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Marketmind: Plunging yields, oil checked amid BOJ jolt

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Marketmind: Plunging yields, oil checked amid BOJ jolt
© Reuters. FILE PHOTO: The Wall Street sign is pictured at the New York Stock exchange (NYSE) in the Manhattan borough of New York City, New York, U.S., March 9, 2020. REUTERS/Carlo Allegri/File Photo

A look at the day ahead in U.S. and global markets from Mike Dolan

Plummeting bond yields and oil prices clawed back some of the week’s dramatic falls on Thursday, while a burst of speculation about a Bank of Japan policy tightening this month cut across the interest rate optimism and catapulted the yen higher.

The size and slightly erratic nature of this week’s macro market moves may speak a little to yearend markets both squaring off books and jockeying for position for 2024.

But a stream of softer labor market and inflation news – not least an oil price plunge to 6-month lows on booming supplies – has been relentlessly positive for bonds along with clear signs of central bank policy shifts going into next year.

Too far, too fast? Ten-year Treasury yields plumbed three months lows near 4.1% on Wednesday and money markets are pricing well over 100 basis points of central bank rate cuts next year.

Ten-year U.S. yields recaptured about 6bp of the 25bp drop over the past week early on Thursday – although ten-year German bund yields continued to fall to their lowest since May.

Cutting across the global rates euphoria, however, were Bank of Japan comments that spurred markets into upping chances of another tightening of monetary policy there as soon as this month. That saw 10-year Japanese government bond yields jump more than 10bps and the yen jump almost 2% to its best level since September 1.

BOJ Governor Kazuo Ueda said on Thursday the central bank – the lone holdout over the past two years of G7 tightening – has several options on which interest rates to target once it pulls short-term borrowing costs out of negative territory.

The five-year JGB yield leapt 10.5 bps to 0.34% – the biggest increase in a single day since April 2013.

And yet, it was hard to ignore the latest oil price fall to its lowest since June as another major disinflationary force – while trade news from China continued to show worrying demand signs from the world’s second biggest economy despite some rebound in overall exports.

China’s crude oil imports in November fell 9.2% year-on-year, the first annual decline since April, as high inventory levels and poor manufacturing activity took their toll.

U.S. retail gasoline pump prices have now fallen to their lowest since January.

All of which switches Wall St traders back to demand signals at home, with another round of labor market updates on weekly jobless and November layoffs due later ahead of Friday’s official employment report.

The private-sector jobs reading from ADP on Wednesday came in below forecast, chiming with the previous day’s news of a surprising drop in job openings in October.

The frenetic macro market activity – which saw bond market volatility gauges jump back to their highest since October this week – has stopped benchmark stock markets in their tracks. The closed slightly in the red on Wednesday and futures were flat ahead of today’s open.

Asia and European bourses fell back too, with underperforming with losses of almost 2% on the rate speculation and yen surge.

Key developments that should provide more direction to U.S. markets later on Thursday:

* U.S. November layoffs, weekly jobless claims. U.S. Oct consumer credit

* Federal Reserve issues quarterly financial accounts of the United States. European Central Bank President Christine Lagarde attends euro group meeting of euro finance ministers in Brussels, focussed on 2024 budget plans

* EU-China Summit in Beijing

* U.S. Treasury auctions 4-week bills

* U.S. corporate earnings: Broadcom (NASDAQ:), Cooper Companies, Lulumelon Athletica, Dollar General (NYSE:)

(By Mike Dolan, editing by Christina Fincher; mike.dolan@thomsonreuters.com)

Commodities

Oil set for third weekly decline, pressured by Gaza ceasefire hopes

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By Laila Kearney and Georgina McCartney

LONDON (Reuters) -Oil prices slipped on Friday and were on track for a third consecutive weekly decline, pressured by muted demand in China and hopes of a Gaza ceasefire deal that could ease Middle East tensions and accompanying supply concerns.

futures for September dipped 56 cents to $81.81 a barrel by 1250 GMT. U.S. West Texas Intermediate crude for September fell 40 cents to $77.88.

For the week, Brent is trading down almost 1% while WTI is down more than 2%.

Recent data, such as July 20 figures showing that China’s total fuel oil imports dropped 11% in the first half of 2024, have raised concern about the wider demand outlook in China.

In the Middle East, hopes of a ceasefire in Gaza have been gaining momentum.

© 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

A ceasefire has been the subject of negotiations for months, but U.S. officials believe the parties are closer than ever to an agreement for a six-week ceasefire in exchange for the release by Hamas of female, sick, elderly and wounded hostages.

Oil price declines were capped, however, by threats to production from Canadian wildfires, a large stocks draw and continued hopes of a September cut to U.S. interest rates after strong economic data, said PVM oil analyst Tamas Varga.

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Oil prices fall; set for weekly losses on demand concerns

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Investing.com– Oil prices fell Friday, on course for a third consecutive losing week as concerns over sluggish demand conditions in Asia weighed.

At 09:00 ET (13:00 GMT), fell 0.9% to $81.62 a barrel, and dropped 0.8% to $77.66 a barrel.

Crude set for third straight week of losses

Both benchmarks are on course for another losing week, the third in succession, with down just under 1% and WTI nearly 3% lower.

Persistent concerns over slowing growth and demand in top importer China have been the dominant factor, part triggered by GDP data from last week, which showed the Chinese economy grew less than expected in the second quarter.

Additionally, more data this week showed the country’s apparent oil demand fell 8.1% to 13.66 million barrels per day in June.

Beijing unexpectedly cut a swathe of lending rates this week, further trying to loosen monetary policy amid growing concerns over sluggish growth. 

Apart from China, uncertainty over Japan also grew following middling , while weak activity data in Europe also pointed to economic woes.  

Gaza ceasefire in focus

Also weighing on the crude market have been increasing hopes of a ceasefire in Gaza.

The leaders of Australia, New Zealand and Canada called for an immediate ceasefire in a joint statement on Friday, while U.S. Vice President Kamala Harris has pressed Israeli Prime Minister Benjamin Netanyahu to help efforts at reaching a deal, striking a tougher tone than President Joe Biden.

A ceasefire has been talked about for months, but if it was to occur then some of the risk premium could be removed from the market.

Strong US GDP, rate cut hopes offer some support 

On the flip side,  data, released on Thursday, showed that the U.S. economy grew more than expected in the second quarter, despite pressure from high rates and relatively sticky inflation.

The reading drove up hopes that the world’s biggest fuel consumer was headed for a “soft landing,” where economic growth remained steady while inflation eased. 

These hopes were also lifted by the data showing overall U.S. inflation cooled as expected in June.

According to data from the Bureau of Economic Analysis, the  (PCE) price index slipped to 2.5% in June, from 2.6% the prior month. .

Stripping out volatile items like food and fuel, the year-on-year “core” gauge, widely known as the Fed’s preferred gauge of inflation, remained at 2.6%, only marginally above the Federal Reserve’s 2% target.

This sparked increased optimism over a potential interest rate cut by the Federal Reserve in September.

Data showing steady drawdowns in U.S. also offered some positive cues to oil markets, as fuel demand in the country remained robust amid the travel-heavy summer season. 

(Ambar Warrick contributed to this article.)

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Canadian wildfire reaches Jasper, firefighters battle to protect oil pipeline

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(Reuters) -A wildfire reached the Canadian town of Jasper, Alberta on Wednesday, one of hundreds ravaging the western provinces of Alberta and British Columbia, as firefighters battled to save key facilities such as the Trans Mountain Pipeline, authorities said.

Wildfires burning uncontrolled across the region include 433 in British Columbia and 176 in Alberta, more than a dozen of them in the area of Fort McMurray, an oil sands hub.

The pipeline, which can carry 890,000 barrels per day (bpd) of oil from Edmonton to Vancouver, runs through a national park in the Canadian Rockies near the picturesque tourist town, from which about 25,000 people were forced to evacuate on Tuesday.

“Firefighters … are working to save as many structures as possible and protect critical infrastructure, including the wastewater treatment plant, communications facilities, the Trans Mountain Pipeline,” Parks Canada said in a post on Facebook (NASDAQ:).

The pipeline operator did not immediately respond to a Reuters request for comment, but said earlier it was safely operating the pipeline and had deployed sprinkler protection as a preventive measure.

In the day’s last update, Jasper National Park said it could not report on the extent of damage to specific locations or neighbourhoods, and that it would provide further updates on Thursday.

Canadian Prime Minister Justin Trudeau said his government approved Alberta’s request for federal assistance.

“We’re deploying Canadian Armed Forces resources, evacuations support, and more emergency wildfire resources to the province immediately – and we’re coordinating firefighting and airlift assistance. Alberta, we’re with you.”

The town, and the park, which draws more than two million tourists a year, were evacuated on Monday night, at a time when officials estimated there were 15,000 visitors in the park.

© Reuters. Smoke rises from the Lower Campbell Creek wildfire (K51472) wildfire northwest of Beaverdell, British Columbia, Canada July 24, 2024.   BC Wildfire Service/Handout via REUTERS.

Deteriorating air quality forced firefighters and others lacking breathing equipment to evacuate to the town of Hinton, about 100 km (62 miles) away, park authorities said on Facebook on Wednesday evening.

Officials of Parks Canada earlier said they expected rain to arrive overnight.

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