Oil prices on track for weekly gain as recession fears ease

MELBOURNE, Aug 12 (Reuters) – Oil prices dipped in early trade on Friday amid uncertainty on the demand outlook based on contrasting views from OPEC and the International Energy Agency (IEA), but benchmark contracts were headed for weekly gains as recession fears eased.

Brent crude futures fell 34 cents, or 0.3%, to USD 99.26 a barrel at 0112 GMT, while US West Texas Intermediate (WTI) crude futures fell 34 cents, or 0.3%, to USD 94.00 a barrel.

Brent was on track to climb more than 4% for the week, recouping part of last week’s 14% tumble, its biggest weekly decline since April 2020 amid fears that rising inflation and interest rate hikes will hit economic growth and fuel demand.

WTI was heading for a weekly gain of more than 5%, recouping about half of the previous week’s loss.

“There’s a great deal of uncertainty about demand in the short run. Until that settles, it (the market) will be like this for a while,” said Justin Smirk, a senior economist at Westpac.

On Thursday, the Organization of the Petroleum Exporting Countries (OPEC) cut its forecast for growth in world oil demand in 2022 by 260,000 barrels per day (bpd). It now expects demand to rise by 3.1 million bpd this year.

That contradicts the view from the IEA. The latter raised its forecast for demand growth, to 2.1 million bpd, due to gas-to-oil switching in power generation as a result of soaring gas prices.

At the same time, the IEA raised its outlook for Russian oil supply by 500,000 bpd for the second half of 2022, as the country’s output had proven more resilient than expected despite sanctions over the Ukraine conflict. However, the IEA said OPEC would struggle to boost production.

“The net picture that the IEA painted was a mix,” said Commonwealth Bank analyst Vivek Dhar. “Russian supply has been more resilient than thought.”

“Assessing global oil balances by the end of the year right now, given what’s happening on the demand side versus what’s happening on supply side – it’s just complicated. That’s why you have the daily volatility.”

(Reporting by Sonali Paul in Melbourne; Editing by Kenneth Maxwell)

US stock market: Is it a bull, a bear, or a bull in a bear?

Aug 11 (Reuters) – The US stock market’s rebound in recent weeks has analysts and investors questioning whether 2022’s deep downturn has ended, but how to spot an expiring bear market or a new bull market is not something everyone on Wall Street agrees on.

Equities have rebounded thanks to better-than-expected corporate earnings and bets the worst of soaring inflation may be over. The Nasdaq index’s drop of about 0.6% on Thursday left the tech-heavy index up 20% from recent low on June 16, while the S&P 500 has also rebounded in recent weeks, now up 15% from its recent low in June.

The recent gains led analysts at Bespoke Investment Group to declare on Thursday morning the Nasdaq had exited its recent bear market, even though the index remains down about 21% from its record high close last November, with trillions of dollars in stock market value still lost.

On Wall Street, the terms “bull” and “bear” markets are often used to characterize broad upward or downward trends in asset prices.

Both indexes are widely viewed as having been in bear markets in 2022, but not all analysts define bull or bear markets the same way, and many investors use the terms loosely.

“We could write for hours on the semantics of bull and bear markets,” Bespoke wrote in its research note, saying a new bull market was now confirmed to have started on June 16.

The Merriam-Webster dictionary defines a bull market simply as “a market in which securities or commodities are persistently rising in value.”

Some investors define a bear market more specifically as a decline of at least 20% in a stock or index from its previous peak, with the peak defining the beginning of the bear market, which is only recognized in hindsight following the at-least 20% decline.

Similarly, some define a bull market as a 20% rise from a previous low, and by that measure, used by Bespoke, the Nasdaq could now be viewed as having begun a fresh bull market.

The Securities and Exchange Commission says on its website that, “Generally, a bull market occurs when there is a rise of 20% or more in a broad market index over at least a two-month period.”

S&P Dow Jones Indices, which administers the S&P 500 and Dow Jones Industrial Average .DJI, has an even more nuanced definition of a bull market.

A drop of 20% or more from a high, followed by a 20% gain from that lower level, would leave an index still below its previous peak, a situation S&P Dow Jones Indices Senior Index Analyst Howard Silverblatt describes as a “bull rally in a bear market”.

Analysts warn against relying too much on backward-looking definitions of market cycles that do little to capture current sentiment or predict where stocks will go in the future.

Factors like the velocity of the market’s rise or fall and how much average stocks have changed contribute to whether investors view a major move as a turning point in sentiment or a short-term interruption to an existing bull or bear market.

Indeed, investors can only be sure they are in a new bull market once a new record high has been reached, and at that point, the previous low would mark the end of the bear market and beginning of the new bull market, according to S&P Dow Jones Indices.

For example, during the bear market caused by the 2008 financial crisis, the S&P 500 rallied over 20% from a low in November 2008, raising hopes the stock rout was over. But the S&P 500 tumbled another 28% to even deeper lows in March 2009.

It was not until an all-time high was reached in March 2013 that investors were able to say with certainty that a new bull market had been born four years earlier.

“We retroactively go back and say, ‘OK, when did the market hit the bottom?'” Silverblatt said. “That’s when the bear would end and the bull starts.”

(Reporting by Noel Randewich, Additional reporting by Chuck Mikolajczak; Editing by Megan Davies and Lisa Shumaker)

Dollar remains under pressure as traders reassess rate hike bets

NEW YORK, Aug 11 (Reuters) – The dollar was slightly lower on Thursday following a 1% loss the previous day when data showed US inflation was not as hot as anticipated in July, prompting traders to dial back future rate hike expectations by the Federal Reserve.

Investors slashed bets on the possibility that the Fed will raise interest rates by 75 basis points for a third consecutive time to help tame decades-high inflation when it meets in September after a report on Wednesday showed US consumer prices were unchanged in July.

The dollar recorded its biggest decline in five months following the report as traders readjusted their forecasts to factor in the chance that inflation may have peaked.

Fed funds futures traders are now pricing in a 58% chance of a 50-basis-point hike in September and a 42% chance of a 75-basis-point increase.

The greenback’s slide continued into Thursday, falling as much as 0.57% early in the session, but then clawed back the bulk of those losses. The dollar index was down 0.114% at 105.1 at 3:30 p.m. EDT (1930 GMT), well off of its two-decade peak of 109.29 hit on July 14.

“We might have seen the peak, but I’d be cautious about expecting significant dollar weakness from here,” UBS FX strategist Vassili Serebriakov said.

The currency’s drop may have been cushioned by Fed officials who attempted to temper expectations of significantly looser policy, with Neel Kashkari telling a conference on Wednesday that the central bank was “far, far away from declaring victory” on inflation.

Data on Thursday showed that US producer prices unexpectedly fell in July amid a drop in the cost for energy products and that underlying producer inflation appears to be on a downward trend, while jobless claims rose for a second straight week in a labor market that remains tight.

The positive inflation data helped equity markets surge on Wednesday and into Thursday, but the rally fizzled as investors questioned the Fed’s next steps.

“The loosening of financial conditions that is occurring across the global financial system is not in alignment of where Fed officials would like to take policy, so the reality for FX traders is that there may be a short horizon on market movements right now,” said Karl Schamotta, chief market strategist at Corpay.

The euro and Japanese yen were among the currencies to benefit from the dollar’s weakness on Wednesday.

The euro was last up 0.23% at USD 1.0322, while the yen dipped 0.06% to 132.95 yen after a rise of more than 1% on Wednesday.

Sterling slid 0.18% versus the dollar to USD 1.2195, giving back some of its more than 1% gain the previous day.

(Reporting John McCrank in New York; additional reporting by Iain Withers in London; Editing by Toby Chopra, Will Duham and Matthew Lewis)

Dollar backs away from post-data brink but remains at risk

Aug 10 (Reuters) – The dollar index weakened on Thursday after PPI and jobless claims data and remained at risk of further losses even though it survived a test of its post-CPI low at 104.63 by the 23.6% Fibo of the 2021-22 uptrend at 104.55.

Rebounding Treasury yields trimmed the dollar’s losses, but it remained below this year’s uptrend line and pivotal 50-day moving average.

Though longer-term Treasury yields have rebounded amid unwinding of previous curve flattening and inversion flows, perhaps skewed by today’s 30-year Treasury auction, the July CPI and PPI reports lend support to the view U.S. inflation may be peaking, which may diminish expectations for dollar-supportive Fed rate hikes.

The dollar’s enormous 22.5% rally off the pandemic lows to its highest in 20-years left it extremely overbought and it hit a thicket of long-term technical resistance before Wednesday’s first close below this year’s uptrend line and 50-day moving average, last at 105.59, and at risk of a broader retracement.

A close below 104.55, the 23.6% Fibo of 2021-22’s advance, would target supports by the 100-DMA that’s rising toward the 38.2% Fibo of this year’s rise at 103.69, close to the post-June Fed hike lows.

(Randolph Donney is a Reuters market analyst. The views expressed are his own.)

Gold inches lower on rate hike expectations by Federal Reserve

Aug 11 (Reuters) – Gold prices edged lower on Thursday, weighed down by prospects of more rate hikes by the US Federal Reserve even as data pointed to signs of inflation peaking.

Spot gold fell 0.1% to USD 1,789.83 per ounce by 1741 GMT. US gold futures settled down 0.4% at USD 1,807.2.

“Gold’s been lingering near the key USD 1,800 level as the market has toned down rate hike expectations, which has also weakened the dollar,” although most Federal Reserve commentary continues to hint at more rate increases, said David Meger, director of metals trading at High Ridge Futures.

“The bulk of the rate hikes are already priced into the gold market and what we’re trading on is the differences in expectations moving forward.”

Investors took stock of data showing US producer prices unexpectedly fell in July amid a drop in the cost for energy products, with underlying producer inflation appearing to be on a downward trend.

“Overall, the sentiment remains positive and the path of least resistance remains to the upside for precious metals for now as investors look forward to the end of aggressive rate hikes,” said Fawad Razaqzada, market analyst at City Index.

Gold, which yields no interest, got a slight fillip on Wednesday as relatively tame July US CPI numbers toned down bets for aggressive rate hikes from the Federal Reserve.

But some of that optimism faded after Fed policymakers noted that they would continue to tighten monetary policy until price pressures were fully broken.

Meanwhile, US weekly jobless claims rose for a second straight week, the Labor Department said on Thursday, indicating some softening in the labor market.

Spot silver XAG= fell 1.2% to USD 20.32 per ounce, platinum rose 1.7% to USD 957.54, while palladium was up 2.3% to USD 2,291.78.

(Reporting by Ashitha Shivaprasad and Arundhati Sarkar in Bengaluru; Editing by Shailesh Kuber and Krishna Chandra Eluri)

US high-yield bond funds draw cash as recession fears ebb

Aug 11 (Reuters) – U.S high-yield bond funds are attracting heavy investments, a turnaround from the selloffs of the first half of this year, as investors bet that the Federal Reserve will limit future interest rate hikes to try to avert an economic slowdown.

Fund managers are also increasing their investments in junk bonds to take advantage of widening yield spreads, as bonds trade at steeper discounts than at the start of the year.

Refinitiv data shows U.S. high-yield bond funds received an inflow of $4.8 billion in July, the first monthly inflow in 2022.

So far in August, U.S. high-yield bond ETFs increased by $2.18 billion, the data showed.

“High-yield bond funds are getting inflows due to enthusiasm that the U.S. economy will avoid a recession or, if it does have one, that it will be mild,” Thomas Samuelson, chief investment officer at Vineyard Global Advisors, said.

“Less severe recessions cause less stress on corporate cash flows and thus fewer defaults of riskier high-yield bonds.”

U.S. high-yield bond funds witnessed a cumulative outflow of $52.25 billion in the first half of this year, as the U.S. central bank raised its interest rates aggressively to tame soaring price pressures.

But a drop in commodity prices in recent weeks has reduced expectations of higher inflation.

The ICE BofA U.S. High Yield Index, a benchmark for the junk bond market, has risen by more than 7% since July, after declining 14% in the first half of this year.

The yield spread between the junk bond index and U.S. Treasuries stood at 452 basis points on Thursday, much higher than 285 basis points at the start of the year.

TOO SOON FOR ‘ALL-CLEAR’ SIGN

Some fund managers said high-yield bonds also helped to diversify portfolios and had provided some safety meaning many firms issuing junk bonds had stronger balance sheets.

CreditSights data found the U.S. high-yield distress ratio, a measure of risk in the bond market, declined to 10.6% in July, from 15.2 in June, suggesting default rates are moderating.

“Structurally, we are seeing high-yield asset allocators being more dynamic on how they are allocating using core/satellite approaches which is common in equity, but was not common in high-yield bonds,” said Manuel Hayes, senior portfolio manager at Insight Investment.

Some investors are still wary.

“We think it’s too soon to plant the ‘all-clear’ sign ..” said Vineyard’s Samuelson.

“We are maintaining our underweight position on high-yield bonds until we see more evidence that the Fed is closer to the end of its tightening cycle and the risk of a recession subsides.”

(Reporting By Patturaja Murugaboopathy; additional reporting by Gaurav Dogra in Bengaluru; Editing by Vidya Ranganathan and Barbara Lewis)

Dollar slides further after US inflation surprise

LONDON, Aug 11 (Reuters) – The dollar lost further ground versus other major currencies on Thursday, after traders reined in bets on an aggressive interest rate hike by the Federal Reserve after softer-than-expected US inflation data the previous day.

The dollar index remained on the back foot in early European trading hours, slipping 0.2% to 105.010, after recording its biggest daily fall in five months, of 1%, the previous day.

Data on Wednesday showed US consumer prices were unchanged in July, month on month, after advancing 1.3% in June.

“Yesterday’s data gave hope that inflation has peaked and the Fed will need to raise rates less sharply to keep inflation under control,” currency analysts at Commerzbank said in a note.

Traders pared bets the Fed would raise rates by 75 basis points for a third straight time at its September policy meeting, and now see a half-point increase as the more likely option.

Fed policymakers sought to temper any expectations of significantly looser policy, with Neal Kashkari telling a conference on Wednesday that the central bank was “far, far away from declaring victory” on inflation.

“While yesterday’s data clearly reduces the risk of further aggressive Fed action (+75bps) and therefore helps curtail US dollar demand, we equally see it as unlikely that this data alone will prompt much further US dollar selling from here,” currency analysts at MUFG said in a note.

The euro and Japanese yen were among the currencies to benefit from the dollar’s weakness and both added to the previous day’s gains.

The euro was last up a quarter of a percent at USD 1.03255.

The yen gained 0.2% to 132.615 yen per dollar.

Sterling was broadly flat versus the dollar at USD 1.22250, after gaining more than 1% the previous day.

(Reporting by Iain Withers; Editing by Toby Chopra)

European shares tick higher; Aegon leads gains among insurers

Aug 11 (Reuters) – European shares edged higher on Thursday after a strong rally in the previous session on signs of US inflation cooling, while Aegon climbed after the Dutch insurer raised its full-year forecast.

The pan-European STOXX 600 index rose 0.1%, after clocking its best session in nearly two weeks on Wednesday on bets that the softer-than-expected inflation reading will encourage the Federal Reserve to become less aggressive on interest rates hikes.

“The markets are riding higher on the fact that the peak has been passed in terms of inflation in the United States,” said Sebastian Paris-Horvitz, head of research at La Banque Postale Asset Management.

Gains were limited by losses in miners, down 0.7% and the top sectoral decliner on weak results from Antofagasta (ANTO). The company’s shares fell 1.3% and dragged peer Rio Tinto (RIO) down 3.8%.

The STOXX 600 is down about 9% so far this year, compared with a more than 11% decline for Wall Street’s S&P 500 index. US equities are heavily dependent on moves in big technology stocks, which fell sharply in the first half of the year on worries over rising interest rates.

“The big decline in global markets in the first quarter was associated with these big growth stocks in the US falling, and therefore Europe, which is less heavy on those, outperformed,” Paris-Horvitz added.

Still, Europe is struggling with the fallout of the war in Ukraine as it looks to source energy from non-Russian sources.

Germany, often referred to as the European Union’s economic engine, is also struggling with scant rainfall. Low water levels on the Rhine, Germany’s commercial artery, have disrupted shipping and pushed freight costs up more than five-fold.

Among other stocks, Aegon (AEGN) jumped to the top of the STOXX 600 with an 8.2% gain after raising forecasts for full-year operating capital generation and 2021-2023 free cash flow.

The European insurance sector index advanced 0.8% in early trading, and was among the top gainers.

Zurich Insurance Group (ZURN) also added 1.7% as it reported a better-than-expected rise in operating profit in the first half.

Siemens (SIEGn) dropped 1.5% after the engineering and technology group said a writedown at Siemens Energy (ENR1n) resulted in its first quarterly loss in nearly 12 years.

Deutsche Telekom DTEGn.DE gained 0.9% as it lifted its annual outlook for the second time and posted quarterly core profit above estimates.

(Reporting by Shreyashi Sanyal in Bengaluru; Editing by Sriraj Kalluvila)

Strong will to sell dollars but little supply

Aug 11 (Reuters) – There is a strong will to sell dollars following softer US inflation data with the greenback falling a long way in short period, but because bets on a rise are modest there is a limited supply of dollars to sell before traders must turn short.

This is an issue because conditions that warrant profit taking (long liquidation) do not support establishing short positions which would require a more dramatic bigger change in either techs or fundamentals which continue to support dollar’s long-term appreciation.

On Aug. 2 traders were long 17.27 billion dollars with roughly 4 billion bet against JPY, EUR, GBP and AUD. A big bet for EUR/USD would mean at least 20 billion dollars or 15 billion for USD/JPY.

GBP and AUD bets are larger compared to prior extremes and given the boost for risk appetite evidenced by stocks after CPI, a bigger unwind of AUD shorts and outperformance for Australia’s currency is possible.

The net bet on USD rising at 17 billion is less than one third of longs established during Fed’s last tightening cycle in 2015, it’s quite small.

Bets against Asia currencies were significantly reduced before yesterday’s data.

(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)

Relief across stocks, currencies as aggressive Fed hike bets cool

Aug 11 (Reuters) – Emerging market stocks hit six-week highs on Thursday after softer-than-expected US inflation growth saw markets scale back bets about the Federal Reserve’s aggressive pace of tightening.

Currencies of the developing world also found some support, with an MSCI index extending gains to a third straight session.

Denting the dollar, data on Wednesday showed US consumer prices were unchanged in July due to a sharp drop in the cost of gasoline. Markets now expect the Fed to hike by a smaller magnitude after two 75 basis point hikes.

“When Fed Funds eventually peaks, it should provide some relief for EM countries via less upward pressure on the USD — especially with the USD overvalued,” said Mike Gallagher, director of research at Continuum Economics.

“However, global commodity prices and the domestic inflation fight are the key issues for large EM policy. With more labor market slack than the US, large EM (central banks) can navigate a more gradual course of interest rate hikes.”

Several emerging market central banks had embarked on aggressive tightening cycles aimed at taming surging inflation in a post-pandemic world struggling with the fallout of the Russian-Ukraine war. The Fed’s interest rate hiking cycle added to woes as monetary authorities tried to keep their currencies attractive for carry trade.

China’s yuan, however, eased from four-week highs on Thursday, slipping 0.2% as fresh lockdowns due to rising COVID-19 infections added to worries about the sustainability of a recovery in the world’s second-largest economy.

But Chinese blue-chips and Hong Kong stocks jumped 2%, leading gains across the emerging market universe on Thursday.

Elsewhere, South Africa’s rand fell 0.3%, to around 16.21 to the dollar, after surging 2.7% in the risk-on rally on Wednesday.

Gains in the rand will prove short-lived until it trades back below the 16.20 per dollar level, said Shaun Murison, senior market analyst with IG.

For Hungary and the Czech Republic, the resumption of Russian oil pipeline flows after a six-day halt further bolstered sentiment. Hungary’s forint rose 0.4%, while the Czech crown firmed 0.3%.

In war-ravaged Ukraine’s debt market, overseas creditors have backed Kyiv’s request for a two-year freeze on payments on almost USD 20 billion in international bonds, a regulatory filing showed on Wednesday, a move that will avoid a messy default.

Turkeys lira fell 0.4%, inching closer to all-time lows. Turkey’s central bank said on Thursday the country’s current account deficit in June narrowed to USD 3.458 billion, slightly more than expected.

(Reporting by Susan Mathew in Bengaluru; Editing by Kim Coghill)

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