Oil steadies after Russia says global oil markets in balance

NEW YORK, April 27 (Reuters) – Oil prices steadied on Thursday, paring losses from the previous session, after a top Russian official said global oil markets were balanced.

Russian Deputy Prime Minister Alexander Novak said OPEC+ does not see the need for further oil output cuts but is always able to adjust its policy. Russia is part of the OPEC+ group of oil producers that this month announced a combined reduction of around 1.16 million barrels per day, a surprise decision the US described as unwise and which sent oil prices higher.

Brent crude futures settled up 68 cents at USD 78.37 a barrel, while West Texas Intermediate crude CLc1 settled up 46 cents at USD 74.76 a barrel.

“The small increase in crude oil prices has been caused by short-covering from the sell-off over the last several days,” said Andrew Lipow, president of Lipow Oil Associates in Houston.

On Wednesday, the benchmarks dropped almost 4% as jitters about a US economic downturn overshadowed a larger-than-expected fall in US crude inventories.

Investors are watching economic data for any directional cues on energy demand.

US economic growth slowed by more than expected in the first quarter, although jobless claims fell in the week ending April 22, data showed.

“It’s kind of a mixed bag on interest rates, and oil doesn’t know how to take that right now,” said Phil Flynn, an analyst at Price Futures Group.

On Wednesday, US data showed capital goods spending fell more than expected. Oil prices were also pressured as weak risk sentiment spread from the banking sector due to First Republic Bank’s continued slump.

Analysts see weak refinery margins as a major drag on oil prices, with oil broker PVM’s Tamas Varga pointing to heating oil and gas oil as “the main possible culprit for the outsized weakness”.

“Inventories in this product are somewhat reluctant to deplete, possibly due to resilient Russian exports,” Varga said.

Russia has increased exports of refined products despite an EU embargo and oil price cap, sources told Reuters.

Falling refinery profit margins could lead to cuts in runs and a further reduction in crude demand, said Ole Hansen, head of commodity strategy at Saxo Bank.

Backwardation in the Brent futures curve has eased to just about USD 2.20 per barrel, having touched USD 4 a barrel on April 12.

Backwardation, when prices for the front-month contract are higher than contracts for later months, typically indicates tight supply.

Markets will look for direction from the first quarterly print of eurozone gross domestic product growth, due on Friday. The data could affect monetary policy decisions by the European Central Bank when it meets on May 4.

(Reporting by Stephanie Kelly in New York; Additional reporting by Rowena Edwards in London, Sudarshan Varadhan in Singapore, and Katya Golubkova in Tokyo; Editing by Marguerita Choy and David Gregorio)

Gold dips as rate hike bets hold despite weak data, dollar gains

April 27 (Reuters) – Gold reversed course and dropped on Thursday, as the dollar gained after weaker US economic readings failed to upend expectations of another interest rate hike by the Federal Reserve next week amid stubborn inflation.

Spot gold was down 0.1% at USD 1,988.08 per ounce by 2:16 p.m. EDT (1816 GMT), while US gold futures settled up 0.2% at USD 1,999.

Data showed the US gross domestic product grew slower-than-expected last quarter, but markets focused on the above-forecast inflation number.

That drove investors to the dollar, making gold more expensive for those holding other currencies. USD/

Although gold is a customary safe haven during economic uncertainties, stubborn inflation could prolong the Fed’s monetary tightening, dimming appeal for zero-yield bullion.

Markets saw an 87% chance of the US Fed raising rates by 25 basis points on May 2-3. Investors now await the core Personal Consumption Expenditures (PCE) index data for March due on Friday.

“If we do get a hotter number on that PCE tomorrow, that’s going to be bearish for gold from a perspective of global demand for the metals markets”, given prospects of further rate hikes, said Jim Wyckoff, senior analyst at Kitco Metals.

Earlier in the day and in previous sessions, gold found support from concerns about the US banking sector, with US government officials so far unwilling to intervene in the First Republic Bank (FRC) rescue process.

Also on the radar were deliberations surrounding the US debt ceiling, lifting Treasury yields.

Although higher interest rates work against gold as it does not provide any yield, they can work in bullion’s favor because they raise the chance of another banking crisis, said independent analyst Ross Norman.

Bullion had scaled more than a year’s peak at USD 2,048.71 in mid-April as the banking crisis unfolded.

Silver rose 0.1% to USD 24.91 an ounce, platinum shed 0.9% to USD 1,079.52 and palladium was down 1.2% at USD 1,494.07.

(Reporting by Deep Vakil and Ashitha Shivaprasad in Bengaluru; Editing by David Goodman, Sohini Goswami, Alexander Smith and Shilpi Majumdar)

Rising US junk bond yields lure investors as fears of severe recession ebb

April 27 (Reuters) – A segment of US junk-grade bonds yielded the highest returns so far this year in a sign that Wall Street is more willing to take on riskier investments with higher returns, as fears of a severe economic downturn abate.

Returns on CCC-rated debt jumped to more than 6% so far this year from a 16.3% tumble last year, according to data from Morningstar Direct. Although the bonds with that rating are considered to be among the riskiest, their returns were the best across all rated categories this year.

Credit rating agency Fitch says CCC denotes a very low margin for safety and a high level of default risk.

Investors turned to such risky bets in their quest for higher returns as they hoped for a milder recession, if there was one, better-than-feared corporate earnings and a limited fallout from the failure of two large regional banks.

“CCCs have been the strongest performing segment in fixed income,” said Manuel Hayes, senior portfolio manager at Insight Investment.

Bonds rated B and BB followed closely, with returns of 4.1% and 3.7% so far this year. Their performance was still better than those rated investment grade, according to Morningstar data.

Although rated junk, B and BB are considered less risky than CCC.

In other signs that the market tempered some of the risks expected earlier, the option-adjusted spread (OAS) on the ICE BofA US High Yield Index, a commonly used benchmark for the junk bond market, ticked down to 463 bps on April 26 from 522 bps a month back, according to Refinitiv.

To be sure, downgrades and defaults may increase if borrowing costs become prohibitive for poorly rated companies dependent on the ability to issue new debt and refinance existing debt cheaply, said Jeremy Wager-Smith, fixed income portfolio associate at San Francisco-based wealth and investment management firm Bailard.

He expects CCC spreads to widen as corporate fundamentals and earnings deteriorate among vulnerable issuers.

Still, some analysts believe that strong fundamentals of most corporate issuers will lead to increased downgrades rather than high levels of defaults in the event of a recession.

“From a credit selection perspective, we still think it makes sense to focus on strong companies and defensive sectors, whether in investment grade or high yield,” said Bishop Jordan, senior credit analyst at Eagle Asset Management.

Investment grade debt on the Federal Reserve Bank of New York’s corporate bond distress index (CMDI) showed more stress than their high-yield counterparts during most of the past year as the Fed delivered the fastest pace of interest rate hikes in decades.

The CMDI was launched last year, with historical data from 2005. It is designed to help identify signs of market distress and is keenly watched by investors.

(Reporting by Mehnaz Yasmin in Bengaluru; Editing by Alden Bentley and Anil D’Silva)

China’s small steps on offshore use of yuan are starting to add up

SINGAPORE, April 27 (Reuters) – China’s yuan currency is slowly but surely being adopted for more international payments, which analysts say could lay the foundations for a trade system running parallel to the dominant US dollar.

In the past day alone, data showed that more cross-border transactions with China were settled in yuan in March than in dollars for the first time and that Argentina said it aims to regularly pay for Chinese goods in yuan and not dollars.

While the dollar dominates world trade settlements, the news comes amid a steady drumbeat of more and more bilateral deals arranging yuan payments with China — from Chinese oil purchases in the Middle East to trade with partners from Brazil to Russia.

True global yuan adoption is unlikely, given expectations that Beijing will want to keep a tight grip on the currency. But incremental progress is already fashioning a new trade architecture and is gaining pace, particularly as Russia’s expulsion from much of the West’s payment systems has accelerated the development of alternatives.

“The world’s largest commodity exporters and importers – China, Russia, and Brazil – are now working together on using renminbi for cross-border payments,” said Chi Lo, senior investment strategist at BNP Paribas Asset Management in Hong Kong.

“Their cooperation could draw other countries to renminbi payments over time and cumulatively, this group could lift the renminbi at the expense of the dollar,” he said.

China has long sought to increase the yuan’s undersized 2.2% share of global payments, but seemingly without being willing to open its capital accounts and allow the sort of free-flowing movement that makes dollars, euros, and yen so convenient.

Russia’s war on Ukraine, and the resulting Western sanctions, have given substance to the push. Suddenly, Russia has come from virtually nowhere to become the fourth-largest yuan-trading hub outside China.

The yuan’s share of Russia’s currency market has leaped to 40% to 45%, from less than 1% at the start of last year. Its share of world trade financing, according to SWIFT, has increased to 4.5% in February from 1.3% two years ago. The dollar’s is 84%.

“It will not replace the US dollar globally, but it is already starting to replace the dollar in some of China’s trade relationships,” said Gerard DiPippo and Andrea Leonard Palazzi, economists at Washington’s Center for Strategic and International Studies, in an article last week.

“This kind of renminbi internationalization may achieve Beijing’s goals, including reducing China’s exposure to exchange rate fluctuations and mitigating China’s vulnerabilities to US financial sanctions.”

SLOW MOVING

World trade flows are dominated by dollars, euros, sterling, and yen because those currencies are freely available and connected to open economies in ways the capital-controlled yuan is not. To be sure, there are no signs that is changing.

“In most trades, importers have a comparative advantage in determining the terms of trades, such as pricing and settlement currency,” says Zhang Yu, chief macro analyst at Huachuang Securities in Beijing.

“Therefore, if exporters want to use yuan to settle trades, they must persuade foreign importers to pay in yuan, which often takes a long time.”

China itself needs time to create depth in a limited pool of yuan outside its shores, which is less easy for Beijing to control.

“For yuan usage to grow in scale it may take 10 years or longer,” says Andre Wheeler, chief executive of supply chain, trade risk consultancy Wheeler Management Consulting based in Australia.

“If they were to try to change Australia’s iron ore trades to be settled in yuan, I don’t think China would be able to cope with that scale.”

Yet the yuan offers other attractions to China’s trading partners. In Argentina’s case, buying goods in yuan saves draining dwindling dollar reserves. More broadly, each new adopter adds to a currency system’s depth and usefulness.

“One of the many reasons for using the dollar is what we call network effects,” said Michael Pettis, senior fellow at Carnegie China.

“The more of us that use it, the cheaper it becomes to use and the more efficient it becomes to use,” he said.

“By trying to force more and more of its trade into renminbi, Beijing is trying to create network effects that will make use of the renminbi for trade that much easier and with lower frictional costs.”

(Reporting by Tom Westbrook, additional reporting by Samuel Shen and Winni Zhou in Shanghai, Georgina Lee in Hong Kong; Editing by Vidya Ranganathan and Kim Coghill)

UK Stocks-Factors to watch on April 27

April 27 (Reuters) – Britain’s FTSE 100 .FTSE index is seen opening lower on Thursday with futures down 0.15%.

* LSEG: LSEG LSEG.L reaffirmed its annual forecast.

* Barclays: Barclays reported better than expected first-quarter profit.

* Unilever: Unilever ULVR.L smashed quarterly sales forecasts.

* AstraZeneca: AstraZeneca AZN.L beat expectations for its first-quarter profit and revenue, helped by sales of its roster of drugs in emerging markets.

* Sainsbury’s: Sainsbury’s <SBRY.L, Britain’s second-largest supermarket group, reported an expected 5% fall in annual profit.

* WPP: WPP WPP.L, the world’s largest advertising group, reported an underlying rise in first-quarter net sales.

* St James’s Place: British asset manager St James’s Place Plc SJP.L reported a rise in its funds under management at the end of the March quarter from the prior three months.

* Capricorn Energy : Capricorn Energy CNE.L plans $575 million in shareholder payouts over the next 12 months.

* Taylor Wimpey: British housebuilder Taylor Wimpey Plc TW.L said buyer interest has risen over the past few months, helped by an improvement in sales and mortgage rates, even as the group remained cautious over broader economic woes.

* Schroders: Schroders SDR.L said its Chief Financial Officer (CFO) Richard Keers will retire from his role and leave the company on Dec. 31.

* OIL: Oil prices rose slightly, finding some support after heavy losses in the previous two sessions.

* GOLD: Gold prices rose as a softer dollar rekindled some of bullion’s appeal for overseas buyers.

(Reporting by Sinchita Mitra in Bengaluru)

South Korean shares reverse 5-day slide, but mood remains shaky

SEOUL, April 27 (Reuters) – Round-up of South Korean financial markets:

** South Korean shares reversed early losses to end higher on Thursday, snapping a five-day losing streak, while trading sentiment appeared still shaky on concerns about the US banking sector and uncertainty in earnings reports.

** The benchmark KOSPI rose 10.98 points, or 0.44%, to close at 2,495.81, having fallen as much as 0.8% earlier in the day.

** Trading sentiment appeared still shaky, however, with the losing stocks outnumbering gainers by 468 to 407.

** Samsung Electronics Co Ltd, which is heavily weighted on KOSPI, ended 0.8% higher after it flagged a gradual recovery for chips in the second half of the year after its semiconductor division reported a record loss.

** The banking sector’s index slumped 1.2%, having fallen as much as 1.9% earlier in the session.

** Chipmaker SK Hynix gained 1.60%, while battery maker LG Energy Solution advanced 3.53%.

** Foreigners were net buyers of shares worth 283.0 billion won (USD 211.4 million).

** The won ended onshore trade at 1,338.0 per dollar, 0.13% lower than its previous close at 1,336.3.

** In offshore trading, the Korean won was quoted at 1,338.6 per dollar, down 0.0% on the day, while in non-deliverable forward trading its one-month contract was quoted at 1,336.8.

** Currency traders shrugged off remarks by a senior presidential official that US+. and South Korean leaders upgraded their commitment to cooperate on maintaining stability in foreign exchange markets at a summit.

** The KOSPI has risen 11.60% so far this year, and gained 4.4% in the previous 30 trading sessions.

** The won has lost 5.5% against the dollar so far this year.

** In money and debt markets, June futures on three-year treasury bonds KTBc1 fell 0.07 points to 104.93.

** The most liquid three-year Korean treasury bond yield rose by 2.9 basis points to 3.288%, while the benchmark 10-year yield rose by 3.1 basis points to 3.340%.

(Reporting by Choonsik Yoo; Editing by Varun H K)

Most Japanese stocks climb on manufacturer earnings; Nomura slides

TOKYO, April 27 (Reuters) – Most Japanese stocks rose on Thursday, led by manufacturers on earnings optimism while banking contagion concerns weighed down financials.

The Nikkei share index rose 0.15% to close at 28,457.68, recovering from an early 0.6% drop. The broader Topix added 0.43% to 2,032.51.

Heavy equipment maker Hitachi Construction Machinery Co 6505.T jumped 3.67% after saying full-year operating profit surged 45%. That contrasted with brokerage Nomura Holdings Inc, which sank 7.24% after posting a plunge in quarterly profit.

Chip-testing equipment maker Advantest Corp. sank more than 9.21%, its steepest drop in almost three years, after its earnings forecast missed market expectations.

“Hitachi Construction had punchy guidance,” said Mio Kato, founder of LightStream Research, who publishes on the Smartkarma platform. “I still think the theme for the year is a very weak tech space and an increasingly strong industrials space. So far, earnings are leaning in that direction in Japan.”

Nomura joined major Wall Street firms in reporting a business slump after the failure of two US. banks last month. US. stocks were mixed overnight, but the tech-heavy Nasdaq gauge gained following upbeat earnings from Microsoft Corp and Google operator Alphabet Inc.

Investors are awaiting US inflation data on Friday ahead of the Federal Reserve policy decision next week, while Japan’s central bank begins a two-day meeting on Thursday under new governor Kazuo Ueda.

The Nikkei share average had 152 gainers against 69 that declined.

Canon Inc surged 4.16% to its highest level since early December after the imaging giant lifted its profit forecast. Sony Corp jumped 3.54% ahead of results on Friday.

Toyota supplier Denso Corp 6902.T rose 3.44%, reversing an earlier skid, after a company executive said a chip shortage was likely to ease starting this summer.

Beverage maker Kirin Holdings slid 1.66% after saying it plans to acquire Australian natural health firm Blackmores Ltd for about 169.2 billion yen (USD 1.27 billion).

(Reporting by Rocky Swift; Editing by Rashmi Aich and Janane Venkatraman)

Australia’s sovereign wealth fund cuts cash holdings, buys stocks

By Lewis Jackson

SYDNEY, April 27 (Reuters) – Australia’s sovereign wealth fund cut exposure to cash and private equity and expanded positions in domestic and global equities in the March quarter, according to quarterly results published on Thursday.

Cash holdings at the A$200 billion ($132.48 billion) Future Fund fell to 10.6% in the first quarter from 11.8% a quarter earlier.

Developed market equities rose to 17% from 15.9% over the same period, while private equity dipped slightly to 16.4%, from 16.9%.

For the first time, the fund is also looking to buy small cap equities, Chief Executive Raphael Arndt said in a separate speech in Sydney the same day.

Set up in 2006 with the proceeds from the privatisation of the telecommunications network, the fund has delivered an average annual return of 9.1% over the past decade.

But future returns were likely to be “substantially” lower, said Chair Peter Costello in a statement accompanying the results.

The fund returned 1.1% in the twelve months to March, versus a 0.1% increase for the ASX/S&P 200 local benchmark and a 7.7% decline for the S&P 500.

Costello said that while some banks have paused interest rate hikes, “it is unlikely the cycle of rising rates to control inflation is finished.”

The Reserve Bank in April left rates on hold to wait and see the full effects of the preceding 10 consecutive hikes.

The fund flagged in December that it would raise its exposure to gold, commodities, private equity and infrastructure, warning the future will echo the low-growth, high-inflation era of the 1970s.

($1 = 1.5097 Australian dollars)

(Reporting by Lewis Jackson; Editing by Kim Coghill)

((lewis.jackson@thomsonreuters.com; Reuters Messaging: @lewjackk))

Oil prices find some support after heavy losses on US recession fears

SINGAPORE, April 27 (Reuters) – Oil prices rose slightly on Thursday, finding some support after heavy losses in the previous two sessions driven by fears of a US recession and an increase in Russian oil exports which dulled the impact of OPEC production cuts.

Brent crude was trading at USD 78.01 a barrel, up 32 cents, or 0.4% as of 0627 GMT, while US West Texas Intermediate crude CLc1 added 21 cents or 0.3% to trade at USD 74.51.

Oil prices dropped almost 4% on Wednesday, extending sharp losses from the previous session with recession fears overshadowing a bigger-than-expected fall in U.S. crude inventories.

As of Wednesday’s close, Brent is down 4.9% for the week while WTI has lost 4.6%.

“Crude prices remain heavy following the plunge below the USD 80 level as too much demand destruction hit the US. economic outlook,” said Edward Moya, an analyst at OANDA, adding that the OPEC was right to cut output earlier this month.

“Oil is trying to find a floor and the only thing that could provide some support is technical buying,” Moya said.

New orders for key US-manufactured capital goods fell more than expected in March and shipments declined, indicating that depressed business spending on equipment likely pulled back economic growth in the first quarter.

OPEC’s share of India’s oil imports fell at the fastest pace in 2022/23 to its lowest in at least 22 years as its intake of cheaper Russian oil surged, while China is also ramping up buying of Russia’s Urals oil.

Oil loading from Russia’s western ports in April will be the highest since 2019, above 2.4 million barrels per day, despite Moscow’s pledge to cut output.

(Additional reporting by Katya Golubkova; Editing by Christopher Cushing, Edwina Gibbs and Kim Coghill)

A heavy dose of tech, banks, and politics

April 27 (Reuters) – The top-tier Asian economic data cupboard on Thursday is bare, meaning regional markets will probably feed off US earnings, banking sector woes, debt ceiling developments, and geopolitical events for direction.

From a corporate perspective, Wall Street this week appears to have slipped into a ‘push and pull’ between upbeat results – especially mega tech – and deepening concern over the health of small and regional US banks.

Microsoft (MFST) and Alphabet (GOOGL) ‘beats’ on Tuesday helped push the Nasdaq up 0.5% on Wednesday but the Dow Jones and S&P 500 fell 0.7% and 0.4%, respectively. This was followed up on Wednesday by Meta (META), whose shares surged 12% after hours after the company’s strong earnings beat.

First Republic Bank’s (FRC) shares plunged to another record low, but PacWest Bancorp (PACW) jumped 8% after beating estimates and stemming deposit outflows. The regional banking index rose for the first day in five.

Avid readers of the geopolitical tea leaves in Asia will be kept busy after South Korea’s President Yoon Suk Yeol met US President Joe Biden in Washington, and China’s Xi Jinping held talks with Ukraine’s Volodymyr Zelenskiy – their first direct communication since Russia invaded Ukraine last year.

Biden said maintaining US access to Korean semiconductors is not designed to hurt China. Beijing may beg to differ and may be equally wary of Biden and Yoon’s pledge to deepen cooperation on deterrence against North Korea and strengthen trilateral ties with Japan.

Washington welcomed Xi’s call with Zelenskiy but may privately question Xi’s sincerity and motives reaching out to the Ukrainian leader 14 months after Russia’s invasion but only days after the furor sparked by China’s envoy to Paris.

On the macro front, Beijing will no doubt welcome news that the yuan became the most widely used currency for cross-border transactions in China in March, overtaking the dollar for the first time. The yuan was used in 48.4% of transactions, Reuters calculated, while the dollar’s share declined to 46.7%.

The ‘de-dollarization’ debate has picked up again recently, but the latest flows estimates from two Fed economists show central banks remain buyers of US Treasuries and added to their holdings in the first two months of the year.

China added to its Treasuries holdings in February, but not enough to make up for the fairly heavy selling in January.

Asian markets will also be sensitive to the US debt ceiling standoff. So far, stress has only flared up in the US T-bills market, but that could spread quickly if the Republican bill in the House is voted down later on Wednesday.

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

– Singapore unemployment (March)

– Australia export and import prices (Q1)

– China industrial profit (YTD)

(By Jamie McGeever; Editing by Josie Kao)

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