shri Navaratnam)

((Wayne.Cole@thomsonreuters.com; 612 9171 7144; Reuters Messaging: wayne.cole.thomsonreuters.com@reuters.net))

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Dodging the US curve ball

Aug 4 (Reuters) – Investors in Asia may well have one aim in mind Friday – get through the day unscathed and close out what has perhaps been the first proper ‘risk off’ week since the US regional banking shock in March.

The creeping rise in volatility and heavy selling this week can be blamed on a few factors, like Japan’s surprise policy shift and Fitch’s shock US credit rating downgrade, but one culprit is emerging above all others – the US yield curve.

The long end of the US Treasury curve is getting crushed, triggering a surge in long-dated yields and ‘steepening’ of the curve. The rapid moves are unnerving investors and come just as many stock markets are at or near historical highs.

The Asian economic data and corporate events calendar on Friday is light, with only Philippines inflation and Singapore retail sales on tap, leaving regional markets beholden to global risk sentiment.

After-the-bell earnings on Thursday from Apple and Amazon could soothe investors’ nerves on Friday ahead of the latest US employment report later in the day. Overall, the two tech giants reported fairly strong results and bullish outlooks.

But right now, it’s all about the US yield curve.

The 2s/10s curve is around 22 basis points steeper this week. Excluding the US regional banking sector shock in March, that would be the biggest weekly steepening since April last year, bigger than anything around the pandemic, and one of the biggest in well over a decade.

The 10-year and 30-year yields are at their highest levels since November, comfortably above 4.0%, and the latter is on track for its biggest weekly rise this year.

The S&P 500 is having its worst week since March, down 1.7% and only its third down week in 12, and the MSCI World index is on a similar track, already down more than 2% on the week.

Global currency market and S&P 500 equity volatility are the highest in two months, and implied volatility in dollar/yen trading is registering its steepest weekly rise since March.

Asian stocks ex-Japan have underperformed this year, so the week isn’t looking quite so alarming. Still, the MSCI Asia ex-Japan index is down 2.5%, wiping out all the previous week’s gains and poised to register its worst week in six.

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

– Philippines CPI inflation (July)

– Singapore retail sales (June)

– US non-farm payrolls, unemployment (July)

(By Jamie McGeever; Editing by Deepa Babington)

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