Oil prices slide 1% after US Fed raises interest rates

NEW YORK, Sept 21 (Reuters) – Oil prices fell about 1% to a near two-week low in volatile trade on Wednesday after the US Federal Reserve delivered another hefty rate hike to quell inflation that could reduce economic activity and demand for oil.

The Fed raised its target interest rate by 75 basis points for the third time to a 3.00-3.25% range and signalled more large increases to come. Risk assets like stocks and oil fell on the news, while the dollar rallied.

Brent crude futures settled 79 cents, or 0.9%, lower at USD 89.83 a barrel, its lowest close since Sept. 8, while US West Texas Intermediate (WTI) crude fell USD 1.00, or 1.2%, to USD 82.94, its lowest close since Sept. 7.

Earlier in the session, oil gained over USD 2 a barrel on worries about a Russian troop mobilization before dropping over USD 1 on a strong US dollar and lower US gasoline demand.

US gasoline demand over the past four weeks fell to 8.5 million barrels per day (bpd), its lowest since February, according to the US Energy Information Administration (EIA).

“The stand-out data point is the continuing weakness in gasoline demand. It’s really what’s been haunting this market,” said John Kilduff, partner at Again Capital LLC in New York.

The US Energy Information Administration reported a 1.1 million barrel increase in crude stocks last week, half the build analysts forecast in a Reuters poll.

Russian President Vladimir Putin called up 300,000 reservists to fight in Ukraine and backed a plan to annex parts of the country, hinting he was prepared to use nuclear weapons.

US President Joe Biden accused Russia of making “reckless” and “irresponsible” threats to use nuclear weapons.

Oil prices soared to a multi-year high in March after the Ukraine war broke out. European Union sanctions banning seaborne imports of Russian crude will come into force on Dec. 5.

“Much of today’s downside appeared related to strength in the US dollar and we still view near-term US dollar direction as a critical component in assessing near-term oil price direction,” analysts at energy consulting firm Ritterbusch and Associates said.

The dollar was on track for its highest close in over 20 years against a basket of other currencies, making oil more expensive for buyers using other currencies.

Signs of a recovery in Chinese demand gave prices a lift early in the session.

In the United States, however, the economic news was not so good. Existing home sales dropped for the seventh straight month in August as affordability deteriorated further amid surging mortgage rates.

In Europe, “government are increasingly intervening in energy markets in an attempt to stave off economic crisis,” analysts at energy consulting firm EBW Analytics said in a note.

Germany agreed to nationalize natural gas company Uniper SE, while the British government said it would cap wholesale electricity and gas costs for businesses.

(Additional reporting by Ahmad Ghaddar in London, Yuka Obayashi in Tokyo, Isabel Kua and Florence Tan in Singapore and Laila Kearney in New York; Editing by David Gregorio, Kirsten Donovan and Marguerita Choy)

Japan unlikely to intervene to stem weak yen, half of economists say

TOKYO, Sept 21 (Reuters) – Japan will not intervene to stem the yen’s decline, said just over half of economists polled by Reuters, though a fifth said weakening beyond 150 per US dollar could trigger action.

With a widening gap between the Bank of Japan’s (BOJ) ultra-loose policy and rapid tightening of its global peers, the yen has lost nearly 20% against the greenback this year, hitting a 24-year low of 144.99 and prompting policymakers this month to flag a readiness to act in the face of volatile currency movement.

The market is bracing for further volatility and possible government action ahead of an upcoming series of major central bank meetings, including the BOJ, US Federal Reserve and Bank of England. The yen traded at around 143 on Wednesday.

Still, a slim majority of economists thought any direct action was a long shot. Twelve of 23 respondents, or 52%, said the government would not buy yen to stop the currency from further weakening, the Sept. 8-19 poll showed.

Any internationally coordinated action also is unlikely as the United States favours a strong dollar to curb inflation, said Akiyoshi Takumori, chief economist at Sumitomo Mitsui DS Asset Management.

“The ‘rate check’ surprised everyone, but intervention-signalling would be the last thing they could do,” Takumori said, referring to the BOJ last week asking currency traders for current rates – queries widely seen as a prelude to intervention.

Five respondents said 150 yen per dollar would prompt intervention.

Hiroshi Watanabe, senior economist at Sony Financial Group, said intervention “might be possible if the yen falls beyond the 150 line at very high speed, but in reality, it’s extremely unlikely given the ineffectiveness of currency intervention”.

Another three chose “155 yen per dollar” when asked for a trigger. Two selected 160 and one picked “weaker than 165 yen per dollar”.

Japan last carried out yen-buying intervention in 1998, when the Asian financial crisis triggered a yen sell-off and rapid capital outflow.

WEAKER GROWTH, FASTER INFLATION

Economists in the survey downgraded their growth outlook for Japan due to accelerating inflation, coronavirus resurgence and a global economic slowdown.

The economy will likely expand an annualised 1.4% in July-September, less than the 2.0% forecast in an August poll, showed the median estimate of 35 respondents. The projection for October-December was 1.9%, versus the previous poll’s 2.2%.

In the second quarter this year, the world’s third-largest economy grew 3.5%, helped by robust consumer and corporate spending.

The core consumer price index (CPI), which excludes volatile fresh food items, will likely rise 2.8% in the last three months of this year, the poll showed, more than the previously estimated 2.5%.

Economists expected core CPI to rise to 2.4% this fiscal year, before slowing to 1.2% in fiscal 2023, the poll showed.

Elsewhere in the poll, BOJ Deputy Governor Masayoshi Amamiya was economists’ top pick for the central bank’s next chief to succeed incumbent Haruhiko Kuroda in the spring.

(Reporting by Kantaro Komiya; Polling by Arsh Mogre and Devayani Sathyan; Editing by Jonathan Cable and Christopher Cushing)

Asian stocks sink, yields rise as markets brace for aggressive Fed

TOKYO, Sept 21 (Reuters) – Stocks in Asia sank and bond yields were elevated on Wednesday, as investors braced for another aggressive interest rate hike from the US Federal Reserve later in the day.

Japan’s Nikkei dropped 1.26% and touched a two-week low. Australia’s benchmark share index slid 1.35% and South Korea’s Kospi fell 0.9%.

Chinese blue chips CSI300 declined 0.82%, while Hong Kong’s Hang Seng lost 1.26%.

MSCI’s broadest index of Asia-Pacific shares lost 1%.

That follows a sell-off on Wall Street overnight that knocked 1.13% off the S&P 500, although futures EScv1 pointed to a slightly higher open on Wednesday.

The Fed headlines a week in which more than a dozen central banks announce policy decisions, including the Bank of Japan and Bank of England on Thursday.

Sweden’s Riksbank surprised markets overnight with a full percentage-point hike, and warned of more to come over the next six months.

Despite that, bets for Fed tightening stayed stable.

Markets are pricing in an 81% chance of another 75-basis-point increase, and see a 19% probability of a full percentage point rise.

Global yields rose amid expectations of further tightening.

The two-year US Treasury yield hit an almost 15-year high at 3.992% on Tuesday, and remained elevated at 3.9516% in Tokyo trading, while the 10-year Treasury yield touched its highest in over a decade.

It hit 3.604% for the first time since April 2011, and was last at 3.5473%.

Australia’s benchmark 10-year yield rose to an almost three-month high of 3.789%, and South Korea’s equivalent yield hit the highest since April 2012.

Markets are “seemingly well positioned for a 75bps hike alongside a hawkish update” from the Fed, Taylor Nugent, a markets economist at National Australia Bank in Sydney, wrote in a client note.

“The post meeting commentary and the updated dots will be key,” said Nugent, adding that the NAB was looking for a policy rate of “something like 4%” at the end of this year with no rate cuts expected until 2024.

The US dollar index, which measures the currency against six major peers, edged a little higher to 110.22, grinding back toward this month’s 20-year high of 110.79.

The greenback was little changed at 143.64 yen, after twice trying 145 this month, a level last seen 24 years ago.

This week, the BOJ is set to cement its position as the lone dove among the central banks of advanced economies by sticking to its ultra-accommodative policy that pins the 10-year Japanese government bond yield near 0%.

The Bank offered to buy 250 billion yen of bonds in an unscheduled operation on Wednesday to keep yields in check.

Sterling languished around USD 1.1372, sticking close to Friday’s 37-year low of USD 1.1351.

Markets are split on whether the BOE will opt for a 50- or a 75-basis-point hike on Thursday.

Meanwhile, crude oil continued its decline amid worries that aggressive tightening by the Fed and other central banks would crimp growth and curb demand.

Brent crude futures dropped 26 cents to USD 90.36 a barrel after falling USD 1.38 the previous day.

US West Texas Intermediate crude CLc1 was at USD 83.74 a barrel, down 20 cents. The October delivery contract expired down USD 1.28 on Tuesday while the more active November contract lost USD 1.42.

(Reporting by Kevin Buckland; Editing by Ana Nicolaci da Costa)

Dollar ascendant as investors gear up for Fed

SINGAPORE, Sept 21 (Reuters) – The dollar hovered near a two-decade peak against a basket of currencies on Wednesday, after yields on US Treasuries leaped ahead of an interest rate decision that is likely to set the tone in financial markets for months to come.

The US dollar , which measures the greenback against a basket of currencies, was steady at 110.17 after a 0.57% overnight gain, and remained not far below a 20-year high of 110.79 hit this month.

Yields on the two-year US Treasury notes, a rough gauge of interest rate expectations, hit 3.992% overnight, the highest since 2007, while yields on the benchmark 10-year Treasury rose to 3.604%, the highest since 2011.

Higher yields increase the attraction of owning Treasuries and the dollars with which to buy them.

At 1800 GMT the Federal Reserve announces policy settings, and markets have fully priced in a 75 basis point (bp) rate increase, with a 19% chance of a 100 bp increase and a forecast for rates to peak around 4.5% by March 2023.

Focus will also be on the updated economic projections and dot plot estimates for where Fed officials see interest rates heading themselves.

“The next level we see the (U.S. dollar index) getting to in the near-term would be 112 points,” said Kristina Clifton, a senior economist and senior currency strategist at Commonwealth Bank of Australia.

“If we do just get the 75 basis points from the Fed, it would take a fairly hawkish message to push the U.S. dollar up to that level.”

Overnight Sweden’s Riksbank surprised markets with a bigger-than-expected 100 bp increase, but it was little help to the currency SEK= – weighed by growth risks – which fell to a 20-year low after the decision.

Sterling last traded USD 1.1381, languishing near a 37-year low of USD 1.1351, while the euro was 0.02% lower at USD 0.9967, extending by a smidge its 0.56% fall overnight.

The Australian and New Zealand dollars were likewise nursing losses, with the Aussie up 0.16% to USD 0.6701 after a shedding 0.54% overnight.

The kiwi gained 0.14% to USD 0.5902, after falling 1% in the previous session and touching a more than two-year low of USD 0.5887. The Canadian dollar fell to a two-year low overnight after official data showed a surprise slowdown in inflation.

The Bank of England and the Bank of Japan will also announce policy decisions on Thursday, with markets split on the magnitude of a rate hike by the former while policymakers in Japan are expected to stand pat.

“Inflation has lifted, but I think that’s largely been because of food and energy, so I think they’re going to want to see inflation become a bit more broad-based before they change their policy stance,” said Clifton, referring to the Bank of Japan.

Japan’s core consumer inflation quickened to 2.8% in August, hitting its fastest annual pace in nearly eight years and exceeding the central bank’s 2% target for a fifth straight month, data released on Tuesday showed.

The yen, which has fallen about 20% against the U.S. dollar this year, was marginally up by 0.1% at 143.56 per dollar, but remained not far off its 24-year low of 144.99.

(Reporting by Rae Wee. Editing by Gerry Doyle)

Oil prices extend losses on fears aggressive Fed rate hike will curb demand

TOKYO, Sept 21 (Reuters) – Oil prices slid on Wednesday, extending the previous day’s losses, as investors braced for another aggressive interest rate hike from the US Federal Reserve that they fear could lead to recession and plunging fuel demand.

Brent crude futures dropped 26 cents, or 0.3%, to USD 90.36 a barrel by 0040 GMT after falling USD 1.38 the previous day.

US West Texas Intermediate crude CLc1 was at USD 83.74 a barrel, down 20 cents, or 0.2%. The October delivery contract expired down USD 1.28 on Tuesday while the more active November contract lost USD 1.42.

“The market tone remained bearish due to concerns that the aggressive monetary tightening in the US and Europe would boost the likelihood of a recession and a slump in fuel demand,” said Toshitaka Tazawa, an analyst at Fujitomi Securities Co Ltd.

“Since oil prices have been falling in the anticipation of the rate hikes, they may briefly rise after the announcements, but they will likely return to a downward trend again on fears over weakening demand,” he said.

The Fed is widely expected to hike rates by 75 basis points for the third time in a row later on Wednesday in its drive to rein in inflation. Those expectations are weighing on equities, which often move in tandem with oil prices.

Other central banks, including the Bank of England, meet this week as well.

Higher rates have bolstered the dollar, which neared a two-decade high on Tuesday, making oil more expensive for holders of other currencies.

Meanwhile, US crude and fuel stocks rose by about 1 million barrels for the week ended Sept. 16., according to market sources citing American Petroleum Institute figures on Tuesday. Gasoline inventories rose by about 3.2 million barrels, while distillate stocks rose by about 1.5 million barrels.

US crude oil and distillate stockpiles were expected to have risen last week, while gasoline inventories were seen lower, according to an extended Reuters poll.

On the supply side, the OPEC+ producer grouping – the Organization of the Petroleum Exporting Countries and associates including Russia – is now falling a record 3.58 million barrels per day short of its targets, or about 3.5% of global demand. The shortfall highlights underlying tightness of supply in the market, even as recession fears drag prices lower.

The head of Saudi state oil giant Aramco 2222.SE said on Tuesday Europe’s plans to cap energy bills for consumers and tax energy companies were not long-term or helpful solutions for the global energy crisis, spurred largely by under-investment in hydrocarbons.

(Reporting by Yuka Obayashi; Editing by Kenneth Maxwell)

Wall Street falls as Fed, Ford forecasts give fright

Sept 20 (Reuters) – Wall Street ended Tuesday lower as the eve of a US Federal Reserve meeting expected to bring another large interest rate hike brought further evidence of the impact on corporate America from the inflation that the US central bank wants to tame.

The benchmark S&P 500 index has dropped 19.1% so far this year as investors fear aggressive policy tightening measures by the Fed could tip the US economy into a recession.

It closed for the third straight session below 3,900 points – a level considered by technical analysts as a strong support for the index – as last week’s dire outlook from delivery firm FedEx Corp. was repeated, this time by automaker Ford Motor Co.

Shares of Ford slumped 12.3%, the biggest one-day drop since 2011, after it flagged a bigger-than-expected USD 1 billion hit from inflation and pushed delivery of some vehicles to the fourth quarter due to parts shortages.

Rival General Motors Co. also sank 5.6%.

“We have seen some bellwethers talk about the pressures they are facing, so we could see some margin compression and some softening in the topline numbers in the third-quarter earnings,” said Greg Boutle, head of US equity & derivative strategy at BNP Paribas.

The US central bank is widely expected to hike rates by 75 basis points for the third straight time at the end of its policy meeting on Wednesday, with markets also pricing in a 17% chance of a 100 bps increase and predicting the terminal rate at 4.49% by March 2023.

Focus will also be on the updated economic projections and dot plot estimates for cues on policymakers’ sense of the endpoint for rates and the outlooks for unemployment, inflation and economic growth.

Adding to the mix, a Commerce Department report showed residential building permits – among the more forward-looking housing indicators – slid by 10% to 1.517 million units, the lowest level since June 2020.

The benchmark US 10-year Treasury yield hit 3.56%, its highest level since April 2011, while the closely watched yield curve between two-year and 10-year notes inverted further.

An inversion in this part of the yield curve is viewed as a reliable indicator that a recession will follow in one to two years.

“There are a lot of headwinds to prevent sustained rallies. It’s hard to have (price-to-earnings) expansion while the Fed is tightening,” said BNP’s Boutle.

The Dow Jones Industrial Average fell 313.45 points, or 1.01%, to 30,706.23, the S&P 500 lost 43.96 points, or 1.13%, to 3,855.93 and the Nasdaq Composite dropped 109.97 points, or 0.95%, to 11,425.05.

All of the 11 major S&P sectors declined, with economy-sensitive real estate and materials sectors the biggest fallers, dropping 2.6% and 1.9% respectively.

Meanwhile, in another sign of nerves around future corporate earnings, Nike Inc. fell 4.5% after the sportswear giant was downgraded by Barclays analysts to “equal weight” from “overweight”, citing volatility in the Chinese market due to pressures from COVID-related lockdowns in early September.

Another apparel maker, Gap Inc., closed 3.3% lower. It announced on Tuesday it was eliminating about 500 corporate jobs, having withdrawn its annual forecasts late last month due to an inventory glut and weak sales.

Volume on US exchanges was 9.90 billion shares, compared with the 10.71 billion average for the full session over the last 20 trading days.

The S&P 500 posted two new 52-week highs and 66 new lows; the Nasdaq Composite recorded 31 new highs and 408 new lows.

(Reporting by Devik Jain and Ankika Biswas in Bengaluru and David French in New York; Editing by Shounak Dasgupta, Maju Samuel and Lisa Shumaker)

Here comes the main course

Sept 21 (Reuters) – The Federal Reserve’s highly anticipated policy decision arrives later on Wednesday, with markets bracing for another big dose of tightening. The lead-up to the US central bank event has been bumpy and could spell more volatility for Asian markets in the hours before the Fed’s statement.

Ahead of the rate decision, rates continued their ascent. Yields on the benchmark US 10-year Treasury note hit 3.6% on Tuesday, their highest since 2011. The 2-year Treasury yield, which tracks Fed rates closely, approached 4%, the highest since 2007.

Equity markets are struggling to digest the persistent move up in rates. The S&P 500 slid 1.1% and touched its lowest point in two months, as traders positioned ahead of the Fed. MSCI’s gauge of stocks across the globe also sank to a two-month low.

On Tuesday, Sweden provided the appetizer for the feast of central bank action to follow the rest of the week. The country’s central bank caught markets off-guard in hiking interest rates by a larger-than-expected full percentage point.

Will Sweden prelude a similar outcome in the US? Markets are bracing for the Fed to raise rates by 75 basis points, but since inflation data came in hot last week, they have been pricing in a chance of a full percentage point hike. Such odds were around 16% late on Tuesday.

Beyond Wednesday’s rate move, what Fed Chair Jerome Powell has to say in a press conference following the decision will be critical for investors seeking to gauge the rate trajectory going forward. How Powell is thinking about the threat to the economy from higher rates is also top of mind.

Central banks in England, Switzerland and Japan will have their say later in the week.

Key developments that could provide more direction to markets on Wednesday:

Federal Reserve policy statement/press conference

Bank of Japan meeting begins

Korea 20-day exports

Speech by Reserve Bank of Australia’s deputy governor

(Reporting by Lewis Krauskopf in New York; editing by Jonathan Oatis)

US recap: EUR/USD suffers as Fed, Ukraine top the agenda

Sept 20 (Reuters) – The dollar index rose on Tuesday on hawkish Fed hike expectations and resurgent safe-haven buying after reports that Russian-installed leaders in occupied areas of four Ukrainian regions set out plans for referendums between Sept. 23-27 on joining Russia.

As it neared the US close, the dollar index was up 0.65% at 110.25, slightly below its 2022 high of 110.79, as markets awaited this week’s main event: Wednesday’s Fed policy announcement.

Futures have fully factored in a 75bp hike and see a 17% chance of 100bp increase.

Higher US rates remain key support for dollar strength, with futures projecting fed funds will close 2022 near 4.2%, well above the 2% foreseen in the euro zone, zero percent in Japan and even the 3.7% discounted for Britain.

EUR/USD traded near its session lows in late-US dealings, down 0.56% at 0.9968.

Safe-haven dollar buying on heightened Ukraine-Russia tensions added to weakness in EUR/USD, which moved further below the 10-day moving average — at 1.0012 — that it has straddled in recent sessions.

USD/JPY headed toward the close on the high side of its recent range, up 0.3% at 143.62, with diverging US-Japan rates keeping the yen on the back foot.

Tuesday’s geo-political angst lifted USD/JPY closer to 145, a level seen increasing the threat of Japanese intervention.

Recent trading ranges near 100-pips hint that traders may be engaging in gamma trading ahead of 145.

GBP/USD neared its 2022 lows in late trade, slipping 0.56% to 1.1368, just above the Sept. 16, 2022 low 1.1351.

Expectations that the Fed will hike by 75bp on Wednesday weighed on cable even with futures assigning a 75% chance of the BoE delivering a similar rate increase at its meeting on Thursday IRPR.

Equities remained soft, with the S&P 500 dipping to one-month lows by 3,827 amid hawkish Fed expectations and Ukraine-related risk selling. June’s low of 3,637 is coming into sharper focus.

US Treasury yields extended higher, with the two-year reaching a 15-year peak at 3.99% before moving lower after a strong 20-year auction.

Cryptocurrencies slid amid rising global rates and broadly negative risk markets, Bitcoin ending NorAm 3.5% lower at USD 18.8k, ETH down 2.8% at USD 1,337,

(Editing by Burton Frierson; Paul Spirgel and Christopher Romano are Reuters market analysts. The views expressed are their own.)

Gold retreats as dollar, yields firm ahead of Fed rate hike verdict

Sept 20 (Reuters) – Gold prices dropped as much as 1% on Tuesday as the dollar and Treasury yields firmed, and investors squared positions ahead of a widely expected large interest rate hike by the US Federal Reserve this week.

Spot gold was down 0.7% at USD 1,664.19 an ounce by 1:46 p.m. ET (1746 GMT), lingering near a 29-month low hit last week.

US gold futures settled 0.4% lower at USD 1,671.10.

“Gold can’t shake off any of these aggressive Fed tightening concerns … yields continue to skyrocket, especially in the short end of the curve — that’s just been consistently putting pressure on gold,” said Edward Moya, senior analyst with OANDA.

The Fed is expected to hike interest rates by at least 75 basis points at the conclusion of its two-day policy meeting on Wednesday.

Other central banks are also expected to keep tightening monetary policy in the face of surging inflation. Sweden lifted interest rates by a full percentage point on Tuesday. Britain, Norway, Switzerland and Japan also hold monetary policy meetings this week.

“A 100 bps hike would likely pressure gold prices lower, whereas a widely anticipated 75bps could see some short-covering activity amid a relief rally,” Standard Chartered said in a note.

High interest rates usually dim bullion’s appeal as they translate to an increased opportunity cost of holding the asset, which pays no interest.

The dollar held firm near a two-decade high, making bullion more expensive for other currency holders. The US two-year yield hit an almost 15-year high.

Although, “when global recessionary fears really become the focal point for markets as everyone has become more aggressive with their tightening cycles, that’s when gold will have an opportunity,” Moya said.

In other precious metals, spot silver XAG= slipped 2.2% to USD 19.17 per ounce, platinum gained 0.1% to USD 918.55 and palladium dropped 3.6% to USD 2,145.44.

(Reporting by Kavya Guduru in Bengaluru; Editing by Susan Fenton, Vinay Dwivedi and Maju Samuel)

Philippines’ new nickel miner completes maiden ore shipment to China

MANILA, Sept 20 (Reuters) – The Philippines’ second-biggest nickel ore exporter, Global Ferronickel Holdings Inc FNI.PS, said on Tuesday its affiliate Ipilan Nickel Corp has completed a maiden shipment of 54,700 wet metric tonnes (WMT) of medium-grade ore to China.

Ipilan’s inaugural shipment from its mine in the western Philippine province of Palawan was sold to Guangdong Century Tsingshan Nickel Industry Co Ltd, a long-standing customer of Global Ferronickel’s subsidiary, Platinum Group Metals Corp.

Ipilan aims to extract 500,000 WMT of ore this year from the Palawan mine and scale up annual output of medium to high-grade material to 1.5 million WMT, Global Ferronickel Chairman Joseph Sy said.

Estimated mine life is at least 10 years, he said in a statement.

About 12 new metallic mines in the Philippines should begin commercial operations this year, mostly nickel projects, according to industry regulator Mines and Geosciences Bureau. nL2N2VE09L

Nickel ore from the Southeast Asian country, which is among China’s key suppliers of the material, is used mainly in producing nickel pig iron, a cheaper alternative to pure nickel for stainless steel production.

(Reporting by Enrico Dela Cruz; Editing by Emelia Sithole-Matarise)

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