Next up ECB: Will it be a hawkish 25 or dovish 50?

The spotlight moves swiftly from the Fed’s “possible pause or pivot” message overnight to the European Central Bank, where the direction of rates is not in question.

It will be a seventh rate rise for the ECB, the central bank for a 20-country zone whose headline inflation is 7%, and it has so far dismissed the ongoing banking crisis as US-specific.

Will the ECB go for a heavier 50 basis-point hike and signal a possible pause, allowing President Christine Lagarde to echo Fed Chair Jerome Powell’s “credit tightening” excuse? The odds are for a smaller rise.

The Fed on Wednesday delivered what markets are convinced will be the last rate hike of the cycle. It signalled it may pause further increases, giving officials time to assess the fallout from the bank failures, wait on a political resolution to the US debt ceiling, and monitor inflation.

Another bank soon reported trouble. PacWest Bancorp fell nearly 60% after announcing it is exploring strategic options, including a potential sale or capital raise. A liquidity boost it announced in March failed to inspire confidence in its ailing share price.

Those worries left Asian markets pricing in not just a possible peak in US rates but even a fall. Fed Funds futures: imply a 52% chance of a rate cut in July.

The focus will move back to the tech sector later in post-market hours in the United States when the world’s most valuable company, Apple Inc AAPL.O, may report a more than 4% drop in revenue, its second straight quarterly decline, weighed down by consumers shunning non-essential purchases such as iPhones and Mac computers and slowing growth at its services business.

Key developments that could influence markets on Thursday:

– Economic events: ECB rate decision, Eurozone March PPI, Germany trade balance, US initial jobless claims

– Earnings: Apple, Shell, Shopify, ArcelorMittal, Shell

USD index selling in the wake of FOMC may be overdone

May 4 (Reuters) – The USD index fell to 101.05 Thursday after the US Federal Reserve hiked rates by 25 basis points as expected, with a hint at a possible pause in the statement, but the selling looks overdone.

Focus is now on the 100.78 year-to-date low. Failure to break below it would risk a bounce back towards the 102 handle.

The selloff in the index is overdone, and should be regarded as more of an indication of concern over the turmoil in US regional banks after PacWest Bancorp said it is considering a sale of strategic assets.

Traders may soon re-focus on the key takeaway from Fed chair Jerome Powell’s speech: that the Fed has not made a firm decision on whether it will stop raising rates. This should not be ignored.

Though there are potential negatives for the US economy ranging from tightening credit conditions to bank failures, consumption remains strong, while the labor market is still tight–as Powell highlighted. Unless core inflation eases, the chance of another rate hike or two remains on the cards. The Fed remains strongly committed to bringing inflation back down to 2%.

St Louis Fed President James Bullard, a noted hawk, speaks Friday – he might reiterate the need to hike rates further until inflation is tamed.

(Catherine Tan is a Reuters market analyst. The views expressed are his own. Editing by Ewen Chew and Sonali Desai)

Asia’s crude oil imports slip in April amid softer China, India

LAUNCESTON, Australia, May 4 (Reuters) – The strong start to the year for Asia’s imports of crude oil came to a halt in April, with arrivals dropping to a seven-month low as top buyers China and India trimmed purchases.

A total of 108 million tonnes, or 26.39 million barrels per day (bpd) was imported by Asia last month, according to data compiled by Refinitiv Oil Research.

This was down from March’s 27.6 million bpd, which in turn was lower than February’s 29.4 million bpd and the 29.13 million bpd in January.

The decline in April arrivals was led by China, the world’s largest crude importer, with Refinitiv estimating imports at 10.67 million bpd, down from the 34-month high of 12.37 million bpd in March.

It was always likely that China’s imports would pull back in April as that month and May are the peak season for refinery maintenance.

But after the strong start to the year for China’s crude oil imports, there are now several question marks over the outlook for coming months, as the rebound in the world’s second-biggest economy appears uneven.

The official manufacturing Purchasing Managers’ Index (PMI) dropped to 49.2 in April from 51.9 in March, slipping below the 50-level that demarcates expansion from contraction for the first time since December.

The PMI was also below market expectations for a positive outcome of 51.4.

Manufacturing is one of the key pillars of China’s economy from a commodity demand perspective, the others being construction and infrastructure.

The news here is somewhat mixed, with infrastructure investment rising 8.8% year-on-year in the first quarter, outpacing a 5.1 rise in overall fixed-asset investment, while property investment fell 5.8%.

There is also the question of crude prices and the lag between moves in these and imports, given the time between refiners ordering oil and its delivery can be as long as three months.

Crude oil prices were kicked higher at the start of April when the OPEC+ group of producers surprised the market by announcing an additional 1.16 million bpd of output cuts.

Benchmark Brent futures LCOc1 rose from just below USD 80 a barrel to a peak of USD 87.49 a barrel on April 12, but have since slipped back to end at USD 72.33 on Wednesday as concerns over global growth trumped fears of tighter supply.

Nonetheless, the rise in Brent futures, which was accompanied by higher official selling prices for May cargoes from Middle East exporters such as Saudi Arabia, may put a dampener on Chinese demand for May and June cargoes.

India slows imports

This could extend to other major buyers in Asia, with the region’s second-biggest importer India showing signs of moderating crude appetite in April.

Imports were estimated at 4.60 million bpd in April, down from the eight-month high of 5.02 million bpd in March.

It’s also worth noting that India’s refiners are continuing to switch to cheaper Russian crude, with arrivals in April at 1.68 million bpd, only slightly down from the record high of 1.72 million bpd in March.

Russia has become India’s largest crude supplier, displacing erstwhile OPEC+ ally Saudi Arabia, with India’s April imports from the kingdom dropping to the lowest since September 2021.

Russian crude is also winning against Saudi oil in China, with April arrivals of 2.10 million bpd beating out the 1.73 million bpd from the Middle East’s top exporter.

Outside of the two Asian heavyweights, there was a mixed picture with number three importer Japan recording arrivals of 2.77 million bpd, up slightly from March’s 2.52 million, while fourth-ranked South Korea saw imports slip to 2.56 million bpd in April, a 10-month low and down from 2.96 million bpd in March.

The overall view on Asia’s imports is that April showed a loss of momentum after a strong start to the year.

Whether the slower April imports are mainly because of technical and temporary factors such as refinery maintenance, or if they signal the soft global economy is starting to drag Asian demand will become clearer in May and June.

The opinions expressed here are those of the author, a columnist for Reuters.

(Editing by Kim Coghill)

Wall Street ends down after Fed chair comments on rate hikes

NEW YORK May 3 (Reuters) – US stocks ended lower on Wednesday, reversing gains after comments by Federal Reserve Chair Jerome Powell left investors wondering what the US central bank’s next move would be with interest rate hikes.

Indexes initially held onto gains following the Fed’s statement. It increased interest rates by a quarter of a percentage point, as expected, and signaled it could pause further hikes.

The unanimous decision lifted the US central bank’s benchmark overnight interest rate to the 5.00%-5.25% range, the 10th consecutive increase since March 2022.

At the press conference following the statement, Powell said the Fed still views inflation as too high, and said it was too soon to say the rate hike cycle is over.

“The Fed continues to walk the tightrope, and that is they’re trying to strike a balance between their inflation-fighting credibility while trying to engineer a soft landing,” said Michael Arone, chief investment strategist at State Street Global Advisors in Boston.

Heading into the session, investors had been anxious for any signals from the US central bank on whether Wednesday’s increase would be the last hike for now.

According to preliminary data, the S&P 500 lost 27.65 points, or 0.67%, to end at 4,091.93 points, while the Nasdaq Composite lost 50.62 points, or 0.46%, to 12,025.33. The Dow Jones Industrial Average fell 261.10 points, or 0.78%, to 33,423.43.

“Anybody that was hoping for an inclination toward that scenario, it doesn’t sound like they’re getting that,” said Alan Lancz, president of Alan B. Lancz & Associates Inc., an investment advisory firm based in Toledo, Ohio. “It’s inconclusive.”

Investors worry that higher rates will eventually tip the economy into recession.

Earlier, data showed US private employers boosted hiring in April but showed signs the labor market was slowing following several rate hikes.

A separate report showed US services sector maintained a steady pace of growth in April, but higher input prices indicated inflation could remain elevated for some time.

Advanced Micro Devices (AMD) shares fell after the chipmaker forecast quarterly sales below estimates due to a weak PC market.

(Additional reporting by Chuck Mikolajczak and Herb Lash in New York and Ankika Biswas and Sruthi Shankar in Bengaluru, Additional reporting by Amruta Khandekar; Editing by Shounak Dasgupta and David Gregorio)

Dollar drops after Fed hikes rates and signals pause

NEW YORK, May 3 (Reuters) – The dollar dropped after the Federal Reserve on Wednesday raised interest rates by a quarter of a percentage point and signaled it may pause further increases.

The pause would give officials time to assess the fallout from recent bank failures, wait on the resolution of a political standoff over the US debt ceiling, and monitor the course of inflation.

The dollar index fell to a session low of 101.05 and the euro hit a session high of USD 1.10925. The dollar also fell to 134.82 against the Japanese yen.

(Reporting by Karen Brettell; Editing by Chizu Nomiyama)

Gold firms after Fed signals pause to rate hikes

May 3 (Reuters) – Gold firmed on Wednesday after a brief jump to nearly 1% as the US Federal Reserve delivered a widely expected rate hike and signaled a pause in further increases.

Spot gold was 0.4% higher at USD 2,024.19 per ounce by 3:25 p.m. EDT (19:25 GMT) after touching its highest since April 14 at USD 2,036.15 earlier.

US gold futures settled up 0.7% at USD 2,037.

The Fed raised interest rates by a quarter percentage point to quell the inflationary pressures that have kept price rises well above its 2% target.

It also signaled a pause in further increases to assess the fallout from recent bank failures, wait on the resolution of a political standoff over the US debt ceiling, and monitor the course of inflation.

“Gold’s ability to finish unchanged despite hawkish hints from (Fed Chair Jerome) Powell, positions it well for a fresh push toward all-time highs now that the Fed is on pause and the debt ceiling situation looks increasingly dire,” said Tai Wong, an independent metals trader based in New York.

The Fed chief said “we are prepared to do more” with rate rises if needed, but added they may not be far off, and possibly at, a “sufficiently restrictive” level to return inflation to target.

The US dollar index fell 0.6%, making bullion more expensive for buyers holding other currencies, while benchmark 10-year Treasury yields also lowered.

Non-yielding bullion, a customary safe haven against inflation and economic uncertainty, draws lower demand when higher interest rates boost returns on competing assets with yields.

“Concerns regarding US regional banks and the debt ceiling suggest further price volatility is in the offing,” said Standard Chartered analyst Suki Cooper.

Gold prices had gained 1% in April as the US banking crisis spurred a flight to safety.

Silver was up 0.1% to USD 25.41 per ounce, platinum shed 1.4% to USD 1,050.64 while palladium dropped 0.3% to USD 1,425.68.

(Reporting by Deep Vakil in Bengaluru; Editing by Barbara Lewis, Nick Macfie, Shilpi Majumdar and Aurora Ellis)

Global rate hike push slows to a trickle in April ahead of busy May

LONDON, May 3 (Reuters) – Interest rate hikes from central banks around the globe slowed to a trickle in April thanks to a combination of easing inflation and slowing growth prospects amid a dearth of meetings on monetary policy decisions.

April saw two interest rate hikes across five meetings by central banks overseeing the 10 most heavily traded currencies. Policy makers in New Zealand and Sweden delivered a total of 100 basis points (bps) in rate hikes, while Japan, Australia and Canada held fire at theirs. That compares to six interest rate hikes across eight meetings by G10 central banks in March.

“We are approaching the end of the global hiking cycle, we are at an inflection point,” said Omar Slim, co-head of Asia ex-Japan fixed income at PineBridge Investments.

However, whilst the developed market tightening cycle was in its final throes, policy makers had still some lose ends to tie up in May with Australia’s central bank surprising markets with an interest rate on Tuesday and policy makers at the US Federal Reserve and European Central Bank – neither of which met last month – expected to deliver more hikes in coming days.

“The Fed is widely anticipated to hike but likely to maintain a tightening bias to provide optionality for another hike if inflation doesn’t comply,” said Mark McCormick at TD Securities.

In emerging markets, further signs of a slowdown in the rate hike push became evident. Eleven out of 18 central banks in the Reuters sample of developing economies met to decide on rate moves, but only policy makers in Israel and Colombia hiked by a cumulative 50 bps. China, Indonesia, India, Korea, Russia, Turkey, Hungary, Poland and Chile all decided to stay put.

That compares to fourteen central banks in developing economies meeting in March with five hiking by a total of 150 bps.

In a sign that a pivot to rate cuts was on the cards for emerging markets, Uruguay’s central bank – which is not part of the Reuters sample – cut its benchmark interest rate by 25 basis points last Wednesday, becoming the first to reduce interest rates in the region.

Analysts said policy makers in developing economies elsewhere were not far behind.

Central banks across Central and Eastern Europe provided firmer signs in recent days that with inflation now declining monetary loosening may soon be on the cards, said Nicholas Farr, Emerging Europe Economist at Capital Economics.

“But there are still clearly big concerns that inflation will be slow to fall back to central banks’ targets, and we think that interest rates will be cut by less than most analysts expect over the next couple of years,” Farr added.

(Reporting by Karin Strohecker and Vincent Flasseur; Editing by Lincoln Feast.)

Australian shares drop 1% on heavy financials, energy selloff

May 3 (Reuters) – Australian shares on Wednesday marked their worst day in almost seven weeks, as risk-averse sentiment forced investors to sell banking and energy stocks a day after the central bank stunned markets with a surprise quarter-point rate hike.

The S&P/ASX 200 index fell 1.0% to 7,197.4 points at the close of trade to hit its lowest level since March 31.

The Reserve Bank of Australia on Tuesday stunned markets by raising its cash rate by 25 basis points when traders had looked for an extended pause, saying inflation was way too high and higher rates might be required.

Investors also keenly awaited the US Federal Reserve’s board meeting due later in the day to gauge the future trajectory of monetary policy tightening.

“The selloff started yesterday when the RBA did the surprise 25-point increase and now we’re waiting for the US, which we anticipate will do the same. So the market is understandably nervous about that,” said Brad Smoling, managing director, Smoling Stockbroking.

Back in Sydney, the energy sub-index hit its lowest in more than five weeks after oil prices slumped 5% on US economic concerns.

Sector majors Woodside and Santos closed the day down 2.3% and 2.5%, respectively. Shares of Paladin and Beach Energy ended lower between 2.4% and 3.5%.

Financials dropped 1.5%, tracking a poor performance from US regional banks on Wall Street.

All “Big Four” banks traded in red, with National Australia Bank falling 1.9%.

Local miners lost 0.6% during the day, tracking a broader subdued mood in the mining market. Iron ore giants BHP Group, Rio Tinto, and Fortescue Metals lost 0.8%, 2.1% and 4.1%, respectively.

Among individual stocks, machine learning solutions company Appen ended the day 5.7% higher on teaming with NVIDIA for AI solutions.

Investors opted for safe-haven assets among gold stocks, with the sub-index limiting losses in the benchmark. The AXGD sub-index ended the day 2.5% higher.

New Zealand’s benchmark S&P/NZX 50 index fell 1.1% to finish the session at 11,908 points.

(Reporting by Rishav Chatterjee in Bengaluru; Editing by Sherry Jacob-Phillips)

Oil extends losses ahead of expected interest rate hikes

May 3 (Reuters) – Oil extended losses on Wednesday after plunging 5% in the previous session, as investors priced in expectations for interest rate hikes in the US and Europe and waited for clarity on future policy path.

Brent futures dipped 12 cents, or 0.2%, to USD 75.20 a barrel by 0605 GMT, while West Texas Intermediate crude (WTI) fell 17 cents, also 0.2%, to USD 71.49.

Both benchmarks closed at their lowest since March 24 in the previous session, when they also recorded their biggest one-day percentage declines since early January.

“Sentiment in the oil market remains negative,” Warren Patterson and Ewa Manthey, analysts from ING, said in a note to clients. “Investors seem to be getting increasingly nervous about the macro outlook and its implications for oil demand.”

The US Federal Reserve is expected to hike interest rates by an additional 25 basis points on Wednesday to combat inflation, while the European Central Bank is also expected to raise rates at its regular policy meeting on Thursday.

More hikes could slow economic growth and hit energy demand.

“A 25 basis-point rate hike has been fully priced, so focus will be on how Fed Chair Jerome Powell balances between keeping the Fed’s tightening option open and calming nerves around the renewed banking jitters,” Yeap Jun Rong, market analyst at brokerage IG, said in a note.

Regulators seized First Republic Bank and sold its assets to JPMorgan Chase & Co on Monday, in a deal to resolve the largest US bank failure since the 2008 financial crisis and draw a line under a lingering banking turmoil.

In Australia, the central bank stunned markets by hiking its cash rate on Tuesday and warned that further tightening may be needed to combat high inflation.

Concerns about diesel demand in recent months, meanwhile, have pushed down US heating oil futures to their lowest level since December 2021.

Energy prices are also under pressure after data from China over the weekend showed manufacturing activity fell unexpectedly in April. China is the world’s largest energy consumer and top buyer of crude oil.

The reopening of China’s economy will be pivotal for Asia, the International Monetary Fund said as it raised its economic forecast for the region on Tuesday. But it warned of risks from persistent inflation and global market volatility driven by Western banking-sector woes.

Meanwhile, US crude stockpiles fell for a third week in a row for the first time since December, down some 3.9 million barrels last week, according to market sources citing American Petroleum Institute figures on Tuesday.

Official stockpile data from the US Energy Information Administration is due at 10:30 a.m. EDT on Wednesday.

A Reuters survey found that OPEC oil output fell 190,000 barrels-per day in April, mainly driven by Iraq and Nigeria. Output is set to drop further in May as a new round of voluntary cuts unveiled on April 2 takes effect.

(Reporting by Laura Sanicola and Muyu Xu; Editing by Himani Sarkar)

Oil falls 4%, extending losses after Fed rate hike

NEW YORK, May 3 (Reuters) – Oil prices fell 4% on Wednesday, extending steep losses from the previous session after the US Federal Reserve raised interest rates and as investors fretted about the economy.

Brent futures settled USD 2.99 lower, or 4%, to USD 72.33 a barrel, the global benchmark’s lowest close since December 2021. Brent hit a session low of USD 71.70 a barrel, its lowest since March 20.

US West Texas Intermediate crude (WTI) fell USD 3.06, or 4.3%, to USD 68.60. WTI’s session low was USD 67.95 a barrel, the lowest since March 24.

A day earlier, both benchmarks fell 5%, their biggest daily percentage declines since early January.

On Wednesday afternoon, the Fed raised interest rates by a quarter of a percentage point, pressuring oil prices as traders worried that slower economic growth could hit energy demand.

But the Fed also signaled it may pause further increases, giving officials time to assess the fallout from recent bank failures, wait for the resolution of a political standoff over the US debt ceiling, and monitor inflation.

Banking sector concerns returned to the spotlight on Monday after US regulators seized First Republic, the third major US institution to fail in two months, with JPMorgan Chase & Co (JPM) agreeing to take USD 173 billion of the bank’s loans, USD 30 billion of securities and USD 92 billion of deposits.

“The Fed going into a pause mode should be very supportive for the price of oil,” said Phil Flynn, an analyst at Price Futures Group. “The big question is whether or not we’re going to have more shoes drop in the banking sector.”

The European Central Bank is also expected to raise rates at its policy meeting on Thursday.

Also pressuring oil prices, government data showed US gasoline inventories unexpectedly rose by 1.7 million barrels last week. Analysts polled by Reuters had expected a 1.2-million-barrel drop.

“The most notable thing is that gasoline demand gave back all of the increases that we’d seen in previous weeks,” said Andrew Lipow, president of Lipow Oil Associates in Houston.

US crude inventories fell by 1.3 million barrels in the week, compared with forecasts for a 1.1 million-barrel drop.

In China, data over the weekend showed April manufacturing activity fell unexpectedly in the world’s largest energy consumer and top buyer of crude oil.

Morgan Stanley lowered its forecast for Brent prices to USD 75 a barrel by year-end.

“Downside risk to Russia’s supply and upside risk to China’s demand have largely played out and prospects for 2H tightness have weakened,” the bank said in a note, referring to buoyant exports from Russia despite Western sanctions.

(Reporting by Stephanie Kelly; additional reporting by Noah Browning and Muyu Xu
Editing by Emelia Sithole-Matarise, Marguerita Choy, and David Gregorio)

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