Oil climbs as tight supply moves back into focus

LONDON, Aug 23 (Reuters) – Oil rose USD 1 a barrel on Tuesday as tight supply moved back into focus as a result of Saudi Arabia floating the idea of OPEC+ output cuts to support prices and the prospect of a drop in US crude inventories.

The Saudi energy minister said OPEC+ had the means to deal with challenges including cutting production, state news agency SPA said on Monday, citing comments Abdulaziz bin Salman made to Bloomberg in an interview.

Global benchmark Brent crude gained 77 cents, or 0.8%, to USD 97.25 a barrel. West Texas Intermediate crude rose 94 cents, or 1.0%, to USD 91.30.

“Whether cutting OPEC or OPEC+ output after September is justified is debatable,” said Tamas Varga of oil broker PVM. “Despite the recent inflation-induced weakness, the oil market seemed to have found a bottom lately.”

Oil has soared in 2022, coming close in March to an all-time high of USD 147 after Russia’s invasion of Ukraine exacerbated supply concerns. Concern about a global recession, rising inflation and weaker demand has since weighed on prices.

Also in focus is the prospect of a nuclear deal between Iran and world powers that would allow Iran to boost oil exports. A senior US official told Reuters on Monday that Iran had dropped some of its main demands on resurrecting a deal.

While the price of Brent futures has fallen sharply from this year’s high, the market structure and price differentials in the physical oil market still point to supply tightness.

In the comments reported on Monday, the Saudi minister said the paper and physical oil markets had become “disconnected”.

Underlining tight supply, the latest weekly reports of US inventories are expected to show a decline of 1.5 million barrels in crude stocks.

(Reporting by Stephanie Kelly and Muyu Xu; Editing by Simon Cameron-Moore and Clarence Fernandez)

Dollar rises on risk aversion; euro revisits parity

NEW YORK, Aug 22 (Reuters) – The US dollar rose across the board on Monday, driving the euro back below parity, as investors shied away from riskier assets amid growing fears that interest-rate hikes in the United States and Europe, aimed at curbing inflation, would weaken the global economy.

Against a basket of currencies, the dollar rose 0.8% to a more than five-week high of 109.02, not far from the two-decade peak of 109.29 touched in mid-July.

The greenback has found support in recent sessions as several Federal Reserve officials reiterated an aggressive monetary tightening stance ahead of the Fed’s Jackson Hole, Wyoming, symposium this week.

The latest of these officials, Richmond Fed President Thomas Barkin, on Friday said the “urge” among central bankers was toward faster, front-loaded rate increases.

“It’s risk being taken off the table after the market got a reality check from last week’s Fed speakers that an imminent dovish pivot is off the cards,” said Michael Brown, head of market intelligence at Caxton in London.

“With investors now clearly expecting a relatively hawkish message from Fed Chair (Jerome) Powell at Jackson Hole on Friday, it’s a perfect cocktail of risk-aversion and a hawkish Fed for the greenback to bound higher, especially when growth worries, especially in Europe, continue to mount,” Brown said.

The euro fell following Russia’s announcement late on Friday of a three-day halt to European gas supplies via the Nord Stream 1 pipeline at the end of this month. Investors worry that the halt could exacerbate an energy crisis that has weighed on the common currency in recent months.

The European Central Bank must keep raising rates even if a recession in Germany is increasingly likely, as inflation will stay uncomfortably high through 2023, Bundesbank President Joachim Nagel told a German newspaper.

The weakness briefly drove the euro below USD 1 for the first time since July 14. The euro was last down 1.1% at USD 0.99345.

Brown said, “0.9950 seems to be the pivotal level, as that’s the prior low. If that gives way, then we could see significant further losses, especially with the ECB’s window to tighten policy rapidly slamming shut.”

China’s yuan dropped to its lowest in nearly two years after the country’s central bank cut its benchmark lending rate and lowered the mortgage reference by a bigger margin on Monday, adding to last week’s easing measures, as Beijing boosts efforts to revive an economy hobbled by a property crisis and a resurgence of COVID-19 cases.

Against the offshore yuan, the dollar was 0.54% higher at 6.869.

Sterling fell to its lowest since mid-July against the dollar on Monday as surging energy costs and a summer of strikes highlighted the UK cost of living crisis and intensified fears of further economic slowdown.

The pound was last down 0.64% at USD 1.17565, within a whisker of taking out the near 2-1/2-year low of 1.17435 touched in mid-July.

In cryptocurrencies, bitcoin was about 2.52% lower at USD 20,972, weighed down by broad risk aversion in markets.

(Reporting by Saqib Iqbal Ahmed; editing by Jonathan Oatis and Cynthia Osterman)

US recap: Risk aversion fuels dollar, sends EUR/USD below parity

Aug 22 (Reuters) – The dollar rallied on Monday as China’s rate cut served as a reminder of the vulnerabilities of the world’s second largest economy and Europe’s energy woes also weighed on investor sentiment, sending safe-haven flows to the US currency.

The dollar index was heading toward the US close up 0.75% as risk was significantly hit, with the S&P 500 falling nearly 2%, and currencies not seen as top safe havens suffered.

Adding to the dollar bid were price rises for natural gas and expectations that Fed Chair Jerome Powell will add his voice to the chorus of US policymakers touting a higher-for-longer rate path to fight inflation, which remains well above the 2% target with no prospects of returning soon.

EUR/USD fell 1.03% to 0.9936, putting in a new trend low at 0.9927 amid the broad global growth anxieties and high gas prices, which have exacerbated European growth uncertainties.

USD/JPY gains were tempered since both the dollar and yen are safe havens and thus benefited from the broad trend of risk aversion, but it still managed to advance 0.25% to 137.36, with US-Japan rate divergence likely to result in new 2022 highs above 139.38 after the upcoming Jackson Hole symposium.

GBP/USD put in a new 2022 low at 1.1744, bouncing slightly to 1.1770 as the NorAm close approached.

GBP/USD has been dogged by Britain’s G7-high inflation, which has also increased UK recession fears.

AUD/USD backed off early US gains and headed toward a loss of about 0.1% to 0.6866. US yield gains and China growth concerns were too much for aussie bulls to withstand as copper and oil held losses.

Broad risk-off trading and rising US rates weighed on bitcoin and ether, which fell slightly more than 1%. Higher rates also pushed gold lower by 0.65%.

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

Gold slumps on dollar rally, Fed rate-hike worries

Aug 22 (Reuters) – Gold prices fell to near a one-month low on Monday amid sharp declines in precious metals due to a stronger dollar, with looming Federal Reserve interest rate hikes also denting bullion’s appeal.

Extending losses into a sixth session, spot gold was down 0.6% at USD 1,736.74 per ounce by 1:51 p.m. ET (1751 GMT) after hitting its lowest since July 27 earlier in the session. US gold futures settled down 0.8% at USD 1,748.4.

The dollar hit a fresh five-week high versus major currencies, making greenback-priced gold more expensive for overseas buyers.

Gold is under pressure from the dollar and market expectations that Fed Chair Jerome Powell will reinforce the US central bank’s hawkish stance in a speech at the Jackson Hole, Wyoming central banking conference later this week, said Daniel Ghali, commodity strategist at TD Securities.

Prices could dip below USD 1,700 after the Jackson Hole conference, Ghali added. Higher interest rates raise the opportunity cost of holding gold, which does not pay any interest.

According to economists in a Reuters poll, the Fed is likely to raise its interest rate by 50 basis points in September amid expectations US inflation has peaked and on growing recession worries.

In the short term, gold could face pressure again as the Fed is likely to raise rates further until the end of the year, but once the rate hike cycle comes to an end, gold should start to rise, Commerzbank said in a note.

According to data on Friday, speculators also cut their net long COMEX gold and net short silver position in the week to Aug. 16.

Spot silver fell 0.3% to USD 18.96 after touching its lowest in four weeks earlier in the session.

“Silver prices have been underperforming in the recent trading sessions, this reflects a slowing industrial demand for silver as well as deteriorating speculative appetite,” Ghali said.

Platinum dropped 2.3% to USD 875.42, while palladium sank 6.2% to USD 1,992.18.

(Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Paul Simao, Bernadette Baum and Vinay Dwivedi)

US stock options traders see little drama around Fed’s Jackson Hole event

NEW YORK, Aug 22 (Reuters) – Federal Reserve policy has sparked big moves in markets this year, but options traders expect few fireworks around the central bank’s annual symposium this week in Jackson Hole, Wyoming.

Options positioning shows traders expect a 1.4% move in the S&P 500 on Aug. 26, the day Fed Chairman Powell is set to give his speech, according to Matt Amberson, principal at options analytics firm ORATS. That is only slightly above the expected 1.0% daily move options are implying for stocks over the next month.

“The equity volatility market appears to be treating Jackson Hole as a non-event,” said Garrett DeSimone, head quant at OptionMetrics.

While there is still time for volatility expectations to pick up ahead of the event, for now, options pricing reflect “relatively low pricing for crash risk,” DeSimone said.

Market participants gave a range of reasons on why expectations for volatility may be muted. The market has had a heaping dose of Fed-speak in recent weeks, with policymakers pushing against expectations of peaking inflation and a dovish pivot from the Fed, giving investors a clearer picture of the central bank’s thinking.

And while markets broadly expect the Fed to raise rates by another 50 to 75 basis points when it meets again in September, Powell’s outlook on future policy will likely be colored by economic data reports that are due that month, including key numbers on inflation and employment.

“Everybody is kind of on the same page: we are in a tightening process, that process is likely going to gradually slow,” said Randy Frederick, vice president of trading and derivatives for the Schwab Center for Financial Research.

“For markets to be pricing in higher volatility, it usually means they are expecting surprises … I just think no one is expecting any earth-shattering revelations at that meeting,” Frederick said.

On average, Fed Chairs’ Jackson Hole speeches have not been big market movers in recent years. Only once in the last 10 years has the S&P 500 logged a greater than 1% move on the day the Jackson Hole symposium heard from the Fed chief.

Though stocks have been far more volatile than normal this year, market gyrations have eased in recent months alongside a rebound that has seen the S&P 500 gain 15% from its mid-June lows.

The Cboe Volatility Index, an options-based indicator that reflects demand for protection against drops in the stock market, is at around 20, compared to a high of nearly 40 reached earlier this year.

Still, some market watchers believe an even more hawkish-than-expected view from Powell could hit stocks.

Minutes from the Fed’s July meeting showed on Wednesday that policymakers were committed to raising rates as high as necessary to tame inflation. Several Fed speakers, including St. Louis Fed President James Bullard and San Francisco Fed President Mary Daly, have since stressed that policymakers need to keep raising borrowing costs to bring surging prices under control.

“I sense they are probably setting the stage for (Powell), and his speech is a little bit more on the hawkish side,” said Gregory Faranello, head of US rates trading and strategy for AmeriVet Securities. “If it is … we could see a selloff in equities.”

(Reporting by Saqib Iqbal Ahmed; Editing by Ira Iosebashvili and Daniel Wallis)

Philippines’ San Miguel buys state firm’s reserve gas for $1.2 billion

MANILA, Aug 22 (Reuters) – Philippine conglomerate San Miguel Corp. (SMC) said on Monday its subsidiary had acquired the reserve gas of the Philippine National Oil Corp for USD 1.2 billion.

San Miguel said the gas, sourced from a gas field near the South China Sea, will fuel its 1,200-megawatt power plant until 2024.

The Southeast Asian nation will need to import liquefied natural gas in the future as its only major gas field is expected to run dry by 2027, based on the government’s projection.

(Reporting by Neil Jerome Morales; Editing by John Geddie)

European stocks hits lowest in nearly a month on looming energy crisis

Aug 22 (Reuters) – European shares fell to their lowest level in nearly one month on Monday as worries about tightening gas supplies from Russia, hawkish signals from the European Central Bank and weak economic outlook weighed on investors’ minds.

The continent-wide STOXX 600 dropped 1.0% to touch its lowest level since July 28.

Russia will halt natural gas supplies to Europe for three days at the end of the month, energy giant Gazprom GAZP.MM said on Friday, piling pressure on the continent as it seeks to refuel ahead of winter.

Uniper UN01.DE, Germany’s top importer of Russian gas, declined 7.7% to hover near a record low, while its parent Fortum FORTUM.HE fell 4.4%. Germany’s DAX index .GDAXI tumbled 2.3% for its worst session in nearly seven weeks.

“Europe’s energy crisis is just getting bad news all over the board. Heatwaves have put a strain on supplies and it seems any disruptions in the winter could be devastating,” said Edward Moya, senior market analyst at OANDA.

The focus is on euro zone flash purchasing manager index (PMI) data, due on Tuesday, and minutes of the European Central Bank’s (ECB) last policy meeting on Thursday that are likely to sound hawkish. O/R

The ECB must keep raising rates even if a recession in Germany is increasingly likely, as inflation will stay uncomfortably high through 2023, Bundesbank President Joachim Nagel told a German newspaper. nF9N2Z000N

Markets currently price in a 60 basis point hike for September and a combined 130 basis points of moves for the remainder of the year.

After rallying more than 11% since mid-June lows, European markets have sagged in recent days as investors fret over the impact of soaring inflation and tightening financial conditions on the economic outlook.

Credit Suisse CSGN.S slipped 0.8% to a fresh record low. The Swiss lender appointed Deutsche Bank’s Dixit Joshi as chief financial officer and promoted EMEA chief Francesca McDonagh to chief operating officer.

French supermarket retailer Carrefour CARR.PA fell 0.9% after saying it would freeze prices on 100 products to help people tackle soaring inflation in the country.

Shares of world No.2 cinema operator Cineworld CINE.L plummeted 21.4% after it confirmed a possible Chapter 11 bankruptcy filing in the United States.

German sporting goods maker Adidas ADSGn.DE fell 5.2% as it unexpectedly said Chief Executive Kasper Rorsted would leave his post next year.

(Reporting by Anisha Sircar and Shreyashi Sanyal in Bengaluru; Editing by Anil D’Silva, Dhanya Ann Thoppil and Mike Harrison)

European shares drop on hawkish ECB signals

Aug 22 (Reuters) – European shares fell on Monday, with major regional markets in the red, as investors fretted about hawkish signals from European Central Bank policymakers.

The pan-European STOXX 600 fell 0.2%. Chemicals, autos and tech stocks led declines, while miners inched 0.4% higher.

The European Central Bank (ECB) must keep raising rates even if a recession in Germany is increasingly likely, as inflation will stay uncomfortably high through 2023, Bundesbank President Joachim Nagel told a German newspaper.

Focus is on minutes of the ECB’s last policy meeting due this week that are likely to sound hawkish, as well as on euro zone flash PMIs due Tuesday.

Russia will halt natural gas supplies to Europe for three days at the end of the month, state energy giant Gazprom said on Friday. Oil stocks fell 0.7%.

Shares in Fresenius and its dialysis unit Fresenius Medical Care rose 5.2% and 2.1%, respectively, in early trade after the German healthcare group said its long-serving boss, Stephan Sturm, would quit.

(Reporting by Anisha Sircar in Bengaluru; Editing by Anil D’Silva)

Japan’s 10-year yield hits one-month high after US yield surge

TOKYO, Aug 22 (Reuters) – Japan’s 10-year government bond yield rose to a one-month high on Monday, tracking gains in Europe and the United States at the end of last week after a record acceleration in German producer prices lifted both Bund and benchmark Treasury yields.

The 10-year JGB yield rose 2 basis points (bps) to 0.215%.

July producer prices in Germany – the euro zone’s leading economy – leapt 37.2% from the same time last year and 5.3% from June, mainly because of rising energy costs, sending German bond yields sharply higher.

That contributed to around a 10 bp-rise in the US benchmark 10-year Treasury yield to a one-month high of 2.988% on Friday.

Yields on Japan’s longer-dated notes played catch up on Monday, with the 20-year JGB yield rising 5 bps to 0.815% and the 30-year JGB yield climbing 5.5 bps to 1.125%.

The 40-year JGB yield rose 6 bps to 1.245%.

The two-year JGB yield rose 0.5 bp to -0.085% and the five-year yield rose 1.5 bps to 0.010%.

Benchmark 10-year JGB futures fell 0.49 point to 149.71, with a trading volume of 16,424 lots.

(Reporting by Tokyo markets team;Editing by Kirsten Donovan)

Oil slumps on fears over economic slowdown, stronger dollar

TOKYO, Aug 22 (Reuters) – Oil prices slumped on Monday, ending three days of gains, as investors were concerned aggressive US interest rate hikes will weaken the global economy and dent fuel demand while a strengthening dollar also added to pressure.

Brent crude futures for October settlement declined USD 1.58, or 1.6%, to USD 95.14 a barrel.

US West Texas Intermediate (WTI) crude futures for September delivery, due to expire on Monday, were down USD 1.70, or 1.9%, at USD 89.07 a barrel. The more active October contract was at USD 88.92, down USD 1.52, or 1.7%.

Both Brent and WTI climbed for a third straight day on Friday, but fell about 1.5% for the week on a stronger dollar and demand fears.

“Growing fears over a global economic slowdown are behind the fall in oil markets,” said Tatsufumi Okoshi, senior economist at Nomura Securities.

“A higher US dollar also prompted fresh selling,” he said.

The dollar index rose to a five-week high on Monday after Richmond Fed President Thomas Barkin said the “urge” among central bankers was towards faster, front-loaded interest rate increases.

A stronger dollar makes oil more expensive for buyers in other currencies.

Investors will be paying close attention to comments by Fed Chair Jerome Powell when he addresses an annual global central banking conference in Jackson Hole, Wyoming, on Friday.

The Fed is seen as having more room to hike rates than central banks of other large economies which are more fragile.

Prices also fell on worries over slowing fuel demand in China, the world’s largest oil importer, because of a power crunch in the southwest caused by a heatwave.

“China’s power restriction in some regions is also a concern as it could affect economic activity,” said Hiroyuki Kikukawa, general manager of research at Nissan Securities.

China’s southwestern province of Sichuan will extend curbs on industrial power consumers until August 25 as it tries to deal with dwindling hydropower output and surging household electricity demand following a long heatwave, financial news service Caixin said.

In a sign of overall concern about the Chinese economy, Beijing cut its benchmark lending rate and lowered the mortgage reference by a bigger margin on Monday, adding to last week’s easing measures, to revive an economy hobbled by a property crisis and a resurgence of COVID cases.

Meanwhile, the leaders of the United States, Britain, France and Germany discussed efforts to revive the 2015 Iran nuclear deal, the White House said on Sunday, though no further details were provided.

(Reporting by Yuka Obayashi; Editing by Jamie Freed and Christian Schmollinger)

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