- Marker Update: Asia Stocks Rise as Yuan Strengthens, Oil Rebounds
Asian equities rose, as gains in Japan helped offset declines in China, as investors weighed economic data and the possible path for interest rates. The yuan extended gains and oil rebounded.
Japan’s Topix advanced after capital spending topped estimates. The Shanghai Composite Index retreated with the Aussie dollar after a private gauge of China’s manufacturing fell below 50. The onshore yuan headed for the biggest four-day advance in almost 12 years amid speculation policy makers are trying to discourage bets against the currency. Crude oil rebounded from a slide triggered by doubts that an OPEC deal extension will be enough to combat higher production.
Global equities ended May just shy of a record as earnings growth supports optimism in the global economy, offsetting concerns for the inflation outlook. Data showed capital spending in Japan topped estimates during the first quarter, while corporate profits jumped 27 percent. In China, the weakness in the Caixin manufacturing gauge — with a smaller sample size — contrasts with the government’s reading Wednesday showing the manufacturing PMI was steady last month.
Federal Reserve Bank of San Francisco President John Williams said in Seoul that if the U.S. economy is strong enough, the central bank can raise interest rates four times in 2017. Policy makers meet in two weeks, while Friday’s jobs report may shed more light on the state of the world’s largest economy.
Meanwhile, four straight months of gains in 10-year Treasuries come as Dallas Fed boss Robert Kaplan said he’s concerned about recent declines in the core measure of inflation. Pacific Investment Management Co. says there’s a 70 percent chance of a U.S. recession in the next five years and investors should consider building cash for when markets eventually correct or overshoot.
Here are some of the key upcoming events:
- The U.S. jobs report Friday may bolster the case for a rate hike, with a gain of 180,000 positions expected.
Here are the main moves in markets:
- Japan’s Topix index rose 1 percent as of 12:16 p.m. in Tokyo, after jumping 2.4 percent in May for its biggest monthly gain of the year. Singapore’s Straits Times Index climbed 0.5 percent.
- Sydney’s S&P/ASX 200 Index rose 0.2 percent after swinging between gains and losses amid economic releases from Australia and China.
- Hong Kong’s Hang Seng Index climbed 0.4 percent after completing its fifth straight monthly gain, the longest winning streak since 2013. The Shanghai Composite Index slipped 0.4 percent, after a four-day rally.
- Futures on the S&P 500 added 0.1 percent. The underlying gauge fell 0.1 percent Wednesday, trimming its May gain to 1.2 percent. It closed Friday at a record.
- The onshore yuan climbed 0.4 percent. The currency is up 1.4 percent over the latest four days, trading at the highest level since November.
- The yen slipped 0.2 percent to 110.95 per dollar, after gaining in the month of May. The Bloomberg Dollar Spot Index was little changed, following a 1.5 percent decline for May for the biggest monthly drop since January.
- The Australian dollar dropped 0.5 percent. The currency spiked after retail sales were stronger than expected, but reversed gains on China’s manufacturing data.
- The pound fell 0.1 percent to $1.2873. The latest Times/YouGov poll showed the Conservatives leading Labour by just three points. Click here for an in-depth look at how election polling is sending jitters through the currency market.
- West Texas Intermediate crude oil advanced 0.8 percent to $48.68 a barrel, rebounding from a 2.7 percent drop in the previous session.
- Gold was little changed at $1,269.21 an ounce.
- The yield on 10-year Treasuries rose less than one basis point to 2.21 percent, after falling a similar amount on Wednesday.
- Benchmark yields in Australia dropped two basis points to 2.37 percent.
Oil Prices Recover Slightly Amidst Demand Concerns in U.S. and China
Oil Prices Continue Slide as Market Skepticism Grows Over OPEC+ Cuts
Global oil markets witnessed a continued decline on Wednesday as investors assessed the impact of extended OPEC+ cuts against a backdrop of diminishing demand prospects in China.
Brent crude oil, the international benchmark for Nigerian crude oil, declined by 63 cents to $76.57 a barrel while U.S. WTI crude oil lost 58 cents to $71.74 a barrel.
Last week, the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, agreed to maintain voluntary output cuts of approximately 2.2 million barrels per day through the first quarter of 2024.
Despite this effort to tighten supply, market sentiment remains unresponsive.
“The decision to further reduce output from January failed to stimulate the market, and the recent, seemingly coordinated, assurances from Saudi Arabia and Russia to extend the constraints beyond 1Q 2024 or even deepen the cuts if needed have also fallen to deaf ears,” noted PVM analyst Tamas Varga.
Adding to the unease, Saudi Arabia’s decision to cut its official selling price (OSP) for flagship Arab Light to Asia in January for the first time in seven months raises concerns about the struggling demand for oil.
Amid the market turmoil, concerns over China’s economic health cast a shadow, potentially limiting fuel demand in the world’s second-largest oil consumer.
Moody’s recent decision to lower China’s A1 rating outlook from stable to negative further contributes to the apprehension.
Analysts will closely watch China’s preliminary trade data, including crude oil import figures, set to be released on Thursday.
The outcome will provide insights into the trajectory of China’s refinery runs, with expectations leaning towards a decline in November.
Russian President Vladimir Putin’s diplomatic visit to the United Arab Emirates and Saudi Arabia has added an extra layer of complexity to the oil market dynamics.
Discussions centered around the cooperation between Russia, the UAE, and OPEC+ in major oil and gas projects, highlighting the intricate geopolitical factors influencing oil prices.
U.S. Crude Production Hits Another Record, Posing Challenges for OPEC
U.S. crude oil production reached a new record in September, surging by 224,000 barrels per day to 13.24 million barrels per day.
The U.S. Energy Information Administration reported a consecutive monthly increase, adding 342,000 barrels per day over the previous three months, marking an annualized growth rate of 11%.
The surge in domestic production has led to a buildup of crude inventories and a softening of prices, challenging OPEC⁺ efforts to stabilize the market.
Despite a decrease in the number of active drilling rigs over the past year, U.S. production continues to rise.
This growth is attributed to enhanced drilling efficiency, with producers focusing on promising sites and drilling longer horizontal well sections to maximize contact with oil-bearing rock.
While OPEC⁺ production cuts have stabilized prices at relatively high levels, U.S. producers are benefiting from this stability.
The current strategy seems to embrace non-OPEC non-shale (NONS) producers, similar to how North Sea producers did in the 1980s.
Saudi Arabia, along with its OPEC⁺ partners, is resuming its role as a swing producer, balancing the market by adjusting its output.
Despite OPEC’s inability to formally collaborate with U.S. shale producers due to antitrust laws, efforts are made to include other NONS producers like Brazil in the coordination system.
This outreach aligns with the historical pattern of embracing rival producers to maintain control over a significant share of global production.
In contrast, U.S. gas production hit a seasonal record high in September, reaching 3,126 billion cubic feet.
However, unlike crude, there are signs that gas production growth is slowing due to very low prices and the absence of a swing producer.
Gas production increased by only 1.8% in September 2023 compared to the same month the previous year.
While the gas market is in the process of rebalancing, excess inventories may persist, keeping prices low.
The impact of a strengthening El Niño in the central and eastern Pacific Ocean could further influence temperatures and reduce nationwide heating demand, impacting gas prices in the coming months.
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