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NEW YORK – Oil prices climbed about 2% on Wednesday on a bigger-than-expected weekly drop in US crude stockpiles and as a weaker US dollar overshadowed signs of lower economic growth in China.

Brent futures rose USD 1.35, or 1.6%, to USD 85.08 a barrel by 1:33 p.m. EDT (1733 GMT), while US West Texas Intermediate (WTI) crude rose USD 2.09, or 2.6%, to settle at USD 82.85.

On Tuesday, Brent closed at its lowest level since June 14 and WTI at its lowest since June 21.

The premium of Brent over WTI narrowed to around USD 3.65 a barrel, the lowest since October 2023. The narrowing spread means energy firms have less reason to spend money to send ships to the US to pick up crude for export.

In the US, the Energy Information Administration said energy firms pulled 4.9 million barrels of crude from storage during the week ended July 12.

That compares with the 30,000-barrel decline analysts forecast in a Reuters poll and a drop of 4.4 million barrels in a report from the American Petroleum Institute trade group.

In US refining news, the diesel and crack spreads, which measure refining profit margins, fell to their lowest levels since December 2021 and January 2024, respectively.

A weaker US dollar also helped support oil prices after the dollar hit a 17-week low against a basket of major currencies.

A weaker dollar can boost demand for oil by making greenback-denominated commodities like oil cheaper for holders of other currencies.

SLOWER GROWTH IN CHINA

China, the world’s top oil importer, saw its economy grow 4.7% in the second quarter, official data showed earlier this week, the slowest growth since the first quarter of 2023, capping crude price gains.

“Recent data have signaled a slowing of growth in the United States, the euro area, and China,” analysts at Citigroup’s Citi Research unit said in a report. “Central banks,” they added, “are getting closer to a point where they will have scope to cut rates in earnest.”

In the US, single-family homebuilding fell to an eight-month low in June amid higher mortgage rates, suggesting the housing market was likely a drag on economic growth in the second quarter.

Top US Federal Reserve officials said on Wednesday the central bank is “closer” to cutting interest rates given inflation’s improved trajectory and a labor market in better balance, remarks that set the stage for a first reduction in borrowing costs in September.

The Fed hiked rates aggressively in 2022 and 2023 to tame a surge in inflation. Borrowing costs rose for consumers and businesses, slowing economic growth and reducing demand for oil.

Lower interest rates could boost oil demand.

(Reporting by Scott DiSavino in New York, Arunima Kumar in Bengaluru, and Ahmad Ghaddar in London; editing by Louise Heavens, Kirsten Donovan, Leslie Adler, and Cynthia Osterman)

 

NEW YORK/SINGAPORE – For global investors with money in China’s stock markets, the latest economic numbers are not of any comfort and are just a reminder that the recovery they are betting on will take a while to happen.

Monday’s second-quarter growth figures in China pointed not only to an economy growing below target, but also showed there is no sign of improvement in its anemic property sector and the domestic consumer is more pessimistic and unwilling to spend.

That backdrop is a signal to investors it will be a long wait before the world’s second-largest economy is able to have any meaningful recovery that lifts its stock market, which is up just over 1% this year.

“Being a China investor right now is frustrating,” said Phillip Wool, US-based senior managing director at asset manager Rayliant Global Advisors.

Rayliant has been selective but buying some Chinese stocks, which Wool likens to value investing, or a strategy of picking cheap stocks with high earnings potential. Wool says prices should eventually correct higher, but he has no idea when.

After surging some 19% from a multi-year low in February to its highs in May, China’s benchmark CSI300 Index has been middling around the 3,400-3,500 range for the past month.

The Shanghai Composite Index has also fallen more than 6% from its eight-month high hit in May.

A slew of support measures from Beijing earlier this year to prop up its ailing stock market, which saw a change of leadership at the market regulator, had spurred investor hopes that the tide could be turning and sparked a short-lived rally.

But a few months on, the country’s shaky economic recovery and lingering property crisis continue to remain an overhang, with geopolitical challenges spanning rising trade frictions with the European Union and protracted Sino-US tensions adding to headwinds.

“The problem with China is this is a multi-year healing process,” said Michael Dyer, investment director of multi-asset at M&G Investments.

While the authorities and central bank seem to be taking steps in the right direction, “they haven’t come along with the bazooka that the rest of the world wants. There’s still the geopolitical uncertainty,” Dyer said. “So until then, if you’re waiting for certainty, you’re not going to get it.”

BARGAIN-HUNTING

To be sure, some investors have piled in, citing attractive valuations and strong fundamentals, especially for companies that fall under the country’s new growth sectors such as advanced technology and manufacturing.

Chinese stocks are cheap. The S&P 500 index trades at a price-to-earnings (PE) ratio of 23, Japan’s Nikkei trades at 22, India at 23 and the Shanghai benchmark index is at half that number.

The forward 12-month price-to-book value for Chinese equities also stands at 0.95, compared with a value of 1.26 for the broader Asia-Pacific region.

“As value investors, we cannot ignore the opportunities in Chinese equities but we have to temper our enthusiasm given macro and policy risks that China is facing,” said Kamil Dimmich, partner and portfolio manager at North of South Capital EM fund.

He is slightly underweight in the Chinese market overall, but “much less so” than a few years ago when valuations were high.

Foreign flows through the Northbound Connect scheme into Chinese stocks point to 37.6 billion yuan (USD 5.18 billion) worth of inflows to date. Inflows were 43.7 billion yuan in 2023.

Overall, the consensus seems to be that while peak pessimism toward China has passed, most investors are still waiting on the sidelines for a more definite recovery to play out. And the patience of those already committed is being tested.

“It’s painful and stressful being a contrarian and taking in all the negative sentiment and seeing the false starts at a recovery,” said Rayliant’s Wool. “For better or worse, as a long-term active investor in China, I’m used to this.”

(USD 1 = 7.2651 Chinese yuan renminbi)

(Reporting by Laura Matthews and Carolina Mandl in New York and Rae Wee in Singapore, Additional reporting by Gaurav Dogra in Bengaluru; Editing by Vidya Ranganathan and Michael Perry)

 

HOUSTON – Oil prices settled more than 1% lower on Tuesday, the third straight day of losses, on worries of a slowing Chinese economy crimping demand, though declines were stemmed by a growing consensus the US Federal Reserve could begin cutting its key interest rate as soon as September.

Brent futures closed down USD 1.12, or 1.3%, at USD 83.73 a barrel, while US West Texas Intermediate (WTI) crude fell USD 1.15, or 1.4%, to USD 80.76.

“Weaker economic data continues to flow from China as continued government support programs have been disappointing, with many of China’s refineries cutting back on weaker fuel demand,” said Dennis Kissler, senior vice president of trading at BOK Financial.

The world’s second-largest economy grew 4.7% in April-June, official data showed, its slowest rate since the first quarter of 2023 and missing a 5.1% forecast in a Reuters poll. It slowed from the previous quarter’s 5.3% expansion, hamstrung by a protracted property downturn and job insecurity.

Meanwhile, the global economy is set for modest growth over the next two years amid cooling activity in the US, a bottoming-out in Europe and stronger consumption and exports for China, but risks to the path abound, the International Monetary Fund said on Tuesday

In the US, crude oil inventories fell by 4.4 million barrels last week, according to market sources citing American Petroleum Institute figures on Tuesday. Stocks on average were expected to fall by 33,000 barrels last week, according to a Reuters poll on Tuesday.

Government data on inventories is expected on Wednesday.

Fed Chair Jerome Powell said on Monday the three US inflation readings over the second quarter of this year “add somewhat to confidence” that the pace of price increases is returning to the central bank’s target in a sustainable fashion. Market participants interpreted the comments as indicating that a turn to interest rate cuts may not be far off.

Lower interest rates decrease the cost of borrowing, which can boost economic activity and oil demand.

US retail sales were also unchanged in June, a show of consumer resilience that boosts economic growth prospects for the second quarter, helping assuage fears of a sharp slowdown in the economy.

Federal Reserve Governor Adriana Kugler said it would be appropriate to begin easing monetary policy later this year if economic conditions continue to evolve favorably.

But some analysts cautioned about excess bullishness as expected weakness in some macroeconomic data from the US could still indirectly hurt oil demand in the near term.

(Reporting by Arathy Somasekhar in Houston, Paul Carsten in London and Arunima Kumar in Bengaluru, and Trixie Yap in Singapore; Editing by Andrea Ricci, Nick Zieminski, and Matthew Lewis)

 

Asia’s economic calendar is remarkably light on Tuesday, allowing markets to take their cue from broader drivers such as China’s deepening economic malaise, the shifting outlook for US monetary policy, and the Q2 earnings season on Wall Street.

Investors also continue to digest the fallout from the attempted assassination on Saturday of former US President Donald Trump, who is favorite to win the White House in November and who on Monday nominated his vice presidential running mate.

So far, the most visible ‘Trump trades’ appear to be rising stocks, gold, and bitcoin, higher long-dated Treasury yields, and a steeper yield curve, as investors price in the prospect of wider budget deficits and stronger inflation down the line.

That’s a mixed bag for Asian assets. Higher US yields and a buoyant dollar will likely weigh on Asian and emerging sentiment, but this is countered by the growing likelihood US interest rates will be cut earlier and further than expected.

Wall Street’s big three indices closed between 0.3% and 0.5% higher on Monday, and US stock futures are pointing to a similar-sized rise at the open on Tuesday.

Japan’s markets reopen on Tuesday after Monday’s holiday, with the yen’s direction likely to set the tone for the day across all assets following last week’s apparent yen-buying intervention.

The dark cloud over Asian markets, however, refuses to lift, and if anything it is getting darker: China.

The batch of top-tier economic data from Beijing on Monday was hugely underwhelming, especially second quarter GDP growth of only 4.7%, which was well below expectations of 5.1% and Beijing’s broader goal of around 5%.

The need for greater fiscal or monetary support – or both – is intensifying, and investors will be hoping for positive signals from the ruling Communist Party’s third plenum, which opened on Monday.

This is the major closed-door meeting held roughly once every five years to map out the general direction of the country’s long-term social and economic policies.

Monday’s data prompted many economists to cut their growth forecasts. Barclays reckons growth in the second half of the year will average only 4.5%, while JP Morgan cut their full-year outlook to 4.7% from 5.2%.

Some of the language used in SocGen’s analysis was striking: the economy is showing “severe imbalances”, domestic demand is “very depressed”, and Beijing’s overall policy mix right now is “highly deflationary”.

As they summed up: “the imbalance of the Chinese economy is increasingly dangerous, given rising trade tensions from all directions and a very likely Trump return. A course correction will be inevitable at some point.”

China’s economic surprises index on Monday slumped to its lowest since September, registering its steepest fall in over a year.

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

– China’s third plenum

– South Korea import, export prices (June)

– Japan tankan non-manufacturing index (July)

(Reporting by Jamie McGeever)

 

A mixed day in world markets on Monday suggests there will be no clear narrative driving Asian markets at the open on Tuesday, with investors still leaning on US earnings, remarks from Fed officials,17 and signals from China’s ‘third plenum’ for guidance.

There are key events and data releases that will move asset markets in their respective countries, namely an interest rate decision and guidance from Indonesia’s central bank, and inflation figures from New Zealand.

But otherwise, it’s a mixed bag.

For example, gold jumped 2% to a record high of USD 2,469 an ounce on Tuesday yet the dollar rose and the 10-year US Treasury yield slid to a four-month low of 4.16%.

The US yield curve paused its recent steepening trend too – having turned positive on Monday for the first time since January, the 2s/30s curve inverted again on Tuesday. The 6 basis point reversal was pretty steep, with no obvious trigger.

Asian stocks could get a lift from Wall Street’s rise after figures showed that US retail sales in June were much stronger than economists had expected. The Dow notched a record closing high, while Big Tech struggled to close in the green.

These retail sales numbers may have boosted optimism about the US economy – the Atlanta Fed’s GDPNow Q2 tracking estimate rose to 2.5% from 2.0% – but not world oil prices. Worries over weak demand from China pushed oil to a one-month low.

Japanese markets are up and running again after Monday’s holiday. Bond yields slipped to their lowest in nearly three weeks, with the 10-year JGB yield down to 1.02% on Tuesday. This likely contributed to the yen’s fall back below 158 per dollar.

Bank of Japan data on Tuesday suggested that Tokyo may have spent an additional 2.14 trillion yen (USD 13.5 billion) on foreign exchange market intervention to shore up the yen on Friday. This would follow the estimated 3.37-3.57 trillion yen spent intervening on Thursday.

According to International Monetary Fund Chief Economist Pierre-Olivier Gourinchas, the Bank of Japan’s biggest challenge is not maintaining the yen’s value but maintaining price stability and keeping inflation within its target.

Gourinchas was speaking after the IMF cut Japan’s economic growth forecast due to temporary auto output disruptions and weak private investment in the first quarter, but welcomed recent bumper pay hikes that should lift household incomes.

The IMF’s outlook for China was the exact opposite. The IMF significantly hiked its 2024 and 2025 growth forecasts to 5.0% and 4.5%, respectively. But perhaps unsurprisingly, given Monday’s alarmingly weak Q2 data, Gourinchas said risks are very much to the downside.

Little wonder that bond yields and the yuan remain under constant downward pressure, and investors will be hoping the ruling Communist Party’s third plenum offers concrete signs that further support for the economy is coming.

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

– Indonesia interest rate decision

– New Zealand inflation (Q2)

– China’s third plenum

(Reporting by Jamie McGeever)