CORRECTED-UPDATE 8-Oil steady as markets weigh Fed rate cut expectations, Chinese demand

Corrects story from Dec 20 to remove reference to China’s crude imports peaking as soon as 2025 in paragraph 9

Benchmark prices ease 2.5% for the week

Dollar on track for third consecutive week of gains

Fed policymakers prepare ground for rate-cut pause in 2025

Sinopec says China’s crude imports may peak next year

Trump warns EU on tariffs if bloc doesn’t buy more US oil, gas

By Arathy Somasekhar

HOUSTON, Dec 20 (Reuters) – Oil prices settled little changed on Friday as markets weighed Chinese demand and interest rate-cut expectations after data showed cooling U.S. inflation.

Brent crude futures LCOc1 closed up 6 cents, or 0.08%, at $72.94 a barrel. U.S. West Texas Intermediate crude futures CLc1 rose 8 cents, or 0.12%, at $69.46 per barrel.

Both benchmarks ended the week down about 2.5%.

The U.S. dollar retreated from a two-year high, but was heading for a third consecutive week of gains, after data showed cooling U.S. inflation two days after the Federal Reserve cut interest rates but trimmed its outlook for rate cuts next year.

A weaker dollar makes oil cheaper for holders of other currencies, while rate cuts could boost oil demand.

Inflation slowed in November, pushing Wall Street’s main indexes higher in volatile trading.

“The fears over the Fed abandoning support for the market with its interest rate schemes have gone out the window,” said John Kilduff, partner at Again Capital in New York.

“There were concerns around the market about the demand outlook, especially as it relates to China, and then if we were going to lose the monetary support from the Fed, it was sort of a one-two punch,” Kilduff added.

Chinese state-owned refiner Sinopec said in its annual energy outlook on Thursday that China’s oil consumption would peak by 2027, as demand for diesel and gasoline weakens.

OPEC+ needed supply discipline to perk up prices and soothe jittery market nerves over continuous revisions of its demand outlook, said Emril Jamil, senior research specialist at LSEG.

OPEC+, the Organization of the Petroleum Exporting Countries and allied producers, recently cut its growth forecast for 2024 global oil demand for a fifth straight month.

JPMorgan sees the oil market moving from balance in 2024 to a surplus of 1.2 million barrels per day in 2025, as the bank forecasts non-OPEC+ supply increasing by 1.8 million barrels per day in 2025 and OPEC output remaining at current levels.

U.S. President-elect Donald Trump said the European Union may face tariffs if the bloc does not cut its growing deficit with the U.S. by making large oil and gas trades with the world’s largest economy.

In a move that could pare supply, G7 countries are considering ways to tighten the price cap on Russian oil, such as with an outright ban or by lowering the price threshold, Bloomberg reported on Thursday.

Russia has circumvented the $60 per barrel cap imposed in 2022 following the invasion of Ukraine through the use of its “shadow fleet” of ships, which the EU and Britain have targeted with further sanctions in recent days.

Money managers raised their net long U.S. crude futures and options positions in the week to Dec. 17, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.

(Reporting by Paul Carsten in London, Colleen Howe in Beijing and Jeslyn Lerh in Singapore; Editing by Muralikumar Anantharaman, Kirsten Donovan, Jane Merriman, Paul Simao, Diane Craft, Leslie Adler and David Gregorio)

((Arathy.s@tr.com))

Fed’s shift should keep dollar in the ascendancy

After arguably the most hawkish Fed meeting in well over a year, dollar longs will be emboldened by the central bank’s shift towards a new phase that implies rates will need to be higher for longer.

The 2025 median dot now shows 50bps of easing, down from 100bps in the September projections. And with inflation appearing to bottom out above target, as well as the threat of tariff-induced price rises from the incoming Trump administration, it is plausible that the Fed is on a prolonged pause throughout the whole of next year – currently an 18% chance according to CME FedWatch.

While a hawkish Fed cut was largely expected given the rhetoric from officials in the lead up to the decision, this meeting showed the first real signs that officials are growing concerned over a rebound in inflation.

Four of the 2024 dots were above the current rate at 4.625%. Fed’s Hammack dissented by voting to leave rates unchanged, while Chair Powell emphasized that the decision to cut was a close one. At the very least, this sets a high bar to a cut in Q1 2025. This will also heighten the event risk attached to incoming inflation reports.

For now, the dollar should remain in the ascendancy leading into Trump’s inauguration on Jan. 20, where the focus will be on whether his administration delivers tariffs on Day 1. Such an outcome can propel the dollar even higher, although, should Trump take a more gradual approach to tariffs, this would likely weigh on the greenback.

(Justin McQueen is a Reuters market analyst. The views expressed are his own.)

Stocks end flat after Fed-induced selloff as early bounce fades

NEW YORK – USD stocks ended little changed on Thursday, giving up an initial rebound from a sharp drop in the prior session after the Federal Reserve forecast fewer-than-expected interest rate cuts and higher inflation next year.

Economic data was in sync with the Fed’s view, with weekly initial jobless claims falling more than expected while gross domestic product for the third quarter was revised to show a 3.1% increase from the previously reported 2.8% pace.

“It clearly sent a message that rates weren’t going to keep going down if inflation didn’t continue its decline, and we’ve seen inflation tick up a bit here, and that’s a concern to the Fed,” said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York.

“The market is skittish, because we’ve had such a big move.”

The Dow Jones Industrial Average rose 15.37 points, or 0.04%, to 42,342.24, the S&P 500 lost 5.08 points, or 0.09%, to 5,867.08 and the Nasdaq Composite lost 19.92 points, or 0.10%, to 19,372.77.

The Dow barely managed to snap a ten-session losing skid, its longest streak since 1974.

The Dow and S&P 500 suffered their biggest one-day percentage drop since early August, while the Nasdaq suffered its biggest daily fall since July after the Fed on Wednesday said it expects to make just two 25 basis point cuts in 2025, half a percentage point less than its September forecast for the first year of the new Trump administration.

Even with the recent declines, the S&P 500 is up 23% on the year, with the Dow up more than 12% and the Nasdaq up 29%.

Traders now see just one quarter-point rate reduction by mid-2025, and see less than two cuts in total by the end of the year, compared with last week’s expectations of three rate cuts.

Longer-dated Treasury yields were higher after the economic data, with the benchmark 10-year note reaching a near 7-month high of 4.594%.

The CBOE volatility index, Wall Street’s fear gauge, eased to close at 24.09 after closing at a 5-1/2-month high of 27.62 a day earlier.

Bank stocks advanced 0.3% as a rise in yields tends to improve the profitability of lenders, while the incoming Trump administration is expected to loosen regulations on the sector.

Micron slumped 16.2% following its forecast of quarterly revenue and profit below estimates, pulling the PHLX Semiconductor index down 1.6%.

Homebuilder Lennar shares retreated 5.2% after reporting fourth-quarter results below estimates, weighing on the PHLX housing index, which dropped 2.6%.

Declining issues outnumbered advancers by a 2.18-to-1 ratio on the NYSE and by a 1.3-to-1 ratio on the Nasdaq.

The S&P 500 posted two new 52-week highs and 40 new lows, while the Nasdaq Composite recorded 29 new highs and 276 new lows.

Volume on USD exchanges was 16.33 billion shares, compared with the 14.52 billion average for the full session over the last 20 trading days.

(Reporting by Chuck Mikolajczak, additional reporting by Medha Singh and Purvi Agarwal in Bengaluru; Editing by Aurora Ellis)

Gold erases gains after US data cements Fed’s hawkish stance

Gold prices edged higher on Thursday, erasing earlier gains after US data reinforced market expectations that the Federal Reserve will take a cautious approach to policy easing in the year ahead.

Spot gold was up 0.4% at USD 2,598.20 per ounce as of 01:51 p.m. ET (1851 GMT) and US gold futures settled 1.7% lower at USD 2,608.10.

Data earlier showed the US economy growing faster than expected in the third quarter, while jobless claims also fell more than anticipated.

“With these GDP prints and the jobless claims, it’s showing that the data is fairly firm,” said Bart Melek, head of commodity strategies at TD Securities, adding that a solid economy and inflationary risks, including tariffs and spending cuts, reaffirm the Fed has little reason to be aggressive, which historically has not been good for non-yielding gold.

Gold slipped more than 2% to a one-month low earlier in the session after Fed officials dialed back projections for future easing given stubborn inflation.

The drop attracted investors to buy, sending prices as much as 1.5% higher earlier in the session.

“The short-term dip in gold presented a good buy-in opportunity for long-term stackers. You have the looming debt problem, the potential government shutdown, and we’re already seeing the posture of the new administration in terms of trying to cut the expenses and minimize the deficits,” said Alex Ebkarian, chief operating officer at Allegiance Gold.

US President-elect Donald Trump’s pre-inauguration push to sway Congress threatens to complicate efforts to avoid a government shutdown, potentially disrupting services such as air travel and law enforcement ahead of the holidays.

Gold is considered a safe investment option during economic and geopolitical turmoil and tends to thrive in a low-interest-rate environment.

Investors await Friday’s release of core PCE data, the Fed’s preferred inflation measure, for further clues on the economic outlook.

Spot silver fell 1% to USD 29.05 per ounce, platinum added 0.3% at USD 922.40 and palladium rose 0.6% to USD 908.36.

(Reporting by Sherin Elizabeth Varghese in Bengaluru, additional reporting by Swati Verma; editing by Barbara Lewis and Shreya Biswas)

Oil drops as dour economic outlook adds to oversupply concerns

NEW YORK – Oil prices fell on Thursday after central bankers in the US and Europe signaled caution over further easing of monetary policy, fanning concerns that weak economic activity could dent demand for oil next year.

Brent crude futures fell by 51 cents, or 0.7%, to settle at USD 72.88 a barrel.

US West Texas Intermediate crude futures for January delivery fell 67 cents, or 1%, to USD 69.91 per barrel and expired on settlement. The more active WTI February contract CLc2 fell 64 cents to settle at USD 69.38 per barrel.

The Federal Reserve cut rates by a quarter percentage point as expected on Wednesday, but Chair Jerome Powell warned that stubborn inflation would make the US central bank more cautious about cutting rates next year.

The US dollar rose to a two-year high, making oil more expensive for buyers holding other currencies.

“A less accommodative Fed in 2025 than initially expected has markets adjusting their expectations,” Alex Hodes, analyst at commodities brokerage StoneX, said.

In the UK, Bank of England policymakers held interest rates steady on Thursday, while officials disagreed over how to respond to a slowing economy. Also on Thursday, the Bank of Japan kept ultra-low interest rates as US President-elect Donald Trump’s vows to impose tariffs cast a shadow over the country’s export-reliant economy.

OIL IN SURPLUS NEXT YEAR

Softening economic activity could deepen a slowdown in oil demand growth next year. Brent futures prices have shed more than 5% so far this year, setting up a second consecutive annual loss, as a faltering Chinese economy weighed heavily on crude oil demand.

Energy transition measures have also hit demand sharply in China, the top oil importer. State-backed energy giant Sinopec on Thursday said it expects China’s petroleum consumption to peak in 2027 as fuel demand weakens.

The oil market is widely expected to be in a surplus next year, with J.P. Morgan analysts predicting that supply will outpace demand to the tune of 1.2 million barrels per day.

Oil supply could tighten next year if Trump, a Republican, delivers on campaign promises of cracking down on Iranian oil exports.

Democratic President Joe Biden’s administration has also ramped up sanctions on Iranian entities, with three vessels involved in trading Iranian petroleum and petrochemicals sanctioned on Thursday.

Such actions, however, have had little effect on oil prices, J.P. Morgan analysts noted, adding that Trump is unlikely to prioritize policies that would push energy prices higher.

Brent crude prices are forecast to average around USD 73 a barrel in 2025, according to a Reuters tally of 11 brokerages that have issued price targets.

Some support for the oil market came as US crude stocks declined by 934,000 barrels in the week to Dec. 13. Still, that was smaller than the 1.6 million-barrel drawdown analysts had forecast in a Reuters poll.

(Reporting by Shariq Khan, Colleen Howe, Trixie Yap and Anna Hirtenstein; additional reporting by Arunima Kumar; Editing by David Goodman, Keith Weir, David Gregorio, Deepa Babington and Leslie Adler)

Seeking respite from Fed; PBOC set to hold the line

As the dust settles on a remarkable 24 hours of central bank activity, investors in Asia round off the last full trading week of the year hoping for some respite from the global market selloff sparked by the Fed’s ‘hawkish cut’ on Wednesday.

These nerves were partially soothed on Thursday by the Bank of England’s surprisingly ‘dovish hold’ and the Bank of Japan’s seeming ambivalence toward raising rates in January.

Some of Wednesday’s moves reversed on Thursday – volatility cooled, a bit of the froth in implied US rates came off, and FX intervention from several emerging market central banks helped support EM currencies. Brazil’s real bounced off a record low and South Korea’s won from a 15-year low.

But the genie of a ‘higher for longer’ Fed is out of the bottle. Wall Street failed to rebound, the dollar hit another two-year high, lifted by its gains against the Japanese yen, and Treasury yields leaped again. The 10-year yield nudged 4.60%, its highest since April and up almost 100 basis points since the Fed’s easing cycle began in September.

Soaring US yields and a booming dollar – and add to that now a notable correction in emerging equities – have tightened EM financial conditions significantly. They are now the tightest since April, according to Goldman Sachs.

The heavy selling pressure on EM assets is unlikely to lift much as long as the US dollar and yields stay high, and the threat of large tariffs from the incoming Donald Trump administration in Washington looms large.

Analysts at JP Morgan estimate that net capital outflows from EM countries in October totaled USD 105 billion – USD 75 billion out of China alone – marking the worst month since June 2022. November and December have continued to post outflows too, albeit more modest.

“We do not rule out more outflows in 1Q24 should the dollar continue to strengthen and/or sentiment sour. Central to the outlook will be how residents react. October’s data suggest that residents could also be sending their flows elsewhere,” JP Morgan’s Katherine Marney wrote this week.

Friday’s calendar in Asia is busy, with Japanese inflation and an interest rate decision in China grabbing the spotlight.

BOJ Governor Kazuo Ueda said on Thursday that underlying inflation in Japan remains moderate. But the yen’s persistent weakness could soon shift that dial. Economists expect November’s annual core inflation rate to have risen to 2.6% from 2.3% in October.

Meanwhile, the People’s’ Bank of China is expected to leave its benchmark one- and five year lending rates on hold at 3.10% and 3.60%, respectively.

Beijing has pledged to take a range of fiscal and monetary steps next year to stimulate economic activity, fight off deflation, and support markets.

Here are key developments that could provide more direction to markets on Friday:

– China interest rate decision

– Japan CPI inflation (November)

– Malaysia CPI inflation (November)

(Reporting by Jamie McGeever; editing by Deepa Babington)

BUZZ-COMMENT-Fed’s shift should keep dollar in the ascendancy

Dec 19 (Reuters) – After arguably the most hawkish Fed meeting in well over a year, dollar longs will be emboldened by the central bank’s shift towards a new phase that implies rates will need to be higher for longer.

Four of the 2024 dots were above the current rate at 4.625%. Fed’s Hammack dissented by voting to leave rates unchanged, while Chair Powell emphasised that the decision to cut was a close one. At the very least, this sets a high bar to a cut in Q1 2025. This will also heighten the event risk attached to incoming inflation reports.

For more click on FXBUZ

(Justin McQueen is a Reuters market analyst. The views expressed are his own.)

((justin.mcqueen@thomsonreuters.com))

Japan’s Nikkei slides on Wall Street’s lead as BOJ decision looms

TOKYO – Japan’s Nikkei share average slid 1.5% early on Thursday, taking cues from an overnight tumble on Wall Street.

Investors were also cautious ahead of a policy decision from the Bank of Japan later in the trading day, with most market participants expecting officials to forgo an interest rate hike this time following recent media reports from Reuters and other news outlets.

“As much as the data is making the case for a December hike, reading the BOJ tea leaves, it is clear the Bank has a preference to wait a little bit longer,” said Tapas Strickland, head of market economics at National Australia Bank, who expects a quarter-point rise in January.

The Nikkei was 1.5% lower at 38,487.32 at 0010 GMT, while the broader Topix sank 1.3%.

Tech shares led declines on the Nikkei, with Advantest down 3.9%, Tokyo Electron losing 2.9%, and startup investor SoftBank Group tumbling 4.3%.

(Reporting by Kevin Buckland; Editing by Alan Barona)

Oil settles up after US crude stocks fall, Fed’s 2025 outlook curbs gains

HOUSTON –Oil prices settled higher on Wednesday after US crude inventories fell and the US Federal Reserve cut interest rates as expected, but gains were capped as the Fed signaled it would slow the pace of cuts.

Brent futures settled up 20 cents, or 0.27%, to USD 73.39 a barrel. US West Texas Intermediate crude settled up 50 cents, or 0.71%, to USD 70.58. Both benchmarks retreated from gains of more than USD 1 a barrel at session highs.

US crude stocks and distillate inventories fell while gasoline inventories rose in the week ending Dec. 13, the Energy Information Administration said on Wednesday.

Total product supplied, a proxy for demand, was 20.8 million barrels per day, up 662,000 bpd from the prior week.

“The market seems to have turned a corner from all the negativity we saw a couple weeks ago as there is more optimism about demand,” said Phil Flynn, a senior analyst for Price Futures Group.

The US Federal Reserve cut interest rates and signaled it will slow the pace at which borrowing costs fall further, given a relatively stable unemployment rate and little recent improvement in inflation.

Both Brent and US crude futures pared gains and turned negative in post-settlement trade after the Fed’s announcement, which was followed by the dollar index reaching a year-to-date high of 108.156.

A stronger greenback makes oil more expensive in other countries, which can reduce demand.

US central bankers project they will make just two quarter-percentage-point rate reductions by the end of 2025.

Oil investors had already baked in a 25-basis-point cut to be announced on Wednesday, StoneX analyst Alex Hodes said in a note, and had been more eagerly awaiting the Fed’s outlook for future cuts.

Lower rates decrease borrowing costs, which can boost economic growth and demand for oil.

(Reporting by Georgina McCartney in Houston, Arunima Kumar in Bengaluru, Colleen Howe in Beijing and Jeslyn Lerh in Singapore. Editing by Jonathan Oatis, Mark Potter, David Gregorio, Rod Nickel, Chizu Nomiyama and Deepa Babington)

Powell says Fed cannot hold bitcoin, not seeking to change that

NEW YORK – Federal Reserve Chair Jerome Powell said on Wednesday the US central bank has no desire to be involved in any government effort to stockpile large amounts of bitcoin.

“We’re not allowed to own bitcoin,” Powell said at a press conference following the Fed’s latest two-day policy meeting, in which policymakers cut rates as expected while signaling a less certain path for monetary policy in the months ahead.

In terms of the legal issues around holding bitcoin, “that’s the kind of thing for Congress to consider, but we are not looking for a law change at the Fed,” Powell said.

The Fed chief was addressing the prospect of central bank involvement in the idea of the government building a so-called Strategic Bitcoin Reserve once President-elect Donald Trump takes office.

Powell’s comments dented the value of bitcoin, which has rallied sharply along with other crypto assets since Trump’s victory in the Nov. 5 election on the prospect of a more hands-off government approach to a class of assets that rarely functions as actual money, but is instead largely used as a vehicle for speculation.

Trump has suggested he will create a US bitcoin strategic reserve. But the incoming president has not provided details on what such a reserve would entail, beyond saying its initial holdings could include bitcoin seized from criminals, a stockpile of about 200,000 tokens worth about $21 billion at current prices.

Bitcoin has more than doubled this year to more than $100,000 on optimism over Trump’s pro-crypto stance. The asset has proven volatile in its 15 years of existence, which analysts say reduces its utility as a store of value or a unit of exchange, key attributes of a reserve currency.

Republican Senator Cynthia Lummis has introduced a bill to create such a reserve, under which the US Treasury would buy 200,000 bitcoins annually until the stockpile reaches one million tokens. The purchases would be funded by Fed bank deposits and gold holdings.

Funding a strategic bitcoin reserve would likely require the approval of Congress and the issuance of new Treasury debt, according to an analysis published this week by Barclays. Given the likely ways such a reserve could be created, “we suspect such a plan would face stiff resistance from the Fed,” Barclays analysts said.

More broadly, Fed officials have been skeptical of securities like bitcoin as they have also backed away from their own efforts to create a fully digital dollar in favor of allowing the private sector to innovate payments technologies.

The Fed’s main role regarding cryptocurrencies appears to center on how those assets might affect consumer and banking sector safety.

“We regulate and supervise banks and we would want the interaction between the crypto business and the banks … not to threaten the health and well-being of the banks,” Powell said on Dec. 4. But he also noted at that time that when it comes to crypto assets, “we don’t regulate it directly.”

Trump plans to appoint former PayPal executive David Sacks to the newly-created position of White House AI and
Crypto Czar, and pro-crypto consultant Paul Atkins to lead the Securities and Exchange Commission.

(Reporting by Michael S. Derby; Editing by Andrea Ricci and Paul Simao)

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