Oil climbs close to April peak on tighter supply

LONDON, July 27 (Reuters) – Oil climbed almost 1% on Thursday, recouping losses from the previous session, supported by supply tightness owing to OPEC+ production cuts and renewed optimism on the outlook for Chinese demand and global growth.

Crude has posted four consecutive weekly gains on an expected tightening of supply because of output cuts by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known collectively as OPEC+, as well as some involuntary outages.

Brent crude advanced 64 cents, or 0.8%, to USD 83.56 a barrel by 0820 GMT while US. West Texas Intermediate (WTI) crude rose 74 cents, or 0.9%, to USD 79.52. Intra-day peaks for both contracts were near their highest since April 19.

“We see the oil market undersupplied,” UBS analysts said in a report. “We retain a positive outlook and look for Brent to rise to USD 85–90 over the coming months.”

Oil prices dropped on Wednesday after data showed US crude inventories fell less than expected and the US Federal Reserve raised interest rates by a quarter of a percentage point, leaving the door open to another increase.

Still, Asian shares jumped to five-month highs on Thursday on hopes that the US tightening cycle was over and the economy was heading for a soft landing, boosting the outlook for global growth and risk appetite.

The European Central Bank, also viewed as approaching the end of its tightening campaign, is expected to raise interest rates for the ninth time in a row on Thursday.

A pledge on Monday from China to boost policy support for the economy is continuing to underpin sentiment.

“The Chinese authorities have signaled to step up support measures to revive the ailing Chinese economy, which in turn has spurred hopes of oil demand regeneration from the world’s largest importer of crude oil,” Phillip Nova analyst Priyanka Sachdeva said in a note.

Coming into focus is an Aug. 4 meeting of key OPEC+ ministers to review the market.

(Reporting by Alex Lawler. Additional reporting by Katya Golubkova in Tokyo and Muyu Xu in Singapore. Editing by David Goodman)

Oil settles above April peak on tighter supply

July 27 (Reuters) – Oil settled higher Thursday, with Brent crude topping USD 84 a barrel for the first time since April, supported by supply tightness following OPEC+ production cuts and renewed bullishness on the outlook for Chinese demand and global growth.

Brent crude settled up USD 1.32, or 1.6%, to USD 84.35 a barrel while U.S. West Texas Intermediate (WTI) crude settled up by USD 1.31, or 1.7%, to USD 80.09.

“We see the oil market undersupplied,” UBS analysts said in a report. “We retain a positive outlook and look for Brent to rise to USD 85–USD 90 over the coming months.”

Still, oil dropped on Wednesday after data showed U.S. crude inventories fell less than expected and the U.S. Federal Reserve raised interest rates by a quarter of a percentage point, leaving the way open for another increase.

Risk appetite in wider financial markets is being boosted by growing expectations that central banks such as the Fed are nearing the end of policy tightening campaigns, which would boost the outlook for global growth and energy demand.

The U.S. economy grew by a bigger-than-expected 2.4% last quarter, government data showed Thursday, as labor market resilience supported consumer spending, while businesses boosted investment in equipment, potentially keeping a recession at bay.

“With interest rate hikes either at or near a peak amidst increasing views that a recession will be avoided, risk assets such as oil have become increasingly appealing,” said Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois.

The European Central Bank raised interest rates for the ninth consecutive time on Thursday.

A pledge on Monday from China to boost policy support for the economy has spurred hopes of oil demand regeneration from the world’s largest crude importer, Phillip Nova analyst Priyanka Sachdeva said in a note.

Coming into focus is an Aug. 4 meeting of OPEC+ ministers to review the market.

(Reporting by Laura Sanicola; Additional reporting by Alex Lawler in London, Katya Golubkova in Tokyo, and Muyu Xu in Singapore; Editing by David Goodman, David Evans, Barbara Lewis and Diane Craft)

US bond investors brace for shift in market as rate peak elusive

NEW YORK, July 27 (Reuters) – US bond investors were gauging how to navigate a prolonged period of higher interest rates that some expect to weigh on US growth after the Federal Reserve on Wednesday left open the possibility of more rate increases and excluded easing financial conditions anytime soon.

With its latest 25 basis point interest rate increase now in the books, the Fed has raised the benchmark overnight interest rate by 525 basis points since March 2022 to a level last seen before the 2007 housing market crash in a fight to bring down inflation.

Cooling consumer prices and a resilient economy have sparked rallies in stocks this year and Fed Chairman Jerome Powell on Wednesday said a recession is unlikely – a sharp reversal from the mood earlier this year, when both the Fed and investors believed a downturn was all but unavoidable.

Still, some fixed-income investors have remained on edge over how long the Fed can keep interest rates at restrictive levels without sparking an economic downturn. Timing such a shift is important in part because a weaker economy would, in theory, cause the Fed to cut rates, weigh on the high yields many have enjoyed this year and spark a rally in bond prices.

“Investors remain divided on whether this marks the last increase in the current tightening campaign,” said Gurpreet Gill, global fixed income macro strategist at Goldman Sachs Asset Management. “Given the uncertainty around when the Fed’s hiking cycle will conclude, we have limited exposure to US rates.”

Goldman Sachs recently put the probability of a recession in the next 12 months at 20%, below previous estimates. Barclays has pushed back to next year the mild recession it had forecast for the last quarter of this year.

Powell, meanwhile, said the central bank’s staff no longer forecasts a US recession, and “we do have a shot” for inflation to return to target without high levels of job losses.

Nevertheless, some of the world’s biggest bond managers aren’t taking chances.

BlackRock, the world’s largest asset manager, is among those advising investors to lock in elevated yields now, in case the Fed may have to cut borrowing costs next year if an economic downturn hits.

Kristy Akullian, a senior strategist with the firm’s iShares Investment Strategy team, said it was time to extend duration – or the sensitivity of an investment portfolio to interest rates – even though additional rate hikes remained possible.

“It’s too soon to declare victory on inflation, and I think there are still questions around the health of the economy,” she said. “I think it pays to be a little early for this trade rather than a little bit late.”

HEDGING BETS

The S&P 500 on Wednesday ended little changed following the latest Fed hike. The index is up 19% year-to-date.

Treasury yields, which move inversely to prices, slid on Wednesday. Meanwhile, Fed funds futures traders saw an increased probability of another interest rate increase in September.

Adam Hetts, global head of multi-asset at Janus Henderson Investors, is turning more defensive in his portfolios by focusing on high-quality equities and core bonds in anticipation of a shallow recession he believes will hit in the next year.

“They may be done turning the vise but we have to realize that the vise will remain tight for some time,” he said.

Mike Sanders, head of fixed income at Madison Investments, said he preferred short-term bonds because he expected interest rates to remain higher for longer than market expectations, but he was also adding exposure to longer-term paper to hedge his position.

“We have begun to layer in some long-term bonds in portfolios to hedge against an unexpected economic slowdown while locking in higher rates relative to history,” he said. Long-term bonds tend to perform well during economic slowdowns because when central banks ease rates to stimulate demand existing fixed-rate securities are worth more.

To be sure, investors had badly overestimated the chances for a recession at the beginning of this year and could be wrong again. Over the past year, the unemployment rate has remained stubbornly low, and growth has run consistently above trend.

Others, however, have pointed to signs such as the inversion of the Treasury yield curve, which has historically been a reliable indicator of a coming downturn.

“The Fed does keep stressing that they’re willing to risk a little bit of economic activity in order to make sure they’ve got inflation on a strong footing again,” said Blair Shwedo, head of investment grade trading at US Bank. “I think the market has had a lot of trouble discounting those statements.”

(Reporting by Davide Barbuscia and David Randall; Editing by Ira Iosebashvili and Muralikumar Anantharaman)

China realism returns, Powell has spoken

July 27 (Reuters) – A sense of cautious optimism could be the tone across Asia early on Thursday as China’s markets cool down, investors welcome fairly balanced comments from Federal Reserve Chair Jerome Powell and await the European Central Bank’s rate decision.

After a volatile start to markets this week, the concentration of major ‘event risk’ – the Fed and ECB meetings, the Bank of Japan’s policy decision on Friday, and potential details on China’s stimulus measures – may be keeping investors from taking big bets.

That said, some big earnings reports from some of the biggest US tech firms continue to roll in, meaning there could be big price swings in individual stocks and sectors under the hood of the broader indices.

This was in evidence on Wednesday on Wall Street. The Nasdaq fell only 0.1% and ‘big tech’ fell less than 1% but that masked huge moves in some shares which added or wiped out tens of billions of dollars of market cap. Microsoft fell 4%, Snap plunged 15%, while Alphabet surged 5.5%.

Shares in Meta jumped 7% in after-hours trade after the Facebook owner reported stronger-than-expected Q2 revenues and forecast strong Q3 revenues.

Investors in Asia will also wake up to the 11th US interest rate hike since the Fed began hiking rates last year – and the highest rates in 22 years – and a fairly balanced policy outlook for the coming months from Fed Chair Jerome Powell.

He left the door open to further tightening but also said the Fed could stay on hold if the data warranted and stressed that decisions will be made on a meeting-by-meeting basis. His measured remarks helped ensure a fairly subdued day on Wall Street.

The Dow Jones Industrials rose 0.24%, insignificant in itself but at the same time historic – it was the 13th consecutive daily rise, the index’s longest winning streak since January 1987. Few would have imagined then that the market’s biggest ever fall – the 22% crash on Black Monday – was only nine months away.

Back in Asia, a sense of realism returned over the expected measures from Beijing to revitalize the economy. After outsized gains on Tuesday – a 14% surge in property stocks – major indices in China and Hong Kong closed in the red.

The main event on Thursday’s economic calendar is Chinese industrial profits for June, which could underline how weak the economy has been since Covid restrictions were lifted.

Profits have been falling every month for a year, registering double-digit declines every month so far this year. They slumped 18.8% in May.

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

– China industrial profits (June)

– Australia import and export prices (Q2)

– European Central Bank policy decision

(By Jamie McGeever; editing by Deepa Babington)

Global shares flat, US yields fall after Fed delivers rate hike

NEW YORK, July 26 (Reuters) – Global shares were mostly flat while US yields fell on Wednesday after the Federal Reserve delivered its 11th consecutive hike in interest rates aimed at reining in rising consumer prices.

The rate hike, which was in line with market expectations, took the benchmark overnight interest rate to between 5.25% and 5.50% – the highest level since around the global financial crisis in 2007-2009.

The Fed also left open the door for more rate hikes, stating that it would keep studying economic data as it determines “the extent of additional policy firming that may be appropriate” to reach its 2% inflation target.

During his press conference, Fed Chair Jerome Powell said central bank staff are no longer forecasting a US recession, and “we do have a shot” for inflation to return to target without high levels of job losses.

“It was exactly what the market was anticipating, almost like a non-event with markets dead flat,” said Lamar Villere, portfolio manager at Villere & Co in New Orleans.

“It’s our sense that the way inflation data has been coming in and the way the Fed has been slowing the pace of hikes, that they’re looking to stop,” Villere added

The MSCI world equity index, which tracks shares in nearly 50 countries, rebounded shortly after the Fed announcement and was up 0.03%. In Europe, stocks fell 0.53%, snapping a six-day winning run, with equities in Germany and France shedding 0.49% and 1.35%, respectively.

On Wall Street, the benchmark S&P 500 lost steam and finished flat while the tech-heavy Nasdaq closed lower, dragged down by mostly technology stocks.

The Dow Jones Industrial Average rose 0.23% to 35,520.12, the S&P 500 lost 0.02% to 4,566.75 and the Nasdaq Composite dropped 0.12% to 14,127.28.

“Powell and the committee are taking a very data-dependent approach to future rate hikes,” said Angelo Kourkafas, investment strategist at Edward Jones. “He kept very close to the script. It didn’t sound as hawkish as some had feared and wasn’t a strong message to push expectations one way or the other.”

US Treasury yields slipped in choppy trading after the Fed’s rate decision. The yield on 10-year Treasury notes was down at 3.865%, while the two-year yield, which typically reflects interest rate expectations, fell to 4.8433%.

The dollar edged lower against major currencies. The dollar index fell 0.316%, with the euro up 0.33% to USD 1.109.

Oil prices settled lower as data showed US crude inventories fell less than expected. Brent crude futures settled down 0.92% to USD 82.92 a barrel, while US West Texas Intermediate (WTI) crude dropped 1.1% to USD 78.78.

Gold prices gained buoyed by a pullback in the dollar and bond yields. Spot gold added 0.5% to USD 1,973.53 an ounce, while US gold futures gained 0.50% to USD 1,968.90 an ounce.

(Reporting by Chibuike Oguh in New York; Additional reporting by Sinead Carew; Editing by Chizu Nomiyama and Jonathan Oatis)

US rate futures see slightly higher chance of Sept hike after Powell’s comments

NEW YORK, July 26 (Reuters) – US interest rate futures on Wednesday saw an increased probability of another interest rate increase by the Federal Reserve this year in September after Chair Jerome Powell said the Fed has not ruled out raising rates in consecutive meetings.

The Fed raised rates by 25 basis points (bps) on Wednesday, as was widely expected, citing still-elevated inflation. The rate hike, the Fed’s 11th in its last 12 meetings, set the benchmark overnight interest rate in the 5.25% to 5.50% range,

“It is certainly possible we would raise the funds rate at the September meeting if the data warranted, and I would also say it’s possible that we would choose to hold steady at that meeting” if that’s what the data called for, Powell said, after the Fed decision.

He noted the US central bank will be making decisions on monetary policy on a meeting-by-meeting basis.

In afternoon trading, the benchmark fed funds futures factored in a 22% chance of a hike in September, compared with 21% late on Tuesday, and just 13.7% a week ago, according to the CME’s FedWatch.

For the November policy meeting, rate futures traders have priced in a 32% chance of a 25-bps hike, down moderately from 34.1% late Tuesday.

(Reporting by Gertrude Chavez-Dreyfuss; editing by Jonathan Oatis)

Gold rises as US dollar, yields slip after Fed rate hike

July 26 (Reuters) – Gold prices extended gains on Wednesday, helped by a weaker dollar and bond yields after the US Federal Reserve delivered a widely expected interest-rate hike and investors digested comments from Chair Jerome Powell.

Spot gold was up 0.5% at USD 1,974.09 per ounce by 03:21 p.m. EDT (1921 GMT). US gold futures settled 0.3% higher at USD 1,970.10.

The Fed raised interest rates by a quarter of a percentage point on Wednesday, marking the 11th hike in the US central bank’s past 12 policy meetings, and the accompanying policy statement left the door open to another increase.

Powell said “it’s not an environment where we want to provide a lot of forward guidance” about future rate actions, and whether the Fed hikes again will be determined by where the data stands at the time of future policy gatherings.

Rising interest rates increase the opportunity cost of holding non-yielding bullion.

“The general consensus is that the Fed is getting closer to the end of its interest rate hike cycle. As a result, there is an expectation that yields will slowly come down, and that is, generally a supportive environment for gold,” said David Meger, director of metals trading at High Ridge Futures.

The dollar index fell 0.4% against its rivals after the Fed statement, making gold less expensive for other currency holders. US 10-year Treasury yields slipped to 3.862%.

Focus now shifts to policy decisions from the European Central Bank and Bank of Japan due this week.

“Bulls remain nominally in control of the gold narrative but they need to drive prices back above USD 1,988 per ounce recent highs to maintain momentum,” said Tai Wong, a New York-based independent metals trader.

Elsewhere, silver gained 0.9% to USD 24.92 per ounce, platinum was steady at USD 964.60, while palladium lost 1.8% to USD 1,261.13.

(Reporting by Brijesh Patel in Bengaluru; Editing by Krishna Chandra Eluri and Arun Koyyur)

Dollar near two-week high before Fed; Aussie falls after CPI

TOKYO (Reuters) – The dollar hovered close to a two-week high versus the euro on Wednesday, while the yen consolidated near the middle of its range this month as traders awaited crucial policy decisions from the respective nations’ central banks this week.
The Australian dollar slid after slower-than-expected inflation data suggested the Reserve Bank of Australia would forgo a rate hike next week.

The US dollar index, which measures the currency against six major peers, but is heavily weighted toward the euro – was little changed at 101.33 in the Asian afternoon, after pushing as high as 101.65 overnight for the first time since July 11.

The euro slipped 0.08% to USD 1.10495, bringing it close to the previous session’s low of USD 1.1036, a level last seen on July 12.

Continued signs of a resilient US economy in the face of the Federal Open Market Committee’s (FOMC) steep series of interest rate increases has helped buoy the dollar index from a 15-month trough of 99.549 reached a week ago.

In the latest data, US consumer confidence rose to a two-year high in July amid a persistently tight labor market and receding inflation.

Money market traders see a quarter point hike from the US Federal Reserve later on Wednesday as a near certainty, but are split on the odds of another later in the year, putting it at more or less a coin toss.

Elsewhere, the European Central Bank sets policy on Thursday. Again, a quarter point hike is widely expected, but building evidence of an economic slowdown has called into question the chances of another by year-end.

“Given the deceleration in underlying inflation, we think the risk is (Fed Chair Jerome) Powell cools on another hike by describing the FOMC as ‘data dependent,'” which would pressure the dollar, said Joseph Capurso, a strategist at Commonwealth Bank of Australia.

“If the ECB retain their hawkish bias, by no means guaranteed but more likely than the FOMC, EUR is likely to track higher this week.”

The Bank of Japan sets policy on Friday, and speculation for a hawkish tweak to the yield curve control (YCC), which had soared earlier in the month, has steadily receded over recent days.

The dollar edged 0.04% higher to 141.025 yen on Wednesday, following a rebound from a multi-week low of 137.245 mid-month.

Sterling eased 0.1% to USD 1.2888. The Bank of England sets rates on Aug. 3.

The Australian dollar, one of the big movers in the Asian session, slid 0.43% to USD 0.6763 after inflation slowed more than expected in June, reducing pressure for another hike in rates by the central bank on August 1.

That unwound much of the Aussie’s 0.79% gain of the previous day, after Beijing announced stimulus, lifting the economic outlook for Australia’s key trading partner.

“Just when it looked safe to get back in the water with Aussie longs on the China sentiment rebound, the downside surprise on inflation casts fresh doubt on the extent of further RBA tightening needed,” said Sean Callow, a strategist at Westpac, predicting the currency could drop below USD 0.67 near term.

Against the Chinese yuan, the US dollar strengthened 0.29% to 7.1577 yuan in offshore trading retracing part of the previous day’s 0.67% decline.

(Reporting by Kevin Buckland; Editing by Muralikumar Anantharaman & Shri Navaratnam)

Oil falls 1% after Fed rate hike, smaller-than-expected US crude stockdraw

HOUSTON, July 26 (Reuters) – Oil prices fell about 1% on Wednesday after data showed US crude inventories fell less than expected and the Federal Reserve raised interest rates by a quarter of a percentage point.

Brent crude futures closed down 72 cents, or 0.9%, at USD 82.92 a barrel, while US West Texas Intermediate (WTI) crude settled at USD 78.78, down 85 cents, or 1.1%.

Both benchmarks fell by more than USD 1 earlier in the session, after hitting three-month highs on Tuesday.

The rate hike, the Fed’s 11th in its last 12 meetings, set the benchmark overnight interest rate in the 5.25%-5.50% range, and the accompanying policy statement left the door open to another increase.

Higher interest rates increase borrowing costs for businesses and consumers, which could slow economic growth and reduce oil demand.

Meanwhile, US crude inventories drew by 600,000 barrels last week, according to the Energy Information Administration, compared with estimates for a draw of 2.35 million barrels. Industry group American Petroleum Institute figures had indicated a 1.32 million-barrel build.

Gasoline and diesel stocks also drew less than expected, EIA data showed.

“The drawdowns weren’t all that spectacular. It was a neutral to bearish report, plus the Federal Reserve rate hike can have a dampening hit on demand and prices,” said John Kilduff, partner at Again Capital LLC in New York.

Oil prices have rallied for four weeks, buoyed by signs of tighter supplies, largely linked to output cuts by Saudi Arabia and Russia, as well as Chinese authorities’ pledges to shore up the world’s second-biggest economy.

Although the market expects Saudi Arabia to roll over its August output cuts to September, sources told Reuters on Wednesday that Russia is expected to significantly increase oil loadings in September, bringing to an end steep export cuts.

Meanwhile, concern is high over whether China, also the world’s second-biggest oil consumer, will deliver on its policy pledges.

“We still need to wait for actual policies – the risk is that these policies fall short of expectations,” said ING head commodities strategist Warren Patterson.

“The market will continue to be in a tug-of-war between tightening global supply and fears of slowing demand due to the global economic slowdown,” Hiroyuki Kikukawa, president of NS Trading, a unit of Nissan Securities, added.

(Reporting by Arathy Somasekhar in Houston, Natalie Grover in London; Additional reporting by Yuka Obayashi and Trixie Yap; Editing by Marguerita Choy and David Evans)

Gold listless as traders avoid big bets ahead of Fed decision

July 26 (Reuters) – Gold struggled for momentum on Wednesday as traders refrained from making big bets ahead of the US Federal Reserve’s policy decision later in the day.

Spot gold held steady at USD 1,963.99 per ounce by 0546 GMT, while US gold futures were up 0.1% to USD 1,965.20.

“Broader markets are looking for an extended rate pause through the rest of the year, while Fed officials could push back by leaving the door open for one more hike in September or November,” said Yeap Jun Rong, a market strategist at IG.

While most traders see rates holding in the 5.25%-5.5% range in 2023, 35% see a chance for another 25 basis point hike in November, according to CME’s Fedwatch tool.

Gold is highly sensitive to rising interest rates as they increase the opportunity cost of holding non-yielding bullion.

However, “over the medium term, the yellow metal could still retain its upward trend, given that we are in the final phase of the Fed’s tightening cycle,” Yeap said.

The dollar and US Treasury yields were close to their two-week highs from Tuesday, weighing on zero-interest-bearing gold.

Along with policy guidance from the European Central Bank, traders also await second-quarter U.S. GDP data due on Thursday. The US economy was expected to have risen 1.8% during April-June compared to a 2% rise in the first quarter.

Markets will also keep an eye out for the June personal consumption expenditures (PCE) print due on Friday. Core PCE, the Fed’s preferred inflation gauge, was estimated to have climbed 0.2% in June compared to a 0.3% rise in May.

In Asia, business sentiment in Japan picked up in July, ahead of the Bank of Japan’s meeting on Friday. As per the International Monetary Fund, the bank should start preparing for future
monetary tightening.

Among other metals, spot silver fell 0.4% to USD 24.60 per ounce, platinum rose 0.1% to USD 965.99 while palladium was little changed at USD 1,283.89.

(Reporting by Seher Dareen in Bengaluru; Editing by Sherry Jacob-Phillips, Subhranshu Sahu and Sonia Cheema)

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