Oil futures up 3% on strong China refinery data, weaker US dollar

NEW YORK, June 15 (Reuters) – Oil prices gained about 3% to a one-week high on Thursday on a weaker US dollar and a jump in refinery runs in top crude importer China.

Brent futures rose USD 2.47, or 3.4%, to settle at USD 75.67 a barrel, while US West Texas Intermediate (WTI) crude rose USD 2.35, or 3.4%, to settle at USD 70.62.

Those were the highest closes for Brent and WTI since June 8.

In the United States, the gasoline crack spread, a measure of refining profit margins, to its highest since July 2022. US diesel futures, meanwhile, rose about 5% to their highest since late April.

The oil market drew support from US reports showing retail sales unexpectedly rose in May and higher-than-expected jobless claims last week cut the dollar, to a five-week low versus a basket of other currencies.

A weaker dollar makes crude cheaper for holders of other currencies, which could boost oil demand.

Data on Thursday also showed China’s oil refinery throughput rose 15.4% in May from a year earlier, hitting its second-highest total on record.

Chinese demand for oil is expected to keep climbing at an assured rate during the second half of the year, said Kuwait Petroleum Corp’s chief executive.

“The Chinese refinery numbers started the oil price rally. Then, of course, you have the macro situation with the (US) dollar being down in part because of the US Federal Reserve pause in raising the interest rate, while in Europe they are still hiking rates,” said Phil Flynn, an analyst at Price Futures Group.

The European Central Bank (ECB) raised interest rates to a 22-year high as expected on Thursday. It signaled further policy tightening, as it battles high inflation.

“The outlook for economic growth and inflation remains highly uncertain,” said ECB President Christine Lagarde.

On Wednesday, the Fed kept interest rates unchanged but signaled at least a half of a percentage point increase by year-end.

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

On the supply side, analysts expect voluntary crude output cuts implemented in May by OPEC+, the Organization of the Petroleum Exporting Countries (OPEC) and allies, and by Saudi Arabia in July, to support prices at a time of strong demand.

UBS expects a supply deficit of around 1.5 million barrels per day (bpd) in June and more than 2 million bpd in July.

“Once these deficits become visible in on-land oil inventories, we expect oil prices to trend higher,” the bank said in a note.

In Iraq, a Turkish energy delegation will meet Iraqi oil officials in Baghdad on June 19 to discuss the resumption of Iraq’s northern oil exports, Iraqi deputy oil minister for upstream affairs, Basim Mohammed, told Reuters.

Turkey halted Iraq’s 450,000 bpd of northern exports through the Iraq-Turkey pipeline on March 25 after an arbitration ruling by the International Chamber of Commerce (ICC).

(Additional reporting by Rowena Edwards in London, Jeslyn Lerh in Singapore, and Arathy Somasekhar in Houston; editing by David Gregorio, Kirsten Donovan, and Jonathan Oatis)

Gold slips to three-month low as Fed rate cues lift dollar

June 15 (Reuters) – Gold slipped to a near three-month low on Thursday as the dollar and Treasury yields advanced after the U.S. Federal Reserve signaled more interest rate hikes this year.

Spot gold fell 0.7% to USD 1,929.99 per ounce by 0710 GMT, hitting its lowest since March 17. US gold futures dropped 1.4% to USD 1,941.50.

The Fed, in new economic projections, signaled that a stronger-than-expected economy and a slower decline in inflation will result in a likely rise in borrowing costs by another half percentage point by the end of this year.

“Where gold goes from here may depend on how long the hawkish remarks from the Fed Chairman continue to prop up US yields,” Tim Waterer, chief market analyst at KCM Trade said.

Traders are now pricing in a roughly 72% chance of a Fed rate hike in July, according to the CME Fedwatch tool.

“(The) Fed has more or less given the market a direction,” said Brian Lan, of Singapore dealer GoldSilver Central.

The US dollar index climbed, making bullion more expensive for those holding other currencies.

Markets will now look ahead to a host of US economic data expected later, including the weekly jobless claims.

“We are also entering a seasonally slow period for physical demand, suggesting gold prices are more likely to drift lower in coming sessions barring a sharp slowdown in U.S. economic data which could spur interest in the gold market,” Standard Chartered analyst Suki Cooper said.

The focus is also on the European Central Bank meeting, where it is expected to raise borrowing costs to their highest level in 22 years on Thursday and leave the door open to more hikes, even as the eurozone economy flags.

Spot silver fell 2.8% to USD 23.2636 per ounce, platinum dropped 1.2% to USD 963.72, and palladium lost 1.4% to USD 1,366.44.

(Reporting by Arundhati Sarkar in Bengaluru; Editing by Sherry Jacob-Phillips and Alexander Smith)

Can risk appetite resist Fed’s hawkish skip?

June 14 (Reuters) – A raft of economic data and a likely medium-term policy easing from China will give Asian markets direction on Thursday, but the main steer will probably come from investors’ reaction to the Federal Reserve’s ‘hawkish skip’ on interest rates.

The Fed paused its policy tightening cycle on Wednesday for the first time but signaled in new economic projections that rates will likely rise by another half of a percentage point by the end of this year as it continues to try to get inflation down.

Short-dated Treasury yields jumped, the US yield curve inversion deepened, and the dollar fell. But Wall Street put up a better fight – although the Dow had its worst day in two weeks, the Nasdaq rebounded and closed up for a fifth day at a new 14-month high, and the S&P 500 basically ended flat.

Will Asian markets show similar resilience, or will the prospect of another 50 bps of Fed tightening this year – plus the lagged impact of the previous 500 bps – weigh on investors and prompt a profit-taking reversal?

Japanese stocks could be the most vulnerable to a correction. The benchmark Nikkei on Wednesday rallied another 1.4% to a fresh 33-year peak above 33,500 points, its 20th rise in the last 25 trading sessions.

Markets have the latest trade and machinery orders data from Japan to digest on Thursday. Trade activity in May is expected to have slumped – economists are forecasting a 10% year-on-year slump in imports and a 0.8% fall in exports.

China’s central bank, meanwhile, is expected to cut the borrowing cost of medium-term policy loans for the first time in 10 months on Thursday, after it lowered two key short-term policy rates earlier this week.

An outlier among its global peers, the People’s Bank of China is battling disinflation – perhaps even deflation soon – and an under-performing economy that has significantly soured investors’ outlook on the country’s financial assets.

Further easing may help shore up confidence in the economy, but will widen the yield gap with overseas assets, put the yuan under further pressure, and risk even greater capital outflows – the Institute of International Finance said on Wednesday net inbound foreign direct investment to China in 2023 will be the lowest in 18 years.

Beijing also releases a batch of top-tier economic indicators for May on Thursday – urban investment, industrial production, house prices, retail sales, and unemployment – which are broadly expected to reflect a weak growth environment.

The annual rate of growth in investment is seen slowing to 4.4% from 4.7%, industrial production to 3.6% from 5.6%, and retail sales to 13.6% from 18.4%.

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

– China investment, industrial production, house prices, retail sales, unemployment (May)

– China medium-term lending facility loan rate

– Australia unemployment (May)

(By Jamie McGeever)

US yields lower after Fed holds rates in check

NEW YORK, June 14 (Reuters) – US Treasury yields were lower on Wednesday in choppy trading after the Federal Reserve left interest rates unchanged, as widely expected, but forecast another 50 basis points in hikes by the end of the year.

The central bank kept rates at the 5.00%-5.25% range but in its new summary of economic projections (SEP) indicated a stronger-than-expected economy and a slower decline in inflation will result in a likely rise in borrowing costs by 50 basis points (bps) by the end of this year.

“They finally lowered their unemployment rate a little bit, they raised their GDP a little bit and they raised their inflation, so they are really catching up with what the data is already telling us,” said Ellen Hazen, chief market strategist at F.L. Putnam Investment Management in Wellesley, Massachusetts.

“The biggest surprise for me, the federal funds rate December projection all the way up to 5.6%, so a whole 50 basis point increase, I think the market was expecting 25 bps.”

Yields pared earlier declines after the announcement but reversed course and moved lower once again as Chair Jerome Powell spoke after the statement and said that July’s meeting would be “live” after the decision to hold rates steady today.

“Powell is doing an excellent job walking the monetary tightrope, staying close to the center, and being balanced. He’s acknowledged that inflation is edging lower and said the skip was ‘prudent,'” said Quincy Krosby, chief global strategist at LPL Financial in Charlotte, North Carolina.

The yield on 10-year Treasury notes was down 4.5 basis points at 3.794% after hitting a low of 3.771% on the day. The 10-year yield was on track to snap a three-session streak of gains.

Investors will now gauge comments from Fed Chair Jerome Powell for signals on the central’s bank monetary policy path.

Yields had earlier moved lower after a reading of producer inflation fell more than expected in May, coming on the heels of Tuesday’s data which showed a slowing increase in consumer prices.

The yield on the 30-year Treasury bond was down 6.5 basis points at 3.876%.

Policy announcements from the European Central Bank (ECB) and Bank of Japan are expected on Thursday and Friday, respectively.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a negative 90.7 basis points after inverting by as much as 95.53 basis points on the session.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was up 0.3 basis point at 4.699% after hitting a fresh three-month high of 4.803%.

The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.189%, after closing at 2.157% on Wednesday.

The 10-year TIPS breakeven rate was last at 2.217%, indicating the market sees inflation averaging 2.2% a year for the next decade.

(Reporting by Chuck Mikolajczak, additional reporting by Sinéad Carew; Editing by Jonathan Oatis, Kirsten Donovan and Lisa Shumaker)

Gold trims gains after US Fed signals more rate hikes

June 14 (Reuters) – Gold prices pared gains on Wednesday after the US Federal Reserve kept interest rates unchanged, as widely expected, but pointed to more rate hikes down the year.

Spot gold was up 0.3% at USD 1,949.89 per ounce by 03:03 p.m. EDT (1903 GMT). US gold futures settled 0.5% up at USD 1,968.9.

“Two more hikes in the dot plot for this year was a hawkish surprise…. Gold eased but continues to hold the key technical level at USD 1,940,” said Tai Wong, a New York-based independent metals trader.

“If it (gold) can survive this hawkish surprise, that will give a boost for gold bulls.”

Gold prices are highly sensitive to rising US interest rates, as that increases the opportunity cost of holding non-yielding bullion.

Traders added to bets the Fed will soon be back to raising US interest rates. Traders are now pricing in a 70% chance of Fed rate hike in July, up from 60% earlier, according to the CME Fedwatch tool.

Meanwhile, Fed Chair Jerome Powell said it is too soon to say inflation will continue to retreat even as officials expect price pressure to stay on a cooling trend.

Earlier on Wednesday, data showed US producer prices fell more than expected in May, signaling inflation was cooling. Data on Tuesday showed consumer prices moderated last month.

“Fed members expect additional rate hikes this year as a result we see yields and dollar rise, which applies pressure to bullion,” said David Meger, director of metals trading, High Ridge Futures.

Silver rose 1.2% to USD 23.97 per ounce, platinum was steady at USD 976.19 and palladium jumped 1.8% to USD 1,385.77.

(Reporting by Ashitha Shivaprasad and Brijesh Patel in Bengaluru; Editing by Paul Simao, Maju Samuel, and Krishna Chandra Eluri)

Chinese stocks wobble ahead of activity data, investors await stimulus

June 14 (Reuters) – Chinese stocks erased gains and ended flat to lower, while Hong Kong shares dipped on Wednesday, as investors booked profit ahead of the release of May activity data and awaited more stimulus measures to support the country’s economic recovery.

** China’s blue-chip CSI 300 Index was flat, while the Shanghai Composite Index slid 0.14%.

** Hong Kong’s Hang Seng Index went down 0.58%, while the Hang Seng China Enterprises Index declined 0.62%.

** Meanwhile, Asian shares struggled for traction and the dollar was subdued as the market focuses on the probability of a less aggressive US Federal Reserve at its policy meeting which concludes on Wednesday.

** China is set to announce key May economic data, including retail sales and industrial production, on Thursday.

** China’s new bank lending rose to 1.36 trillion yuan (USD 189.83 billion) in May, data from the People’s Bank of China (PBOC) showed on Tuesday, up from April but missed analysts’ estimates.

** To restore market confidence, China’s central bank lowered a short-term lending rate for the first time in 10 months.

** The market expects that the next adjustment to rates could come as soon as Thursday, when the central bank is due to roll over 200 billion yuan in medium-term lending facility (MLF) loans.

** “We expect the PBOC to cut 1-year MLF rate by 10 basis points (bps) on June 15, followed by 10 bps cut in 1-year LPR and larger cuts of 15-20 bps in 5-year LPR on June 20,” Jian Chang, chief China economist at Barclays Asia Pacific, said in a note.

** Redmond Wong, Greater China market strategist at Saxo Markets, said the sentiment has been improving following the rate cut but remains fragile.

** “The question about if the improved sentiment can sustain, or turn even more positive, depends on whether a package of stimulus measures will be released in the coming days,” he said.

** Banks dropped 1.6%, while new energy sector dipped 1.2% to lead declines.

** Hong Kong-listed tech giants edged up 0.4%.

** On the geopolitical front, China’s foreign minister Qin Gang urged the United States to stop meddling in its affairs and harming its security in a phone call with his U.S. counterpart on Wednesday, a tense preview to Antony Blinken’s visit to Beijing expected in coming days.

(Reporting by Summer Zhen; Editing by Nivedita Bhattacharjee and Varun H K)

Oil drops 1.5% as Fed projects more rate hikes this year

HOUSTON, June 14 (Reuters) – Oil prices fell 1.5% on Wednesday after the US Federal Reserve projected more interest rate hikes this year, worrying markets about demand just hours after government data showed an unexpected, large build in US crude oil stocks.

Brent crude futures settled USD 1.09, or 1.5%, lower at USD 73.20 a barrel, while US West Texas Intermediate (WTI) crude closed USD 1.15, or 1.7%, lower at USD 68.27.

Both benchmarks had climbed more than 1.5% earlier in the session. They rose more than 3% the previous day on expectations of rising fuel demand after China’s central bank lowered a short-term lending rate.

The Federal Reserve left interest rates unchanged but signaled in new economic projections that borrowing costs will likely rise by another half percentage point by the end of this year as it reacts to a stronger-than-expected economy and a slower decline in inflation.

“Markets fear that a higher interest rate environment is going to lower oil demand. The knee-jerk reaction is pushing oil down,” said Price Group analyst Phil Flynn.

Higher interest rates strengthen the dollar, making commodities denominated in the US currency more expensive for holders of other currencies.

Wall Street stocks fell, while gold prices pared gains after the Fed’s decision and comments.

US crude oil stocks rose by about 8 million barrels in the week ended June 9, according to data from the Energy Information Administration. Analysts had estimated a 500,000-barrel decline.

Gasoline and diesel stocks also rose more than expected.

The IEA, meanwhile, increased its oil demand growth forecast for this year by 200,000 barrels per day (bpd) to 2.4 million bpd, lifting the projected total to 102.3 million bpd.

However, the agency expects economic headwinds to reduce growth to 860,000 bpd next year and increasing use of electric vehicles to help to reduce that to 400,000 bpd in 2028 for overall demand of 105.7 million bpd.

The IEA’s 2023 oil demand growth figure is slightly above that of the Organization of the Petroleum Exporting Countries (OPEC).

JPMorgan downgraded its forecast for this year’s average Brent crude price by USD 9 to USD 81 a barrel.

(Reporting by Arathy Somasekhar in Houston, Ahmad Ghaddar in London; Additional reporting by Andrew Hayley in Beijing; Editing by Elaine Hardcastle, Kirsten Donovan)

Hopes for a Fed pause bolster risk rally

June 14 (Reuters) – Asian markets are set for an explosive open on Wednesday after a below-consensus reading of headline US inflation lit the touchpaper for a rally across all risky assets on Tuesday, although investors will be mindful of the steep rise in US bond yields.

The fall in US inflation to a two-year low has convinced investors the Federal Reserve will pause raising rates on Wednesday, and they like what they see – the S&P 500, Nasdaq and MSCI World index all hit their highest levels since April last year, the dollar fell and cash flowed out of safe-haven bonds.

The rush into riskier assets was also supported by China’s de facto policy easing as the central bank cut reserve repo rates for the first time in 10 months. This could be a precursor to lower benchmark interest rates in the coming weeks – yuan traders certainly seem to think so.

Indian wholesale price inflation, unemployment, and import and export prices from South Korea, and New Zealand’s first quarter current account top the Asian and Pacific data calendar on Wednesday.

India’s annual WPI inflation could be especially important. Economists expect a fall of 2.35% in May, pointing to the strongest deflationary pressures in three years. With the year-on-year global oil price still down around 40%, it could be even lower.

But the driving forces for markets will likely be global.

Traders are putting a 95% probability on the Fed standing pat on Wednesday, a consensus so strong the Fed will almost certainly respect. The focus for investors will be on the statement and Fed Chair Jerome Powell’s press conference for signs on whether it will be a ‘hawkish’ or ‘dovish’ pause.

All of that will come after Asian markets close, so in the meantime, local investors will take their cue from yet another remarkable performance on Wall Street, especially tech stocks and the Nasdaq.

The NYSE FANG+ index of mega tech stocks rose 0.9% for a fourth consecutive daily rise, bringing its year-to-date gains to 72%. The index has posted only four declines in the past 21 trading sessions.

Even beleaguered Chinese tech stocks are finally feeling the glow – the Hang Seng tech index is up 11% so far this month, outperforming the broader Hang Seng (up 7%) and significantly outpacing the main Chinese indices, which are up 1% or 2%.

The MSCI Asia ex-Japan index rose more than 1% on Tuesday, its second-best day since March, while Japan’s Nikkei hit a fresh 33-year high above 33,000 points.

Momentum across all these markets is coming from strong technical, positioning and ‘fear of missing out’ tailwinds. One major headwind, particularly for Asian assets, could be the surge in US Treasury yields, although that for now at least is being mitigated by the dollar’s slide to a three-week low.

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

– India WPI inflation (June)

– South Korea unemployment (May)

– New Zealand current account (Q1)

(By Jamie McGeever)

US yields rise as inflation optimism wanes ahead of Fed

NEW YORK, June 13 (Reuters) – US Treasury yields rebounded from a brief decline on Tuesday after economic data showed a slowing rise in inflation, a day ahead of the Federal Reserve’s next interest rate decision.

The consumer price index (CPI) showed an annual increase in prices of 4% in May, slowing from a 4.9% reading in April. On a monthly basis, CPI increased 0.1%, just shy of the 0.2% increase expected by economists polled by Reuters.

Traders firmed up expectations the Fed will keep rates steady at the conclusion of its policy meeting on Wednesday and keep the benchmark rate at 5.0%-5.25%.

Expectations for the Fed to hold rates are now at 95.3%, up from 79.1% a day ago, according to CME’s FedWatch Tool, but expectations for a 25-basis-point hike at the July meeting are at 63.1%.

“Not only should the Fed skip tomorrow’s hike, they should just skip the entire meeting. The data ever so slightly tilts things towards this not just being a skip, but a full-blown hold,” said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.

But the early fall in yields proved to be temporary ahead of the Fed’s policy announcement and another reading on inflation, the producer price index for May.

“People are sort of hedging their bets. They are not really sure what is likely to happen,” said Sam Stovall chief investment strategist at CFRA in New York.

“Maybe the Fed has been backed into skipping this month but there is a possibility they won’t be skipping next month, so maybe it is like pulling petals where you skip, you hike, you skip, you hike.”

In addition, Bank of England Governor Andrew Bailey said official data published earlier in the day showed the labor market was “very tight” and food inflation was easing very slowly, indicating the central bank will remain on a hiking path.

The yield on 10-year Treasury notes was up 7.4 basis points at 3.839%.

Policy announcements are also expected from the European Central Bank (ECB) and Bank of Japan later in the week.

An USD 18-billion auction of 30-year bonds by the Treasury was strong, with a high yield of 3.908% and demand for the debt at 2.52 times the bonds on sale, the highest since January 2020, according to Refinitiv data.

The yield on the 30-year Treasury bond was up 3.5 basis points to 3.941 %.

A closely watched part of the US Treasury yield curve measuring the gap between two- and 10-year notes, seen as an indicator of economic expectations, was at a negative 86.3 basis points after inverting by as much as a negative 94.49 basis points.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was up 10.8 basis points at 4.700% after rising to 4.707%, its highest since March 10.

The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at
2.162%, after closing at 2.145% on Monday.

The 10-year TIPS breakeven rate was last at 2.212%, indicating the market sees inflation averaging 2.2% a year for the next decade.

(Reporting by Chuck Mikolajczak; Editing by Chizu Nomiyama, Andrea Ricci and Richard Chang)

Gold dips as US yields tick higher, spotlight on Fed

June 13 (Reuters) – Gold slipped on Tuesday as Treasury yields rebounded, while traders firmed up bets the Federal Reserve would stand pat on interest rates after data showed US consumer price gains slowed in May.

Spot gold fell 0.7% to USD 1,942.59 per ounce by 01:53 p.m. EDT (1753 GMT), after rising as much as 0.7% on US inflation data.

US gold futures settled 0.6% lower at USD 1,958.6.

Benchmark US 10-year Treasury yields rose to 3.807%, making non-yielding bullion less attractive.

“Gold couldn’t hold on to post-CPI gains over growing concern that stubborn underlying inflation may produce a hawkish Fed dot-plot tomorrow pointing to fewer-than-expected rate cuts in 2024,” said Tai Wong, a New York-based independent metals trader.

The US consumer price index (CPI) rose 4.0% in May, the smallest annual increase in more than two years, but stayed well above the Fed’s 2% target.

In the 12 months through May, core CPI climbed 5.3%, showing that underlying price pressures remained strong.

Traders now see a more than 90% chance the US central bank will decide to forgo an 11th straight interest-rate hike and keep the benchmark rate at 5.00% to 5.25% on Wednesday. Before the report, traders saw about a one-in-four chance of a June rate hike.

While gold is seen as a hedge against inflation, higher rates to tame price pressures generally weigh on the non-yielding asset’s appeal.

The dollar eased 0.4% to near its lowest in three weeks, putting a floor under greenback-priced bullion.

“The market participants are acknowledging the idea that we might be near terminal rates regardless,” said Daniel Ghali, commodity strategist at TD Securities, adding “the market is set up here for an asymmetric reaction to the upside on a pause.”

Silver fell 1.6% to USD 23.67 per ounce, platinum dropped 1.3% to USD 976.94 while palladium gained 0.8% to USD 1,360.28.

(Reporting by Deep Vakil and Seher Dareen in Bengaluru; additional reporting by Ashitha Shivaprasad; Editing by Conor Humphries, Nick Macfie and Krishna Chandra Eluri)

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