Oil futures slip 1% on worries about more US interest rate hikes

NEW YORK, Feb 27 (Reuters) – Oil prices slid about 1% on Monday as strong US economic data had investors bracing for more interest rate hikes from the US Federal Reserve to fight inflation, which could slow economic growth and oil demand.

Losses were limited by oil supply concerns after Russia halted exports to Poland via a key pipeline.

Brent futures fell 71 cents, or 0.9%, to settle at USD 82.45 a barrel, while US West Texas Intermediate (WTI) crude fell 64 cents, or 0.8%, to settle at USD 75.68.

New orders for key US-manufactured capital goods increased more than expected in January while shipments rebounded, suggesting that business spending on equipment picked up at the start of the first quarter.

That positive economic data helped global stock markets to rebound, yet shares remained near six-week lows as investors braced for interest rate hikes in the United States and Europe.

US Fed Governor Philip Jefferson said inflation for services in the United States remains “stubbornly high.”

Adding to global oil demand worries, rising Sino-US tensions hammered equity markets in China and Hong Kong while investors awaited policy signals from the upcoming National People’s Congress.

On Sunday, White House National Security Adviser Jake Sullivan said China has not moved toward providing Russia with lethal aid for use against Ukraine and added Washington has made clear behind closed doors that such a move would have serious consequences.

Also weighing on oil, the US Energy Information Administration reported last week that US crude stockpiles rose to their highest since May 2021.

Bob Yawger at Mizuho, a bank, said in a note that “another big build likely this week.”

Russia, meanwhile, halted supplies of oil to Poland via the Druzhba pipeline, Polish refiner PKN Orlen said on Saturday, a day after Poland said it had delivered its first Leopard tanks to Ukraine.

On Monday, Russian oil pipeline monopoly Transneft said it started pumping oil from Kazakhstan to Germany via Poland through the Druzhba pipeline while halting deliveries to Poland.

Russia announced plans this month to cut oil exports from its western ports by up to 25% in March versus February, exceeding previously mooted production cuts of 5%.

Still, most analysts see a European Union (EU) ban on Russian seaborne oil imports and an international price cap having only a small impact on overall global supply.

“Russian oil output has exceeded expectations in recent months due to lax EU/US sanctions,” Bank of America said in a note.

(Additional reporting by Noah Browning in London, Mohi Narayan in New Delhi, and Sudarshan Varadhan in Singapore; editing by Kirsten Donovan, Jason Neely, Susan Fenton, and David Gregorio)

Gold slips as further rate-hike bets boost US dollar, yields

Feb 24 (Reuters) – Gold prices dropped to their lowest in eight weeks on Friday, pushed down by a stronger dollar and bond yields as the market braced for more interest rate hikes by the US Federal Reserve in the coming months.

US inflation accelerated while consumer spending rebounded sharply by 1.8% in January, reinforcing expectations that the Fed will remain hawkish.

Spot gold fell 0.6% to USD 1,810.89 per ounce by 2:29 p.m. ET (1929 GMT), having touched its lowest since Dec. 30, at USD 1,808.7.

US gold futures slipped 0.5% to settle at USD 1,817.70.

Yields are rising after the data, while also feeding into further dollar strength, which is kryptonite for gold, said Edward Moya, senior market analyst at OANDA.

Pressuring gold, the dollar index rose to a seven-week peak, while benchmark yields were also en route to their fifth weekly rise.

With US durable goods data due next week, “manufacturing activity is expected to pick up …you’re probably going to get further evidence that the economy is not weakening, which should in theory fuel more inflation worries,” Moya added.

Following a slew of strong economic data, investors have walked back expectations of a deep rate cut this year and expect US rates to peak in July at 5.35% and remain above 5% until the end of the year.

Rising interest rates dull gold’s appeal as they increase the opportunity cost of holding the non-yielding asset.

Tracking losses in gold, spot silver fell 2.3% to USD 20.81 and platinum dipped 4% to USD 909.07.

Palladium, used by automakers in catalytic converters to curb emissions, fell 2.7% to USD 1,386.93, after touching its lowest level since August 2019 at USD 1,363.52.

“Palladium is not a metal that’s in vogue with the emphasis shifting to metals used in electric vehicles,” said Edward Meir, a metals analyst at Marex.

“I don’t think palladium is getting much traction either from technicals, which are very poor as well as fundamentals which also don’t look that great.”

(Reporting by Seher Dareen and Brijesh Patel in Bengaluru; Additional reporting by Bharat Govind Gautam; Editing by Tomasz Janowski, Krishna Chandra Eluri and Sherry Jacob-Phillips)

US-listed China shares feel the heat as report fans Sino-US tensions

Feb 24 (Reuters) – Shares of Chinese companies listed in the United States fell in early trading on Friday as reports that Washington was looking to expand the number of troops helping train Taiwanese forces added to rising Sino-US tensions.

Heavyweights Alibaba (BABA), JD.com (JD), Baidu (BIDU) tumbled between 2.9% and 3.9%. In comparison, the Nasdaq fell 1.5% as broader markets dropped after hot inflation data.

The iShares China Large-Cap ETF (FXI) slipped 2.9%, while KraneShares CSI China Internet ETF (KWEB) shed 2.8%.

One US official, speaking on condition of anonymity, said the exact number of increased troops was unclear, but the move was unrelated to recent tensions over the shooting down of a Chinese spy balloon which flew across the United States.

“I don’t see China as a safe place to invest in at this time because the geopolitical risk is just unknown,” said Dennis Dick, a trader at Triple D Trading in Ontario, Canada.

China’s blue-chip CSI300 Index closed 1% lower during Asia hours, while shares of aerospace defense companies jumped.

Relations between the world’s two largest economies worsened this month over the shooting down of the Chinese spy balloon, weighing on China ADRs after a sharp rally starting late last year.

The Nasdaq Golden Dragon China index has shed 8.5% so far this month, on track for its first decline in four months after surging about 70% from November to January.

“With the ADRs, you do have an overhang in terms of the delisting concerns from last year and so with the re-emergence (of) political risk, the potential risk factor has gone up a little bit,” said Michael Wang, deputy portfolio manager at Mirabaud Asset Management.

A multitude of factors weighed on China ADRs last year including a risk of delisting from US exchanges over an audit dispute, trade friction and geopolitical worries.

Meanwhile, a senior US official said that the United States will likely limit the level of advanced semiconductors made by South Korean companies in China, in an attempt to thwart Beijing’s technological ambitions and blocking its military advances.

(Reporting by Medha Singh and Bansari Mayur Kamdar in Bengaluru; Editing by Sriraj Kalluvila)

Global equity funds see massive weekly outflows on Fed rate worries

Feb 24 (Reuters) – Investors withdrew a large amount of money out of global equity funds in the seven days ended Feb. 22, spooked by prospects of a longer-than-anticipated tighter monetary policy from the Federal Reserve following stronger economic data coming out of the US

Data released during the period showed upbeat US business activity in February and a drop in weekly jobless claims, cementing views that the Fed would keep raising interest rates for longer.

Investors offloaded a net USD 6.43 billion worth of global equity funds during Feb. 16-22 after USD 1.47 billion worth of net selling during Feb. 9-15, Refinitiv Lipper data showed.

Investors exited US, European and Asian equity funds worth USD 6.73 billion, USD 750 million and USD 540 million, respectively, during the seven days ended Feb. 22.

Healthcare and technology sectors saw USD 737 million and USD 655 million worth of outflows, while investors put in about USD 312 million into consumer staples.

Global bond fund inflows were valued at USD 2.11 billion, the smallest in eight weeks.

Government bond funds saw a surge in demand as they received USD 6.85 billion, the biggest amount in seven months. Investors also drew USD 1.75 billion worth of short- and medium-term bond funds but disposed of high-yield funds worth USD 7 billion.

Meanwhile, global money market funds had USD 7.88 billion worth of net selling, marking their third straight week of outflows.

Among commodity funds, investors bought USD 163 million worth of energy funds for a fourth straight week of net purchases but exited USD 369 million worth of precious metal funds.

Data for 23,767 emerging market funds showed equity funds secured their seventh weekly inflow, worth USD 2.52 billion, while bond funds faced USD 1.08 billion worth of outflows.

(Reporting by Gaurav Dogra and Patturaja Murugaboopathy in Bengaluru; Editing by Shounak Dasgupta)

Oil flat on week as US inventories rise but Russia cuts supply

NEW YORK, Feb 24 (Reuters) – Oil edged higher in volatile trade on Friday, and was flat on the week, with prices supported by the prospect of lower Russian exports but pressured by rising inventories in the United States and concerns over global economic activity.

Brent crude futures settled at USD 83.16 a barrel, up 95 cents, or 1.2%. West Texas Intermediate US crude futures (WTI) settled at USD 76.32 a barrel, rising 93 cents, or 1.2%. Earlier, both fell by more than USD 1 a barrel.

The benchmarks were little changed during the week.

Lower trading volumes contributed to volatility, with Brent trading at 58% and WTI trading at 90% of the previous session’s levels.

On the anniversary of Russia’s invasion of Ukraine, benchmark Brent crude was about 15% lower than a year earlier. It hit a 14-year high of nearly USD 128 a barrel on Mar. 8, 2022.

Both benchmarks rose about 2% in the previous session on Russia’s plans to cut oil exports from its western ports by up to 25% in March, which exceeded its announced production cuts of 500,000 barrels per day.

But the market appeared to be well supplied with US inventories at their highest since May 2021, according to data from the US Energy Information Administration.

An indicator of future supply, US oil rigs fell seven to 600 this week, while the total count was still up 103 rigs, or 15.8%, over this time last year, energy services firm Baker Hughes Co (BKR) said.

Indications that Russian crude and refined products are accumulating on tankers floating at sea also hinted at increasing supplies.

JP Morgan said in a note that it thinks short-term prices are more likely to drift lower toward the USD 70s than rise “as global growth headwinds strengthen and excess ‘dark’ inventory exacerbated by a flooding of Russian oil is worked off”.

The bank also said it expects the Organization of the Petroleum Exporting Countries (OPEC) to cut production to limit oil price declines.

Minutes of the latest US Federal Reserve meeting indicated that a majority of officials remained hawkish on inflation and tight labor market conditions, signaling further monetary tightening.

The prospect of further interest rate hikes supported the dollar index, which was set for a fourth straight week of gains. The index is now up about 2.5% for the month.

“While… curtailed Russian supply are certainly formidable bullish considerations, price action across the complex this month has sent off a powerful message that rising US interest rates that were further reinforced by Fed minutes, will be a major impediment to sustainable oil price strength,” said Jim Ritterbusch of consultancy Ritterbusch and associates..

A firm dollar makes commodities priced in the greenback more expensive for holders of other currencies.

(Additional reporting by Ron Bousso, Andrew Hayley and Jeslyn Lerh; Editing by Sharon Singleton, Kirsten Donovan, David Goodman and David Gregorio)

Global shares, US Treasury yields fall; Fed minutes called ‘outdated’

NEW YORK, Feb 22 (Reuters) – Global equities and US Treasury yields were lower on Wednesday as recent strong economic data had investors worried about aggressive interest rate hikes even though minutes of the Federal Reserve’s last meeting showed officials at the Jan. 31 to Feb. 1 meeting favored moderation.

A solid majority of Fed policy makers at the meeting agreed it was appropriate for the central bank to raise rates by 25 basis points, even as they reiterated that the inflation outlook would keep driving further rate actions, the minutes showed. Only a few officials supported a rate hike of 50 basis points.

But since then, strong economic data demonstrated the resilience of the US economy and heightened worries of a longer rate-tightening cycle.

“The minutes are a little bit outdated because of the data that came out after the Fed discussion and it’s not as important as people think,” said Moustapha Mounah, portfolio manager at James Investments in Dayton, Ohio.

The MSCI world equity index, which tracks shares in 50 countries, was down 0.45%. European stocks shed 0.33%.

Wall Street stocks finished a choppy session lower following the Fed’s minutes. The Dow Jones Industrial Average fell 0.26% to 33,045.09, the S&P 500 lost 0.16% to 3,991.05 and the Nasdaq Composite added 0.13% to 11,507.07.

US Treasury yields retreated after surging to three-month highs. Benchmark 10-year yields made gains but were still lower at 3.9273% after the release of the minutes.

“The bond market has already priced in more rate hikes, but the stock market hasn’t repriced to reflect all of the movement in the rates,” Mounah added.

St. Louis Fed President James Bullard, a non-voting member of the Fed’s rate-setting committee this year, on Wednesday reiterated his view that a Fed policy rate in the range of 5.25% to 5.5% would be adequate to bring inflation toward the central bank’s 2% goal.

The US Treasury yield curve that measures the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, remained deeply inverted at minus 77.90 basis points.

“If the most hawkish guy, who is a non-voting member, is at 75 basis points of additional hikes, then maybe the consensus is 50 basis points and that is a little lower than the market,” said Thomas Hayes, chairman at Great Hill Capital in New York.

The US dollar gained due to the unexpected strength of the American economy revealed in recent economic data, notwithstanding interest rate hikes by the Fed. The dollar index rose 0.346%, with the euro up 0.03% to USD 1.0604.

Oil prices fell 2% on growing concerns over oil demand as the Fed aims to keep hiking rates to reduce surging consumer prices. Brent crude futures settled 3% lower at USD 80.60 per barrel. The West Texas Intermediate crude futures (WTI) 3% to end at USD 74.05 a barrel.

Gold prices fell as the US dollar gained. Spot gold dropped 0.01% to USD 1,824.86 an ounce, while US gold futures fell 0.43% to USD 1,832.00 an ounce.

(Reporting by Chibuike Oguh in New York; Editing by Chris Reese, Will Dunham, Sharon Singleton and David Gregorio)

US stocks’ early-year rally is melting away as Treasury yields surge

NEW YORK, Feb 22 (Reuters) – Cracks are widening in an early-year rally in stocks, as rising Treasury yields bolster the allure of bonds and skew equity valuations.

For weeks, stocks have largely withstood a rise in Treasury yields that has come amid signs that the Federal Reserve may have to raise rates higher than expected to cool the economy and tame inflation.

Market participants warn, however, that yields are reaching a danger zone where equities quickly lose their luster. Yields on six-month Treasuries, for example, are at their highest in nearly 16 years, offering investors 5.02% on an asset many consider far safer than stocks.

“All of a sudden inflation is a little bit stronger than we thought and the Fed looks like they will keep raising rates, and that’s absolutely a challenge for stocks when you can get short-term paper that yields 5%,” said Jonathan Golub, chief US market strategist at Credit Suisse.

Stocks are still sitting on sizeable year-to-date gains, though some of their rally has melted away in recent days. The S&P 500 is down 4.4% from its recent highs, but remains up 4.1% year-to-date. The index fell more than 2% on Tuesday, its worst single-day drop of 2023.

The benchmark 10-year Treasury yield, which moves inversely to bond prices, is up around 60 basis points from its January lows.

Some strategists warn that a so-called no-landing scenario, where the Fed is not able to cool the economy anytime soon, could force policymakers to dole out more of the rate increases that shook markets last year, potentially pushing yields even higher.

Strategists at BlackRock, the world’s largest asset manager, said on Tuesday that policy tightening from the Fed would likely be “bad news for risk assets.”

The firm said it was increasing allocations to short-term Treasuries, keeping exposure to developed market stocks at an “underweight” and increasing exposure to emerging markets.

“Fixed income finally offers ‘income’ after yields surged globally,” the firm’s strategists wrote. “This has boosted the allure of bonds after investors were starved for yield for years.”

‘DEATH ZONE’

Markets on Tuesday afternoon were pricing in a 24% chance that the Fed raises rates by 50 basis points at its March 22 meeting, up from a 0% chance a month ago, according to CME’s FedWatch tool.

Analysts at Morgan Stanley, meanwhile, noted on Tuesday that the equity risk premium – or the potential reward that investors gain by holding stocks over bonds – has now fallen to levels last seen in 2007 due to higher yields and the likelihood of earnings disappointments ahead.

That is a “death zone” that makes the “risk-reward very poor” for stocks, strategist Michael Wilson wrote.

“We believe the risks are extreme now and nearly impossible to justify with any narrative one wants to conjure up,” Wilson said.

Golub, of Credit Suisse, is bullish on non-US stocks, which he said are trading at more attractive valuations at a time when rising yields and inflation could pressure US corporate costs.

The Stoxx 600 index of European companies, for example, trades at a forward price to earnings ratio of 12.8, well below the 18.2 seen in the S&P 500, while Japan’s Nikkei 225 trades at a forward P/E of 15.4.

“If you go outside of the US, you can get better underlying corporate profit growth for less money,” Golub said.

To be sure, bullish investors might have history on their side, thanks in part to January’s hefty 6.2% gain for the S&P 500. Years in which the S&P 500 has advanced in January have posted an additional gain in the subsequent February-December period 83% of the time, with an average 11-month rally of over 11%, according to CFRA Research.

Others see a stalemate ahead where markets make little headway. Elizabeth Burton, client investment strategist at Goldman Sachs, expects higher yields to weigh on technology stocks. At the same time, she believes many investors will be hesitant to sell equities after last year’s steep declines, when the S&P 500 lost 19.4%. The firm has a neutral outlook for the next 12 months.

“This is becoming more of a stockpicker’s environment where you can’t count on a rising tide lifting all boats,” she said.

(Reporting by David Randall in New York; Editing by Ira Iosebashvili and Matthew Lewis)

Oil drops 3% as high inflation risks stoke demand worries

BENGALURU, Feb 22 (Reuters) – Oil prices fell by USD 2 per barrel to their lowest in two weeks on Wednesday, as investors became more concerned that recent data will prompt more aggressive interest rate increases by central banks, pressuring economic growth and fuel demand.

Brent crude futures settled USD 2.45, or 3%, lower at USD 80.60 per barrel. West Texas Intermediate crude futures (WTI) dropped USD 2.41, or 3%, to end at USD 74.05 a barrel.

The settlement levels were the lowest for both benchmarks since Feb. 3.

Minutes from the latest US Federal Reserve meeting showed a majority of Fed officials agreed the risks of high inflation remained a “key factor” shaping monetary policy and warranted continued rate hikes until it was controlled.

“While better US economic data should mean better oil demand, the concern is that this forces the Fed to overtighten monetary policy to bring inflation under control,” said UBS analyst Giovanni Staunovo.

“This is also supporting the US dollar, which is not of help for oil.”

The US dollar Index gained for a second straight session, making greenback-denominated oil more expensive for holders of other currencies.

Other US economic reports, however, showed some troubling signs for the world’s biggest oil consumer. Sales of existing homes fell in January to their lowest since October 2010.

US crude stockpiles rose by 9.9 million barrels last week, according to market sources citing American Petroleum Institute figures on Wednesday. US oil inventories have climbed every week since mid-December, worrying investors about demand in the country.

A Reuters poll had forecast a 2.1 million barrels increase in crude stockpiles last week. Official data from the Energy Information Administration is due Thursday at 11:00 a.m. EST.

The American Petroleum Institute, an industry group, releases its inventory report at 4:30 p.m. ET (2130 GMT).

Demand for crude oil is seasonally lower with major US refineries deep in maintenance season, said Price Group analyst Phil Flynn.

Some 1.44 million barrels per day of US refining capacity is expected to be offline in the week ending March 3, according to research company IIR energy.

A massive snowstorm in the US Northern Plains and Upper Midwest has also hit fuel demand, with 3,500 flights delayed or cancelled across the country so far, according to FlightAware.com.

US gasoline futures slid almost 4% to their lowest in two weeks.

(Reporting by Shariq Khan, additional reporting by Rowena Edwards and Trixie Yap; Editing by Marguerita Choy, David Gregorio and Lincoln Feast.)

Asia equities fall on fear of hawkish central bank hikes

HONG KONG, Feb 22 (Reuters) – Asian share markets followed Wall Street into the red on Wednesday as surprising strength in global surveys of services stoked fears that central banks would have to lift interest rates yet further and keep them up for longer.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.97%, after Wall Street posted its worst performance of the year on Tuesday, with an unexpectedly strong reading of S&P Global’s composite purchasing managers‘ index (PMI) showing the US economy was not cooling yet.

“The flow of economic data surprises has continued overnight and this time it was a uniformly stronger than expected performance of the services sector across major developed market economies,” National Australia Bank analysts wrote in a client note.

“It concerns the market that central banks will have to hike rates a lot more to curb inflation,” said Kerry Craig, JPMorgan Asset Management’s global market strategist.

New Zealand’s central bank raised interest rates by 50 basis points to a more than 14-year high of 4.75% on Wednesday.

The central bank said it expected to keep tightening further to ensure inflation returned to its target range over the medium term.

The Bank of Japan said on Wednesday it would conduct emergency bond buying, in a move to contain elevated yields, as the 10-year JGBs touched 0.505% for a second straight session, breaching the BOJ’s 0.5% cap and reaching the highest level since Jan. 18.

Japan’s Nikkei share index fell 1.25% on Wednesday following a Tuesday PMI report showing the factory sector had contracted.

China’s benchmark shed 0.68% and Hong Kong’s Hang Seng index dropped down 0.27%.

Australia’s S&P/ASX 200 index lost 0.25% in early trading, falling for a second straight session and touching its lowest in more than a month on expectations of interest rate rises.

US 10-year notes touched 3.966%, the highest since November, before easing to yield 3.9389% on Wednesday.

The dollar index fell 0.077%, but analyst expect interest rate rises to lift the dollar, hurting emerging market equities, which benefited from a falling dollar.

US crude fell 0.5% to USD 75.98 per barrel and Brent was at USD 82.68, down 0.45%.

Spot gold added 0.1% to reach USD 1,836.18 an ounce.

(Reporting by Selena Li; Editing by Bradley Perrett)

BOJ board member calls for keeping ultra-easy policy for now

TOKYO, Feb 22 (Reuters) – The Bank of Japan (BOJ) must maintain its ultra-loose monetary policy for now to allow time to see whether the recent rise in inflation will be accompanied by higher wages, its board member Naoki Tamura said on Wednesday.

A former commercial banker, Tamura repeated his view that the BOJ must at some point conduct a comprehensive assessment of its monetary policy framework by weighing the benefits of costs of current ultra-loose policy.

He also warned that Japan’s inflation could overshoot initial forecasts, with services prices perking up and a growing number of companies passing on rising raw material costs to households.

But Japan is now experiencing a “rare” environment in which pent-up demand, driven by huge household savings accumulated during the COVID-19 pandemic, is underpinning the economy even as rising import costs push up inflation, he said in a speech.

“We’re now in a phase where we need to scrutinise whether Japan can achieve a positive wage-inflation cycle. As such, it’s appropriate to maintain monetary easing for now,” said Tamura, who is seen by markets among those in the board keener to phase out the central bank’s massive stimulus.

The remarks came amid heightening market expectations that recent rises in inflation will prod the BOJ to end its yield curve control (YCC) policy and begin hiking interest rates when dovish incumbent Governor Haruhiko Kuroda’s term ends in April.

Kazuo Ueda, an academic nominated by the government as Kuroda’s successor, will speak in parliament on Friday and next Monday, giving markets their first glimpse of his views on how soon the BOJ could phase out YCC.

Under YCC, the BOJ guides short-term interest rates at -0.1% and the 10-year bond yield around zero as part of efforts to sustainably achieve its 2% inflation target.

Facing pressure from rising global interest rates, the BOJ was forced to raise in December the implicit cap for its 10-year yield target to 0.5% from 0.25% – a move that fueled market expectations of a near-term tweak to YCC.

Tamura said the BOJ’s decision in December was aimed at minimizing the side-effects of YCC and making its monetary easing more sustainable, not at tightening policy.

With the 10-year bond yield breaching the cap, the central bank said on Wednesday it would conduct emergency bond purchases to fend off a renewed market attack on YCC.

“At this stage, it’s important to follow carefully and humbly how markets would stabilise and to what extent market functions will improve,” Tamura said.

He made no mention on whether additional steps could be needed to ease market strains critics say are caused by the BOJ’s huge bond buying.

(Reporting by Leika Kihara; Editing by Muralikumar Anantharaman and Sam Holmes)

2024 Mid-Year Economic Briefing: Navigating the Easing Cycle

Investing with Love: A Mother’s Guide to Putting Money to Work

Investor Series: An Introduction to Estate Planning

Inflation Update: Target breached

Philippines Trade Update: Wider deficit on strong imports