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Dow Jones and S&P 500 are down 0.3-0.5%. Nasdaq is on the weak side

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The U.S. stock indexes Dow Jones Industrial Average and S&P 500 ended Thursday trading lower but well above intraday lows, while the Nasdaq Composite came out with a small plus.

Traders were assessing the prospects of the Federal Reserve (Fed) raising the benchmark interest rate at its July meeting, as well as U.S. bank reports for the past quarter.

U.S. Labor Department data published on Wednesday, which showed an increase in inflation in the country to a maximum of nearly 41 years, 9.1%, led investors to revise their forecasts about the pace of the Fed’s rate hike. At first, the rate futures quotes showed that traders were 85% confident in the likelihood of the U.S. Central Bank rate hike by 100 basis points (bps) in July.

However, Fed Board of Governors member Christopher Waller said that the market may be “getting a little ahead of itself” by expecting a 100bp rate hike. He noted that he still favors a 75-bp rate hike in July, but acknowledged that economic data to be released shortly could change his mind in favor of a sharper hike. 

“If this data turns out to be substantially stronger than expected, I might lean toward a larger rate hike in July because it would mean that demand in the economy is not weakening fast enough to contain inflation,” he said.

Following Waller’s statements, the futures market’s estimate of the chances of a rate hike of 100 bps in July dropped to 42%; Market Watch notes. On Friday, the University of Michigan will release the preliminary value of its consumer confidence index for July. The index fell to a record low of 50 points in June. 

The University of Michigan data also includes trends in Americans’ inflation expectations, which last month stood at 5.3 percent for the medium term (next year) and 3.1 percent for the long term (five years). “We’re waiting on this data to see if inflation expectations in the U.S. have strengthened,” notes LPL Financial analyst Quincy Crosby. – If they rise, the Fed will probably discuss a 100-bp rate hike. Or the central bank will have to hike the rate at a 75-bp pace longer than it anticipated.”

Data released Thursday showed an acceleration in U.S. producer price growth in June to 11.3 percent annualized from 10.9 percent a month earlier. The rate of increase in producer prices reached a record 11.6% in March of this year. Negative for the market Thursday were weak financial reports from banks JPMorgan Chase & Co. and Morgan Stanley for the past quarter.

“High inflation, weakening consumer confidence, uncertainty about how high rates will be raised and unprecedented quantitative tightening and its impact on global liquidity are very likely to have a negative impact on the global economy,” said JPMorgan Chief Executive James Dimon. – We’re prepared for whatever happens.”

  • The Dow Jones Industrial Average index fell 142.62 points (0.46%) to 30630.17 points in trading Thursday.
  • Standard & Poor’s 500 fell 11.4 points (0.3%) to 3,790.38 points.
  • The Nasdaq Composite rose 3.6 points (0.03%) to 11251.19 points.

The decline in net income at JPMorgan, the largest U.S. bank, by assets, exceeded analysts’ forecasts. In addition, the financial institution said it was suspending its share buybacks. Morgan Stanley also reported weaker-than-expected quarterly adjusted earnings and revenue. JPMorgan’s shares fell 3.5% in trading on Thursday, while Morgan Stanley’s fell 0.4%.

Conagra Brands, a prepared foods maker, fell 7.3 percent. The company nearly halved its net income in the fourth quarter of fiscal 2022, and its revenue was worse than market forecasts.

Shares of Cisco Systems Inc. fell 0.9 percent after experts at JPMorgan cut recommendations for the securities of the U.S. network equipment maker to “neutral” from “above market. The bank also lowered its outlook on Cisco shares to $51 from $62.

The value of Tesla Inc. securities rose by 0.5%. The day before, it became known that Andrei Karpaty, director of artificial intelligence and head of the development group for autopilot in cars, Tesla, left the company.

Citigroup Inc. and Wells Fargo & Co. will publish their results for the past quarter on Friday. The consensus forecast by analysts surveyed by FactSet suggests that S&P 500 index companies’ overall earnings rose an average of 4.3% in the past quarter, the slowest pace since late 2020. 

Commodities

Oil edges up as summer demand hopes offset downbeat China data

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By Alex Lawler

LONDON (Reuters) -Oil edged higher on Monday as hopes for a boost to demand from the summer driving season in the northern hemisphere offset Chinese data that underscored a bumpy recovery for the world’s biggest crude importer.

Apart from retail sales that beat forecasts due to a holiday boost, the flurry of Chinese data on Monday was largely downbeat. The data followed a survey on Friday showing U.S. consumer sentiment fell to a seven-month low in June.

Global benchmark futures were up 33 cents, or 0.4%, to $82.95 a barrel at 1212 GMT. U.S. West Texas Intermediate crude futures gained 25 cents, or 0.3%, to $78.70.

Last week, both benchmarks posted their first weekly gain in four weeks on elevated confidence that oil inventories are set to plunge as the summer season gets under way in the northern hemisphere amid continued OPEC+ supply cuts.

“The market initially responded negatively to mixed data from China,” said Ole Hansen of Saxo Bank.

“But the outlook for strong fuel demand into the coming quarter and Saudi reassurance about the October hike being subject to prevailing conditions and added focus on quota breakers to bring production down and into line all seems to be supporting.”

Saudi Arabia has said OPEC+’s planned fourth-quarter increase in output can be can paused or reversed if needed. Russia and Iraq, which have been pumping more than their OPEC+ quotas, pledged last week to meet their obligations.

Reports from OPEC and the International Energy Agency last week, although differing on the strength of oil demand growth this year, had supported confidence that inventories would be drawn down in the second half.

Still, BofA analysts said in a report that while the market consensus is for higher oil prices in the third quarter, there is a risk to prices if weak supply and demand balances persist.

© Reuters. FILE PHOTO: A view shows oil tanks of Transneft oil pipeline operator at the crude oil terminal Kozmino on the shore of Nakhodka Bay near the port city of Nakhodka, Russia August 12, 2022. REUTERS/Tatiana Meel/File Photo

“It is not yet clear whether balances will firm enough in the third quarter to tip the market from a large apparent surplus into a deficit that can lift prices,” BofA analysts including Francisco Blanch wrote.

On the geopolitical front, concerns of a wider Middle East war lingered after the Israeli military said on Sunday that intensified cross-border fire from Lebanon’s Hezbollah movement into Israel could trigger serious escalation.

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Commodities

Record copper prices likely to pause U.S. scrap shipments to China

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By Pratima Desai and Julian Luk

LONDON (Reuters) – China’s scrap imports have soared due to shortages of concentrate that is processed into refined metal used in the power and construction industries, but record high prices mean U.S. shipments are likely to pause.

Smelters in top copper consumer China have faced concentrate shortages since last year when First Quantum (NASDAQ:) lost the right to operate its Cobre mine in Panama, which accounted for 1% of global mined supply in 2022.

China’s copper waste and scrap imports overall climbed 25% to 783,004 tonnes in the first four months of this year compared to the same period in 2023, according to Trade Data Monitor (TDM).

TDM data also shows China’s scrap imports from the United States jumped 37% to 153,059 tonnes in January to April this year from the same period last year.

Copper scrap from the U.S. is priced at a discount to the CME price, which hit a record $5.1985 a lb or $11,460 a tonne on May 20 due to parties which had sold futures being forced to buy them back or roll over positions.

“Chinese buyers are deferring U.S. copper scrap shipments,” a source at a Chinese trading firm said, adding that China’s top scrap supplier was the United States.

The source said some Chinese buyers were looking to price U.S. scrap against copper on the London Metal Exchange (LME), trading at a discount to CME prices.

Deteriorating production at other mines, many in Latin America, has exacerbated concentrate shortages and Chinese smelters have imported more copper scrap to feed their furnaces and protect their margins.

China is home to half of the world’s copper smelters and the largest buyer of raw materials including concentrates and scrap.

Scrap typically accounts for about 9 million tonnes or roughly 30% of global copper supplies annually.

“Due to concentrate tightness copper smelters are processing more scrap and blister,” said Macquarie analyst Alice Fox.

© Reuters. FILE PHOTO: A worker loads copper cathodes into a warehouse near Yangshan Deep Water Port, south of Shanghai March 23, 2012. REUTERS/Carlos Barria/ File Photo

“Given the cost of physical collection and processing – during periods of significant price movement, scrap tonnages on a contained copper basis can move by up to one million tonnes per annum, effectively rebalancing the market during periods of high or low prices.”

Macquarie expects the gap between copper supply and demand to widen to 1.6 million tonnes in 2030 from a deficit around 86,000 tonnes this year.

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Commodities

Crude oil edges higher; tone constructive despite weak Chinese data

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Investing.com — Oil prices edged higher Monday, continuing the previous week’s upbeat note despite some bumpy data out of China, the world’s biggest importer. 

By 08:35 ET (12.35 GMT), the futures traded 0.5% higher at $78.41 a barrel and the contract climbed 0.4% to $82.97 a barrel. 

Gains follow a winning week

The crude benchmarks recorded a winning week last week, their first in four weeks, buoyed by expectations that the Northern Hemisphere summer vacation season will boost fuel demand this summer. 

The monthly reports by both the and the , released last week, had pointed to inventories being drawn down in the second half of the year, even as they differed about the level of demand growth.

China data largely disappoints

That said, this positive tone has been tested by uneven economic data out of China, pointing to a stuttering recovery in the second largest economy in the world.

came in ahead of expectations in May, helped by a holiday boost, but May grew 5.6% from a year earlier, slowing from the 6.7% pace in April and below expectations for a 6.0% increase.

Additionally, crude oil refinery output in China fell 1.8% year-on-year in May, primarily due to planned/unplanned maintenance outages and curtailed processing rates on account of higher crude oil prices and lower margins. 

Middle East tensions provide support

Providing a degree of support were the continued concerns of a wider Middle East war, after the Israeli military said on Sunday that intensified cross-border fire from Lebanon’s Hezbollah movement into Israel could trigger serious escalation.

Additionally, weekly data from showed that U.S. oil rigs fell by four rigs for a third straight week over the last week, with the total oil rig count reaching 488 for the week ended 14 June 2024. 

“This is the lowest number of active oil rigs since the first week of January 2022, and is down by 64 rigs from a year ago,” analysts at ING said, in a note, pointing to weaker supply going forward.

There is little on the energy calendar this week – just the usual weekly U.S. inventory reports from the and the .

Traders are also likely to pay attention to speeches from a number of Federal Reserve officials as they try to judge the likely path of U.S. interest rates this year, given the likely impact of this on activity in the world’s largest economy.

 

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