Oil rises as slowing US inflation eases recession concerns

Feb 1 (Reuters) – Oil prices rose on Wednesday as signs of slowing inflation in the United States eased fears that the world’s largest oil user may face a recession because of further interest rate hikes and a weaker dollar supported some buying interest.

Brent crude futures gained 8 cents, or 0.1%, to USD 85.54 a barrel at 0727 GMT. US West Texas Intermediate (WTI) crude futures rose 20 cents, or 0.2%, to USD 79.07 a barrel.

Both benchmarks were up for a second day, after gaining about 1% in the previous session.

“Sentiment shifted amid a positive company reporting season. Signs of cooling inflation also raised expectations that the Fed will be able to pause rate hikes,” ANZ commodities analyst said in a note.

Tamer rate hike expectations helped lower the dollar index, which supported oil prices as a weaker greenback makes the commodity cheaper for buyers holding other currencies.

All eyes will be on a meeting on Wednesday of the Organization of the Petroleum Exporting Countries and allies including Russia, known as OPEC+, where producers are expected to endorse their current output targets agreed in November.

OPEC’s oil output fell in January, as Iraqi exports dropped and Nigeria’s output did not recover, with the 10 OPEC members pumping 920,000 barrels per day (bpd) below the group’s targeted volumes under the OPEC+ agreement, a Reuters survey found.

The shortfall was bigger than the deficit of 780,000 bpd in December.

“Oil prices seem primed to navigate a period of heightened volatility … OPEC+ is likely to stick to its current production targets, however, Russia is leaning towards increasing oil exports to Asian buyers at deep discounts, which can disrupt the balance in oil markets,” independent oil market expert Sugandha Sachdeva said.

Upgraded global growth forecasts by the IMF and the expectation of strong pent-up demand from China amid higher mobility are also underpinning oil prices, Sachdeva added.

Separately, data from the American Petroleum Institute industry group showed crude stocks rose by about 6.3 million barrels in the week ended Jan. 27, according to market sources.

That was a bigger build than the 400,000 barrels that analysts polled by Reuters had expected on average.

Distillate stocks, which include diesel and heating oil, rose by about 1.5 million barrels, contrary to analysts’ expectations of a 1.3 million barrel drop.

(Reporting by Mohi Narayan in New Delhi and Sonali Paul in Melbourne; Editing by Christian Schmollinger)

Wage data dents dollar recovery before Fed rate decision

NEW YORK, Jan 31 (Reuters) – The dollar fell on Tuesday, giving up earlier gains, after data showed US labor costs increased less than expected in the fourth quarter, and before the Federal Reserve is expected to hike rates by 25 basis points on Wednesday.

The Employment Cost Index, the broadest measure of labor costs, rose 1.0% last quarter. That was the smallest advance since the fourth quarter of 2021 and followed a 1.2% gain in the July-September period.

Still, it is not seen as likely to sway the US central bank from some further rate hikes.

“Despite the fact that it came in below expectations, objectively speaking it’s still a pretty firm print that means that the Fed is still going to sound hawkish,” said Bipan Rai, North American head of FX strategy at CIBC Capital Markets in Toronto.

Other data on Tuesday also showed that house price growth slowed considerably in November, with a 9.2% increase in the month.

Fed funds futures traders are pricing for the Fed’s benchmark rate to peak at 4.91% in June, up from 4.33% now.

But investors are also bearish on the US economy and see the Fed as having to cut rates back to 4.48% by December. This is despite Fed officials stressing they will need to keep rates in restrictive territory for a period of time in order to bring down inflation.

“(Fed Chair Jerome) Powell and the FOMC will want to flag the fact that we are going to see higher rates for a little bit longer. It’s all about whether or not the market believes that narrative at this point,” said Rai.

The dollar index =USD was last down 0.21% on the day against a basket of currencies at 102.03. It earlier rose to a two-week high of 102.61, which analysts said was likely due in part to repositioning for month-end.

The greenback is also trading just above key technical supports against major currencies including the euro.

The index is on track to post a monthly loss of 1.39% for January, after losing 2.26% in December and 5.07% in November, which was its worst monthly loss since September 2010. The losses in November came on expectations that the Fed would begin slowing rate hikes, which it did in December.

The index has weakened from a 20-year high of 114.78 on Sept. 28.

The euro gained 0.21% on the day to USD 1.0867, after earlier falling to USD 1.0802.

Data on Tuesday showed the euro zone eked out growth in the final three months of 2022, managing to avoid a recession even as sky-high energy costs, waning confidence and rising interest rates took a toll on the economy that is likely to persist into this year.

The European Central Bank and Bank of England are both expected to hike rates by 50 basis points on Thursday.

Sterling fell 0.16% against the dollar to USD 1.2329.

The dollar fell 0.24% against the Japanese yen to 130.12.

(Additional reporting by Harry Robertson in London; Editing by Mark Potter and Mark Heinrich)

Gold set for third monthly rise on softer dollar, Fed slowdown bets

Jan 31 (Reuters) – Gold prices on Tuesday were on track for their third straight monthly gain, helped by an overall weaker dollar and expectations around slower rate hikes from the US Federal Reserve.

Spot gold was near its session-highs, up 0.3% to USD 1,928.81 per ounce by 1:40 p.m. ET (1840 GMT). Bullion has gained 5.7% in January.

US gold futures settled up 0.3% to USD 1,945.3.

The dollar was heading for its fourth consecutive monthly loss, making bullion more attractive for holders of other currencies.

“We have so many event-driven risks throughout this week and investors have to pay attention to that. Gold prices are likely to be volatile,” said Phillip Streible, chief market strategist at Blue Line Futures in Chicago.

The US central bank policy decision is due at 1900 GMT on Wednesday, followed by a news conference from Fed Chair Jerome Powell.

Traders have priced in a 25-basis-point Fed rate hike to a range of 4.5%-4.75%. They expect rates to peak at 4.9% in June.

Additionally, the European Central Bank and Bank of England are expected to hike rates by 50 basis points on Thursday.

Lower rates tend to be beneficial for bullion, decreasing the opportunity cost of holding the non-yielding asset.

Meanwhile, analysts and traders have raised their predictions for gold prices but expect high rates to keep a lid on rallies, a Reuters poll showed.

“Given how markets are expecting the FOMC, BoE and ECB to make a move, the focus is likely to be on what they say rather than the actions they take,” said Lukman Otunuga, senior research analyst at FXTM, in a note.

Markets also await Friday’s US payrolls report for January, with weakening in the labour market translating to decreasing inflation.

Spot silver rose 0.6% to USD 23.72 per ounce while platinum gained 0.3% to USD 1,012.25 – yet both were en route to their first monthly fall in five.

Palladium rose 0.5% to USD 1,647.18, falling for the second consecutive month.

(Reporting by Seher Dareen in Bengaluru, additional reporting Arundhati Sarkar; editing by Ed Osmond and Ken Ferris)

European shares end lower but log biggest January gain in eight years

Jan 31 (Reuters) – Europe’s STOXX 600 fell on Tuesday as investors geared up for a fresh round of interest rate hikes from top central banks, but the index still recorded its biggest January percentage gain since 2015.

The pan-European STOXX 600 closed down 0.2%. However, the index logged a monthly gain of 6.7% on hopes of better-than-expected corporate earnings and signs of economic resilience.

“Europe got very lucky in the sense that it was a mild winter and so the worst fears about energy prices did not come to pass,” said Steve Sosnick, chief strategist at Interactive Brokers.

The coming days will be an important test for the rally in equities this year, with the US Federal Reserve widely expected to raise its policy rate by 25 basis points on Wednesday while the European Central Bank and the Bank of England will likely raise rates by 50 bps each on Thursday.

“There’s less consensus about what the ECB might do, not necessarily at this meeting but going forward. There’s some real drama in the ECB, about 25 (bps rate hike) versus 50 and for how long,” said Sosnick.

Economic data from the region on Tuesday did little to ease market jitters.

The euro zone eked out growth in the final three months of last year, but the overall picture nevertheless remains weak, with meagre growth forecast for 2023.

Further, German retail sales unexpectedly fell in December, while French inflation rose in January on higher energy prices.

STOXX 600 companies’ earnings are expected to increase around 7.3% in the fourth quarter, nearly half the growth forecast seen at the start of January, Refinitiv data showed.

The healthcare sector SXDP was the biggest drag on the STOXX 600 on Tuesday, pulled down by a drop in shares of Novo Nordisk AS and Roche Holding AG.

UniCredit jumped 12.3% to touch a near five-year high after pledging to return 5.25 billion euros (USD 5.69 billion) from its 2022 earnings after posting a record quarterly profit.

Gains in the stock boosted Europe’s banks index, which rose 0.6%, while financial services, which was among the top sectoral decliners, was dragged down by a fall in shares of UBS Group AG.

UBS, the world’s largest wealth manager, fell 2.1% after predicting an “uncertain” year ahead.

Rate-sensitive real estate stocks and miners fell over 1% each.

Among other stocks, Stora Enso fell 3.1% on a margin squeeze warning, while Rheinmetall AG dropped 5.9% after the German arms maker announced a convertible bond offering.

(Reporting by Ankika Biswas and Amruta Khandekar in Bengaluru; Editing by Sherry Jacob-Phillips, Shinjini Ganguli and Ken Ferris)

Oil prices settle steady on higher US demand, weaker dollar

BENGALURU, Jan 31 (Reuters) – Oil prices closed steady on Tuesday after recovering from a near three-week low, drawing support from a weakening dollar and on data showing that demand for US crude and petroleum products rose in November.

The more active second-month Brent contract settled at USD 85.46 a barrel, up 96 cents or 1%, while the US West Texas Intermediate crude futures settled at USD 78.87 a barrel, up 97 cents or 1.3%.

More volatility on the day of expiration kept the front-month contract under pressure as traders closed positions, said Mizuho analyst Robert Yawger. The front-month contract settled at USD 84.49 a barrel, down 41 cents.

During the session, front-month Brent and WTI futures touched their lowest in almost three weeks as traders worried about prospects for further interest rate increases and abundant flows of Russian crude.

The Brent April futures and US front-month WTI gained after the US Energy Information Administration reported that demand for US crude and petroleum products rose 178,000 barrels per day (bpd) in November to 20.59 million bpd, the highest since August.

Crude benchmarks were also supported by a weaker US dollar, UBS analyst Giovanni Staunovo said. This makes dollar-denominated crude cheaper for foreign buyers.

The dollar index turned negative after US data showed labor costs increased at their slowest pace in a year in the fourth quarter as wage growth slowed, bolstering expectations of the Fed slowing its interest rate increases.

Investors expect the Fed to raise rates by 25 basis points on Wednesday, with increases of half a percentage point by the Bank of England and European Central Bank the following day.

An OPEC panel is likely to recommend keeping the group’s output policy unchanged when it meets on Wednesday, delegates told Reuters on Monday.

However, Tuesday’s weakness in front-month Brent prices may cause concern in the group, Yawger said. This widened the contango in the market, which occurs when futures prices show a commodity’s price is expected to be much higher in the future.

A Reuters survey shows 49 economists and analysts expect Brent crude to average more than USD 90 a barrel this year, the first upward revision since a poll in October, with gains likely driven by demand from top consumer China.

After settlement, market sources said the American Petroleum Institute reported that US crude oil and fuel inventories rose last week. The US Energy Information Administration will release official stockpiles data on Wednesday.

Preliminary numbers by the API indicated a 6.3 million-barrel increase in crude stocks, which if confirmed by the EIA would be much higher than the 400,000-barrel rise forecast by analysts in a Reuters poll.

(Reporting by Shariq Khan; Additional reporting by Rowena Edwards, Swati Verma, Trixie Yap; Editing by David Goodman, Will Dunham and David Gregorio)

Gold edges higher, on track for third straight monthly gain

Jan 31 (Reuters) – Gold prices edged up on Tuesday, en route to their third straight month of gains, as the dollar weakened, while market participants awaited the US Federal Reserve policy decision later this week amid hopes of a less-aggressive rate hike.

Spot gold rose 0.2% to USD 1,925.39 per ounce as of 0257 GMT and was headed for a monthly gain of more than 5%.

US gold futures were up 0.1% at USD 1,940.30.

The dollar index was down 0.1% and was set for a fourth straight monthly drop. A weaker greenback tends to make dollar-priced bullion an attractive bet.

Traders mostly expect the Fed to scale back rate hikes to 25 basis points (bps) at its two-day policy meeting that ends on Wednesday. The US central bank slowed its tightening pace to 50 bps in December after four straight 75-bp hikes.

“The market is trading in a narrow range ahead of the Fed meet. The gold market has already priced in a 25-bps hike, if the Fed strikes a dovish tone, then it will be positive for gold,” said Ajay Kedia, director at Kedia Commodities, Mumbai.

A low interest-rate environment decreases the opportunity cost of holding non-yielding bullion.

Top gold consumer China’s economic activity swung back to growth in January, official data showed, after a wave of COVID-19 infections passed through the country faster than expected following the dismantling of its pandemic controls.

“With the Chinese economy recovering, physical gold demand in China will improve. Also, there will be support for other precious metals, which are industrial in nature,” Kedia added.

Elsewhere, spot silver rose 0.4% to USD 23.67 per ounce, platinum gained 0.1% at USD 1,009.76, and palladium inched up 0.4% to USD 1,635.48. But all three metals were headed for a monthly decline.

(Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Sherry Jacob-Phillips and Savio D’Souza)

Asian stocks slip as investors eye central bank hikes

Jan 31 (Reuters) – Asian shares traded cautiously and bonds nursed small losses on Tuesday as investors braced for an eventful week that includes central bank meetings, a slew of earnings reports and key US economic data.

Investors broadly expect the US Federal Reserve will raise interest rates by 25 basis points (bps) on Wednesday. Rate announcements are due on Thursday from both the Bank of England and the European Central Bank – and both are expected to hike rates by 50 bps.

Meanwhile, more than 100 S&P 500 companies including Apple (AAPL), Amazon.com (AMZN) and Google parent Alphabet (GOOGL) are expected to report results this week, which also will see the publication of closely watched US employment numbers.

“It’s a big week for both central banks and US equities, with … some of the household names due to make earnings announcements that will provide a micro overview of the macro economy,” ANZ analysts said in a note.

“We expect a 25 bps (US) rate rise and anticipate that the Fed will caution against an early pause in the tightening cycle … Risk appetite could be vulnerable to a correction.”

Early in the Asian trading day, MSCI’s broadest index of Asia-Pacific shares outside Japan was down 0.1%. US stock futures, the S&P 500 e-minis ESc1, rose 0.1%.

Japan’s Nikkei stock index .N225 slid 0.1% while Australian shares were up 0.2%.

China’s blue-chip CSI300 index .CSI300 remained flat in early trade. Hong Kong’s Hang Seng index opened up 0.4%.

On Monday, US stocks lost ground with the major indexes sinking, weighed down by declines in technology and other giant corporations’ shares.

The Dow Jones Industrial Average fell 0.8% to 33,717.09, the S&P 500 lost 1.3% to 4,017.77 and the Nasdaq Composite dropped 2.0% to 11,393.81.

Despite Monday’s declines, the S&P 500 remained on track to post its biggest January gain since 2019.

At the end of the Fed’s two-day policy meeting on Wednesday investors will be glued to Chair Jerome Powell’s news conference for clues on whether the rate-hiking cycle may be coming to a close, and for signs of how long rates could stay elevated.

Markets will also grapple with a flood of US economic data, culminating in Friday’s payrolls report for January. Investors see signs of weakening in the labour market as a key factor in bringing down high inflation.

US Treasury yields remained firm ahead of the central bank meetings and economic data, with the yield on benchmark 10-year Treasury notes standing at 3.5384% compared with its US close of 3.551% on Monday.

The two-year yield, which rises with traders’ expectations of higher Fed fund rates, touched 4.2402% compared with a US close of 4.261%.

In currencies, the US dollar, which was poised for its fourth month of declines, was down at 102.19 against a basket of other major currencies.

The European single currency was up 0.1% on the day at USD 1.0852, having gained 1.4% in a month.

In the energy market, oil prices fell on Monday ahead of the expected hikes by central banks and signals of strong Russian exports.

US crude ticked up 0.2% to USD 78.02 a barrel while Brent crude settled at USD 84.9 per barrel early in the Asia session.

Gold was slightly higher. Spot gold was traded at USD 1922.91 per ounce.

(Editing by Kenneth Maxwell)

Tech, megacaps drag Wall St to lower close as big market week kicks off

NEW YORK, Jan 30 (Reuters) – Major U.S. stock indexes sank on Monday, weighed down by declines in technology and other megacap shares, as investors looked toward a major week of events including central bank meetings and a slew of earnings reports.

The heavyweight tech sector dropped 1.9% while energy shed 2.3%, the biggest drop among the S&P 500 sectors. Shares of Apple Inc (AAPL), Amazon.com Inc (AMZN) and Google parent Alphabet Inc (GOOGL), which are due to post results later this week, all slumped.

More than 100 S&P 500 companies are expected to report results this week, which also includes central bank meetings in the United States and Europe and closely watched U.S. employment data.

“The market has had a big run and the trading is a bit more cautious heading into a week which likely will be an inflection point for the overall market,” said Keith Lerner, co-chief investment officer at Truist Advisory Services.

The Dow Jones Industrial Average fell 260.99 points, or 0.77%, to 33,717.09, the S&P 500 lost 52.79 points, or 1.30%, to 4,017.77 and the Nasdaq Composite dropped 227.90 points, or 1.96%, to 11,393.81.

U.S. Treasury yields rose, providing another pressure point for tech shares that have otherwise rebounded to start the year after a rough 2022.

Despite Monday’s declines, the S&P 500 remained on track to post its biggest January gain since 2019.

The U.S. central bank is seen hiking the Fed funds rate by 25 basis points at the end of its two-day policy meeting on Wednesday, following a 2022 in which the Fed aggressively boosted rates to control soaring inflation.

Fed Chair Jerome Powell’s news conference will be scrutinized for whether the rate-hiking cycle may be coming to a close and for signs of how long rates could stay elevated.

“It’s probably one of the most important meetings since the whole thing began,” said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute. “Unless the Fed extends that timeline meaningfully from what the market expects, which is that the Fed will be done in the next meeting or two, this may end up marking the pause, so to speak.”

Meanwhile, the European Central Bank is expected to deliver another large rate hike on Thursday.

Investors are also focused on earnings reports, amid concerns the economy may be facing a recession. With more than 140 companies having reported so far, S&P 500 earnings are expected to have fallen 3% in the fourth quarter compared with the prior-year period, according to Refinitiv IBES.

In company news, shares of Johnson & Johnson (JNJ) fell 3.7% after the healthcare giant’s strategy to use bankruptcy to resolve the multibillion-dollar litigation over claims its talc products cause cancer was rejected by a federal appeals court.

Declining issues outnumbered advancing ones on the NYSE by a 2.40-to-1 ratio; on Nasdaq, a 2.08-to-1 ratio favored decliners.

The S&P 500 posted 5 new 52-week highs and no new lows; the Nasdaq Composite recorded 67 new highs and 20 new lows.

About 10.6 billion shares changed hands in U.S. exchanges, compared with the 11.2 billion daily average over the last 20 sessions.

(Reporting by Lewis Krauskopf in New York, and Shreyashi Sanyal and Johann M Cherian in Bengaluru; Editing by Anil D’Silva and Matthew Lewis)

Yields tick higher as Fed hike, jobs report loom in week ahead

NEW YORK, Jan 30 (Reuters) – US Treasury yields edged higher on Monday at the start of a busy week of economic data and a widely anticipated interest rate hike by the Federal Reserve.

Investors have priced in a near-certainty that the Fed would raise benchmark rates by 25 basis points at the end of its meeting on Wednesday, the smallest increase since the central bank began its rate-hike cycle 10 months ago.

Economic data scheduled to be released this week, which includes readings on consumer confidence, construction spending, and unemployment, are expected to factor into whether the Fed will conclude its rate hikes in March.

“We anticipate the price action itself will be the most relevant takeaway from the session [today] as investors seek to setup for this week’s array of fundamental and policy developments,” said Ian Lyngen, head of US Rates Strategy at BMO Capital Markets.

The yield on 10-year Treasury notes was up 3.5 basis points to 3.553%, bringing it close to its highest level since Jan. 11.

The yield on the 30-year Treasury bond was up 2.8 basis points to 3.662%.

Rising concerns about the possibility of a default if Congress does not raise the debt ceiling helped propel greater demand for 6-month bills than for 3-month bills in separate auctions held Monday, said Thomas Simons, money market economist at Jefferies LLC.

“It is possible that the buyside is steering clear of the 3-month because of an expected paydown in bills that will be ongoing when this bill matures,” he said.

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 -70.6 basis points.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was up 5 basis points at 4.257%.

January 30 Monday 1:21PM New York / 1821 GMT

	Price	Current Yield %	Net Change (bps)
Three-month bills	4.5525	4.6665	-0.010
Six-month bills	4.63	4.8037	-0.035
Two-year note	99-193/256	4.2547	0.048
Three-year note	99-194/256	3.9621	0.054
Five-year note	99-48/256	3.6794	0.058
Seven-year note	99-60/256	3.6248	0.046
10-year note	104-176/256	3.5532	0.035
20-year bond	102-224/256	3.7918	0.027
30-year bond	106-24/256	3.662	0.028

DOLLAR SWAP SPREADS
	Last (bps)	Net Change (bps)
U.S. 2-year dollar swap spread	27.75	-0.25
U.S. 3-year dollar swap spread	14.75	0.50
U.S. 5-year dollar swap spread	5.75	-0.25
U.S. 10-year dollar swap spread	-2.00	0.25
U.S. 30-year dollar swap spread	-37.50	0.00

(Reporting by David Randall; Editing by Arun Koyyur and Andrea Ricci)

Japan’s Nikkei tracks Wall Street gains to end at over 1-month high

TOKYO, Jan 30 (Reuters) – Japan’s Nikkei index ended at a more than one-month high on Monday, tracking Wall Street gains in the last session, although the gains were capped by caution ahead of the U.S. Federal Reserve’s meeting and domestic corporate earnings announcements.

The Nikkei share average .N225 gained 0.19% to close at 27,433.40, its highest close since Dec. 16, after briefly slipping in the negative territory. The broader Topix .TOPX was marginally down 0.01% at 1,982.40.

The week is filled with market-moving events, so investors are being more cautious, said Shigetoshi Kamada, general manager at the research department at Tachibana Securities.

“I am unsure if this (upbeat) momentum will continue this week. Investors are cautious and could sell stocks to book profits ahead of the Fed meeting, U.S. employment data as well as domestic corporate results.”

Wall Street rose on Friday, marking the end of a rocky week in which economic data and corporate earnings guidance hinted at softening demand but also economic resiliency ahead of the U.S. Federal Open Market Committee this week. .N

A string of high profile earnings reports are on tap globally, notably from Apple Inc AAPL.O, Amazon.com AMZN.O, Alphabet Inc GOOGL.O and Meta Platforms META.O, among others.

Investors are also reacting to Japan’s corporate outlook, as the earnings season reaches its peak this week.

Fanuc 6954.T jumped 3.58% after the robot maker raised its annual operating profit outlook and announced a 5-for-1 stock split. nFWN34B2WO

Shin-Etsu Chemical 4063.T, up 5.08%, posted a fourth straight session of gains as the silicon wafter maker raised its annual operating profit outlook.

Japanese semiconductor equipment makers showed muted reaction to news that Washington had made progress towards a deal to curb exports of some advanced chip-making equipment to China with several governments.

Tokyo Electron 8035.T rose 0.68% and Advantest 6857.T lost 0.32%, while Nikon 7731.T inched up 0.16%.

(Reporting by Junko Fujita; editing by Uttaresh.V and Rashmi Aich)

((junko.fujita@thomsonreuters.com;))

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