Oil prices ease on fears of weaker demand

SINGAPORE – Oil prices fell on Monday as concerns about a global economic slowdown and possible further interest rate hikes from the USFederal Reserve weighed on prices, offsetting forecasts of tighter supplies amid OPEC+ cuts.

Brent crude futures were last down 0.4%, or 27 cents, to USD 75.14 a barrel by 0630 GMT after settling up 0.8% on Friday. US West Texas Intermediate crude CLc1 was at USD 70.36 a barrel, down 0.4% or 28 cents, after closing 1.1% higher in the previous session.

Brent fell for the fourth straight quarter by the end of June while WTI notched a second quarterly drop as the world’s top two economies, the US and China, lost speed in the second quarter.

Fears of a further slowdown hurting fuel demand grew after data on Friday showed US inflation still outpacing the central bank’s 2% target and stoked expectations it would hike interest rates again.

“Hawkish commentary on rates continues to raise concerns of the demand outlook weighing on prices,” National Australia Bank analysts said in a note.

Higher interest rates could strengthen the greenback, making commodities more expensive for holders of other currencies, and also dampen oil demand.

Economists and analysts have lowered their Brent price forecasts to average at USD 83.03 a barrel in 2023, in the June Reuters oil poll.

Factory activity growth in China, the world’s largest crude importer, also slowed in June as sentiment and recruitment cooled on the back of sluggish market conditions, according to the Caixin/S&P Global private sector survey.

Still, some analysts expect supplies to tighten and push prices higher in the second half after top exporter Saudi Arabia pledged an extra 1 million barrels per day output cut in July, while the US is gradually replenishing its Strategic Petroleum Reserve.

“OPEC+’s multi-output-cuts have kept oil prices above key levels, which may see a further production reduction by the cartel to keep the crude market’s stability,” said Tina Teng, an analyst at CMC Markets.

However, the latest Reuters survey showed OPEC oil output has fallen only slightly in June as increases in Iraq and Nigeria limited the impact of cutbacks by others.

Investors are looking ahead to a conference later this week hosted by the Organization of the Petroleum Exporting Countries (OPEC) for supply cues.

US oil rigs fell by one to 545 last week, their lowest level since April 2022, while gas rigs fell six to 124, their lowest since February 2022, Baker Hughes data showed.

US crude output fell in April to 12.615 million barrels per day (bpd), its lowest since February, the US Energy Information Administration said on Friday.

(Reporting by Florence Tan and Emily Chow; Editing by Sonali Paul)

Oil settles lower as economic jitters outweigh supply cuts

July 3 (Reuters) – Oil prices settled down 1% on Monday as worries about a slowing global economy and possible US interest-rate hikes outweighed supply cuts announced for August by top exporters Saudi Arabia and Russia.

Brent crude futures settled down 1%, or 76 cents, at USD 74.65 a barrel while US West Texas Intermediate crude settled down 1.2%, or 85 cents, to USD 69.79.

Saudi Arabia on Monday said it would extend its voluntary cut of one million barrels per day (bpd) for another month to include August, the state news agency said.

But prices moved lower after business surveys showed global factory activity slumped in June as sluggish demand in China and in Europe clouded the outlook for exporters.

Fears of a further economic slowdown denting fuel demand grew on Friday as US inflation continued to outpace the central bank’s 2% target, stoking fears of more rate hikes.

Higher US interest rates could strengthen the dollar, making oil more expensive for buyers holding other currencies.

“Oil is facing serious economic headwinds and the market is trying to make sense of what additional crude cuts mean in that context,” said John Kilduff, partner at Again Capital LLC in New York.

Russia, seeking to tighten global crude supplies and boost prices in concert with Saudi Arabia, will reduce oil exports by 500,000 bpd in August, Deputy Prime Minister Alexander Novak said.

The cuts amount to 1.5% of global supply and bring the total pledged by OPEC+ oil producers to 5.16 million bpd.

Riyadh and Moscow have been trying to prop up prices. Brent has dropped from USD 113 a barrel a year ago, hit by concerns of an economic slowdown and ample supplies.

“Investors are turning upbeat as the second half of the year kicks off. They expect tighter oil balance and buoyant equities also suggest that recession will be avoided, albeit probably narrowly,” said PVM analyst Tamas Varga.

(Additional reporting by Alex Lawler and Natalie Grover in London, Florence Tan, and Emily Chow in Singapore; Editing by Jason Neely, David Goodman and David Gregorio)

Next week looks crucial for the dollar’s Fed-led recovery

The dollar index’s recovery from 2023’s double-bottom and its 2021 pandemic lows could hang in the balance with next week’s pivotal US data perhaps determining whether bearish, dwindling Fed rate hike expectations will persist.

The dollar’s recovery from March’s 100.78 banking crisis lows by February’s 100.80 lows was led by 2-year Treasury yields rebounding toward March’s 5.08% peak and highest since 2007. But the dollar has fallen from September’s 114.78 highs, despite 2-year yields making new highs in March and as yields approach those highs currently.

The Fed, by not hiking rates in June, despite indicating there could be two additional hikes, left the dollar in the lurch heading into next week’s June ISMs and employment report.

If the data fail to push 2-year yields, which encompass most Fed policy expectations, past March’s highs, the dollar’s downtrend could resume, putting in play this year’s lows. The index’s May 31 recovery high was rejected by weekly chart resistance that persists.

Next week’s data would have to drive 2-year yields to new highs to make retesting May’s 104.70 highs plausible. But as the market has demonstrated, the dollar upside from higher yields is waning, so a rally could be a chance to get short at better levels.

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

Gold heads for quarterly fall as more rate hikes loom

June 30 (Reuters) – Gold was bound for its first quarterly decline in three, squeezed by expectations for more US interest rate hikes, while moderate inflation prints provided some support on Friday.

Spot gold rose 0.5% to USD 1,917.94 per ounce by 01:46 p.m. EDT (1746 GMT). US gold futures settled 0.6% higher at USD 1,929.40.

Prices have shed 2.5% this quarter, dropping from levels just shy of all-time highs at USD 2,072 in May, caused by nervousness about the health of the US banking sector, to below USD 1,900 on Thursday.

The banking crisis “brought the 10-year yield lower because it was thought that the Fed was going to have to stop raising rates … that all got thrown out the door with the last rate hike (pressuring gold),” said Daniel Pavilonis, senior market strategist, RJO Futures.

The dollar index and 10-year Treasury yields were both set to gain this quarter, eroding gold’s appeal for investors holding other currencies.

US consumer spending stagnated in May, while the Fed’s preferred personal consumption expenditures index rose at a year-on-year pace of 3.8%, easing from April’s 4.3% pace.

Gold prices rose after the data, as traders bet the Fed was slightly less locked in to a July interest rate hike, trimming its chances to 84% from nearly 90% earlier.

Rate hikes lift bond yields and in turn raise the opportunity cost of holding non-yielding bullion.

“In the short term, the prospect for more US rate hikes combined with rising US real yields to or near cycle highs may pose a continued challenge to gold,” Saxo Bank head of commodity strategy Ole Hansen said in a note.

Silver rose 0.8% to USD 22.73 per ounce. Platinum gained 0.6% to USD 899.27 but was set for its biggest monthly decline in two years.

Palladium fell 0.1% to USD 1,227.79, and was headed for its third quarterly fall.

(Reporting by Deep Vakil in Bengaluru; editing by David Evans, Shinjini Ganguli and Barbara Lewis)

Cautious optimism drives inflows to US equity funds amid positive growth outlook

June 30 (Reuters) – US equity funds attracted inflows during the week ending June 28, buoyed by positive growth expectations as robust economic indicators eased concerns about higher borrowing costs.

Investors purchased US equity funds of a net USD 2.1 billion after disposing of about USD 16.5 billion worth of funds in the previous week, data from Refinitiv Lipper showed.

Investor sentiment improved as reports revealed an increase in new orders for key US-manufactured capital goods, a rise in sales of new single-family homes in May, and a surge in US consumer confidence to a near 1-1/2 year high in June.

Consequently, US growth funds witnessed inflows of USD 1.1 billion, rebounding from the USD 3.1 billion outflows reported the previous week. Additionally, value funds attracted USD 428 million in investments.

Breaking down the data by size, US large-cap, multi-cap, and small-cap equity funds experienced net inflows of USD 6.1 billion, USD 1 billion, and USD 121 million, respectively. However, mid-cap funds faced outflows of USD 536 million.

On the sector front, US sectoral funds encountered net outflows of USD 1.47 billion, with materials and consumer staples witnessing USD 518 million and USD 326 million in net selling, respectively.

In contrast, US bond funds registered their first weekly outflow in three weeks, with net selling amounting to USD 2.37 billion. Specifically, US taxable bond funds saw outflows of USD 2.19 billion, while municipal bond funds recorded net selling of USD 289 million.

US short/intermediate government & treasury and inflation-protected funds experienced net outflows of USD 1.53 billion and USD 262 million, respectively. However, short/intermediate investment-grade funds attracted inflows worth USD 472 million.

Meanwhile, US money market funds sustained outflows for a third consecutive week, with withdrawals totaling USD 6.48 billion.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathyin Bengaluru; Editing by Chizu Nomiyama)

Oil settles higher but posts fourth straight quarterly decline

June 30 (Reuters) – Oil prices settled higher on Friday but posted their fourth straight quarterly loss as investors worried that sluggish global economic activity could crimp fuel demand.

Benchmark Brent crude futures for August delivery which expires on Friday, settled up 56 cents, or 0.8%, at USD 74.90. In the three months to the end of June, the contract finished down 6%.

US West Texas Intermediate crude (WTI) settled up 78 cents, or 1.1% at USD 70.64 a barrel. It posted its second straight quarterly drop, down about 6.5% in the latest three months.

Prices have been under pressure from rising interest rates in key economies and a slower-than-expected recovery in Chinese manufacturing and consumption.

Signs of strengthening US economic activity and sharp declines in US oil inventories last week offered some support.

For the day, crude was bolstered by a US Commerce Department report showing annual inflation rising last month at its slowest pace in two years.

Signs of moderating inflation “could hold the Federal Reserve off rising interest rates again,” said John Kilduff, partner at Again Capital LLC in New York.

The market was also supported by upward revisions in demand for crude oil and refined products in the United States.

Demand for crude and petroleum products fell slightly to 20.446 million bpd in April but remained seasonally strong, EIA data showed.

Prices also drew support from Saudi Arabia’s plans to cut output by a further 1 million barrels per day in July in addition to a broader OPEC+ deal to limit supply into 2024.

“Despite the announcements of two fresh rounds of cuts from OPEC+/Saudi Arabia, crude prices have largely remained below USD 80 a barrel as the market has been driven less by fundamentals and more by macroeconomic concerns,” HSBC analysts said in a note.

“We think this will continue to be the case for part of the summer, although the deep deficit of around 2.3 million barrels forecast for 2H23 should help to spur some upwards price momentum.”

A Reuters survey of 37 economists and analysts showed oil prices will struggle for traction this year as global economic headwinds linger.

US energy firms this week cut the number of oil and natural gas rigs operating for a ninth week in a row for the first time since July 2020, energy services firm Baker Hughes said on Friday.

(Additional reporting by Ron Bousso in London, Arathy Somasekhar in Houston, and Muyu Xu in Singapore; editing by Robert Birsel, Jason Neely, David Evans, Louise Heavens, and David Gregorio)

What would Japanese intervention to boost the weak yen look like?

TOKYO, June 29 (Reuters) – Japanese authorities are facing renewed pressure to combat a continued yen fall driven by market expectations that the Bank of Japan will keep interest rates ultra-low, even as other central banks tighten monetary policy to curb inflation.

Aside from verbal intervention, Japan’s government has several options to stem what it considers excessive yen falls. Among them is to intervene directly in the currency market, buying large amounts of yen, usually selling dollars for the Japanese currency.

Below are details on how yen-buying intervention could work, the likelihood of this happening and challenges of such a move:

LAST YEN-BUYING INTERVENTION?

Japan bought yen in September, its first foray into the market to boost its currency since 1998, after a Bank of Japan (BOJ) decision to maintain an ultra-loose policy drove the yen as low as 145 per dollar. It intervened again in October after the yen plunged to a 32-year low of 151.94.

WHY STEP IN?

Yen-buying intervention is rare. Far more often the Ministry of Finance has sold yen to prevent its rise from hurting the export-reliant economy by making Japanese goods less competitive overseas.

But yen weakness is now seen as problematic, with Japanese firms having shifted production overseas and the economy heavily reliant on imports for goods ranging from fuel and raw materials to machinery parts.

WHAT HAPPENS FIRST?

When Japanese authorities escalate their verbal warnings to say they “stand ready to act decisively” against speculative moves, that is a sign intervention may be imminent.

A rate check by the BOJ, a practice in which central bank officials call dealers and ask for the price of buying or selling yen, is seen by traders as a possible precursor to intervention.

LINE IN THE SAND?

Authorities say they look at the speed of yen falls, rather than levels, and whether the moves are driven by speculators, in deciding whether to step in.

Market players, however, see the first threshold at 145 yen to the dollar, where Japan last intervened. If the dollar breaks above that, 150 yen could be the next line in the sand, analysts say.

WHAT TRIGGER?

The decision is highly political. When public anger over the weak yen and a subsequent rise in the cost of living is high, that puts pressure on the administration to respond. This was the case when Tokyo intervened last year.

But while inflation remains above the BOJ’s 2% target, public pressure has declined as fuel and global commodity prices have fallen from last year’s peaks.

If the pace of yen declines accelerates and draws the ire of media and public, the chance of intervention would rise again.

The decision would not be easy. Intervention is costly and could easily fail, given that even a large burst of yen buying would pale next to the USD 7.5 trillion that change hands daily in the foreign exchange market.

HOW WOULD IT WORK?

When Japan intervenes to stem yen rises, the Ministry of Finance issues short-term bills, raising yen it then sells to weaken the Japanese currency.

To support the yen, however, the authorities must tap Japan’s foreign reserves for dollars to sell for yen.

In either case, the finance minister issues the order to intervene, and the BOJ executes the order as the ministry’s agent.

CHALLENGES?

Yen-buying intervention is more difficult than yen-selling.

While Japan holds nearly USD 1.3 trillion in foreign reserves, they could be substantially eroded if Tokyo repeatedly spent huge for yen.

That means there are limits to how long Japan could keep defending the yen, unlike for yen-selling intervention – where Japan can essentially print yen by issuing bills.

Japanese authorities also consider it important to seek the support of Group of Seven partners, notably the United States if the intervention involves the dollar.

Washington gave tacit approval when Japan intervened last year, reflecting recent close bilateral relations.

But stepping in repeatedly would be difficult, as Washington traditionally opposes intervention except in cases of extreme market volatility.

(Reporting by Leika Kihara; Additional reporting by Tetsushi Kajimoto and Kentaro Sugiyama; Editing by William Mallard)

China, Japan data bring curtain down on H1

June 30 (Reuters) – Asian markets bring an eventful first half of the year to a close on Friday with investors bracing for a raft of top-tier economic data, particularly from China and Japan, and digesting yet another leg-up in global interest rate expectations.

China’s purchasing managers index reports will give a first glimpse into how the factory and services sectors in the region’s largest economy fared in June, while Tokyo inflation is likely to be the most important of a batch of indicators from Japan that also includes unemployment and industrial output.

Key releases from South Korea, Asia’s fourth largest economy, include retail sales, industrial output, and service sector growth for May.

The Chinese PMIs will come under particularly strong scrutiny. Contracting activity in manufacturing is being offset by expansion in services, but overall growth is weak, and authorities are coming under pressure to step in with substantial monetary or fiscal stimulus. Or both.

The yuan is at a seven-month low and sliding toward a fresh 15-year trough against the dollar, trade with the rest of the world is falling, inflation is evaporating, and growth forecasts are being slashed.

The pick of Japan’s indicators looks like being Tokyo consumer inflation excluding fresh food prices for June, and what that might signal for monetary policy. Economists anticipate a tick up in the annual rate to 3.3% from 3.2%.

The Bank of Japan, like its Chinese counterpart, is swimming against the global tide of tighter policy, the main reason why the yen is also at a seven-month low against the dollar and fueling BOJ intervention speculation.

In fact, the yen is close to a 50-year low on a real effective exchange rate basis. With stocks hovering around 33-year highs and base rates still negative, financial conditions in Japan are the loosest since 1997, according to Goldman Sachs.

Goldman’s emerging markets financial conditions index is the lowest in 16 months, which stands in contrast to developed economies where rates, bond yields borrowing costs of all stripes are rising sharply.

The US two-year yield jumped 15 basis points on Thursday, its biggest rise in a month, and traders are now pricing in at least one more quarter point rate hike this year. Fed Chair Jerome Powell this week indicated he thinks two will be delivered.

The good news is rate expectations are being ramped up because the economy is strong. Thursday’s US data were unambiguously positive – a chunky upward revision to Q1 GDP growth and the biggest fall in weekly jobless claims since 2021 point to ‘no landing’, never mind a ‘soft landing’

But growth and earnings will suffer at some point. The US yield curve on Thursday inverted further to within a few basis points of the 40-year low seen in March. This is a warning sign that investors think something, somewhere, at some future point, will ‘break’.

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

– China PMIs (June)

– Japan – Tokyo inflation (June)

– US PCE inflation (May)

(By Jamie McGeever.)

Gold stabilizes after strong US data drags bullion below USD 1,900/oz

June 29 (Reuters) – Gold regained some ground on Thursday as traders took advantage of a brief dip below the key psychological USD 1,900 level that was driven by a volley of robust US economic readings.

Spot gold edged up 0.1% at USD 1,908.4 per ounce by 1:52 p.m. EDT (1752 GMT). US gold futures settled 0.2% lower at USD 1,917.90.

Prices fell under USD 1,900 for the first time since mid-March after the data as the dollar index firmed 0.4%, making bullion less attractive for overseas buyers. Benchmark 10-year Treasury yields rose.

“We’ve seen prices move down from USD 2,000 to USD 1,900 and that in itself is going to bring about some bargain hunting,” said David Meger, director of metals trading at High Ridge Futures.

US jobless claims fell last week by the most in 20 months, pointing to labor market strength that also helped prop up gross domestic product in the first quarter.

“It was a one-two punch taking gold another leg lower … and then the hawkish central banks haven’t helped out at all,” said Phillip Streible, chief market strategist at Blue Line Futures in Chicago.

Federal Reserve Chair Jerome Powell said most of the central bank’s policymakers expect they would need to raise interest rates at least twice more by year-end with US inflation well above the 2% goal and a labor market that’s still very tight.

While gold is considered an inflation hedge, rising rates dull non-yielding bullion’s appeal, with current rate expectations putting it on course to end the quarter in negative territory for the first time since September 2022.

Traders awaited May’s personal consumption expenditure data, the Fed’s favored inflation gauge, on Friday.

Silver fell 0.6% to USD 22.59 per ounce, while platinum dropped 1.6% to USD 896.55, an eight-month low.

Palladium dipped 1.6% to USD 1,228.50, hovering near its lowest since December 2018.

(Reporting by Deep Vakil in Bengaluru; Editing by Conor Humphries, Shilpi Majumdar and Maju Samuel)

Gold falls for third session as Powell reaffirms hawkish stance

Gold prices fell for a third-straight session on Thursday, trading near a key support level of USD 1,900 as global central bankers including Federal Reserve Chair Jerome Powell double down on their hawkish policy messages.

Spot gold was little changed at USD 1,906.45 per ounce by 0817 GMT, lingering near its lowest since mid-March. US gold futures GCcv1 fell 0.4% to USD 1,914.70.

Powell reiterated on Wednesday that more rate rises likely lie ahead for the central bank, and did not rule out a boost in the cost of borrowing at a policy meeting scheduled for the end of July.

The US dollar index held firm, keeping gold under pressure.

The overall scenario for gold and precious metals remains challenging, with both Powell and European Central Bank President Christine Lagarde preparing markets for more rate hikes, Carlo Alberto De Casa, external analyst at Kinesis Money.

Despite this, the support zone of USD 1,900 has so far proven to be solid, and many traders see growing chances of recession in 2024, De Casa added.

While gold is considered a hedge against inflation, rising interest rates dull non-yielding bullion’s appeal.

Bullion has dropped about 3% so far in June and looks set to end the quarter in negative territory for the first time since September 2022, as traders pushed back expectations for an end to the rate hike cycle.

Powell’s hawkish remarks reinforced interest rates going higher for longer, with a greater opportunity cost of holding gold dimming the appeal of the metal, said OCBC FX strategist Christopher Wong.

Market participants are now awaiting initial U.S. jobless claims and final first-quarter GDP numbers due later in the day, along with personal consumption expenditure (PCE) data for May on Friday.

Spot silver rose 0.3% to USD 22.776 per ounce, platinum climbed 0.7% to USD 917.46.

Palladium fell 0.1% to USD 1,247.86, but was holding above Wednesday’s 4-1/2-year low of USD 1,208.50.

(Reporting by Seher Dareen and Swati Verma in Bengaluru; Editing by Subhranshu Sahu, Rashmi Aich and Emelia Sithole-Matarise)

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