China’s coal output rises as share of electricity slips: Russell

LAUNCESTON, Australia – China’s production of coal is rising while its share of electricity generation is declining, a seeming contradiction that will likely result in lower import volumes and lower prices.

Coal output rose 2.8% in July from the same month a year earlier, hitting 390.37 million metric tons, according to data released on Aug. 15 by the National Bureau of Statistics.

July’s output was down from June’s 405.38 million tons, which was the strongest month so far this year. July was also the third-highest monthly production so far in 2024 and output has been trending higher since April.

The rising availability of coal in the world’s biggest producer, importer, and consumer of the fuel hasn’t translated into an increased share of the total electricity generation, the primary use for the fuel.

Instead, China’s coal-fired power is losing market share to cleaner alternatives, a trend likely to continue, given the ongoing rapid installation of solar, and to a lesser extent, wind capacity.

China’s thermal power generation dropped in July for a third month on a year-earlier basis, despite rising overall power consumption.

Thermal power output, which is largely coal-fired with only a small amount of natural gas generation, fell 4.9% in July from the same month in 2023 to 574.9 billion kilowatt-hours (kWh).

Total generation rose 2.5% to 883.1 billion kWh, with hydropower output jumping 36.2% to 166.4 billion kWh.

China is experiencing a hotter-than-usual summer, which has boosted electricity demand for cooling.

Hydropower is increasing off a low base in 2023, when output was affected by low rainfall.

Other clean energy generation is also grabbing a higher share, with solar up 16.4% in July and nuclear increasing 4.3%.

China has ramped up installations of renewable energy, with 102 gigawatts (GW) of capacity being added in the first half of 2024, taking total capacity to more than 700 GW.

About 26 GW of wind capacity was added in the first six months of 2024, with the combined wind and solar additions being almost seven times the 18.3 GW of new coal-fired generation.

MARKET DYNAMICS

The recovery in hydropower and the rapid rollout of solar, coupled with rising coal production, are likely to alter the dynamics of the thermal coal market in China.

Domestic prices have started to decline, with the benchmark price of thermal coal at Quinhuangdao, as assessed by consultants SteelHome, slipping to end at 835 yuan ($116.55) a ton on Aug. 16.

It has trended lower since its most recent peak of 885 yuan a ton on May 28, and has dropped 11.2% since the peak so far in 2024 of 940 yuan on Feb. 27.

The lower domestic price has meant that thermal coal imported from Indonesia and Australia, the world’s two biggest exporters of the fuel and the top suppliers to China, has also had to adjust through lower prices.

Indonesian coal with an energy content of 4,200 kilocalories per kilogram (kcal/kg) IDIDX42GRW1=ARG, as assessed by commodity price reporting agency Argus, ended at $51.18 a ton in the week to Aug. 16.

This was the lowest in 11 months and the price has dropped 12% since its high so far this year of $58.17 a ton in the week to March 8.

Australian coal with an energy content of 5,500 kcal/kg API5IDXWKY=ARG finished at $86.78 a ton in the seven days to Aug. 16, down 10.2% from its peak so far in 2024 of $96.66 in the week to March 1.

The softer seaborne coal prices have helped keep import volumes strong so far in 2024, with official data showing imports of all grades of coal rising 13.3% in the first seven months of the year to 295.78 million tons.

But data from commodity analysts Kpler suggests that seaborne imports of thermal coal are starting to ease back.

Kpler assessed July seaborne thermal coal arrivals at 28.56 million tons, down from 29.38 million in June and 30.67 million in May.

For August, it’s possible that thermal coal imports will drop for a third month, with Kpler estimating arrivals of 28.26 million tons.

With domestic coal output recovering and prices easing, its likely that seaborne cargoes will have to decline in price to remain competitive.

The opinions expressed here are those of the author, a columnist for Reuters.

(By Clyde Russell; Editing by Christopher Cushing)

Dollar falls on bets for dovish Fed

SINGAPORE – The US dollar declined broadly on Monday and slid against the yen in particular as investors bet on a dovish tone emerging in the Federal Reserve’s July policy meeting minutes and Chair Jerome Powell’s upcoming speech at Jackson Hole.

The minutes, due on Wednesday, and Powell’s speech on Friday are likely to be the main drivers of currency movement for the week, which will also see inflation data from Canada and Japan alongside Purchasing Managers’ Index readings across the US, euro zone, and UK.

Against the yen, the greenback fell more than 0.8% to 146.37, retreating from a two-week high of 149.40 yen hit last week, though analysts said the sharp move lower was largely due to broad dollar weakness.

Bank of Japan (BOJ) Governor Kazuo Ueda is set to appear in parliament on Friday, where he is expected to discuss the central bank’s decision last month to raise interest rates.

The BOJ’s hawkish tilt last month contributed to the early August market turbulence in the wake of an epic unwinding of yen-funded carry trades, triggering a heavy selloff in risk assets and sending stock markets, including the Nikkei, crashing.

The volatility back then was compounded by a slew of softer-than-expected US economic data – in particular, a weak jobs report for July, as investors feared the world’s largest economy was headed for a recession and that the Fed was being slow in easing rates.

With those worries now moderating, the yen has since given up some of its strong gains, and Japanese investment data on Friday confirmed that investors were back to betting on the BOJ going slow on rate rises and on the yen staying cheap.

“The thing with carry trades is that it’s impossible to tell with any confidence about the size of the trades,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia.

“We aren’t so sure whether or not that unwind has more room to go or how much left of that unwinding (there is), but just based on the very sharp moves down in dollar/yen, I really doubt that pace will sustain going forward.”

Elsewhere, the euro last bought USD 1.1039, edging towards an over seven-month high of USD 1.10475 hit last week. Sterling rose to a one-month high of USD 1.2960 earlier in the session and was last at USD 1.2957.

Against a basket of currencies, the dollar lost 0.24% to 102.21, not far from a seven-month low of 102.15.

Traders have fully priced in a 25-basis-point rate cut from the Fed in September, with a 24.5% chance of a 50 bp move. Futures point to over 90 bps worth of easing by year-end.

“Markets will be laser-focused to what Powell has to say at the end of this week, and on that, I think it will be a great opportunity for Powell to either endorse or push back market pricing,” said CBA’s Kong.

“I think he’ll at least greenlight a rate cut at the September meeting. If anything, I think he’ll try to retain optionality because we do have some more data before the next meeting.”

The New Zealand dollar gained 0.43% to USD 0.6078, while the Australian dollar struck a one-month top of USD 0.6694, as risk sentiment picked up on expectations for a dovish Fed outcome.

The Aussie was also helped in part by the paring of bets for imminent rate cuts Down Under, after Reserve Bank of Australia Governor Michele Bullock said on Friday it was premature to be thinking about rate cuts.

(Reporting by Rae Wee; Editing by Christopher Cushing and Edwina Gibbs)

Japan’s Nikkei surges over 2% as US retail sales data eases recession fears

TOKYO – Japan’s Nikkei share average got off to a strong start in early trade on Friday, tracking Wall Street higher as an increase in US retail sales soothed fears of a recession in the world’s largest economy and top Japanese trading partner.

The Nikkei was up 2.5% at 37,639.99 as of 0009 GMT, while the broader Topix rose 2.3%.

Wall Street’s main indexes closed higher on Thursday after US retail sales for July increased 1% following a downwardly revised 0.2% drop in June, easing fears of a sharp economic slowdown fanned by a jump in the unemployment rate last week.

The Philadelphia SE Semiconductor index finished up nearly 5% to give Japanese chip-related shares a boost on Friday.

(Reporting by Brigid Riley; Editing by Christian Schmollinger)

US corporate bond spreads recover on promising economic data

US corporate bond spreads, the premium over Treasuries that companies pay for debt, are starting to recoup some lost ground after recent strong economic data increased hopes for interest rate cuts and calmed recession fears.

Investment-grade corporate bond spreads on Wednesday tightened by 3 basis points to 105 basis points (bps), according to the ICE BofA Corporate US Corporate Index.

Junk bond spreads finished Wednesday at 346 bps, also 3 bps tighter this week, according to the ICE BofA High Yield Index.

Both high-grade and junk bond spreads retraced much of early August’s dramatic widening, after surprisingly weak July jobs and productivity reports prompted concerns of a sharp economic downturn and potential recession.

Economic data this week appears to have calmed recession fears. US consumer prices in July rose at their slowest pace in nearly 3-1/2 years, while the cost of services fell by the most in nearly 1-1/2 years.

Other data this week pointed to economic growth, including July retail sales that rose more than expected.

“The primary driver of tighter credit spreads this week is the Goldilocks narrative of growth without inflation,” said Nelson Jantzen, a strategist who covers high-yield bonds, leveraged loans, and distressed leveraged credit at JPMorgan.

The data has further assured credit investors that the Federal Reserve has finished hiking interest rates and will begin cutting rates as soon as September.

Forecasts now see a 76.5% probability of a 25 bp Fed rate cut in September, according to CME’s FedWatch Tool, up from 64% on Wednesday.

“Recent data has given the market more comfort around the likelihood of more accommodative policy at the next FOMC meeting, and this has given investors increased confidence that a substantial rise in rates is less likely,” said Blair Shwedo, head of fixed-income sales and trading at US Bank.

Renewed optimism was helped by an overall lack of negative surprises in borrowers’ second-quarter earnings disclosures, market participants said.

“Financials aside, consumer discretionary and industrial companies were among the next strongest performers during Q2 earnings season, likely providing some support for services and basic material sectors during the widening” of credit spreads in early August, said Dan Krieter, director of fixed income strategy at BMO Capital Markets

Almost USD 25 billion in new high-grade debt has sold this week, versus forecasts of a weekly total of USD 30 billion heading into the week, said Krieter.

Junk debt issuance has also recovered this week following its lightest showing of 2024 last week, albeit at a slower pace than high-grade deals, said Jantzen.

(Reporting by Matt Tracy; Editing by Leslie Adler)

Dollar holds gains on reassuring data, euro slips

NEW YORK – The dollar held gains against the euro on Thursday, pulling the European common currency back from a seven-month peak, after US economic data eased fears of a recession risk and dampened expectations for aggressive interest-rate cuts.

US retail sales rose more than expected in July, a sign that demand is not collapsing and which could prompt financial markets to dial back expectations for a 50-basis-point rate cut next month.

Additionally, fewer Americans than expected filed for unemployment benefits in the latest week, suggesting an orderly labor market slowdown remained in place, although laid-off workers are finding it a bit difficult to land new jobs.

The euro fell 0.36% versus the dollar at USD 1.0973. It reached USD 1.10475, its highest level this year, on Wednesday, as markets digested US inflation numbers.

The dollar index rose 0.42% to 103.03, and moved away from the eight-month low of 102.15 touched last week.

“The data this morning goes counter to the recent market narrative of a Fed that is drastically behind the curve and would have to deliver jumbo rate cuts to avert a recession,” said Peter Vassallo, FX portfolio manager at BNP Paribas Asset Management. “Market pricing has adjusted accordingly, and short-term US rates have risen significantly on the day.”

The pound was up 0.17% at USD 1.2849, as data showed Britain’s economy grew 0.6% in the second quarter, in line with economists’ expectations and building on a rapid 0.7% recovery in the first quarter of the year.

The pound also strengthened on the euro, which dipped 0.53% to 85.38 pence.

Thursday’s US data follow Wednesday’s release of the consumer price index, which rose moderately in July, in line with expectations, and the annual increase in inflation slowed to below 3% for the first time since early 2021.

The figures add to the mild increase in producer prices in July in suggesting that inflation is on a downward trend, although traders now think the Fed will not be as aggressive on rate cuts as they had hoped.

“This morning’s data absolutely crushed remaining bets on a half percentage-point move at the Federal Reserve’s September meeting,” said Karl Schamotta, chief market strategist at Corpay.

“Fear of a ‘hard landing’ in the US economy has been almost fully unwound,” he said, “and Fed officials are seen responding with a more cautious start to the easing cycle.”

Markets are now pricing in a 74.5% chance of a 25 bps cut next month and a 25.5% chance of a 50 bps reduction, the CME FedWatch tool showed. Traders were evenly split at the start of the week between the two cut options following last week’s sell-off.

The yen was at 149.13 per dollar, inching away from the seven-month high of 141.675 per dollar touched during last week’s market mayhem and well beyond the 38-year lows of 161.96 it was rooted to at the start of July.

Bouts of intervention from Tokyo early last month and then a surprise rate hike from the Bank of Japan at the end of July wrong-footed investors who bailed out of popular carry trades, lifting the yen.

“Currency markets are suffering whiplash, with the dollar climbing against its rivals on a re-widening in rate differentials,” Schamotta said. “Rumors of the death of the ‘US exceptionalism’ trade look to have been exaggerated, yet again.”

(Reporting by Laura Matthews in New York and Alun John in London; additional reporting by Ankur Banerjee in Singapore; editing by David Evans, Jonathan Oatis, and Leslie Adler)

Gold pares gains as dollar, bond yields climb after strong US data

Gold prices pared gains on Thursday as the dollar and Treasury yields rose after stronger-than-expected US economic data that could influence the size of interest rate cuts from the Federal Reserve.

Spot gold was up 0.3% at USD 2,454.40 per ounce, as of 1:46 p.m. EDT (1746 GMT), after rising as much as 0.9% earlier in the session. US gold futures GCcv1 settled 0.5% higher at USD 2,492.40.

“Retail sales being so positive shows the economy is strong and that has kind of turned the markets, and the dollar is regaining some of its strength, and gold’s losing some of its lustre,” said Chris Gaffney, president of world markets at EverBank.

US retail sales increased 1.0% last month after a downwardly revised 0.2% drop in June, the Commerce Department’s Census Bureau said.

Separately, a Labor Department report showed the number of Americans filing new applications for unemployment benefits dropped to a one month-low last week.

Following the US data, the dollar rose 0.5% against its rivals, making gold more expensive for other currency holders, while benchmark 10-year Treasury yields US10YT=RR also jumped.

Meanwhile, two Fed officials on Thursday lined up behind the possibility of an interest rate cut at the US central bank’s policy meeting next month, reversing their previous skepticism about lowering borrowing costs too soon.

Markets see a 100% chance of a US cut rate in September, according to the CME FedWatch Tool. However, strong data has taken a 50 basis point cut off the table.

A low interest rate environment tends to boost non-yielding bullion’s appeal.

“The political uncertainties will continue to be positive for gold prices, but they’ll also add to the volatility,” said Jeffrey Christian, managing partner of CPM Group.

Spot silver gained 2.6% to USD 28.30 per ounce. Platinum jumped 3.8% to USD 954.65 and palladium rose 0.5% to USD 940.04.

“The industrial precious metals like silver and platinum benefited from stronger data this morning because of the expected increase in demand with a stronger economy,” Gaffney said.

(Reporting by Rahul Paswan and Brijesh Patel in Bengaluru; Editing by Mohammed Safi Shamsi and Maju Samuel)

Oil rises nearly 2% on upbeat US economic data, geopolitical tension

NEW YORK – Oil prices gained more than USD 1 a barrel on Thursday after US economic data allayed fears of recession in the world’s biggest economy, although the rally was limited by concerns of slower global demand.

Brent crude futures settled up USD 1.28, or 1.6%, at USD 81.04 a barrel. US West Texas Intermediate crude futures rose by USD 1.18, or 1.53%, to USD 78.16.

Data showed US retail sales rose more than expected in July. Another report showed a smaller-than-expected increase in the number of Americans filing for unemployment benefits.

“The positive economic data serve as an indicator that we’re heading towards a soft landing,” said Bob Yawger, director of energy futures at Mizuho in New York.

Data from the Labor Department on Wednesday showed US consumer prices rose moderately in July. This reinforced expectations that the Federal Reserve would cut interest rates next month, which could boost economic activity and oil consumption.

Oil prices also drew support from worries about how Iran would respond to the killing of the leader of the Palestinian militant group Hamas last month.

“Geopolitics and the risk of an expanding conflict in the Middle East are propping up prices, as the threats of retaliation continue to grow louder,” said Tim Snyder, chief economist at Matador Economics.

A new round of Gaza ceasefire talks was underway in the Qatari capital Doha, as Palestinian health authorities said the death toll from the war surpassed 40,000 and pressure to end the war in the Palestinian enclave mounted.

The Russia-Ukraine conflict also kept prices elevated. Russia said on Thursday it would beef up border defenses, improve command and control, and send in additional forces, days after Ukraine made the biggest attack on its sovereign territory since World War Two.

Both main oil benchmarks had fallen more than 1% on Wednesday after US crude inventories increased unexpectedly.

US crude oil stockpiles rose by 1.4 million barrels in the week ended Aug. 9, compared with estimates for a 2.2 million barrel draw, building for the first time since late June.

China’s factory output growth slowed in July, while refinery output fell for a fourth month, underscoring the country’s spotty economic recovery and limiting the upside for crude markets on Thursday.

(Additional reporting by Noah Browning and Alex Lawler in London, Yuka Obayashi in Tokyo, and Trixie Yap in Singapore; Editing by David Holmes, Kirsten Donovan, and David Gregorio)

US rate cuts in view after tame CPI report

The prospect of looming US rate cuts was back on the front burner after an inflation report, which had kept markets on edge ahead of its release, showed a tame reading.

Wednesday’s consumer price index showed a moderate rise in July with the annual increase in US inflation slowing below 3% for the first time in nearly 3-1/2 years.

Following the July CPI data, the question investors seemed to be debating was not whether the Fed would cut rates at its Sept. 17 to 18 meeting, but by how much. Traders appeared to be leaning toward a more modest 25 basis point cut, but 50 bps was not ruled out. Nearly 40% odds were put on the bigger cut in September, according to CME FedWatch. The Fed’s annual Jackson Hole gathering, set for Aug. 22 to 24, will give Chair Jerome Powell a chance to fine-tune his rates message ahead of the meeting.

Much more US economic data also will arrive in the coming weeks, starting on Thursday with the monthly retail sales report and the weekly jobless claims data. The reports are likely to receive even greater scrutiny given the weak employment data at the start of August that sparked some concerns about a potential recession.

That employment data also was a catalyst for a bout of severe volatility and equity downside to start August, but markets seemed to be moving further and further from those wild swings.

The S&P 500 ended up 0.4% on Wednesday after the tame CPI report, with the benchmark index now down less than 4% from its all-time high reached in July. The Cboe Volatility index continued to recede, ending at just over 16 on Wednesday after shooting above 65 on Aug. 5.

In another sign of revived animal spirits on Wednesday, candy giant Mars was set to buy Cheez-It maker Kellanova for nearly USD 36 billion, in the year’s biggest deal to date.

Rate cuts were gripping other regions as well. New Zealand’s central bank slashed its benchmark rate for the first time since March 2020 and flagged more cuts over coming months.

Elsewhere, GDP data was expected on Thursday for Japan, as investors in the country were still digesting news that Prime Minister Fumio Kishida will step down in September.

Meanwhile, China is set to release a spate of data, including retail sales. A number of gloomy reports have dulled expectations for China’s economic performance in July.

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

– China industrial output, retail sales (July)

– Japan GDP (Q2)

– US retail sales (July)

(Reporting by Lewis Krauskopf; Editing by Josie Kao)

Dollar softens against euro as inflation data shows cooling

The dollar softened against its major peers on Wednesday, helping the euro to a near eight-month peak, as the US consumer price index showed inflation is subsiding, reinforcing expectations that Federal Reserve interest rate cuts are near.

US CPI rose moderately in July and the annual increase in inflation slowed to below 3% for the first time since early 2021, adding to expectations for a rate cut next month, though likely less aggressive than markets hoped for.

The report adds to the mild increase in producer prices in July suggesting that inflation is on a downward trend. This should give the Fed room to focus more on the labor market amid growing concerns of a sharp slowdown.

“It mildly shrank the expectations of targeting a 50-basis point rate cut in September,” said Amo Sahota, director, Klarity FX, in San Francisco. “It’s been a much quieter reflective approach on the inflation number.”

The euro EUR= was last up 0.18% against the greenback to USD 1.1014, surpassing the high hit during the market turmoil last week, and was trading at its strongest level since Jan. 2. The dollar index =USD was slightly lower at 102.57.

Traders had been widely expecting a rate cut in September before the producer price data, and ramped up bets for a 50 basis-point cut after the release to 56% from 53% a day earlier, according to CME Group’s FedWatch Tool.

Sahota thinks the market is still on track for three 25 bps cuts this year from the Fed, rather than 100 bps by the end of the year.

STERLING DIPS, KIWI SLIDES

Sterling failed to gain on the weaker dollar and was down 0.29% at USD 1.2825 after data showed the rise in British consumer price inflation was smaller than expected in July as services prices – closely watched by the Bank of England – rose less rapidly.

The pound did soften on the euro, however, which was up 0.47% at 85.87 pence. Financial markets priced in a 44% chance of a quarter-point BoE rate cut in September, up from 36% before the data was released.

The kiwi was down 1.28% at 0.5999, after the Reserve Bank of New Zealand reduced the cash rate by a quarter point, its first easing since early 2020 and coming a year earlier than its own projections.

Meanwhile, Japanese Prime Minister Fumio Kishida’s decision to not run for reelection in his party’s leadership race next month had little effect on markets, analysts said.

The yen was last trading at 147.26 against the dollar.

“The Fed is cutting rates. That should be dollar negative,” said Vassili Serebriakov, FX strategist, at UBS. “The currency that’s probably still likely to do the best against the dollar is the yen. The Bank of Japan is raising rates, and that also contributes to the narrowing of rate differentials.”

(Reporting by Laura Matthews in New York; additional reporting by Kevin Buckland in Tokyo and Sruthi Shankar in Bengaluru; Editing by Ana Nicolaci da Costa, Emelia Sithole-Matarise, Jonathan Oatis, and Chizu Nomiyama)

Wall Street fear gauge in record retreat after last week’s massive spike

NEW YORK – Wall Street’s most-watched gauge of investor anxiety is continuing its speedy retreat from panic levels, suggesting that investors may be returning to strategies that bank on low stock volatility despite a near-meltdown in equities early this month.

The Cboe Volatility Index slipped to 16.31 on Wednesday, its lowest level since the beginning of the month. The index hit 65 on Aug. 5 and closed at a four-year high of 38.57 on that day as investors roiled markets by unwinding several massive positions such as the yen-funded carry trade.

If the index’s level holds into the close, the seven trading sessions it took the VIX to return to its long-term median of 17.6 will be the index’s quickest-ever drop from 35, a level associated with a high degree of fear. Similar reversions in the so-called fear gauge have, on average, taken 170 sessions to play out, according to a Reuters analysis.

Some options mavens believe the rapid retreat in the so-called fear gauge signals investors have returned to strategies that bank on markets remaining calm to deliver profits. Among those is the dispersion trade, in which investors seek to take advantage of the difference between index-level volatility and volatility in single stock options, analysts said.

“What we saw (on Aug. 5) was a unique confluence of events,” said Steve Sosnick, chief strategist at Interactive Brokers. “I think it’s also quite remarkable how quickly everyone reverted to the same playbook that has been working for them once it was established that those events appear to be temporary.”

The S&P 500 has risen 5% from its Aug. 5 closing level while the tech-heavy Nasdaq Composite is up 6% from that day’s close. Both indexes are up about 14% on the year.

The sharp retreat in the VIX also backs the idea that last week’s record jump was fueled by technical factors rather than longer-term angst over global growth, analysts said.

The VIX, which is calculated from S&P 500 options quotes in real-time, may have been driven up excessively due to lower liquidity in pre-market hours on Aug. 5, according to market participants.

The sudden break from months of stock market calm may have also jolted some investors who had piled into various options-based bets on continued market calm to rush to exit those positions, further amplifying the VIX surge.

“It was much more about market structure issues … it was about short volatility traders being forced to close out when things had gone up against them, and it really wasn’t about a real fundamental shock,” said Michael Purves, head of Tallbacken Capital Advisors.

“If we had a fundamentally driven VIX spike because something really bad was happening in the economy or world, then you wouldn’t see this type of plunge in the VIX from that high level,” Purves said.

(Reporting by Saqib Iqbal Ahmed; Editing by Ira Iosebashvili and David Gregorio)

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