Daily Market Outlook By PYX Markets

[PYX Markets London]

Daily Market Outlook 4 August

The British pound edged up on Thursday as investors counted on the Bank of England to cut interest rates to a record low, while a rebound in oil prices from four-month lows lifted Asian stocks. The expected BoE cut to a record low 0.25 percent later on Thursday would be the first since 2009 as Britain's economy teeters on the brink of recession. Britain's economy is slowing at the fastest pace since the financial crisis, based on Markit's monthly all-sector Purchasing Managers' Index on Wednesday, which recorded the steepest month-on-month decline on record. Many market players also believe the BoE may resume its multi-billion-pound quantitative easing program of government bond purchases.

The euro held steady at $1.1149 EUR=EBS, slipping from 5-week high of $1.1234 touched on Monday. Oil, which jumped more than 3 percent on Wednesday, extended gains in Asian trade on Thursday, arresting its almost constant fall since early June, after a larger-than-expected gasoline draw eased concerns about global supply glut. Bank of Japan Deputy Governor Kikuo Iwata said on Thursday that a comprehensive review of the central bank's monetary policy next month would focus on the transmission mechanism and obstacles to its monetary policy. However, it is not meant to offer a specific direction for future monetary policy, he said. Japanese government bonds, which suffered their worst sell-off in more than three years this week on worries the Bank of Japan may be running out of realistic easing options, remained under pressure.

The dollar bounced back 0.6 percent from Monday's five-week low against a basket of six major currencies as investors looked to July payrolls data on Friday. A report from payrolls processor ADP showed on Wednesday U.S. private employers added 179,000 jobs in July, a tad above market expectations and bolstering hopes that Friday's data could show moderate growth in employment. Soft second-quarter U.S. GDP data and some other mixed data have dented the dollar as they reduced expectations that the Federal Reserve will raise rates this year. The near-term focus for the dollar is whether U.S. jobs data due on Friday will revive expectations for the Federal Reserve to raise interest rates later this year.

U.S. interest rate futures suggest investors now see a 40 percent chance of a Fed rate hike by December. Analysts say that a better-than-expected U.S. nonfarm payrolls report would give the dollar traction against the resurgent Japanese yen, which firmed after the Bank of Japan's modest monetary easing last week disappointed investors expecting more drastic stimulus steps. Economists polled by Reuters are looking for U.S. private payroll employment to have grown by 170,000 jobs in July, down from 265,000 the month before. Total non-farm employment is expected to have risen by 180,000.

Low inflation allows the Federal Reserve to keep U.S. interest rates lower for longer in order to boost the economy and jobs, a top Federal Reserve official said on Wednesday. "If we can keep creating jobs while inflation is in check, let's do that," Minneapolis Fed President Neel Kashkari said at a meeting with community activists and members of the black community in Minneapolis who were airing their concerns about low pay and high unemployment. "We can do our best to make the job market as strong as possible." Chicago Federal Reserve Bank President Charles Evans said Wednesday one rate increase might be appropriate this year, despite his worry that inflation is undershooting the Fed's 2 percent target, because "the real economy is doing quite well." Oil prices jumped more than 3 percent on Wednesday, with U.S. crude futures returning to above $40 a barrel, after a larger-than-expected gasoline draw offset a surprise build in crude stockpiles in the No. 1 oil consumer. U.S. crude inventories rose for a second week in a row, gaining 1.4 million barrels last week, compared with analysts' expectations for a decrease of 1.4 million barrels, EIA data showed. Gasoline stocks slumped by 3.3 million barrels, versus forecasts for a 200,000-barrel drop. The large draw assuaged some market participants' worry of a gasoline glut amid the peak U.S. summer driving season. "The bottom line is the Street in the second quarter got a little ahead of itself in calling for rebalancing of supply-demand after Canadian and Nigerian supply disruptions. We are going into the third and fourth quarters with those supplies back online and refinery maintenance coming up." But a worldwide oversupply since in motor fuels and other refined products has stymied the rebound. Worries about slowing economies in Asia - the driver of oil demand growth - and Europe have weighed, along with near record-high OPEC output and signs of a new price war by Saudi Arabia for crude. Goldman Sachs held its 2017 forecast of $52.50 and near-term range of $45-$50 for WTI.

 

[PYX Markets London]

Daily Market Outlook 5 August

The dollar held steady on Friday with its near-term fortunes riding on whether U.S. jobs data will rekindle expectations for the Federal Reserve to raise interest rates this year. The British pound licked its wounds a day after the Bank of England not only cut interest rates but also restarted its bond purchase program to shore up the economy. With the BoE decision now out of the way, the market's focus is shifting to the U.S. jobs report due at 1230 GMT. A strong reading there could help the dollar by reviving expectations that the Federal Reserve could raise interest rates by year-end, a scenario that had been discarded in the days that followed the shocks from June's Brexit vote. Although surprisingly tepid U.S. second-quarter GDP growth figures published last Friday have dented the dollar, the greenback has recovered slowly. Economists polled by Reuters expect a non-farm payroll increase of 180,000. Average wage earnings, seen as a key factor in gauging the strength of any inflationary pressure, are expected to rise 0.2 percent. That hit for sterling came after the BoE cut interest rates to a record-low 0.25 percent, pledged 60 billion pounds ($78.71 billion) in government bond purchases and launched schemes to buy high-grade corporate bonds and ensure banks pass on the full rate cut to borrowers. Now that sterling has broken below trend line support in place during its recovery from a three-decade low of $1.2798 on July 6, the currency is at risk of testing that low again, some analysts said. In the week, the Aussie has gained 0.7 percent, showing resilience even after the Reserve Bank of Australia (RBA) cut interest rates to a record low 1.5 percent on Tuesday. The Australian dollar held firm despite a dovish quarterly economic assessment by the central bank on Friday that seemed to leave the door open to further cuts in interest rates. The RBA said core inflation was likely to remain below target all the way to 2018 providing scope for the economy to run even faster.

Real wages in Japan rose the most in almost six years in June, data showed on Friday, but the gain was exaggerated by the effect of falling prices, highlighting the government's struggle to pull the economy out of deflation. Prime Minister Shinzo Abe has sought to lift the economy out of two decades of stagnation through a three-pronged mix of big government spending, ultra-loose monetary policy and structural reforms. While pay increases and higher spending are key for the success of Abenomics, wage gains inflated by low prices may not spur private consumption, which remains sluggish. Real wages, which are adjusted for inflation, jumped 1.8 percent in June from a year earlier, the highest level since September 2010. In the previous month, they rose 0.4 percent on-year, revised data from the labor ministry showed.

U.S. employment likely increased at a healthy clip in July, with wages picking up, which should help to underpin consumer spending and boost the economy. The Labor Department's closely-watched employment report on Friday will probably show that nonfarm payrolls increased by 180,000 jobs last month, according to a Reuters survey of economists. While that would be a step down from June's 287,000 surge, July's expected gain would still be above the average monthly advance of 171,500 jobs over the first half of the year. June's robust hiring, which followed a mere 11,000 gain in May, was viewed as unsustainable given that the economic growth in the last three quarters averaged a 1.0 percent annualized rate. Should job growth meet expectations, it would reinforce the Federal Reserve's confidence in a labor market that officials view as at or near full employment, economists say. Fed Chair Janet Yellen has said the economy needs to create just under 100,000 jobs a month to keep up with population growth.

Oil prices fell on Friday as a crude and refined product glut weighed on markets and investors eyed a possible stutter in China's imports, ending a two-day short-covering rally. Traders said oil markets came under renewed pressure from overproduction in crude and refined products that has left onshore storage tanks filled to the rims and triggered the chartering of tankers to store unsold fuel. On the demand side, BMI Research said China's imports were weakening from records set in 2015 and this year. Friday's slump ended a mid-week rally driven in large part by those holding short positions booking profits from a more than 20 percent fall in oil prices between June and early August, traders said. In oil market news, Yahoo's standalone messenger software, the main tool used by traders to communicate since the late 1990s, is due to shut down on Friday, leaving market participants with a fragmented choice of alternatives, including Eikon Messenger, ICE Instant Messaging, Symphony, Bloomberg Messenger, Twitter and WhatsApp. Also, in pricing and analytics, leading commodity price reporting agency S&P Global Platts has signed an agreement to acquire global energy market analysis firm PIRA Energy Group.

 

[PYX Markets London]

Daily Market Outlook 8 August

Asian stocks rose to one-year highs and the Australian dollar climbed on Monday as investors' hunt for yield gathered momentum against a backdrop of a recovering U.S. economy and ultra-easy easy global monetary policy conditions. While the strong July U.S. payrolls data raised hopes the world's biggest economy may have conclusively turned a corner after some volatile readings this year, markets expect the Federal Reserve will only hike in 2017 given that other countries are still cutting rates. The U.S. Department of Labor said July nonfarm payrolls rose by 255,000 and revised the June increase upward to 292,000. Economists polled by Reuters had forecast July payrolls would increase by 180,000. The strong U.S. jobs report was a rare bright spot of data in the global economic landscape, with Australia's central bank and the Bank of England cutting interest rates last week and New Zealand set to follow in coming days. Along with a presidential election campaign, the global easing by central banks will cap the ability of the Fed to move on interest rates in the coming months. While major currencies are expected to stick to recent ranges, market participants say thin market conditions could amplify moves, and higher U.S. rates were far from guaranteed.

China's exports and imports fell more than expected in July in a rocky start to the third quarter, pointing to further weakness in global demand in the aftermath of Britain's decision to leave the European Union. Imports fell 12.5 percent from a year earlier, the biggest decline since February and suggesting China's domestic demand may be faltering despite a flurry of measures to stimulate economic growth. Exports fell 4.4 percent on-year, the General Administration of Customs said on Monday, while adding that it expects pressure on shipments likely will start to ease in October. That resulted in a trade surplus of $52.31 billion in July, the biggest since January, versus June's $48.11 billion. China's imports have now declined for 21 straight months, while exports have fallen for 12 of 13 months, helping to drag economic growth to its slowest in a quarter of a century. China's economy grew 6.7 percent in the second quarter from a year ago, beating expectations, as a government infrastructure spree and housing boom boosted construction activity and demand for materials from cement and glass to steel.

British consumer spending picked up last month, according to a survey from card company Visa UK that bucked other signs Britons have become more cautious since June, when they voted to leave the European Union. Based on Visa credit and debit card usage data, consumer spending rose 1.6 percent in July compared with a year ago, up from June's 0.9 percent increase and the biggest rise in three months. Seasonally-adjusted spending increased by 1.1 percent, the strongest month-on-month gain since January, reversing a 0.5 percent decline in June. Last week the Bank of England slashed its forecasts for household consumption, predicting growth would slow from 2.5 percent this year to just 1 percent in 2017 and 0.75 percent in 2018 as unemployment rises. It cut British interest rates to a record low 0.25 percent and launched stimulus measures that could be worth up to 170 billion pounds ($222 billion). Crude oil prices held gains in Asia as China's trade balance surplus widened, though imports showed a sharp overall decline for the world's second largest importer. China said trade balance for July came in at a surplus of $52.31 billion, better than $47.6 billion expected, with exports down 4.4%, below the 3.0% fall seen and imports showing a 12.5% decline, far worse than the down 7.0% seen, both year-on-year. Earlier in Japan, the adjusted current account came in at ¥1.65 trillion, well below the surplus of ¥3.20 trillion for July expected. Bank lending rose 2.1%, beating the expected 2.0% gain. In China, FX reserves came in at CNY3.2 trillion, meeting expectations. Weekly reports on U.S. stockpile data on Tuesday and Wednesday will be watched for fresh supply-and-demand signals as well as monthly reports from the OPEC and the International Energy Agency to gauge global supply and demand levels. Last week, crude oil futures ended Friday’s session slightly lower, as the U.S. dollar spiked following the release of upbeat U.S. employment data and after a report showed the number of U.S. oil rigs rose for a sixth straight week. But prices still ended the week with modest gains as technical short-covering and bargain-hunting returned to support the market. Oil futures initially jumped higher after data showed U.S. nonfarm payrolls increased more than expected in July, boosting optimism over the health of the world's largest economy. But prices started moving lower as the upbeat jobs report lifted the U.S. dollar to one-week highs against most of its major counterparts. Oil prices typically weaken when the U.S. currency strengthens as the dollar-priced commodity becomes more expensive for holders of other currencies. Crude stayed lower after oilfield services provider Baker Hughes said late Friday that the number of rigs drilling for oil in the U.S. last week increased by seven to 381, the sixth consecutive weekly rise and the ninth increase in 10 weeks.

 

[PYX Markets London]

Daily Market Outlook 10 August

Asian shares hit a one-year high on Wednesday while the dollar and Treasury yields slid on weak U.S. productivity data and sterling recovered from a one-month low. The dollar index, which tracks the U.S. currency against a basket of six peers, retreated 0.4 percent to 95.814. Additionally, the Bank of England's reverse bond auction failed to meet its target on Tuesday, highlighting the scarcity of investors willing to sell from a quickly dwindling pool of long-term bonds with positive yields. The British central bank announced last week that it would be increasing its bond buying in addition to cutting interest rates in the latest effort to stimulate the country's economy. The British pound recovered 0.5 percent to $1.3063, after hitting a one-month low of $1.2956 GBP=D4 on Tuesday as Bank of England policymaker Ian McCafferty said the central bank will probably have to loosen monetary policy further if the UK's economy worsens.

The dollar fell against the yen on Wednesday as retreating Tokyo stocks drove safe-haven bids for the yen, while bargain hunting helped the battered pound crawl away from its one-month low. The greenback also sagged against the euro and Australian dollar after downbeat productivity data sapped some of the momentum it had gained from last week's robust U.S. jobs report. The pound took a knock on Tuesday after Bank of England policymaker Ian McCafferty said more monetary easing was likely to be needed if the UK's economic decline worsened. Trading volumes are expected to be relatively light this week with many traders and investors on a summer break. Sterling may have rebounded but the British currency was expected to continue struggling in the longer term.

U.S. worker productivity fell for the third straight quarter in the spring this year, suggesting that corporate profits may continue to decline and wage growth may remain sluggish. The Labor Department said on Tuesday that productivity, which measures hourly output per worker, dropped at a 0.5 percent annual rate in the April-June period, extending the longest decline since 1979. Productivity fell at an unrevised 0.6 percent rate in the first quarter. In the second quarter, productivity decreased at a 0.4% rate compared to the same period last year, the fastest year-on-year pace of decline in three years. Revisions to data going back to 2013 also confirmed the softening productivity trend, but strong employment gains have helped to raise output overall with U.S. payrolls growing by more than 500,000 jobs in June and July. After rising rapidly in the 1990s as computers made workers more efficient, productivity has fallen as companies have been reluctant to invest in new equipment in the past 18 months given the outlook for sluggish economic growth globally. The Commerce Department reported last month that gross domestic product rose at a 1.2% annual rate in the second quarter following a 0.8% rise in the first quarter. The estimate for second-quarter GDP growth could be revised slightly up after a separate report from the Commerce Department on Tuesday showed wholesale inventories increased 0.3 percent in June. The government had previously reported wholesale inventories as being unchanged in June.

Oil prices dipped on Wednesday as a global supply overhang weighed on markets, while talk of a potential producer meeting to discuss propping up prices lent some support but was met with scepticism by analysts. Traders said that markets were being weighed down by an ongoing supply overhang in crude and refined fuel products, while a suggested meeting by oil producers was unlikely to result in a significant market tightening. Venezuela, a member of the Organization of the Petroleum Exporting Countries (OPEC), is trying to drum up support for a producer meeting to decide measures that would buoy oil prices. "We are actively promoting a meeting of producers, which we estimate could take place in the coming weeks, so that OPEC and non-OPEC countries can sit down to see what the scenario for the winter looks like," its oil minister Eulogio del Pino said this week. The last time producers met to discuss measure to tighten oil supplies and prop up prices, in April, OPEC members were not able to agree on any measures. Analysts said they did not expect more success from a potential future meeting.

Several U.S. states studied by S&P Global Ratings are ill-equipped to deal with an economic recession, hampered by the slow rebound in U.S. economic growth after the damage wrought by the Great Recession. Fiscal imbalances, slower state tax revenue growth and increased spending on social services have contributed to a challenging economic landscape, as real GDP has only increased at 2.1 percent per year since 2009, S&P said in a report issued on Tuesday. Real U.S. GDP growth of 2.43 percent in 2014 and 2015 compared to pre-recession rates of 3.79 percent in 2004 and 3.35 percent in 2005, according to data from the World Bank.

 

[PYX Markets London]

Daily Market Outlook 11 August

Asian shares fell on Thursday, reversing recent gains following losses on Wall Street, though regional currencies rose after Beijing let the Chinese yuan strengthen to mark the one-year anniversary of a landmark devaluation. Broad risk sentiment remains on the back foot as oil prices tumbled on news of a surprising jump in U.S. government stockpiles and as Singapore, the region's bellwether for trade, cut its economic forecast for the year. Singapore cut its economic growth forecast on concerns over Brexit and weakening global demand with official forecasts downgraded to an expansion of 1-2 percent this year from a previous forecast of 1-3 percent growth. A weakening stock market and strong demand for government debt at bond auctions pushed yields down further. The fall in gilt yield came after the Bank of England said it would buy the 52 million pound (US$67.5 million) remainder of Tuesday's reverse auction shortfall in the second half of its bond-buying program. The Chinese yuan led regional currencies higher after the People's Bank of China let the yuan appreciate slightly to mark the anniversary of the one-year devaluation. It has weakened by more than 8 percent since then, though some analysts say that weakness may be fading. More clarity about the U.S. economy's health and the Federal Reserve's next move on interest rates could come with Friday's release of July retail sales and a speech by Fed Chair Janet Yellen later this month.

U.S. job openings increased in June and layoffs dropped to their lowest in nearly two years as labor market conditions tightened further, according a government report on Wednesday. The Labor Department's monthly Job Openings and Labor Turnover Survey (JOLTS) report also suggested a growing skill shortage, which has been highlighted by independent surveys. Job openings, a measure of labor demand, rose 110,000 to a seasonally adjusted 5.6 million, the JOLTS report showed. That raised the jobs openings rate one-tenth of a percentage point to 3.8 percent. The JOLTS report is one of the job market metrics on Federal Reserve Chair Janet Yellen's so-called dashboard. Fed officials view the labor market as being at or near full employment. Concerns about persistently low inflation and an uncertain global economic outlook have left the U.S. central bank cautious about raising interest rates in the near term. The economy created 547,000 jobs in June and July. Layoffs fell to 1.6 million in June, the lowest level since September 2014, from 1.7 million in May, the JOLTS report showed. The decline pushed the layoffs rate to 1.1 percent, the lowest since November 2013. Hiring increased after three straight months of declines, suggesting employers are probably not finding qualified workers for the open positions. Hiring rose to 5.1 million from 5.0 million in May. The hiring rate climbed to 3.6 percent in June from 3.5 percent the prior month. Job openings rose across nearly all sectors of the economy, with strong gains in manufacturing and construction, pointing to some stabilization in labor demand.

The U.S. government posted a $113 billion budget deficit in July, a 24 percent drop from the same month last year, the Treasury Department said on Wednesday. The government had a deficit of $149 billion in July 2015, according to Treasury's monthly budget statement. Analysts polled by Reuters had expected a $113 billion deficit for last month. When accounting for calendar adjustments, July would have shown a $101 billion deficit compared with an adjusted $107 billion deficit in the same month in 2015. The fiscal year-to-date deficit was $514 billion through July, up 10 percent from a $466 billion deficit at the same time last year.

Oil prices fell early on Thursday as a build in U.S. crude inventories and record Saudi Arabian production weighed on markets. Oil fell sharply after data from the U.S. Energy Information Administration showed crude inventories rose 1.1 million barrels in the week ended Aug. 5. Analysts polled by Reuters had expected a 1.0 million-barrel crude draw instead. "Crude oil stocks rose 1.06 million barrels to 523.6 million barrels. The unexpected rise was driven by reduced operating rates at refineries, which fell 1.1 percent to 92.2 percent of capacity," ANZ bank said on Thursday. "Bearish supply-side news also weighed on the market, with Saudi Arabia reporting a record 10.67 million barrels per day production in July," it added. However, other analysts said that this was not necessarily a bearish market signal as Saudi's record output would be met by strong demand and supply disruptions elsewhere.

 

[PYX Markets London]

Daily Market Outlook 18 August

Asian shares are on track for their biggest single-day rise in nearly two weeks while the greenback retreated after minutes of the U.S. Federal Reserve's latest meeting showed that the chances of a September rate hike are looking pretty slim. The July meeting's minutes published on Wednesday showed that Fed policymakers were generally upbeat about the U.S. economic outlook and labor market. But they also said they wanted to "leave their policy options open" as any slowdown in hiring would argue against near-term monetary tightening. Market participants interpreted the minutes as moderately positive for risk-taking, with the Fed remaining divided on the timing of the next hike. Futures contracts dipped slightly, signaling a receding of bets on a U.S. rate increase. The weaker dollar was an additional help to commodities like crude oil though oil prices dipped in early trading on the prospect of record Saudi output.

China home prices rose 0.8 percent in July nationwide, but stalled or fell in more cities than in June, adding to concerns that one of the economy's key growth drivers is losing steam but offering some relief for policymakers worried about property bubbles. A robust recovery in home prices and sales gave a stronger-than-expected boost to the world's second-largest economy in the first half of the year, helping to offset stubbornly weak exports. Average new home prices in China's 70 major cities rose 7.9 percent in July from a year earlier, an official survey showed on Thursday, accelerating from a 7.3 percent increase in June. July home prices rose at the same pace as in June, which was the slowest since April, according to a Reuters calculation based on data issued by the National Bureau of Statistics (NBS). Home prices in first- and second-tier cities continued to see eye-popping annual gains, with southern boomtown Shenzhen and coastal Xiamen rising the most at 40.9 percent and 39.2 percent, respectively from a year earlier.

The dollar hit a seven-week low against a basket of major currencies on Thursday, after minutes from the Federal Reserve's July meeting showed policy committee members opposed to a near-term rate hike outnumbered those who wanted one. The minutes released on Wednesday showed "several" policymakers said a slowdown in the future pace of hiring would argue against a near-term hike even as members of the rate-setting Federal Open Market Committee were generally upbeat about the U.S. economic outlook. They outnumbered board members who anticipated that economic conditions would soon warrant tightening policy. The minutes disappointed those who had bet that the Fed could be more hawkish, after New York Fed chief William Dudley said on Tuesday that the Fed could possibly raise U.S. interest rates as soon as September. Federal Reserve policymakers agree that more economic data is needed before raising interest rates, although some see a need to tighten policy soon, according to the minutes from the U.S. central bank's July 26-27 policy meeting. The minutes, which were released on Wednesday, showed that members of the rate-setting Federal Open Market Committee were generally upbeat about the U.S. economic outlook and labor market. "Some ... members anticipated that economic conditions would soon warrant taking another step in removing policy accommodation," the Fed said in the minutes. Several Fed policymakers, however, said a slowdown in the future pace of hiring would argue against a near-term hike, and members of the FOMC said they wanted to "leave their policy options open."

Oil prices dipped in early trading on Thursday as the prospect of record Saudi output weighed on markets and as traders cashed in on profits following an almost uninterrupted price rally this month of nearly 20 percent. Traders said the price dip was due to profit taking following a strong rally this month, and as traders priced in the prospect of another production record from top exporter Saudi Arabia. Saudi Arabia is sending signals that it could boost its crude oil supplies in August, even higher than its record 10.67 million barrels per day reached in July, as it gets ready for tough talks next month for a global output freeze pact. Yet prices remain 20 percent higher than in early August and hit almost $50 a barrel the previous day, supported by a potential freeze or even cut in output following a meeting between the Organization of the Petroleum Exporting Countries (OPEC) and other major producers like Russia, scheduled for next month. Analysts at Citi warned of the risks of a price rally based largely on potential future talks, given that similar meetings failed to reap results earlier this year.

 

[PYX Markets London]

Daily Market Outlook 19 August

Asian stocks retreated on Friday as traders took profits from shares close to one-year highs, while the dollar edged up from a near eight-week low after some Federal Reserve officials reiterated the case for raising interest rates in coming months. Markets have been left confused by mixed messages from the Fed, with hawkish comments from New York Fed President William Dudley and San Francisco Fed President John Williams clashing with the Fed's July meeting minutes this week saying more data is needed before interest rates can rise. Investors are awaiting an annual meeting of central bankers from around the world in Jackson Hole, Wyoming, next week, in which Fed Chair Janet yellen is likely to cement expectations for a slow pace of rate increases. The dollar recovered on Friday following Williams' and Dudley's comments overnight, after falling to the lowest level since June 24 in response to the July minutes. Dudley, who said earlier this week that the central bank could possibly hike rates in September, reinforced his hawkish message on Thursday. Williams also signaled support for an interest rate hike in the coming months, warning that waiting too long could see the economy overheat. Williams does not have a vote on Fed policy this year, but his views are seen as influential due to his longstanding relationship with Yellen. Fed officials agree that more economic data is needed before raising interest rates, although they were generally upbeat about the U.S. economic outlook and labor market. Saying he is in no hurry to raise rates, San Francisco Federal Reserve Bank President John Williams nevertheless warned that the economy could overheat if rates are kept low for too long, like a party at which the host fails to remove the punch bowl. Data on Thursday showed the number of Americans filing for unemployment benefits dropped more than expected last week. Despite improving labor conditions, economists see the December meeting as the most likely time for a rate increase, after the U.S. presidential election in November, according to a Reuters poll last week. With an eventual U.S. interest rate hike on the horizon, Bill Northey, chief investment officer of the private client group at U.S. Bank in Helena, Montana, said the U.S. currency could appreciate to 110 yen by the end of the year.

Bank of Japan says there is no possibility of helicopter money, and by a strict definition they are correct. But as the government plans to issue more 40-year bonds, it is looking more and more like some monetization of debt is underway. The BOJ says as long as it buys Japanese government bonds (JGB) from the market, it is not directly underwriting bonds to fund government spending. However, that distinction has become blurred as investors buy bonds only to take profits by selling them immediately to the bank - a transaction coined the "BOJ trade." "The BOJ is now buying the entire 30 trillion yen ($299.1 billion) in bonds newly issued by the government annually. In a sense, it has the same effect of helicopter money," said Etsuro Honda, a former special adviser to the cabinet and a close associate to Prime Minister Shinzo Abe. Some economists, however, fear such moves could trigger hyperinflation and uncontrollable currency devaluation. The BOJ seems more relaxed than in the past about markets thinking it may resort to quasi-helicopter money, say officials familiar with its thinking, partly on hopes that such market views could help contain the strength of the yen currency.

Brent crude oil prices dipped in early Asian trading hours on Friday, but remained near two-month highs with Brent still holding above $50 per barrel in a bull-run that has lifted the market by over 20 percent since early August. The lower prices during early Asian hours - which is late the previous day in the Americas due to the time zone difference - continues a trend this week in which prices have tended to dip during Asian mornings/American evenings, only to turn stronger once the Americas returns the next day and Asia logs off. Traders said the dips during Asian hours were largely due to profit taking in the Americas following sharp price increases during the day there. However, analysts warned the rally was overblown, especially since planned talks between the Organization of the Petroleum Exporting Countries (OPEC) and other major producers like Russia to rein in on ballooning overproduction were unlikely to lead to a reduced supply overhang.

 

[PYX Markets London]

Daily Market Outlook 24 August

Asian stocks edged lower on Wednesday as strong U.S housing data overnight increased the chances of an interest rate increase in coming months, prompting some investors to take profits, while oil prices slipped after a surprise jump in U.S. inventories. Since late July, emerging market funds have seen net inflows of some $13.2 billion, more than developed market funds in terms of assets under management, according to Institute of International Finance data. While Hong Kong's benchmark index has rallied 18 percent since late June, on a price-to-earnings basis, it still remains around one standard deviation below a 20-year average, indicating investors are not fully convinced about the durability of the gains. Compounding the anxiety, recent Chinese economic data has been anything but cheerful. Both exports and imports fell more than expected in July and government officials have repeatedly said the economy is facing downward pressure. However, the pessimism around China has been balanced by growing optimism around emerging markets as some investors such as bond giant PIMCO are slowly turning more bullish, citing a rebound in growth and improving economic fundamentals. U.S. housing-related stocks .HGX jumped 2 percent on Tuesday after the Commerce Department reported new U.S. single-family home sales soared unexpectedly in July to near nine-year highs. Stocks in both Europe and the U.S. ended higher. In currency markets, the spike in new U.S. home sales pushed the dollar to 94.6 against a trade-weighted basket of currencies after a drop of more than 2 percent ar this month.

The dollar edged up on Wednesday, moving off lows touched against the yen overnight, as markets looked to a gathering of global central bankers in Wyoming for clues on whether the Federal Reserve is poised to hike interest rates again. Data on Tuesday showed new U.S. single-family home sales unexpectedly rose in July, reaching their highest level in nearly nine years as demand increased broadly, brightening the housing market outlook. Central banks will gather in the mountain resort of Jackson Hole later this week, with markets focused on a speech by Fed Chair Janet Yellen on Friday. Recent hawkish comments from Fed Vice Chairman Stanley Fischer and New York Fed President William Dudley have raised some investors' expectations that Yellen might also take a less cautious tone. News that North Korea fired a submarine-launched missile had little impact on foreign exchange trading. The missile flew about 300 miles (480 km) before splashing into the Sea of Japan, a U.S. defense official said. Instead, markets are waiting for Jackson Hole for any fresh signals on the U.S. monetary policy outlook. Minutes from the Fed's July 26-27 policy meeting showed officials were divided over whether to raise rates soon, with some insisting that more solid economic data were needed before any tightening.

Oil prices fell early on Wednesday as an unexpected build in U.S. crude stocks weighed on markets, along with concerns that Chinese crude demand could falter as Beijing clamps down on alleged tax evasion in the oil industry. Robust Chinese crude demand growth has been driven by independent refiners, also know as teapots, who began to import crude last June after obtaining government crude import quotas and licenses. But Beijing's crackdown on alleged tax evasion in the oil industry, targeting the teapots, threatens to put a lid on Chinese demand. Reinforcing concerns about market oversupply, U.S. crude stocks surprisingly rose last week, even though gasoline inventories fell sharply and distillate stocks drew, data from industry group the American Petroleum Institute showed on Tuesday. Crude prices had risen on Tuesday after Reuters reported that Iran was sending positive signals that it could support joint action to prop up the oil market. But analysts and traders remain skeptical that producers will come to an agreement at a meeting in Algeria next month as various OPEC members continue to have individual agendas to push. Iraq's prime minister said on Tuesday the country had not yet reached its full oil market share, suggesting his government would not restrain crude output as part of any possible OPEC agreement to lift prices.

 

[PYX Markets London]

Daily Market Outlook 25 August

While markets wait for Janet Yellen's latest message about the direction of monetary policy, the Federal Reserve chief and her colleagues already have one for politicians: the U.S. economy needs more public spending to shift into higher gear. In the past few weeks, Yellen and three of the Fed's other four Washington-based governors have called in speeches and Congressional hearings for government infrastructure spending and other efforts to counter weak growth, sagging productivity improvements, and lagging business investment. The fifth member has supported the idea in the past. The Fed has no direct influence over fiscal policy and its officials traditionally refrain from discussing it in detail. Having its top officials - from Yellen to former investment banker and Bush administration official Jerome Powell - speak in one voice sends a strong signal to the next president and Congress about the limits they face in setting monetary policy and what is needed to improve the economy's prospects. The Fed's annual conference in Jackson Hole, Wyoming, where Yellen speaks on Friday, is due to focus on how to improve central banks' "toolkit," but the unanimous message from the Fed's top policymakers is that those tools are not enough. "Monetary policy is not well equipped to address long-term issues like the slowdown in productivity growth," Fed vice chair Stanley Fischer said on Sunday. He said it was up to the administration to invest more in infrastructure and education. As a share of gross domestic product, U.S. annual business investment since 2008 has averaged nearly a full percentage point below the previous decade's average, government data shows. Little suggests a rebound any time soon. Fixed business investment has fallen in three successive quarters as a share of GDP. Researchers and analysts blame the slide on everything from doubts about future economic growth to distortions caused by Fed policy itself in helping boost the value of financial assets. The Jackson Hole conference will likely take stock of several unconventional solutions proposed as a way of breaking out of the cycle of subdued demand, weak investment and low growth that has followed the 2007-2009 recession.

The dollar was range-bound in illiquid Asian trade on Thursday as major currencies continued to tread water ahead of the global central bankers' gathering in Jackson Hole, Wyoming, at which Federal Reserve Chair Janet Yellen may offer new clues on U.S. monetary policy. Fed officials including Vice Chairman Stanley Fischer and New York Fed President William Dudley have recently prompted some investors to raise their bets that the Fed is poised to hike rates again sooner rather than later, and some predict Yellen to echo their signals. Futures markets on Wednesday were indicating an 18 percent chance the U.S. central bank would hike rates at its policy meeting next month, and a roughly 50 percent chance of a rate increase in December, according to CME Group's FedWatch tool. Also weighing on the yen were growing expectations that the Bank of Japan will decide to take additional stimulus steps at its next meeting in September, when it will review its policies against a backdrop of growing doubt that the BOJ's target of 2 percent inflation target is within reach. Japan's government kept its assessment of the economy unchanged in August but offered a slightly more downbeat view on consumer inflation than last month, as prices slid on weak household spending and the strong yen pushed down import costs. The Cabinet Office said in its monthly report for August that consumer prices were flat - a gloomier view than last month when price rises were slowing. A Reuters poll on Thursday showed that a majority of economists expects the Bank of Japan will ease policy further next month, though about 40 percent of analysts surveyed said they expected the central bank to keep monetary policy unchanged. Crude prices dipped on Thursday as brimming U.S. and Asian fuel inventories returned investor attention to a large global supply overhang, cutting short a price-rally and restricting Brent crude futures to below the $50 a barrel mark. Traders said price falls this week had truncated a rally that pushed crude up by more than 20 percent earlier in August on talk of a potential deal by oil producers to freeze output in an effort to rein in oversupply. Hopes of a deal were dampened by record output from the (OPEC) and little prospect of voluntary restrictions. "Brent also came under pressure after (OPEC-member) Iraq said it still isn't producing as much oil as it should be, raising concerns that OPEC supply will continue to increase," ANZ bank said on Thursday. With output high, not just from OPEC but also other top producers like Russia, and the demand outlook shaky, analysts said there was little prospect of an end to the glut, which has pulled down crude prices from over $100 a barrel to their current sub-$50 levels since 2014. Analysts said that high storage levels pointed to an ongoing supply overhang that was weighing on markets. In the United states, commercial crude oil stocks rose by 2.5 million barrels to 523.6 million barrels C-STK-T-EIA. In refined products, stocks around the world are also brimming as demand slows while refinery output remains high. China's implied oil demand fell 0.3 percent from a year earlier to 10.58 mn bpd in July, according to Reuters calculations using official data.

 

[PYX Markets London]

Daily Market Outlook 29 August

The dollar gained further against the yen and Aussie in Asia on Monday as remarks from Fed Chiar Janet Yelllen at the end of last week were parsed as consistent with earlier language suggesting that any rate hike would be data dependent with the economy getting stronger, setting up nonfarm payrolls at the end of the week as key for the September meeting. At the weekend, China's National Development and Reform Commission made loud and clear the current bank deposit reserve ratio is too high and that there is significant room for long-term bond yields to decline. "The current deposit reserve ratio of 16.5% is relatively high both compared with historical levels and to other countries. The benchmark deposit rate is not near a zero interest rate either. In the coming week in China data on the country's manufacturing sector are on the calendar, amid ongoing concerns over the health of the world's second biggest economy and in the U.K., traders will be awaiting reports on activity in the manufacturing and construction sectors for further indications on the continued effect that the Brexit decision is having on the economy. Markets in the U.K. are closed on Monday for a national holiday. Overnight, the U.S. dollar skyrocketed against a basket of major currencies on Friday, following comments from two top Federal Reserve officials that hinted at a potential U.S. interest rate hike as early as next month. During a much-awaited speech at the Fed's Jackson Hole symposium Friday, Yellen said the case for U.S. interest rate hikes has “strengthened” in recent months due to improvements in the labor market and to expectations for solid economic growth.

Federal Reserve policymakers are signaling they could raise U.S. interest rates soon but they are already weighing new tools they may need to fight the next recession. A solid U.S. labor market "has strengthened" the case for the first rate increase since last December, Fed Chair Janet Yellen told a central banking conference in Jackson Hole, Wyoming. Several of her colleagues said the increase could come as soon as next month if the economy does well. Further rate hikes are expected to be few and far between as the U.S. central bank tries to balance a desire to fuel growth against worries it could overheat the economy. But Fed officials at three-day conference that ended Saturday also said they need to consider new policy tools for use down the road, such as raising the inflation target or even Fed purchases of non-government-backed assets like corporate debt. Such ideas would test the limits of political feasibility and some would need congressional approval. The view within the Fed is that it could take effort to win over a public already skeptical of the unconventional policies the Fed undertook during the last crisis. Policymakers think new tools might be needed in an era of slower economic growth and a potentially giant and long-lasting trove of assets held by the Fed. And they are convinced the time to vet them is now, while rates look to be heading up. The conference, attended by all but two of the Fed's 17 policymakers as well as central bankers from around the world, also presented a menu of more exotic proposals. This included a Fed takeover of short-term debt markets and abolishing cash in order to charge negative interest rates.

Crude prices dropped in Asia on Monday as investors noted Saudi Arabia does not see the need for major efforts by global producers on output, fanning oversupply concerns. Overnight, oil futures managed to hold on to modest gains on Friday, but suffered a decline for the week after the Saudi energy minister shrugged off the need for OPEC to intervene to stabilize markets. Reuters reported late Thursday that Saudi Arabia's Energy Minister Khalid al-Falih told the news agency in an interview that he does not believe any "significant intervention" in the oil market is necessary. His reported comments come ahead of an informal meeting of the OPEC in Algeria late next month, during which major oil producers are expected to discuss a potential output freeze. Traders also assessed the likelihood of an interest-rate increase at the next Federal Reserve meeting September, following comments from the top two officials at the central bank. An increase in U.S. interest rates tends to lift the dollar, which would make oil more expensive for traders who conduct business in other currencies. Analysts and traders remain skeptical the meeting would result in a coherent effort to reduce the global glut. An attempt to jointly freeze production levels earlier this year failed after Saudi Arabia backed out over Iran's refusal to take part of the initiative, underscoring the difficulty for political rivals to forge consensus. Meanwhile, market players continued to focus on U.S. drilling prospects, amid indications of a recent recovery in drilling activity. According to oilfield services provider Baker Hughes, the number of rigs drilling for oil in the U.S. last week was unchanged at 406. That followed eight straight weeks of increases.

 

[PYX Markets London]

Daily Market Outlook 31 August

Asian shares eased on Wednesday following modest losses on Wall Street, with investors awaiting U.S. jobs numbers for further clues to whether the Federal Reserve will raise rates as soon as September. The growing possibility for an imminent rate hike lifted the dollar against major currencies such as the yen. Traders awaited August U.S. non-farm payrolls due on Friday after a run of strong economic data and hawkish comments from Fed officials. The index still remains on track for a 1.7 percent gain in August. Sluggish domestic data that increased the prospect of further easing by the Bank of Japan also supported stocks. Japanese industrial output was flat in July from June, data showed earlier on Wednesday, underscoring fragility in factory activity and falling short of economists' median forecast for a 0.8 percent rise. But on Tuesday, data showed July household spending fell less than expected and the jobless rate hit a two-decade low, offering some hope for policymakers. BOJ board member Yukitoshi Funo said on Wednesday the central bank would make full use of its existing policy tools to move the country away from its "deflationary mindset." Friday's U.S. jobs report is expected to show employers added 180,000 jobs in August, according to the median estimate of 89 economists polled by Reuters. Fed Vice Chairman Stanley Fischer said in an interview on Tuesday that the job market is nearly at full strength and the pace of interest rate increases will depend on how well the economy is doing. U.S. consumer confidence rose to an 11-month high in August, with households more upbeat about the labor market, data showed overnight. Crude oil futures continued to slip after ending down for a second straight day on worries of oversupply and a strong dollar.

The dollar rose to a one-month high against the yen on Wednesday as investors reversed the bets they had made on speculation that the U.S. Federal Reserve would not hike interest rates anytime soon. The greenback has been on a bullish footing since Friday's comments by Fed Chair Janet Yellen revived expectations the central bank could hike rates as early as September. Upbeat data released on Tuesday helped the dollar extend gains, with the Conference Board saying its consumer confidence index rose to an 11-month high in August. Other data showed that U.S. house price growth moderated in June but was still strong. Yen bulls were also kept in check after Japan's Chief Cabinet Secretary Yoshihide Suga told Reuters on Tuesday that the government will respond "appropriately" to unwelcome yen gains. Analysts believe the reversal of yen longs could continue for a while, since investors had built up significant positions betting on the Japanese currency rising. Attention has switched to Friday's U.S. August non-farm payrolls report and with it a chance to assess whether the U.S. economy is robust enough to withstand monetary tightening. But investors will first digest the ADP employment data and the Chicago purchasing managers' index (PMI) due later on Wednesday. Growth in Japan's industrial output ground to a halt in July after June's gains, underscoring the fragility of factory activity and the continuing challenge to policymakers grappling with a stalling economy. The flat reading compared with economists' median estimate in a Reuters poll of a 0.8 percent increase, following a 2.3 percent increase in June, data by the Ministry of Economy, Trade and Industry showed on Wednesday. Manufacturers surveyed by the ministry expect output to rise 4.1 percent in August and decline 0.7 percent in September. The economy will return to growth in the current quarter but the momentum would not last long as falling capital spending in the United States and slowing growth in China weighed on Japan's exports and output for the rest of the year, he said. Sluggish factory output data is yet another setback for policymakers who have struggled to generate virtuous growth in consumption and production to lift an economy mired in nearly two decades of deflation and stagnation, without much success. Crude oil futures dipped on Wednesday as the U.S. dollar held around three-week highs and industry stocks data indicated a build in U.S. crude inventories. A stronger greenback makes dollar-priced commodities like oil more expensive for holders of other currencies and possibly capping demand. The dollar strengthened after recent hawkish comments by Fed Chair Janet Yellen and Vice Chair Stanley Fischer boosted expectations that a rate hike by the U.S. central bank at its September policy meeting could be on the horizon. U.S. crude stocks rose by 942,000 barrels in the week to Aug. 26 to 525.2 million, nearly in line with analysts' expectations for an increase of 921,000 barrels, data from industry group the American Petroleum Institute showed on Tuesday. Official U.S. oil inventories data published by the EIA is due for release on Wednesday. Concerns over refinery production outages caused by storm threats in the Gulf of Mexico have done little to support prices as a product glut in the United States persists.

 

[PYX Markets London]

Daily Market Outlook 1st September

Asian shares dipped on Thursday after lower crude oil prices dented Wall Street and a pair of Chinese manufacturing surveys did little to inspire investors as markets waited to see if U.S. employment data could put the Federal Reserve on track to hike interest rates. Activity in China's manufacturing sector unexpectedly expanded at its fastest pace in nearly two years in August as construction boomed, suggesting the economy is steadying in response to stronger government spending. The best factory reading since late 2014 may reinforce growing views that China's central bank will be in no hurry to cut interest rates or banks' reserve requirements, for fear of adding to high debt levels or fuelling asset bubbles. China's manufacturing activity stagnated in August as growth in output and new orders slowed, prompting companies to shed staff for the 34th month in a row, the private Caixin/Markit Manufacturing Purchasing Managers' index (PMI) showed. Its index slipped to 50.0 in August, the no-change mark which separates expansion of activity from contraction on a monthly basis, from 50.6 in July. But China's official PMI survey was more upbeat and showed manufacturing activity picked up unexpectedly in August, nudging up modestly to 50.4, compared with the previous month's reading of 49.9. Analysts had expected a reading of 49.9 for the second month in a row, and some thought there would be added weakness after Beijing ordered many plants around Hangzhou to close to clear the air ahead of China's first summit of G20 leaders Sept 4-5. Yet factory output growth accelerated, with the index rising to 52.6, the highest this year, from 52.1 in July. Total new orders expanded sharply, though export orders continued to shrink, albeit at a more modest pace.

The dollar wavered against the yen and the euro on Thursday, its recent gains stalling before Friday's non-farm payroll report in the United States. A weaker dollar makes greenback-denominated commodities, including oil, cheaper for holders of other currencies. Friday's U.S. nonfarm payrolls report remains this week's key market focus, after Federal Reserve Vice Chair Stanley Fischer said last week the jobs data will be a factor in the timing of central bank interest rate hikes. Employers are expected to have added 180,000 jobs in August, according to the median estimate of 89 economists polled by Reuters. The ADP National Employment Report on Wednesday showed U.S. private employers adding 177,000 jobs in August, slightly above the 175,000 forecast by a Reuters survey of economists, and contracts to buy previously owned homes surged in July. But the dollar's gains were tempered after the Institute for Supply Management-Chicago said its business barometer dropped 4.3 points to 51.5 in August, falling short of expectations.

Oil prices rose in Asian trade on Thursday as the U.S. dollar weakened, rebounding from a more than 3 percent drop in the previous session following surprisingly large builds in U.S. crude and distillate stockpiles last week. An unexpected boost in China's manufacturing sector also lent support to oil prices after official data on Thursday showed a modest gain in manufacturing activity in August. That came after U.S. crude inventories rose 2.3 million barrels to 525.9 million barrels in the week to Aug. 26, data from the Department of Energy's Energy Information Administration showed on Wednesday. That compared with analyst expectations of a 921,000-barrel increase. Distillate stocks, which include diesel and heating oil, unexpectedly rose by 1.5 million barrels, while gasoline inventories fell by 691,000 barrels, about half the forecast drawdown. Spooner also said the market took comfort from Chinese manufacturing data which showed activity held steady or saw a modest gain in August. The official Purchasing Managers' Index (PMI) rose to 50.4 in August, compared with the previous month's reading of 49.9, data on Thursday showed. The private Caixin/Markit Manufacturing PMI slipped to 50.0, the no-change mark, down from 50.6 in July. Speculation the Organization of the Petroleum Exporting Countries and other oil producers might agree to curb output at talks in Algeria later this month helped fuel an 11 percent rise in crude prices in August, the best monthly return since April. But optimism of an output freeze has since waned.

 

[PYX Markets London]

Daily Market Outlook 2nd September

Asian stock markets wobbled and the dollar was on the defensive on Friday as investors awaited U.S. job data later in the day which could give clues on whether the Federal Reserve will raise interest rates as soon as this month. The dollar, which was bullish much of the week, nursed losses after downbeat U.S. manufacturing data tempered recent optimism on the U.S. economy that had revived expectations for a near-term rate hike by the Fed. A report from the ISM on Thursday showed U.S. factory activity contracted for the first time in six months in August, as new orders and production tumbled. The ISM index was 49.4. Asian equity markets took few cues from overnight moves on Wall Street, where stocks were flat with gains in the tech sector offsetting sluggish U.S. factory activity data and lower oil prices. The markets will look to Friday's non-farm payrolls to see if the Fed can risk raising rates this month or later this year. Economists polled by Reuters expect the U.S. economy to have added about 180,000 jobs in August. The Fed lifted its benchmark overnight interest rate at the end of last year for the first time in nearly a decade, but has held it steady since amid concerns over persistently low inflation. The step-down in employment would come after the economy created a total of 547,000 jobs in June and July. With the labor market near full employment and the economy's recovery from the 2007-09 recession showing signs of aging, a slowdown in job growth is normal. Yellen has said the economy needs to create just under 100,000 jobs a month to keep up with population growth. There are, however, risks that August payrolls will undershoot expectations, given what some economists believe are challenges adjusting the data for shifts in school calendars.

The greenback had surged against its peers following a relatively hawkish speech by Fed Chair Janet Yellen last Friday, which raised expectations the U.S. central bank was moving closer to a hike. Sterling inched up 0.1 percent to after jumping 1 percent overnight on purchasing managers' index (PMI) data showing the British manufacturing sector staged one of its sharpest rebounds on record in August. The post-Brexit surprise boosted the pound as it could prompt the Bank of England to rethink the need to cut interest rates again if other surveys confirm the trend.

Japan's economic growth is expected to be revised down slightly to flat over April-June due to a decline in capital expenditure, a Reuters poll found, underscoring the view that any recovery in the current quarter will be modest. A preliminary estimate last month saw economic growth grind to a virtual halt in the second quarter, posting just 0.2 percent annualized growth as the strong yen and weak demand took their toll on exports and capital spending. The poll of 17 economists found the annualized growth rate of Japan's GDP was expected to be flat over April through June, slumping from 2.0 percent annualized expansion in the first quarter, a figure flattered by leap-year effects. This would translate into a quarter-on-quarter reading of 0.0 percent, unchanged from the initial estimate. Separate data from the finance ministry, out at the same time as the revised GDP figures, is likely to show Japan's current account balance posting a surplus of 2.090 trillion yen ($20.23 billion) in July. That would top June's 974.4 billion yen surplus and would be the 25th straight monthly surplus in the balance of payments, helped by income from overseas investments, foreign tourists, and the trade surplus.

Crude prices rose on Friday after losses of more than 3 percent a day earlier, with investors treading cautiously ahead of key U.S. employment data that will help gauge the health of the world's largest economy and oil consumer. Though rising in this session, Brent and WTI are on track for their biggest weekly losses since mid-January, hit by oil inventory builds and weak U.S. manufacturing data "The end of the U.S. driving season and the prospect of building inventories create downward risk for the oil price and may see further pressure on energy stocks today." Investors are looking ahead to non-farm payroll data later in the day for a sense of the direction of the U.S. economy, with a strong reading seen boosting the chance of a Federal Reserve interest rate hike soon. A rate rise may strengthen the U.S. dollar, which could depress oil prices as it would make the greenback-denominated commodity more expensive for holders of other currencies. Friday's oil price gains may be capped by concerns of slowing global economic growth. There is also increasing scepticism among traders that the OPEC and other producers such as Russia will agree to freeze production at a meeting in Algeria later this month. However, lending credence to a freeze, Saudi Arabia, the world's biggest crude exporter, has appeared to change its stance and is likely to support production stabilization at the gathering. Further clouding the issue, Russian Energy Minister Alexander Novak on Friday played down the potential for talks on a possible output freeze. Additionally, more U.S. supply will return to the market as some producers in the eastern parts of the Gulf of Mexico are restarting operations with Hurricane Hermine is set to make landfall. Manufacturing activity in parts of Asia, which accounts for most of the world's oil demand growth, has also slowed.

 

[PYX Markets London]

Daily Market Outlook 5th September

Asian shares rose on Monday, getting a tailwind from gains on Wall Street after a weaker-than-expected U.S. jobs report prompted markets to trim expectations that the Federal Reserve would hike interest rates as early as this month. Richmond Federal Reserve Bank President Jeffrey Lacker said on Friday that the U.S. economy appears strong enough to warrant significantly higher interest rates. But the odds for a December hike edged up to 54.2 percent from 53.6 percent on Thursday. BNY Mellon senior global markets strategist Marvin Loh expects the Fed to hold off on any rate hikes until December, when they can factor in three additional jobs reports as well as the U.S. third-quarter growth report. Markets were also keeping a watch on the two-day summit of leaders from G20 nations, in Hangzhou, China. Chinese President Xi Jinping said at the open of the summit on Sunday that global economy is being threatened by rising protectionism and risks from highly leveraged financial markets. Most economists expect the central bank to hold policy steady, though some believe the ECB could extend its asset buying program. The global economy is being threatened by rising protectionism and risks from highly leveraged financial markets, Chinese President Xi Jinping said at the open of a two-day summit of leaders from G20 nations.

The U.S. dollar held firm in early Asian trade on Monday after disappointing U.S. jobs growth figures for August did little to change investors' perception that the Federal Reserve is likely to raise interest rates in coming months. Nonfarm payrolls rose by 151,000 jobs last month, the U.S. Labor Department reported on Friday, below the 180,000 jobs that economists had expected. Average hourly wage earnings, a key gauge of inflationary pressure, rose 0.1 percent, also fell short of market expectations of 0.2 percent increase. Yet, with the average payroll increase over the last three months handily topping 200,000, investors concluded that the data would not be a serious blow to the Fed's plan to raise interest rates. U.S. Fed Funds futures price thus quickly gave up gains to stand almost unchanged from before the data, pricing in just over a 20 percent chance of a hike this month and more than a 60 percent chance by the end of year. There was limited reaction so far to the defeat of German Chancellor Angela Merkel's Christian Democrats in a local election on Sunday. CDU were beaten into third place after not only Social Democrats but also the anti-immigrant and anti-Islam Alternative for Germany (AfD) party in an election in her home district of Mecklenburg-Vorpommern. The British pound held relatively firm at $1.3293, having hit a one-month high of $1.3352 on Friday after a survey showed a downturn in Britain's construction sector was easing. Coming after surprisingly resilient reading in UK manufacturing survey, the data helped to boost expectations that the economy is holding up well after the shock Brexit vote in June. Manufacturing output worsened in the three months to August as domestic orders wilted, reversing an improvement earlier this year, industry association EEF and accountancy firm BDO said. The Bank of England, which has said it expects to cut interest rates again this year, is likely to view the weaker investment plans by manufacturers as consistent with its expectation that Britain's uncertain future trading ties with the EU will gradually take its toll. EEF expects Britain's economic growth to stall in the second half of 2016 and stay weak in 2017. Manufacturing output would rise 0.4 percent this year but contract 0.7 percent next year. The Markit/CIPS PMI for the services sector, due at 0830 GMT (4.30 a.m. ET), will provide more information on how Britain's economy has performed over the last month.in the first quarter, a figure flattered by leap-year effects. Crude prices drifted turned weaker in Asia on Monday in an expected light trading day with the U.S. and Canada on public holidays with comments out of the G-20 summit in China eyed for demand cues. In the week ahead, oil traders will be focusing on U.S. stockpile data on Wednesday and Thursday for fresh supply-and-demand signals. The reports come out one day later than usual because of Monday's Labor Day holiday. Last week, oil futures snapped a four-day losing streak on Friday, amid Russian comments favoring a production freeze, but still suffered a hefty decline for the week amid ongoing concerns over a global supply glut. Oil prices strengthened on Friday after Russian President Vladimir Putin said in an interview with Bloomberg that an agreement between major oil exporters to freeze output would be the right decision to support the market. His comments followed similar rhetoric from Saudi Arabia's foreign minister Adel al-Jubeir, who reportedly said on Thursday that some sort of a production agreement could be made between OPEC and non-OPEC producers at this month's meeting. OPEC members are set to discuss a potential production cap at an informal meeting on the sidelines of an energy conference in Algeria between September 26-28. Despite the supportive remarks, chances that the upcoming meeting in late September would yield any action to reduce the global glut appeared minimal, according to market experts. Instead, most believe that oil producers will continue to monitor the market and possibly postpone freeze talks to the official OPEC meeting in Vienna on Nov. 30. An attempt to jointly freeze production levels earlier this year failed after Saudi Arabia backed out over Iran's refusal to take part of the initiative, underscoring the difficulty for political rivals to forge consensus.

 

[PYX Markets London]

Daily Market Outlook 6th September

Asian shares advanced on Tuesday, while Australian equities remained in negative territory after the Reserve Bank of Australia left rates unchanged as expected. Bank of Japan Governor Haruhiko Kuroda conveyed readiness to ease monetary policy further in a speech on Monday, he acknowledged that the central bank's negative rates may hurt confidence in Japan's banking system, a sign that it is becoming more mindful of the rising cost of its stimulus. The British pound inched up 0.2 percent to $1.3322. Sterling touched a seven-week high against the dollar on Monday after a survey showed Britain's dominant services sector had the biggest one-month gain in at least 20 years, beating all forecasts in a Reuters poll.

The Australian dollar rose 0.6 percent to $0.7626. The decision came a day before government data is expected to show Australia notched up 25 years of economic expansion as of the June quarter. Forecasts are now clustered around 0.5 percent to 0.6 percent for gross domestic product growth in the second quarter, with annual expansion seen accelerating to around 3.5 percent, the fastest pace in four years and well ahead of most of Australia's peers in the rich world. Australia's central bank held interest rates steady on Tuesday, a month after cutting to a record low of 1.5 percent, and left open the question of further easing as the country gets ready to toast 25 years without a recession. The decision by the Reserve Bank of Australia (RBA) came as no surprise given easings in August and May are yet to percolate through the economy. The recent cuts were driven largely by a surprisingly sharp slowdown in inflation and the need to prevent the local dollar from climbing too far in reaction to hyper-aggressive policy easing elsewhere in the world. Indeed, analysts were nudging up their growth forecasts after data showed the conservative government of Malcolm Turnbull went on a mini spending-spree last quarter, in the run-up to a federal election in July. Forecasts were now clustered around 0.5 percent to 0.6 percent for gross domestic product (GDP) growth in the second quarter. That would be a step down from the first quarter's unusually strong 1.1 percent increase, largely due to a pullback in net export earnings. Yet annual growth was still seen accelerating to around 3.5 percent, the fastest pace in four years and well ahead of most of Australia's peers in the rich world.

The yen kept some distance from a one-month low against the dollar on Tuesday after Bank of Japan Governor Haruhiko Kuroda held back from signaling further easing, acknowledging instead the costs of the BOJ's aggressive stimulus. Though Kuroda signaled his readiness to expand an already massive stimulus program in his speech on Monday, he did not provide any explicit hints on the chances of the BOJ aggressively easing policy at its next review on Sept. 20-21. In addition, many analysts noted that Kuroda admitted for the first time that his stimulus drive has its costs, even though he disputed the view that the BOJ's stimulus is reaching its practical limit.

Oil prices extended gains on Tuesday, buoyed after top producers Russia and Saudi Arabia agreed to cooperate on stabilizing the oil market, but a lack of immediate action to rein in output capped gains. The global benchmark on Monday hit a near one-week high of $49.40 after the Russia-Saudi news, but has since pared gains after Saudi Energy Minister Khalid al-Falih said there was no need now to freeze production. He added, however, that freezing output was one of the preferred possibilities. Russian Energy Minister Alexander Novak said Russia and Saudi Arabia were moving towards a strategic energy partnership and that a high level of trust would allow them to address global challenges. The Organization of the Petroleum Exporting Countries and non-OPEC producers such as Russia will hold informal talks in Algeria later in September. There is still a question whether they can cut production for a sustainable period." Several OPEC producers have called for an output freeze to rein in the glut, which arose as supplies from high-cost producers such as the United States soared. Russia's Novak said outright oil production cuts may also be discussed in Algeria. The last talk on output freeze collapsed in April as Saudi Arabia refused to sign on without Iran's participation. Brent rallied to above $50 a barrel in late August, helped by growing talk of a coordinated production freeze, but prices have since fallen as few believe OPEC will act. Iran said it would cooperate on the freeze once its output returned to 4 million barrels per day before sanctions, a level that could be reached within two or three months. That could lay the groundwork for the output freeze deal possibly at OPEC's meeting in late November, rather than a meeting this month in Algeria, Gokon added.

 

[PYX Markets London]

Daily Market Outlook 7th September

The dollar tumbled and Asian stocks rose to one-year highs on Wednesday after surprisingly weak U.S. services sector activity dashed already slim chances of an interest rate hike by the Federal Reserve as early as this month. The U.S. Institute for Supply Management's index of non-manufacturing activity fell to 51.4, its lowest level since February 2010, from 55.5 the month before and well shy of the 55 estimate. Given that strength in the service sector has been making up for softness in manufacturing in the past year or so, the data was a blow to the case for the Fed to raise interest rates as soon as this month. Comments from several Fed officials in recent weeks had boosted bets on a rate hike in coming months, but investors have had to scale back their expectations since Friday's weaker-than-expected U.S. payrolls report. San Francisco Fed president John Williams, speaking after the ISM data, said he expects the Fed will raise rates gradually over the next few years. U.S. interest rate futures price gained to indicate only about a 15 percent chance of a rate hike this month and just over 50 percent by December, compared to above 20 and 60 percent, respectively, before the data.

A top Federal Reserve official on Tuesday repeated his call for gradual interest rate hikes, evidently unfazed by a slowdown in U.S. job gains and sluggishness in the services sector that now has traders betting against any rate hike at all this year. It "makes sense to get back to a pace of gradual rate increases, preferably sooner rather than later," San Francisco Fed President John Williams said in remarks prepared for delivery to the Hayek Group. In his prepared remarks Williams did not address the release of data on Tuesday that showed activity in the U.S. services sector had hit a six-and-a-half-year low, or government data last Friday that showed U.S. employers added fewer jobs than expected in August. Williams said the economy was in "good shape," and he forecast unemployment, now at 4.9 percent, to fall to 4.5 percent in the coming year and inflation to rise to the Fed's 2 percent target in the next year or two. Longer-term, however, Williams made it clear he is far from comfortable with the Fed's current approach to monetary policy. Targeting low inflation, as the Fed and many other central banks currently do, simply will not work well in a world where economic growth and interest rates are likely to be persistently lower than they were in the era before the Great Recession, he said. A low inflation target, he said, gives the Fed too small a buffer to fend off future shocks.

Oil prices inched lower on Wednesday as market participants remained skeptical that producers will reach an agreement to freeze output to rein in a global supply glut. Oil prices hit a one-week high on Monday after Russia and Saudi Arabia agreed to cooperate on stabilizing the oil market, but they have since fallen due to the mounting uncertainty over a deal. The Organization of the Petroleum Exporting Countries and non-OPEC producers such as Russia will hold informal talks in Algeria on Sept. 26-28, but many in the market are skeptical a deal will happen. Saudi Arabia's Foreign Minister Adel al-Jubeir said on Tuesday it would go along with a freeze in oil output if other producers agreed one but cautioned that Iran, which is aiming to raise output to pre-sanction levels, could foil any attempt to limit output. Iran, however, signaled on Tuesday it was prepared to work with Saudi Arabia and Russia to prop up oil prices as it began to bargain with OPEC on possible exemptions from output limits. On demand, traders said Genscape data showed a draw of some 700,000 barrels last week at the Cushing, Oklahoma, and delivery hub for U.S. crude futures. U.S. commercial crude inventories likely fell by 100,000 barrels last week after rising for two straight weeks, a preliminary Reuter’s poll showed on Tuesday. Gasoline stocks likely fell by 500,000 barrels, while distillate stocks are forecast to have increased by 1 million barrels, the poll showed. The American Petroleum Institute is set to release the weekly oil data on Wednesday, delayed a day from usual due to the Labor Day holiday on Monday.

 

[PYX Markets London]

Daily Market Outlook 19th September

Asian shares advanced on Monday ahead of central bank meetings in the United States and Japan this week, while oil prices bounced on talk of an OPEC deal on output and reports of fighting around Libyan oil ports. Bombings in New York City and New Jersey and a stabbing at a Minnesota shopping mall added to a general air of risk aversion. While U.S. officials are investigating the attacks as potential "acts of terrorism," they stopped short of characterizing the motivation behind any of them until more evidence is uncovered. Investors are counting down to the Federal Reserve's Open Market Committee meeting Sept. 20-21, with chair Janet Yellen holding a news conference on Wednesday. A surprisingly large rise in U.S. consumer price inflation reported on Friday seemed to add to the case for a hike and pushed the dollar higher. Assuming no move on policy, the focus will be on the FOMC's forecasts for the funds rate, which this time extends to 2019. The Bank of Japan also meets on Wednesday and could well go in the opposite direction by easing policy, though conflicting reports on what it might do have stoked much uncertainty. Sources have said the BoJ will consider making negative interest rates the centerpiece of future easing by shifting its prime policy target away from base money.

The dollar traded near a two-week high against a basket of major currencies on Monday after U.S. consumer prices rose more than expected in August, bolstering expectations that the Federal Reserve would raise interest rates this year. U.S. consumer prices rose more than expected in August, data on Friday showed, pointing to a steady build-up of inflation that could allow the Fed to raise interest rates this year. The so-called core CPI, which strips out food and energy costs, rose 0.3 percent last month, the biggest increase since February. The core CPI increased 2.3 percent in the 12 months through August. U.S. short-term interest rate futures are now implying a 55 percent chance of the Fed raising interest rates by December, compared to around 47 percent on before the CPI data, according to CME Group's FedWatch Tool. A rise in the dollar can increase disinflationary pressures on the U.S. economy, a point touched upon recently by a Fed policymaker. Fed Governor Lael Brainard had said last Monday that low interest rate policies across advanced economies could make the United States more vulnerable to spikes in the value of the dollar which could put downward pressure on inflation. The euro held steady at $1.1160 EUR=, having touched a low of $1.1149 earlier on Monday, its lowest level since Sept. 6. All eyes this week will be on the policy meetings by the Fed and Bank of Japan on Sept. 20-21. Major currencies showed little reaction to news of three attacks across the United States over the weekend, involving bombings in New York City and New Jersey and a stabbing rampage at a Minnesota shopping mall. British Prime Minister Theresa May signaled that she could be ready to launch formal Brexit negotiations in January or February, European Council President Donald Tusk has said.

Market volatility is low, U.S. census data shows income gains have reached the middle class, and workers are clawing back a larger share of national income. For now, at least, no international risk stands out and inflation may even be picking up. If Fed Chair Janet Yellen wants to prove that policymakers are not being pulled along by investors who for years have second-guessed them, this week may offer a rare moment of calm to do so. Fed funds futures trading shows that investors are even more skeptical than that, and expect the Fed to stay put until February - more than a year after the central bank raised rates and signaled more would come this year and next. Instead the central bank has been stuck at the 0.25 to 0.5 percent range set last December when it lifted rates for the first time in a decade.

Oil prices bounced on reported clashes at Libyan oil ports. Eastern Libyan forces said they had re-established control over two oil ports where an ousted faction launched a counter-attack on Sunday, briefly seizing one of the terminals. Venezuelan President Nicolas Maduro was also reported saying a deal between OPEC and non-OPEC members was "close" and he aimed to announce a deal to stabilize the market this month. Oil prices rose almost 2 percent on Monday, after Venezuela said OPEC and non-OPEC producers were close to reaching an output stabilizing deal and as clashes in Libya raised concerns that efforts to restart crude exports could be disrupted. Clashes in Libya have halted the loading of the first oil cargo from the port of Ras Lanuf in close to two years, while also raising fears of a new conflict over Libya's oil resources. Brent and WTI prices had been dragged to multi-week lows on Friday amid worries returning supplies from Libya would add to the global supply glut. Crude exports from No.3 OPEC producer Iran in August jumped 15 percent from a month ago to more than 2 million barrels per day, according to a source with knowledge of its tanker loading schedule, closing in on Tehran's pre-sanctions shipment levels of five years ago. In the United States, drillers have added oil rigs for 11 out of the past 12 weeks. Drillers added two oil rigs in the week to Sept. 16, bringing the total rig count up to 416, the most since February.

 

[PYX Markets London]

Daily Market Outlook 22nd September

Asian shares rallied on Thursday, taking their cue from Wall Street, after the Federal Reserve left U.S. interest rates unchanged and slowed the pace of future hikes, knocking the dollar and lifting commodity prices. The Fed did signal it could hike rates by year-end as the labor market improved further, but cut the number of rate increases expected in 2017 and 2018. It also reduced its longer-run interest rate forecast to 2.9 percent from 3 percent. The Bank of Japan made an abrupt shift on Wednesday to targeting interest rates on government bonds to achieve its elusive inflation target, after years of massive money printing failed to jolt the economy out of decades-long stagnation. While the BOJ reassured markets it would continue to buy large amounts of bonds and riskier assets, the policy reboot appeared to open the door for an eventual winding down of its huge asset purchases, and tried to repair some of the damage caused by its shock move to negative rates early this year. "The impression is that the BOJ is starting to pull back some of its troops from the battlefront," said Katsutoshi Inadome, senior fixed-income strategist at Mitsubishi UFJ Morgan Stanley Securities. The BOJ's increasingly radical stimulus efforts are being closed watched by other global central banks which are also struggling to revive growth, such as the European Central Bank. Many investors fear central banks have nearly exhausted the limits of what monetary policy can do, putting pressure back on governments to step up spending. Japan's Prime Minister Shinzo Abe welcomed the BOJ's shift and said the government would work with the central bank to boost his "Abenomics" economic growth program.

The U.S. Federal Reserve left interest rates unchanged on Wednesday but strongly signaled it could still tighten monetary policy by the end of this year as the labor market improved further. Fed Chair Janet Yellen, speaking after the central bank's latest policy statement, said U.S. growth was looking stronger and rate increases would be needed to keep the economy from overheating and fueling high inflation. "We judged that the case for an increase has strengthened but decided for the time being to wait," Yellen told a news conference. "The economy has a little more room to run." Yellen said she expected one rate increase this year if the job market continued to improve and major new risks did not arise. The central bank has appeared increasingly divided over the urgency of raising rates. On Wednesday, Kansas City Fed President Esther George, Cleveland Fed President Loretta Mester and Boston Fed President Eric Rosengren dissented on the policy statement, saying they favored raising rates this week. At the same time, policymakers cut the number of rate increases they expect this year to one from two previously, according to the median projection of forecasts released with the statement. Three of the 17 policymakers said rates should remain steady for the rest of the year. Investors did not appear to significantly shift their bets on the timing of the next rate hike. Prices for fed funds futures contracts suggested investors continued to see just better-than-even odds of a hike at the December policy meeting, and almost no chance of an increase in November. U.S. stock prices rose after the Fed released its statement. The central bank appeared more confident on Wednesday, saying in its statement that near-term risks for the economic outlook "appear roughly balanced." That means policymakers think the economy is about as likely to outperform forecasts as to underperform them. The economy expanded sluggishly in the second quarter and added fewer jobs than expected in August. Inflation also showed signs of stirring last month. The Fed's decision, which came the same day that Japan's central bank added a long-term interest rate target to its massive asset-buying program in an overhaul of its policy framework, was widely anticipated by economists.

Oil prices rose on Thursday, lifted by a weaker dollar and extending gains from the previous session when a surprise third consecutive weekly U.S. crude inventory draw tightened supply. Jeffrey Halley of Singapore-based brokerage Oanda said that "the oil comeback continued overnight, helped by a number of tailwinds" that included "the U.S.-dollar (is) being sold against everything, including oil" as well as a "another huge fall in EIA crude inventories." The U.S. EIA on Wednesday reported a 6.2 million-barrel drop in crude oil inventories last week to 504.6 million barrels. Forecasters in a Reuters poll had expected a 3.4 million-barrel build. The dollar stumbled to a near 4-week low against the yen JPY= on Thursday, after the U.S. Federal Reserve kept monetary policy steady and projected a less aggressive path for interest rates hikes in coming years. A weak greenback makes dollar-traded fuel imports cheaper for countries using other currencies, potentially spurring demand. Brent was lifted by an oil workers' strike in Norway, which threatened to cut North Sea crude output. Additionally, Iraq's OPEC governor Falah Alamri said on Thursday that oil market circumstances were now more favorable for producers to reach a deal to support prices when they meet next week in Algeria. Analysts, however, said they expect oil prices to remain range-bound at relatively low levels with global output near record highs and surpassing consumption, adding that producer talks in Algeria next week were likely to change little. In a clear illustration of the impact on the ground of the oil market downturn, the waters around Singapore have become the dumping ground for hundreds of drilling and offshore oil support vessels that have become surplus to requirement in the current era of cheap crude.

 

[PYX Markets London]

Daily Market Outlook 3rd October

Asian shares got the new quarter off to a firm start on Monday, while sterling tumbled as Britain set a March deadline to start divorce proceedings from the European Union. Risk sentiment had benefited on Friday from reports Deutsche Bank was negotiating a much smaller fine with the U.S. Department of Justice, though the Wall Street Journal reported on Sunday that the talks were still in flux. Japanese data showed confidence at big manufacturers was static in September amid a strong yen and sluggish demand at home and overseas. The mood was supported by a survey showing activity in China's manufacturing sector expanded again in September, which may indicate that recent positive momentum can be sustained. The official PMI stood at 50.4 in September, identical with the previous month's level. A reading above 50.0 shows growth on a monthly basis. Chinese markets are on holiday for the entire week. Sterling shed half a U.S. cent after British Prime Minister Theresa May said she would trigger the process for the UK to leave the European Union by the end of March. The pound was last quoted at $1.2931 having been down as far as $1.2902 at one point, its lowest since mid-August. May on Sunday told the ruling Conservative party's annual conference that she was determined to move on with the process and win the "right deal". Deutsche has significant trading relationships with all of the world's largest finance houses and the IMF has identified it as a bigger potential risk to the wider financial system than any other global bank.

The dollar started off the week on a firmer footing on Monday as fears about Deutshe Bank receded and investors looked ahead to this week's U.S. jobs data, while sterling hit seven-week lows after Britain set a March deadline to begin its exit from the European Union. May on Sunday told the ruling Conservative party's annual conference that she was determined to move on with the process and win the "right deal". Risk sentiment benefited from news that Deutsche Bank was attempting to negotiate a much smaller fine with the U.S. Department of Justice, though no formal settlement has been announced yet. The DOJ fined Germany's largest bank $14 billion earlier in September for what it alleged were sales of toxic mortgage-backed securities. The Bank of Japan's quarterly tankan survey of business sentiment, released early on Monday, showed that Japan's large manufacturers expect the dollar to average 107.92 yen for the fiscal year through March 2017. According to Friday's data from the Commodity Futures Trading Commission and Reuters calculations speculators boosted net longs on the U.S. dollar to their highest in six weeks in the week ended Sept. 27. A key focus for the dollar this week will be the U.S. nonfarm payrolls report on Friday, which could cement expectations that the U.S. Federal Reserve is on track to raise interest rates by the end of this year.

Oil prices fell away from $50 per barrel on Monday despite an agreement last week by exporters to cut output, with traders doubting the step was enough to rein in production that has exceeded consumption for the better part of three years. The dips follow fresh production highs from the Organization of the Petroleum Exporting Countries (OPEC) as rival members like Saudi Arabia, Iran and Iraq are reluctant to give away market share. OPEC's oil output is likely to reach 33.60 million bpd in September from a revised 33.53 million bpd in August, its highest in recent history, a Reuters survey found on Friday. The price falls came despite last week's agreement by OPEC members to cut output to between 32.5 million barrels per day (bpd) and 33.0 million bpd from about 33.5 million bpd, with details to be finalised at OPEC's policy meeting in November. Traders said there was more downside risk to oil prices if the planned cut wasn't deep enough to bring production back in line with consumption. "OPEC has created its own Q4 risk to oil prices ... In raising expectations of a November deal to cut production, it also risks a steep price decline should it fail to achieve its goal of cutting output back to less than 33 million bpd," Barclays said in a note to clients. Despite that, the British bank said it did not expect a repeat of the price crash seen late last year after a rally earlier in 2015. Trading activity will be limited on Monday as public holidays in China and Germany mean Asia's and Europe's biggest markets are shut.

 

[PYX Markets London]

Daily Market Outlook 6th October

Asian shares firmed on Thursday thanks to stronger U.S. economic data, while growing prospects of a near-term U.S. rate hike and possible tapering of stimulus in Europe hit gold and lifted the dollar to one-month highs versus the yen. U.S. services sector activity recovered sharply in September from six-year low hit in August, following similarly upbeat news from U.S. factories on Monday. Growing optimism on the U.S. economy boosted bets that the U.S. Federal Reserve will raise interest rates in December. A strong U.S. payrolls report on Friday could cement expectations of a rate hike. The median forecast of economists polled by Reuters is for non-farm payroll to rise 175,000. The rise in bond yields partly stemmed from speculation the European Central Bank may eventually taper its bond buying after Bloomberg reported on Tuesday the bank would probably wind down the monthly 80-billion euro ($90 billion) scheme. The specter of tighter monetary policy in the U.S. and Europe hit precious metals hard. The dollar stuck to narrow ranges against its major rivals in Asian trade on Thursday, ahead of this week's nonfarm payrolls report that could reinforce expectations that the U.S. Federal Reserve will hike interest rates by December. Underpinning the dollar, Chicago Fed President Charles Evans said he would be "fine" with raising U.S. interest rates by year-end if U.S. economic data remained firm. On the economic data front on Wednesday, upbeat U.S. services sector activity offset a weaker-than-expected print on private-sector job growth ahead of Friday's jobs report. The monthly employment figures are expected to show 175,000 jobs were added in September, according to the median estimate of 100 economists polled by Reuters. Market participants will also look for any upward revision to August's weaker-than-expected gain of 151,000 jobs. A strong U.S. payrolls report on Friday could see the market price in a 70 percent chance of a December hike, according to Chris Weston, chief market strategist at IG in Melbourne.

Evidence that the so-called natural rate of interest has fallen to low levels could mean the economy is stuck in a low-growth rut that could prove hard to escape, Federal Reserve Vice Chair Stanley Fischer said on Wednesday. Speaking to a central banking seminar in New York, the Fed's second-in-command said he was concerned that the changes in world savings and investment patterns that may have driven down the natural rate could "prove to be quite persistent...We could be stuck in a new longer-run equilibrium characterized by sluggish growth." As a result, he said, central bankers may face a future where the short-term interest rates set by policymakers never get far above zero, and the unconventional tools used during the financial crisis become a "recurrent" fact of life. "Ultralow interest rates may reflect more than just cyclical forces," Fischer said, but "be yet another indication that the economy's growth potential may have dimmed considerably." Fischer's remarks did not address current Fed policy or interest rate plans. Fischer said the "silver lining" was the possibility that better policy could lift the natural rate along with U.S. potential. It would take more than monetary policy, however, and would require "some combination of improved public infrastructure, better education, more improvement for private investment, and more effective regulation."

Oil futures dipped on Thursday after Saudi Arabia trimmed the price of its flagship crude to Asia, but were still near more than three-month highs following a drop in U.S. crude inventories. Both contracts hit their highest levels since June on Wednesday after the U.S. Energy Information Administration (EIA) said crude stockpiles fell 3 million barrels last week to 499.74 million barrels. Despite the drawdowns, stocks were still close to all-time highs. Traders pointed to profit taking following recent price rises and said Thursday's fall also reflected weaker physical crude after top exporter Saudi Arabia cut the price of its Arab Light crude to Asian customers for November in a sign that the global fuel supply overhang persists. Jeffrey Halley, senior market analyst at brokerage OANDA in Singapore, said that at around $50 a barrel for WTI, U.S. shale drillers, who have spent much of the year cutting back unprofitable production amid low prices, may start bringing back mothballed rigs. Overall, however, most analysts said that the market was well supported at current levels, especially because of a planned output cut by the Organization of the Petroleum Exporting Countries (OPEC). There were also risks of forced supply disruptions, especially in North Africa, Nigeria, and Venezuela Barring such a disuption, most analysts did not expect prices to shoot up much further as production will remain high even with an OPEC cut, and plenty of fuel remains in stock. "Resilient production in the U.S. and Russia will postpone crude market rebalancing and keep the market in surplus into 2017," BMI Research said in a note to clients, even cutting its price forecast for next year. "With an insufficient demand response to counteract strong supply, the result is a downward revision of our 2017 Brent forecast to $55 per barrel from $57 per barrel," BMI said.