© Reuters. FILE PHOTO: A pump is seen at a gas station in Manhattan, New York City, U.S., August 11, 2022. REUTERS/Andrew Kelly/File Photo
A look at the day ahead in U.S. and global markets from Mike Dolan
The bond blast upending world markets has been partly smothered by sharply falling oil prices for now – but September’s U.S. employment report will dictate direction from here.
Oil prices scrabbled for a toehold Friday but were on course for their worst week since March as demand fears driven by rising interest rates and restive stock markets were compounded by another partial lifting of Russia’s fuel export ban.
oil has recoiled almost 9% this week and prices have lost almost 14% peak-to-trough since last Thursday’s high above $95 per barrel. The year-on-year oil price is now falling again and tracking losses of 5%.
That’s a significant relief for the inflation part of the bond blowup and will help keep a lid on U.S. pump prices.
But to the extent the oil price is flagging renewed concerns about global growth – in part due to the relentless rise in borrowing rates – can be seen in a retreat in commodity prices in general. prices fell to their lowest of the year on Thursday and core commodity indexes are back at August levels.
Two-year U.S. inflation expectations in the bond market have plunged about 30 basis points to just 2.13% over the past two weeks – as near as makes no difference to the Federal Reserve’s target.
Whether that darkening demand picture holds or not will again hinge on the critical U.S. employment report out later on Friday – where a marginal slowing of monthly payroll growth to 170,000 last month is expected, alongside a downtick in the jobless rate to 3.7%.
This week’s surprisingly soft private sector payrolls data from ADP was countered by other readings showing still modest weekly jobless claims, relatively contained layoffs in September and a rebound in job openings in August.
All to play for then.
And the latest Fed soundings indicate that the screaming rise in Treasury yields to new 16-year highs close to 5% – a jump of at least half a percentage point in 10-year rates – may have achieved the sort of additional credit tightening that obviates the need for another Fed policy rate hike.
San Francisco Fed boss Mary Daly said that with monetary policy “well into” restrictive territory and Treasury yields so high, the central bank may not need to raise rates further.
All of which sees U.S. bond yields retain an uneasy calm into the jobs numbers. Ten-year yields hovered about 4.75% on Friday – still off Tuesday’s peak at 4.88%.
Implied rates from Fed futures markets pulled back the chances of another hike in the cycle to less than 50%.
Seeing some potential light at the end of the tunnel, Wall St stocks staged a late comeback close to opening levels on Thursday and stock futures were steady ahead of today’s open.
The dollar stayed on the backfoot for now too.
The other side of the bond market angst – U.S. fiscal policy stasis and the prospects of a government shutdown again next month – remained unresolved as Republicans moved to appoint a new House speaker after their unprecedented ouster of Kevin McCarthy from the post this week.
Former President and leading candidate for next year’s White House race Donald Trump said he’s endorsing Congressman Jim Jordan for the post – an appointment that won’t encourage any bets on congressional compromises to avert a shutdown.
And that mixed picture of fiscal dysfunction and a potential economic hiatus from furloughing thousands of government workers is the backdrop to Treasury secretary Janet Yellen’s trip to the annual International Monetary Fund and World Bank meetings in Morocco next week.
Elsewhere in the corporate world, shares of Tesla (NASDAQ:) fell 1.47% to $256.22 premarket after the electric vehicle giant stepped up its aggressive discounting and cut prices of its Model 3 and Model Y vehicles in the U.S. by about 2.7% to 4.2%.
In M&A news, Exxon Mobil (NYSE:) is in advanced talks to acquire Pioneer Natural Resources (NYSE:) in a deal that could value the Permian shale basin producer at about $60 billion, people familiar with the matter said on Thursday.
Key developments that should provide more direction to U.S. markets later on Friday:
* U.S. Sept employment report, Aug consumer credit; Canada Sept employment report
* Federal Reserve Board Governor Christopher Waller
(By Mike Dolan; Editing by Toby Chopra email@example.com. Twitter: @reutersMikeD)
Oil prices steady on OPEC+ cut uncertainty and Middle East tension
© Reuters. FILE PHOTO: An aerial view shows tugboats helping a crude oil tanker to berth at an oil terminal, off Waidiao Island in Zhoushan, Zhejiang province, China July 18, 2022. cnsphoto via REUTERS/File Photo
By Natalie Grover
London (Reuters) -Oil prices were little changed on Tuesday against a backdrop of uncertainty over voluntary output cuts by the OPEC+ group of producers, tensions in the Middle East and some encouraging economic signals in Europe.
futures edged down by 25 cents, or 0.3%, to $77.78 a barrel by 1301 GMT. U.S. West Texas Intermediate crude futures lost 21 cents, or 0.3%, to $72.83.
Comments by Saudi Arabia’s energy minister that OPEC+ production cuts could continue past the first quarter of 2024 lent some price support, said OANDA analyst Kelvin Wong.
Oil prices had declined on Monday on doubts that OPEC+ supply cuts would have a significant impact, said CMC Markets (LON:) analyst Tina Teng.
On Tuesday, however, the Kremlin said that the cuts agreed by the OPEC+ group will take time to kick in.
The Organization of the Petroleum Exporting Countries and allies including Russia, together known as OPEC+, agreed on Thursday to voluntary output cuts of about 2.2 million barrels per day (bpd) for the first quarter of 2024.
At least 1.3 million bpd of those cuts, however, were an extension of voluntary curbs that Saudi Arabia and Russia already had in place.
The additional cuts were below the 1 million bpd reduction that was already baked into market expectations in the run-up to the OPEC+ meeting, FGE analysts wrote in a note, adding that in practice they expect the overall OPEC+ cut to be closer to 500,000 bpd more than the reductions to fourth-quarter output.
Meanwhile, the resumption of fighting in the Israel-Hamas war has stoked supply concerns, as did attacks on three commercial vessels in international waters in the southern Red Sea.
There was a bright spot on the demand side, with European Central Bank board member Isabel Schnabel telling Reuters the bank can take further interest rate hikes off the table after a “remarkable” fall in inflation.
In the United States, however, data on Tuesday showed factory orders fell by more than analysts had expected in October and the most in more than three years, raising concerns about the health of U.S. demand.
That bolstered the view that increases to interest rates are beginning to limit spending, analysts said.
Oil falls on demand fears and doubts over OPEC+ cuts
© Reuters. FILE PHOTO: An aerial view shows a crude oil tanker at an oil terminal off Waidiao island in Zhoushan, Zhejiang province, China January 4, 2023. China Daily via REUTERS
By Alex Lawler
LONDON (Reuters) – Oil prices extended declines on Monday, pressured by investor scepticism over the latest OPEC+ decision on supply cuts and uncertainty surrounding global fuel demand, though the risk of supply disruptions from the Middle East conflict limited losses.
Monday’s fall adds to a 2% decline last week after the supply cuts announced on Thursday by the Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, together known as OPEC+.
futures were down 45 cents, or 0.6%, at $78.43 a barrel by 1243 GMT. U.S. West Texas Intermediate crude futures fell 43 cents, or 0.6%, to $73.64.
“Crude seems to be under continued pressure from the OPEC+ decision,” said Vandana Hari, founder of oil market analysis provider Vanda (NASDAQ:) Insights.
The OPEC+ cuts were voluntary in nature, raising doubts about whether or not producers would fully implement them. Investors were also unsure about how the cuts would be measured.
“The OPEC+ ‘deal’ last week was unconvincing to say the least,” said Craig Erlam, analyst at brokerage OANDA. “And with markets seemingly anticipating more of an economic slowdown next year, the announcement simply doesn’t go far enough.”
Surveys on Friday showed global manufacturing activity remained weak in November on soft demand, with euro zone factory activity contracting, while there were mixed signs on the strength of China’s economy.
Geopolitical considerations were back in focus as fighting resumed in Gaza, lending some support to prices. Three commercial vessels came under attack in international waters in the southern Red Sea, the U.S. military said on Sunday.
Elsewhere, Western countries have stepped up efforts to enforce the $60 a barrel price cap on seaborne shipments of Russian oil imposed to punish Moscow for its war in Ukraine.
Washington on Friday imposed additional sanctions on three entities and three oil tankers.
Gold prices hit record high on bets of early Fed rate cuts
Investing.com — Gold prices touched an all-time high on Monday, but later pared back some of these gains, as traders bet on the potential for a Federal Reserve interest rate cut next year.
By 07:26 ET (12:26 GMT), was mostly unchanged at $2,071.29 a troy ounce, retreating slightly from an earlier rally that had lifted the typical safe haven asset to a record $2,135 per troy ounce. Gold posted strong gains last week, and also rose for a second consecutive month in November.
The yellow metal has appreciated sharply in recent sessions as easing inflation, soft labor market data, and less-hawkish signals from the Fed bolstered speculation that the bank will bring down borrowing costs from a more than two-decade peak in 2024.
Near-term demand for gold was also fueled by an attack on an American warship and commercial vessels in the Red Sea, which ramped up concerns over an escalation in the violence in the Middle East.
Speaking on Friday, Fed Chair Jerome Powell reiterated his stance that U.S. rates will remain higher for longer. But some changes in his language — particularly an acknowledgement of progress made towards curbing inflation and the potential for a “soft landing” for the U.S. economy — reinforced expectations that the Fed will no longer hike rates in December and possibly begin cutting them by March 2024.
More economic cues on tap this week
shows an almost 97% chance that the Fed will keep rates on hold at a range of 5.25% to 5.50% when policymakers meet later this month. Meanwhile, there is a more than 50% probability that the central bank will trim rates by 25 basis points as soon as March of next year, up from around 21% one week ago.
The prospect of falling borrowing costs bodes well for gold, given that elevated rates push up the opportunity cost of investing in non-interest bearing assets like the metal. This notion had battered bullion prices over the past year.
But markets still have a slew of economic figures to assess. data for November — a key gauge of the labor market — is due later this week, while inflation readings for the remainder of the year are also slated for release in the coming weeks.
Some facets of the labor market remain strong, while inflation is still comfortably above the Fed’s 2% target — a trend that, if persistent, may diminish the chances of an early rate cut.
Ambar Warrick contributed to this report.
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