Commodities

Powell patter, UK shock, FedEx warning

Published

2 years ago

June 21, 2023

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

The Fed chair has a tricky message to communicate.

Jerome Powell’s testimony to Congress later on Wednesday will flesh out how the Federal Reserve chief rationalises last week’s pause in its 15-month rate hike campaign – even though the central bank insists on further tightening ahead.

Powell’s colleagues on Tuesday stressed again they would stay the course until inflation is back to its 2% target.

Futures markets suspect only one more quarter-point rise next month is left in the tank – rather than the two hikes Fed policymakers stitched into their outlooks last week.

But even though headline U.S. inflation fell to 4% in May for the first time in more than two years, there are some more signs the underlying economy is picking up steam.

U.S. single-family housing starts surged in May by the most in more than three decades while permits for future construction also climbed, according to data released on Tuesday. The numbers tallied with the jump in the National Association of Home Builders/Wells Fargo Housing Market index in June to its highest since July last year.

U.S. Treasuries held steady, however, with two-year yields hovering about 4.7% into Powell’s set piece. Two-year ‘breakeven’ inflation expectations embedded in the bond market are back just above 2%.

U.S. stock futures also held the line, after a two-day consolidation of June’s 5% surge in the S&P500 – still on course for its biggest monthly gain since January and the longest streak of monthly gains since the summer of 2021.

The dollar was also steady against most major currencies – with a drop in China’s yuan to its lowest level of the year an exception as China’s monetary policymakers swim against the hawkish central bank tide elsewhere with this week’s rate cuts.

But even as U.S. investors welcome the domestic disinflation picture more generally, overseas anxieties persist – most obviously in Britain.

UK inflation defied expectations of a slowdown and held at 8.7% in May, while ‘core’ inflation jumped above 7% for the first time since 1992. The numbers heap pressure on the Bank of England a day before it is predicted to raise interest rates for the 13th time in a row.

Money markets now see a 50-50 chance the BoE hikes rates by as much as 50 basis points to 5% and pencil in a peak rate of 6% by next March.

Amid all the UK bad news – include data showing a rise in public sector net debt above 100% of national output for the first time since 1961 – the higher inflation and rate trajectory failed to lift the pound. Sterling recoiled sharply from recent highs against both the dollar and euro.

In corporate news, FedEx shares dropped almost 3% overnight after a profit warning. The shipping firm, which is slashing costs to protect profits as demand wanes, said ongoing “demand challenges” prompted its plans to ground 29 more aircraft in the fiscal year that started on June 1.

Electric vehicle makers were supercharged, however.

Rivals Rivian Automotive and Tesla rose more than 5% on Tuesday each after Rivian announced it had agreed to adopt Tesla’s charging standard.

Meantime, China unveiled a $72 billion tax break for EVs, while European Union data showed EV sales jumped 71% in May.

Events to watch for later on Wednesday:

* Federal Reserve Chair Jerome Powell testifies to House Financial Affairs Committee.

* Senate Banking Committee hearing on nomination of Adrian Kugler to Fed Board, also on Philip Jefferson’s appointment as Vice Chair and a second term for Lisa Cook

* Chicago Fed President Austan Goolsbee and Cleveland Fed chief Loretta Mester speak

* U.S. Treasury auctions 20-year bonds

Commodities

Oil prices steady; traders digest mixed US inventories, weak China data

Published

8 hours ago

January 9, 2025

Investing.com– Oil prices steadied Thursday as traders digested data showing an unexpected increase in US product inventories, while weak economic data from top importer China weighed.

At 05:25 ET (10:25 GMT), expiring in March gained 0.1% to $76.25 a barrel, while rose 0.1% to $73.37 a barrel.

The crude benchmarks had slumped more than 1% on Wednesday, but trading ranges, and volumes, are likely to be limited throughout Thursday with the US market closed to honor former President Jimmy Carter, ahead of a state funeral later in the session.

China inflation muted in December

Chinese inflation, as measured by the , remained unchanged in December, while the shrank for a 27th consecutive month, data showed on Thursday.

The reading pointed to limited improvement in China’s prolonged disinflationary trend, even as the government doled out its most aggressive round of stimulus measures yet through late-2024.

China is the world’s biggest oil importer, and has been a key source of anxiety for crude markets. Traders fear that weak economic growth in the country will eat into oil demand.

The country is also facing potential economic headwinds from the incoming Donald Trump administration in the US, as Trump has vowed to impose steep trade tariffs on Beijing.

US oil product inventories rise sharply

U.S. gasoline and distillate inventories grew substantially more than expected in the week to January 3, government data showed on Wednesday.

inventories grew 6.3 million barrels against expectations of 0.5 mb, while grew 6.1 mb on expectations of 0.5 mb.

Overall crude also shrank less than expected, at 0.96 mb, against expectations of 1.8 mb.

The build in product inventories marked an eighth straight week of outsized product builds, and spurred concerns that demand in the world’s biggest fuel consumer was cooling.

While cold weather in the country spurred some demand for heating, it also disrupted holiday travel in several areas.

EIA data also showed that US imports from Canada rose last week to the highest on record, ahead of incoming U.S. president Donald Trump’s plans to levy a 25% tariff on Canadian imports.

Canada has been the top source of U.S. oil imports for many years, and supplied more than half of the total U.S. crude imports in 2023.

Strength in the also weighed on crude prices, as the greenback shot back up to more than two-year highs on hawkish signals from the Federal Reserve.

A strong dollar pressures oil demand by making crude more expensive for international buyers.

(Ambar Warrick contributed to this article.)

Commodities

Trump’s possible tariffs could put downward pressure on oil prices – RBC

Published

8 hours ago

January 9, 2025

Investing.com – President-elect Donald Trump’s plan to implement sweeping import tariffs during his second term in the White House is potentially the “most bearish” policy development for the energy sector this year, according to analysts at RBC Capital Markets.

Trump, who is set to come to power in less than two weeks, has vowed to impose tariffs of as much as 10% on global imports into the US and 60% on items coming from China. He has also pledged to slap a 25% surcharge on products from Canada and Mexico.

Economists have flagged that the proposal would not only rattle global trade activity, but also threaten to reignite inflationary pressures and spark possible retaliation.

The uncertainty in markets was heightened on Wednesday after CNN reported that Trump is mulling declaring a national economic emergency in order to provide the legal underpinning for the tariffs. Earlier this week, Trump also denied a separate report that his team was mulling scaling back the levies to cover only critical goods.

In a note to clients on Thursday, analysts at RBC led by Helima Croft said that while the ultimate scope of the tariffs remains unclear, the headline duties on China could soften demand in the country and place downward pressure on oil prices. China is the world’s largest crude importer.

Business leaders with significant ties to China may advise Trump to stay away from instituting strict tariffs on the country, Croft predicted.

“We have also heard a view in Washington that President Trump could be amenable to a deal with China if Beijing offered to make large headline purchases of US goods, such as aircraft or even US [liquefied natural gas] imports,” Croft wrote.

“Beijing could also potentially seek to trade a reduction in Iranian crude imports for a tariff reprieve.”

However, Croft flagged that the overall market effect of the tariffs is still “challenging to forecast” because the Trump administration — unlike a prior round of trade tensions in 2018 — will have to weight the impact of the policies with broader macroeconomic worries “still front of mind for many in Washington”.

(Reuters contributed reporting.)

Commodities

Gold prices edge higher; demand boosted by Trump-inspired uncertainty

Published

8 hours ago

January 9, 2025

Investing.com– Gold prices edged higher Thursday, continuing the recent gains, as heightened uncertainty over a hawkish Federal Reserve and President-elect Donald Trump’s plan for trade tariffs fueled some safe haven demand.

At 06:15 ET (11:15 GMT), {68|Spot gold}} rose 0.4% to $2,683.84 an ounce, while expiring in February rose 0.3% to $2,668.60 an ounce.

Trading activity is likely to be limited Thursday, with US traders on holiday to honor former President Jimmy Carter, with a state funeral due later in the session.

Safe haven demand on economic uncertainty

Bullion prices benefited from some safe haven demand this week, as uncertainty over Trump’s trade and immigration policies dented risk appetite.

A CNN report said Trump could declare a national economic emergency to legally justify his plans to impose universal trade tariffs.

Concerns over Trump’s policies also came into focus after the of the Fed’s December meeting showed policymakers expressing some concerns over sticky inflation.

Specifically, Fed officials were growing concerned that Trump’s expansionary and protectionist policies could underpin inflation in the long term.

The minutes also largely reiterated the Fed’s plans to cut interest rates at a slower pace in 2025, after the central bank effectively halved its projected rate cuts to two from four in 2025.

Treasury yields shot up after the Fed’s minutes, as did the dollar.

Higher for longer rates bode poorly for non-yielding assets such as metals, given that they increase the opportunity cost of investing in the sector.

Other precious metals were edged higher Thursday. fell 0.1% to $983.85 an ounce, while rose 0.8% to $30.930 an ounce.

Copper rises as weak China inflation fuels stimulus hopes

Benchmark on the London Metal Exchange rose 0.7% to $9,093.0 a ton, while March rose 1.2% to $4.3115 a pound.

Chinese were flat in December, while shrank for a 27th consecutive month, indicating little improvement in disinflation.

Inflation remained weak even as Beijing doled out its most aggressive round of stimulus measures through late-2024.

But Thursday’s inflation data fueled increased bets that Beijing will do more to shore up Chinese growth, especially on the fiscal front.

(Ambar Warrick contributed to this article.)

Among industrial metals, copper prices firmed as weak inflation data from top importer China spurred bets on more stimulus measures from Beijing.

But metal markets remained under pressure from strength in the dollar, which came back in sight of over two-year highs on hawkish signals from the Fed.