Daily Market Outlook By PYX Markets

[PYX Markets London]

Daily Market Outlook 10th October

The Mexican peso climbed and U.S. stock futures crept higher on Monday as markets saw less chance of a victory by Republican nominee Donald Trump in his U.S. presidential bid amid a scandal over comments he made about women. Trump faces the biggest crisis of his 16-month-old campaign after a tape of him making vulgar comments about women deepened fissures with establishment Republicans. A second debate with Democrat Hillary Clinton came and went with little immediate impact on investor thinking. Presidential betting markets had lengthened the odds on a Trump victory, while the FiveThirtyEight site of well-regarded forecaster Nate Silver put the probability of a Clinton win at over 81 percent. Markets generally see Clinton as a known factor with middle of the road policies. There is far more uncertainty about what a Trump administration would mean for U.S. foreign policy, trade, the economy and even governance at the Federal Reserve. A survey out on Monday showed key measures of UK business investment and turnover confidence hit four-year lows in the third quarter. There was relief that U.S. payrolls data last Friday were solid enough but not so hot as to add to the risk of a rate hike from the Federal Reserve.

Job gains in the United States remain solid and growth should pick up in the second half of the year, Fed Vice Chair Stanley Fischer said on Sunday in remarks that indicate the central bank remains on track for a December rate increase. The United States is "close to full employment," Fischer said in remarks prepared for delivery to the Group of 30, a panel of current and former central bankers, regulators and academic economists, during the annual meetings of the International Monetary Fund and World Bank. "With solid gains in employment and household income and upbeat consumer sentiment," Fischer said, consumption spending "should continue to support growth over the second half of the year." The session was closed to the press, but Fischer's prepared remarks were released by the Fed ahead of his scheduled address. Fischer said the decision not to increase rates in September was a "close call" done largely to allow further progress on jobs. At this point, he said, "there appears little risk of falling behind the curve in the near future," on inflation, allowing the Fed to raise rates slowly. "Gradual increases in the federal funds rate will likely be sufficient to get monetary policy to a neutral stance over the next few years," Fischer said.

China's official unemployment rate has been around 4 percent for years, despite the rapid slowdown in the economy from double-digit growth to quarter-century lows last year of less than 7 percent. But the real level of unemployment or underemployment is masked by the fact that the official data does not include China's 277 million migrant workers, such as Zhang Sihu and his wife from Bianqiang in Yulin, a region rich in coal, oil and natural gas in northwestern Shaanxi province. At the height of China's real estate boom in Yulin a few years ago, they made 10,000 yuan a month, running a canteen for construction workers. That was double the average migrant wage, but the boom is now over.

Oil prices fell on Monday over doubts that an OPEC-led plan to cut output would rein in a global oversupply that has dogged markets for over two years. The OPEC plans to agree on an output cut by the time it meets in late November. The targeted range is to cut production to a range of 32.50 mn bpd to 33.0 million bpd. OPEC's current output PRODN-TOTAL stands at a record 33.6 million bpd. To achieve such an agreement among its members, some of which like Saudi Arabia and Iran are political rivals, OPEC officials are embarking on a flurry of meetings in the next six weeks, starting in Istanbul this week. However, ANZ bank said on Monday that prices were pulled down by a statement by Russia's energy minister, Alexander Novak, who said "he was not expecting to sign a production deal with OPEC at the World Energy Conference, which starts this week in Istanbul," although the minister did say that an agreement including non-OPEC member Russia might be possible by the time OPEC officially meets on November 30. Even if a deal is reached, analysts are unconvinced it would result in much higher prices, as doubts run high over the feasibility of a cut among rivaling members, a Reuters poll showed on Friday. Traders said prices were also under pressure from a rise in the U.S. rig count, which implies that American producers are keen to increase production at prices around $50 per barrel. Noble Group agrees $1.05 billion sale of U.S. unit in planned move to cut debt. Despite Monday's dip, analysts said they expected slightly higher prices for the rest of the year and into 2017. Barclays bank said that it expected "stockdraws during the upcoming winter season will support physical oil market fundamentals, irrespective of any decision in November in Vienna. We expect that prices will rise to the low $50 per barrel range in Q4. The British bank said that prices would receive support into next year in part from firm U.S. gasoline demand.

 

[PYX Markets London]

Daily Market Outlook 11th October

Asian shares were mostly lower on Tuesday, while oil prices hovered near one-year highs on growing expectations of an output cut by OPEC producers. The overnight gains came after Russia said it was ready to join the OPEC in limiting crude output and Algeria called for similar commitments from other non-OPEC producers. OPEC aims for agreements to cut about 700,000 bpd in its first reduction in eight years. "OPEC needs to make sure we don't crimp too tightly and create a shock to the market. We are going to be very responsible," Saudi Arabia's Energy Minister Khalid al-Falih told the World Energy Congress in Istanbul, adding that OPEC needed to behave in a balanced and responsible manner. Last month in Algiers, OPEC agreed modest oil output cuts. The goal is to cut production to a range of 32.50-33.0 million bpd. OPEC's current output PRODN-TOTAL is a record 33.6 million bpd. Non-OPEC oil producer Russia's President Vladimir Putin welcomed the global cut invitation, saying Moscow was ready to join the proposed cap on oil output by OPEC members. Putin said low oil prices had led to underinvestment in the global energy sector which would turn into a deficit at some point and trigger new "unpredictable jumps" in prices.

The dollar extended overnight gains on growing expectations that the Federal Reserve will raise interest rates this year. Investors are looking to Wednesday's release of minutes of the latest Federal Reserve Open Market Committee meeting to see how close the Fed was to hiking rates last month. The dollar firmed on Tuesday, while the beleaguered sterling wallowed near recent lows on lingering fears about the impact on Britain from exiting the European Union and the kiwi tumbled on dovish comments from a New Zealand central bank official. Japanese, Canadian and some U.S. markets were closed on Monday for holidays. Investors awaited Wednesday's release of minutes of the Federal Reserve Open Market Committee's September meeting for clues as to how close the Fed is to hiking interest rates. Speaking to reporters after a speech in Sydney, Chicago Fed President Charles Evans said on Tuesday that he "could be fine" with the Fed raising rates in December, but he wanted to see how the economy and inflation progressed before deciding. Evans does not have a vote this year on Fed policy but participates fully in deliberations and will become a voting member in 2017. Japanese current account data released earlier on Tuesday showed the nation's surplus stood at 2.0 trillion yen ($19.3 billion) in August as the trade balance swung to a surplus due to falling imports.

BoJ is expected to wait until next year before easing policy further unless any sharp spikes in the yen undermine the economy significantly in the meantime, a Reuters poll found. Last month the central bank switched the focus of its stimulus program to targeting market interest rates after years of massive asset buying failed to push up inflation. About 70 percent of the analysts who answered an extra question said the BOJ would add more stimuli at its January meeting or later, while a handful of analysts predicted the central bank would ease further at its Oct. 30-Nov. 1 meeting when it releases its long-term growth and inflation outlook. But several analysts said the central bank would keep to its current pace of stimulus, saying they had no specific forecast of when it would next take action. The BOJ dropped its explicit target of increasing base money by an annual 80 trillion yen ($777.45 billion), in what some analysts said was a tacit admission its aggressive asset-buying was becoming unsustainable. Kuroda said the central bank will deepen negative interest rates or expand asset purchases if external shocks hit the economy but he also said he saw no immediate need to top up stimulus. Oil prices on Tuesday fell from one-year highs touched the previous day as there were doubts that a planned production cut would have the desired effect of reining in over two years of global oversupply. Oil prices jumped as much as 3 percent on Monday, with Brent hitting a one-year peak, after Russia and Saudi Arabia both said a deal between the OPEC and non-OPEC members like Russia in curbing crude output was possible. However, Goldman Sachs said in a note to clients on Tuesday that despite a production cut becoming a "greater possibility", markets were unlikely to rebalance in 2017. "Higher production from Libya, Nigeria and Iraq are reducing the odds of such a deal rebalancing the oil market in 2017," the U.S. bank said, and added that even if OPEC producers and Russia implemented strict cuts, higher prices would allow U.S. shale drillers to raise output. Fritsch said he had "significant doubts whether they (production cut targets) will actually be fulfilled" as the rivalry between OPEC members, who are fighting aggressively for global markets share, could prevent an effective deal. And for now, supplies keep flowing, with top exporter Saudi Arabia planning to send full contracted crude volumes to key Asian buyers in November, unchanged from October levels, industry sources familiar with the matter said on Tuesday.

 

[PYX Markets London]

Daily Market Outlook 14th October

Asian stocks and the dollar bounced on Friday, erasing some losses from the previous day, as stronger-than-expected Chinese inflation data eased some concerns about the health of the world's second-biggest economy. Chinese data again set the tone on Friday, with September producer prices unexpectedly rising for the first time in nearly five years, while consumer inflation also beat expectations. The producer price increase will be good news for profits and for Beijing as the government struggles to reduce a mountain of corporate debt. Dollar had climbed to a seven-week high against a basket of other major currencies earlier in the week on growing expectations of a December interest rate hike by the Federal Reserve. Investors will have another chance to gauge whether the world's biggest economy is ready for tighter monetary policy through U.S. indicators due later, including September retail sales and the University of Michigan consumer sentiment report. The markets will also tune into speeches by Fed Chair Janet Yellen and Boston Federal Reserve President Eric Rosengren for hints about the timing of the next interest rate hike. Crude oil extended gains after bouncing overnight on a U.S. government report showing hefty draws in diesel and gasoline.

The Federal Reserve may want to hold off on monetary policy changes until after the U.S. presidential election on Nov. 8, Philadelphia Fed President Patrick Harker said on Thursday. Fed officials normally take pains to distance themselves from electoral politics, and Harker's comments were an unusual admission that the Fed might need to craft policy based on who wins the White House. Harker will not vote at the Fed's Nov. 1-2 policy meeting but will participate in its discussions. His comments on Thursday could draw the ire of Republican presidential candidate Donald Trump, who has accused the Fed of playing politics by keeping interest rates low. Harker said he had been in favor of a rate increase at the Fed's September policy meeting and he insisted politics never play a role in the Fed's internal debate. Investors see little chance of an interest rate increase in November given the proximity of the election. Fed Chair Janet Yellen has repeatedly denied politics will play a role in Fed decisions. While Democratic candidate Hillary Clinton has a lead in public opinion polls, some economists think Trump, if elected, could disrupt the economy by following through on promises to throw up barriers to foreign trade. Harker said the Fed should raise rates once by the end of this year. He will have a vote on rate policy at the Fed's 2017 meetings. "Despite frequent talk about a sub-par economy, we're actually doing pretty well," Harker told the World Affairs Council earlier in Philadelphia, adding that he expects the economy will need "at least two" rate increases next year. His comments on the timing of rate increases put him in line with the Fed's signaling last month that the economy was on track to need one rate increase this year and two in 2017.

China's producer prices unexpectedly rose in September for the first time in nearly five years thanks to higher commodity prices, welcome news for the government as it struggles to whittle down a growing mountain of corporate debt. Official inflation data on Friday also showed a pickup in consumer prices, helping to ease investors' concerns about the health of the world's second-largest economy after disappointing trade numbers on Thursday rattled global markets. Corporate China sits on $18 trillion in debt, equivalent to about 169 percent of gross domestic product (GDP), according to the most recent figures from the Bank for International Settlements. Most of it is held by state-owned companies. The producer price index (PPI) rose 0.1 percent in September from a year earlier, the National Bureau of Statistics said. Oil prices edged up on Friday, pushed by a tighter U.S. fuel market and as technical indicators attracted buying from financial players. The U.S. EIA reported a drop of 3.7 million barrels for distillates late on Thursday, which include diesel and heating oil, and a 1.9-million barrel decline for gasoline. Outside the United States, traders said that Brent prices were being supported by technical indicators, which had attracted investment from financial market participants. Despite the slightly higher prices on Friday, there were still factors weighing on oil markets, especially doubts that a planned oil output cut by the Organization of the Petroleum Exporting Countries (OPEC) and potentially non-OPEC member Russia would be sufficient to rein in a global production overhang standing at around half a million barrels per day (bpd) in excess of consumption. "Talk of cutting output in some quarters appears to be morphing into talks of a freeze in supply. We are doubtful that OPEC's efforts, even if successful in achieving a targeted 32.5 million bpd in collective output, will prove sufficient to materially alter the global oil balance and deliver a substantial reduction in oil inventories," French bank BNP Paribas said in a note to clients. OPEC's crude oil production stood at a record 33.6 million bpd in September.

 

[PYX Markets London]

Daily Market Outlook 17th October

Asian shares fell on Monday while the dollar held firm near seven-month high against a basket of major currencies after comments from Federal Reserve Chair Janet Yellen boosted long-dated U.S. bond yields. Yellen said on Friday the Fed may need to run a "high-pressure" economy in order to reverse damage from the global financial crisis that depressed output. Her remarks were not addressing immediate policy concerns directly and did not change prevailing view that the Fed is likely to raise interest rates in December. There is a reason for investors to be concerned about inflation as recovery in oil prices has lifted inflation in some countries. The U.S. producer price index for final demand increased 0.3 percent last month. In the 12 months through September, the PPI jumped 0.7 percent, the biggest increase since December 2014. On Friday, China also reported higher than-expected inflation in September for consumers and producers alike, with producer prices rising for the first time since January 2012. In the US, a gauge of investors' inflation expectations, the breakeven inflation rate based on inflation-linked bonds, rose to its highest level in about five months. Chinese economic data on Wednesday, including third-quarter GDP, will be a key focus of this week. China's economy likely grew by a steady 6.7 percent in the third quarter from a year earlier, the same pace as in the previous quarter, as increased government spending and a property boom offset stubbornly weak exports, according to a Reuters poll of 58 economists. But the expected rate of expansion would still be near the weakest since the global crisis, and analysts are increasingly worried that growth is becoming too reliant on government spending, ballooning debt levels and a housing market that is showing signs of overheating.

The yen weakened on Monday in Asia after remarks from the central bank governor updating on economic growth and inflation. BoJ Governor Haruhiko Kuroda said the economy is on a likely moderate expanding trend with core consumer prices slightly negative to flat, adding that the central bank will take further action to boost growth if needed. This week will see the European Central Bank’s post policy meeting press conference on Thursday amid speculation over whether it will further expand its stimulus program in the face of sluggish growth and inflation. Also on the watchlist are Chinese figures on third quarter GDP, due for release on Wednesday, with the rate of growth expected to ease again. On Monday, the euro zone is to publish revised data on inflation and the U.S. will report industrial production and manufacturing activity in the New York region. Dollar gained ground on Friday as solid data on U.S. retail sales and producer prices bolstered expectations that the Federal Reserve could raise interest rates in the coming months. U.S. retail sales rose 0.6% in September after declining 0.2% the previous month, data from the Commerce Department showed Friday. Another report showing that U.S. producer prices picked up broadly last month added to the view that the economy is on a strong enough footing for a rate hike by the Fed before the year’s end. The reports came after the minutes of the Fed’s September meeting, published on Wednesday, showed several officials believed it would be appropriate to raise interest rates "relatively soon" if the economy continued to improve. The Fed’s next meeting is in November, but a rate hike ahead of the presidential election is seen as unlikely. Expectations for higher rates typically boost the dollar by making it more attractive to yield seeking investors.

Crude oil prices held weaker in Asia on Monday as investors noted more drilling activity in the U.S. and other downbeat supply signals from top producers. Last week, oil futures slipped on Friday, but still scored their fourth weekly gain in a row as market players awaited details of a planned output cut by the OPEC. The OPEC reached an agreement to limit production to a range of 32.5 million to 33.0 million barrels per day in talks held on the sidelines of an energy conference in Algeria late last month. However, market analysts remained skeptical of the deal, pondering how such a plan would be implemented. The 14-member oil group said it won’t finalize details or complete its production agreement until the group’s next official meeting in Vienna on November 30. Brent gave back some gains after OPEC's monthly report published Wednesday revealed that its oil production rose in September to the highest level in eight years. The producer cartel pumped 33.39 million barrels per day last month, up 220,000 barrels per day from August. Market players continued to focus on U.S. drilling prospects, amid indications of an ongoing recovery in drilling activity. Oilfield services provider Baker Hughes said late Friday that the number of rigs drilling for oil in the U.S. last week rose by 4 to 432, marking the 15th increase in 16 weeks. Some analysts have warned that the recent rally in prices could be self-defeating, as it encourages U.S. shale producers to drill more, underlining concerns over a global supply glut. Weekly government data showing sizable drawdowns in domestic gasoline and distillate stockpiles, which include heating oil, provided support, although inventories of crude oil rose for the first time in six weeks, according to the U.S. EIA

 

[PYX Markets London]

Daily Market Outlook 24th October

Asian stocks drifted without clear direction on Monday after Wall Street's sluggish performance late last week, while the dollar hovered near nine-month highs as fresh comments from a Federal Reserve official boosted bets of a rate hike by year-end. Global markets are bracing for a slew of data this week including consumer price data from Japan and some euro zone countries, third quarter U.S. GDP and a number of purchasing managers' index (PMI) data from developed economies. The U.S. currency received a boost last week as the euro slid after the European Central Bank doused talk it was contemplating tapering its monetary easing. The dollar was also supported by hawkish comments from Fed officials including New York Fed President William Dudley and higher expectations that Hillary Clinton will win the U.S. presidential election, which have increased bets that the Fed will raise rates in December.

The dollar edged up to a fresh eight-month high against a basket of currencies in Asian trade on Monday, buoyed by expectations that the U.S. Federal Reserve will raise interest rates this year. On Friday, San Francisco Fed President John Williams said at a mortgage conference that "it makes sense to get back to a pace of gradual rate increases, preferably sooner rather than later." His comments followed recent hawkish talk from central bank officials including New York Fed President William Dudley and Fed Vice Chair Stanley Fischer, which prompted investors to price in an interest rate increase this year. Speculators raised their bets on the U.S. dollar for a fourth straight week, with net long positions hitting their highest since late January, Reuters calculations and data from the Commodity Futures Trading Commission showed on Friday. The value of the dollar's net long position rose to $18.44 billion in the week ended Oct. 18, from $14.72 billion the previous week. Another factor underpinning the dollar was recent opinion polling that favored Democratic candidate Hillary Clinton to win the Nov. 8 U.S. presidential election, defeating Republican Donald Trump. Dramatic news about either candidate could lead to foreign exchange market swings, said Shinichi Kashiwagi, head of market sales for Japan at National Australia Bank in Tokyo, and otherwise, "we need to wait until U.S. GDP on Friday." Disappointing U.S. growth figures might lead investors to pare their expectations of a December hike. The European Central Bank kept interest rates at historic lows last Thursday and ECB President Mario Draghi kept the door open for more stimulus, quashing speculation that the bank was poised to taper its 1.7 trillion euro asset-buying program. Data issued early on Monday showed Japan's trade balance at a surplus of 498.3 billion yen ($4.8 billion), versus the median estimate of a 341.8 billion yen surplus. But the yen's recent relative strength took a toll on exports, which fell for a 12th straight month.

Crude oil prices slipped on concerns supply will outweigh demand, with U.S. crude CLc1 down 0.5 percent at $50.62 a barrel. The contracts had risen about 0.8 percent on Friday on hopes that Russia and OPEC would reach a price agreement, but worries of oversupply have been a persistent drag on the market. But oil fell Monday after Iraq said it wanted to be exempt from any deal by OPEC to cut production. Latest data also showed that U.S. oil rig count posted the first double-digit rise since August to weigh on the market. Oil prices fell early on Monday as Iraq said it wanted to be exempt from any deal by producer cartel OPEC to cut production to prop up the market, and as U.S. drillers stepped up work. Traders said the price falls followed comments from Iraq, which said it wanted to be exempt from a production cut by the OPEC that the group plans to decide at its Nov. 30 meeting. OPEC plans to reduce production to a range of 32.50 million to 33.0 million barrels per day (bpd), down from 33.39 million bpd in September. That would be harder to achieve if Iraq, which is OPEC's second-biggest producer after Saudi Arabia, didn't participate. Iraq said on Sunday that its oil production stood at 4.774 million bpd, with exports standing at 3.87 million bpd. Also pressuring the market, U.S. oil rigs rose by 11 last week, the first double-digit increase since August. "We should see rig counts continue to increase in the wake of the recent price rally," Morgan Stanley said. Ongoing strength in the dollar .DXY, which can crimp demand as it makes fuel purchases more expensive for countries using other currencies at home, also weighed on oil. On the demand side, Japan's crude imports fell 4.6 percent in September from the same month a year earlier, to 3.27 million bpd, official data showed on Monday. Despite Monday's lower prices, analysts said that oil markets, which have been dogged by two years of oversupply, might be rebalancing in terms of production and consumption.

 

[PYX Markets London]

Daily Market Outlook 27th October

Asian shares extended losses on Thursday after disappointing earnings from technology giant Apple dragged on Wall Street, while the dollar remained shy of this week's nearly nine-month highs. Adding to the already subdued mood, data showed profit growth in China's industrial firms slowed last month from the previous month's rapid pace as several sectors showed weak activity, suggesting the world's second-biggest economy remains underpowered. Later on Thursday, market participants will parse the latest data on U.S. durable goods, jobless claims and pending home sales. Expectations for a year-end rate hike by the Federal Reserve remained intact, and have bolstered the greenback. In recent weeks, market participants have been pricing in more than a 70 percent chance that the U.S. central bank would hike interest rates in December, according to CME Group's FedWatch program. U.S. growth figures scheduled for release on Friday could reinforce or temper Fed hike expectations.

New U.S. single-family home sales unexpectedly rose in September, pointing to sustained demand for housing even as data for the prior three months were revised lower. Other reports on Wednesday suggested a stronger pickup in economic growth in the third quarter than is currently anticipated. The goods trade deficit narrowed sharply, while both wholesale and retail inventories increased in September. The Commerce Department said new home sales increased 3.1 percent to a seasonally adjusted annual rate of 593,000 units last month, pulling them close to a nine-year high touched in July. However, the pace for the prior three months was revised down by a total of 85,000 units from previous estimates. New home sales, which are derived from building permits, are volatile on a month-to-month basis and subject to large revisions. Sales increased 29.8 percent from a year ago. Economists had forecast single-family home sales, which account for about 9.8 percent of overall home sales, falling to a rate of 600,000 units last month. Despite the downward revisions, new home sales rose in the third quarter compared to the April-June period. Residential construction, however, likely remained a mild drag on gross domestic product for a second straight quarter. GDP probably increased at a 2.5 percent rate in the third quarter, quickening from the second-quarter's tepid 1.4% pace.

Profit growth in China's industrial firms slowed sharply as some key manufacturing sectors stumbled on weak activity and rising debt, suggesting the world's second-biggest economy remains underpowered despite emerging signs of stability. The September data from National Bureau of Statistics (NBS) underlined the daunting task facing policy makers as the nation's vast manufacturing industry grapples with slack demand, overcapacity and ballooning debt. Industrial sector profits last month rose 7.7 percent to 577.1 billion yuan, slowing markedly after surging 19.5 percent in August, NBS figures released on its website showed on Thursday. The official also cautioned about rising debt levels in the coal and steel sectors, stressing the importance of controlling debt risks as capacity cuts and structural reforms get implemented. Recent data showed some signs of stability, with annual economic growth of 6.7 percent in the third quarter matching the previous quarter, as increased government spending and a property boom offset stubbornly weak exports. China's producer prices rose in September for the first time in nearly five years, thanks to higher commodity prices.

Oil prices were stable on Thursday, lingering around $50 a barrel, as doubts over OPEC's ability to organize a coordinated production cut weighed on markets, while firm demand and concerns over Venezuela's stability offered support. Traders said Brent was struggling on doubts that the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC producers like Russia will be able to effectively coordinate curbs in output to prop up prices.

"Investors remain uncertain as to whether OPEC can implement the tentative agreement to cut production," ANZ bank said on Thursday. A cut is being pushed by Saudi Arabia, OPEC's biggest producer, and it is being supported - at least by word - by Russia, not a member of the cartel but the world's biggest oil producer. However, OPEC's No.2 producer, Iraq, has said it would not cut output, arguing it needs the revenue to fight Islamic State, and the government is trying to lure investors to boost output further from its current record 4.43 million barrels per day. In U.S. crude markets, West Texas Intermediate (WTI) futures CLc1 received support from a 553,000-barrel draw in crude inventories to 468.16 million barrels. But some analysts said that the drop in stocks was misleading. In OPEC-member Venezuela, spreading and increasingly violent protests against the government sparked fear in the oil industry that the country's oil production could be affected. As crude is the main feedstock for oil refineries, strong refining activity tends to be price supportive of crude.

 

[PYX Markets London]

Daily Market Outlook 4th November

Asian shares slipped on Friday and the dollar nursed losses in a week marked by growing uncertainty about the outcome of the U.S. presidential election. Investors have been unnerved in recent days by signs that the presidential race between Democrat Hillary Clinton and Republican Donald Trump may be tightening just days before Tuesday's vote. That anxiety has rippled across global financial markets as investors ponder hedging the possible ramifications of a Trump presidency, overshadowing other events including Friday's U.S. employment report for October. According to the latest Reuters/Ipsos States of the Nation project, Clinton, who is seen as the status quo candidate by markets, maintained her narrow lead over Trump. But several swing states that the Republican challenger must win shifted from favoring Clinton to toss-ups, offering Trump a possible route to victory. Trump, a political novice, has campaigned to clamp down on immigration, rethink trade relations and slap high tariffs on imported goods. Some fear his election would pose risks for global trade and growth. The pound was a stand-out performer overnight, rising to a nearly one-month high of on Thursday after a British court ruled that the government needs parliamentary approval to start the process of leaving the European Union. That could potentially delay Prime Minister Theresa May's Brexit plans. The pound also got a boost from the Bank of England, which scrapped its plan to cut interest rates and ramped up its forecasts for growth.

U.S. employers likely stepped up hiring in October and boosted wages for workers, which could effectively seal the case for a December interest rate increase from the Federal Reserve. The nonfarm payrolls report due later Friday is expected to show employers added 175,000 jobs in October, according to the median estimate of 106 economists polled by Reuters. U.S. data on Thursday showed that services industry activity cooled last month amid a slowdown in new orders and hiring, while planned job cuts by U.S.-based employers dropped 31 percent to a five-month low. That underscored the labor market's healthy fundamentals, though more Americans filed for unemployment benefits last week. The report will come on the heels of data last week showing acceleration in economic growth in the third quarter. But economists see little impact from the report on an increasingly bitter and divisive campaign. The Fed on Wednesday left interest rates unchanged but said its monetary policy-setting committee "judges that the case for an increase in the federal funds rate has continued to strengthen." It lifted its benchmark overnight interest rate last December for the first time in nearly a decade. Employment growth so far this year has averaged 178,000 jobs per month, down from an average gain of 229,000 per month in 2015. Still, the monthly job gains are more than enough to absorb new entrants into the labor market. Fed Chair Janet Yellen has said the economy needs to create just under 100,000 jobs a month to keep up with growth in the work-age population. The prospects of an interest rate hike next month could also be bolstered by an anticipated solid rise in wages. Average hourly earnings are expected to have increased 0.3 percent in October after advancing 0.2 percent in September.

Oil prices edged up on Friday, stabilizing after five straight days of falls triggered by a surge in U.S. crude inventories and doubts over the ability of producers to coordinate output cuts. Despite the slight increases, traders said sentiment was bearish. Brent fell for the past five straight trading sessions and is down over 13 percent since its recent peak in mid-October. Analysts said markets were also weighed down by traders pulling out money from futures ahead of the U.S. presidential elections, which are seen as a risk to markets. Beyond concerns ahead of the elections, traders said oil fundamentals were also weak, with U.S. crude stocks surging, demand growth low, and doubts that the OPEC and non-OPEC producer Russia can agree on a meaningful output cut this month. U.S. crude oil stockpiles soared more than 14 million barrels last week, the largest weekly build since the U.S. Energy Department started keeping records in 1982, highlighting that a global fuel supply overhang is far from over. While oil production remains near records and inventories are high, British bank Barclays said demand growth was timid."Q3 16 demand growth rate is less than one-third that of the same quarter last year," Barclays bank said in a note to clients, estimating last quarter's growth below 1 million bpd. It said consumption increases for the last quarter of the year would not be much higher, before averaging 1.3 million bpd in 2017.

 

[PYX Markets London]

Daily Market Outlook 8th November

Most Asian stock markets rose on Tuesday ahead of the U.S. presidential election, with investors optimistic but cautious over improving prospects for a win by Democrat Hillary Clinton. The Mexican peso, which strengthens as the perceived chances of an election victory by Republican Donald Trump fall, retained its strong gains from Monday. Boosting Clinton's chances of winning, and markets globally, was a statement by the U.S. Federal Bureau of Investigation on Sunday standing by its July finding that Clinton was not guilty of criminal wrongdoing in her use of a private email server. That came after the FBI announced on Oct. 28 it was reviewing additional emails relating to the server while Clinton was secretary of state, sending markets around the world tumbling. Clinton is seen by investors as offering greater certainty and stability, and, until last week's stumble, had been seen as the likely victor in Tuesday's presidential vote. While polls last week showed Trump closing in on Clinton's lead, at least five major polls on Monday showed Clinton still ahead. But investors remained wary, noting Britain's shock vote in June to leave the European Union had defied most polls and bookmakers' odds.

The most prominent hawk on the European Central Bank's board defended the bank's ultra-loose monetary policy on Monday, but added that she was skeptical of further interest rate cuts or other forms of easing. Sabine Lautenschlaeger's comments were likely to be read as an indication she might oppose extending the ECB's monthly bond-buying program much beyond its March deadline - a decision the ECB will make at its meeting in a month's time. The former head of Germany's financial regulatory agency defended the ECB from criticism in her home country that ultra-low rates have hurt banks and savers, arguing its policy was well-suited to current economic conditions. But she opposed any further easing. She spoke hours after a top Bank of Italy official said the ECB was not considering reducing the 80 billion-euro ($88.28 billion) monthly pace of the program and was looking instead at how far to extend it after March. Central bank sources told Reuters late last month that the ECB is nearly certain to continue buying bonds beyond March and to relax its constraints on the purchases to ensure it finds enough paper to buy.

The dollar steadied in Asia on Tuesday, keeping previous session gains as markets wagered on a victory for Hillary Clinton in the U.S. presidential election after the FBI cleared her of any wrongdoing in its latest probe of her use of a private email server. With hours to go before Americans vote, Democratic candidate Clinton has about a 90 percent chance of defeating Republican Donald Trump in the race for the White House, according to the final Reuters/Ipsos States of the Nation project. Federal Bureau of Investigation Director James Comey said in a letter to Congress on Sunday that the agency's review of newly discovered emails did not find anything to warrant any criminal charges against Clinton. Finance Minister Taro Aso said on Tuesday that Japan would need to respond to currency market moves if results of the U.S. presidential election were to cause a sudden spike in the yen, when asked about market speculation that the safe-haven currency might spike on a Trump victory. The dollar struck recent lows on signs of a tightening race between Clinton - viewed as the status quo candidate by most investors - and Trump, whose stated views on foreign policy, trade and immigration have raised fears about their potential impact on global growth.

Oil prices were stable on Tuesday as financial investors and traders were cautiously positioning themselves for a win by Hillary Clinton in the U.S. presidential elections. China, which vies with the United States for top spot as the biggest crude importer, bought 6.78 million barrels of oil from abroad in October, down 12.9 percent from the previous month and one of the lowest volume this year on a daily basis. The country's refined oil product exports jumped 24 percent on a year earlier, as the nation produced more fuel than it could absorb. Crude prices were held back by lingering doubts over the ability of oil producers to agree on a planned output cut to prop up a market which has been dogged by two years of oversupply. The chief executive of U.S. oil giant Exxon Mobil, Rex Tillerson said on Monday that global oil supplies have exceeded demand by 1 million to 2 million barrels per day since the start of 2015. In physical oil markets, U.S. pipeline companies with operations at the heart of the country's commercial oil industry at Cushing, Oklahoma, restarted on Monday after an earthquake late on Sunday triggered safety shutdowns. China's exports and imports fell more than expected in October, with weak domestic and global demand adding to doubts that a pick-up in economic activity in the world's largest trading nation can be sustained. October exports fell 7.3 percent from a year earlier, while imports shrank 1.4 percent, official data showed on Tuesday, raising fears that a broader recovery seen in recent months could falter.

 

[PYX Markets London]

Daily Market Outlook 10th November

Asian shares rallied on Thursday and the dollar firmed in a remarkable snapback from the shock of Republican Donald Trump's presidential victory, though the speed of the reversal left some market watchers scratching their heads. Despite the initial sharp recoil in global markets, U.S. investors opted to focus instead on Trump's key policy priorities, which include generous tax cuts and higher infrastructure and defense spending, along with deregulation for banks. Helping boost the dollar, investors again revised the outlook for U.S. interest rates in the wake of Trump's victory, with the probability of a December rate hike by the Federal Reserve going from as low as 30 percent to as high as 80 percent. Ratings agency S&P Global later affirmed the AA+ rating of the United States, but noted uncertainty over the future path of government debt would prevent any upgrade. There were also lingering concerns about whether Trump would follow through with threatened punitive tariffs on Chinese and Mexican exports, potentially triggering a global trade war. Among Asia's trade-reliant economies, China and South Korea are particularly exposed to any hostile U.S. measures as they run large trade surpluses with the United States, Credit Suisse said in a research note.

Ratings agency Standard & Poor's affirmed the United States' investment-grade 'AA+/A-1+' rating on Wednesday, a day after the presidential election, while maintaining its stable outlook. Donald Trump won the U.S. presidential election in a stunning upset, and will take office in January, with the Republicans maintaining majority control of the House of Representatives and the Senate. But S&P added that the United States' high general government debt and increased uncertainty over its trajectory constrain the ratings of the world's largest economy. There is a risk of policy uncertainty and potential missteps given the untested nature of the incoming Trump administration. If these risks eventuate, there could be downward pressure on the rating, S&P said. S&P said it would raise the rating if it saw evidence that efforts point to more proactive fiscal and public policies that result in a lower debt burden. Fitch Ratings said on Wednesday that Trump's victory does not have near-term implications for the United States' AAA/stable rating.

A day after Republican Donald Trump was elected as the next U.S. president, San Francisco Federal Reserve Bank President John Williams said that the U.S. central bank is nerdy, geeky, but above all apolitical, and will remain so. During his campaign Trump repeatedly accused the Fed of keeping rates low for political reasons, and said he would replace Fed Chair Janet Yellen, who ran the San Francisco Fed before Williams, once her term ends in 2018. Speaking at the University of San Francisco, Williams said the U.S. economy is close to maximum employment and inflation is poised to rise back to the Fed's 2-percent target, and that therefore it is time for the central bank to increase rates gradually. Rate increases have been much slower than the Fed expected last year, when most policymakers thought they would raise borrowing costs four times in 2016. Williams said the Fed did not raise rates as fast as expected because most policymakers over the course of the year changed their estimate of the neutral level of interest rates, and now believe that level is much lower because of factors like an aging population and slow productivity growth. Fed's Williams says gradual rate rises still make sense. The Fed is widely expected to raise one time this year, at next month's policy meeting, a move that Williams supports.

Oil prices dipped on Thursday, pulled down by rising U.S. crude inventories and as markets tried to interpret U.S. President-elect Donald Trump's surprise victory. U.S. crude stocks rose by 2.4 million barrels to 485 million barrels last week even though refineries hiked output and imports fell, the U.S. Energy Information Administration said on Wednesday. Markets still shook off deep post-election losses and recovered. BMI Research said Trump's expected pro oil and gas industry policies might mean that U.S. "production of oil and gas could recover at a faster rate in 2017 as developers grow more encouraged." Goldman Sachs said a Trump presidency would likely result in higher investment and, in time, increased U.S. oil output as the new president-elect has said he would de-regulate fossil fuel production. Internationally, the bank said Trump's threat of renewed U.S. sanctions against OPEC-member Iran would, in the short-term, lead to higher production as it "would further incentivize Iran to maximize production in the short term rather than comply to an OPEC freeze." This confirmed traders' doubts over the ability of the Organization of the Petroleum Exporting Countries (OPEC) and other producers, especially Russia, to coordinate a planned output cut in order to prop up prices. In physical oil markets, the Niger Delta Avengers (NDA) militant group said it had attacked the Forcados crude export line operated by oil major Royal Dutch Shell. Shell said that it had also shut down an Escravos crude oil flow station in Nigeria's Niger Delta after villagers staged a protest demanding aid.

 

[PYX Markets London]

Daily Market Outlook 15th November

The U.S. dollar held near a 14-year high on Tuesday and Treasury yields extended their rise as investors braced for stronger inflation in the United States amid expectations of expansionary fiscal polices under Donald Trump's presidency. The combination of the two have derailed Asian currencies and equities, particularly in South Korea, Taiwan and Indonesia, which have seen big inflows this year, especially after the shock referendum vote by Britain to exit the European Union in June. Despite the general air of caution over Asian markets, investors are eyeing some opportunities such as banking stocks in Hong Kong which would benefit from any Trump-led deregulation in the financial sector. Some investors were also considering the Indian rupee, which is relatively less exposed to any flare-up in global trade protectionism than others. The large moves in markets has been stoked by expectation that Trump's promised infrastructure spending and tax cuts will spur higher U.S. growth, pushing up inflation as well as borrowing costs.

U.S. President-elect Donald Trump's administration should consider supporting a Beijing-backed free trade deal in the Asia-Pacific, state media said on Tuesday, adding that China would be relieved to see a rival U.S.-led trade deal wither under Trump. During his election campaign, Trump took a protectionist stance on trade issues and labeled the Trans-Pacific Partnership (TPP) championed by President Barack Obama a "disaster". There is now little chance of it coming up for vote in Washington before his inauguration in January. Obama had framed the TPP, which excludes China, as part of his "pivot to Asia" and as an effort to write Asia's trade rules before Beijing could. China had feared the United States would use the TPP to either force it to open markets by signing up or else to isolate it from other regional economies. The Regional Comprehensive Economic Partnership (RCEP) trade talks, which are supported by Beijing but to which the United States is not party, are viewed by some observers as a competitor to U.S. economic leadership in the region. Such editorials in state-run media do not represent Chinese government policy but they are indicative of official thinking.

The dollar extended gains to hit an eleven-month high against the other majors currencies on Monday, as optimism over the economic implications of a Trump presidency continued to boost demand for the greenback. The dollar continued to strengthen amid hopes that increased fiscal spending and tax cuts under a Trump administration will bolster economic growth and inflation. Expectations for higher U.S. interest rates also remained intact amid optimism that a pick-up in growth will allow the Federal Reserve to tighten borrowing costs. In Japan, data overnight showed that the economy grew at a faster than expected pace in the third quarter, with GDP expanding by 2.2% on a year-over-year basis, but the report also indicated that domestic demand remained weak.

Oil prices rose around 2 percent on Tuesday to move away from multi-month lows struck the day before, pushed higher by expectations of falling shale output and renewed optimism that OPEC will deliver on touted production cuts. Prices were buoyed by expectations that U.S. shale oil production will in December fall to its lowest since April 2014 at 4.5 million barrels per day (bpd). Saudi Arabia's energy minister said it was imperative for the Organization of the Petroleum Exporting Countries to reach a consensus on activating a deal made in September to curb production, according to Algeria's state news agency APS on Sunday. OPEC members are due to meet later this month. Also supporting oil markets was news that Harold Hamm, chief executive at U.S. independent oil producer Continental Resources, could serve as energy secretary when Donald Trump becomes U.S. president. Hamm, if nominated, would be the first U.S. energy secretary drawn directly from the industry, a move that would jolt environmental advocates but bolster Trump's pro-drilling energy platform. U.S. crude prices are also likely to be supported by short-covering, said Philips Futures' investment analyst Jonathan Chan. Elsewhere, Iraq will cut exports of Basra crude from its southern ports to 3.16 million bpd in December, compared with 3.24 million bpd in November. The allocated December volume will be the lowest in four months. Meanwhile, returning Libyan crude oil production could cap market gains. A tanker carrying the first freshly produced cargo of Libyan crude to be exported since the Ras Lanuf terminal reopened in September left the port on Monday. The reopening of the eastern ports has helped Libya's national production double to around 600,000 bpd.

 

[PYX Markets London]

Daily Market Outlook 16th November

A pause in both the sell-off in global bonds and sharp rise in the dollar following Donald Trump's election victory, together with Wall Street's record high overnight helped Asian shares steady on Wednesday from a four-month low struck a day earlier. President-elect Trump's plans to cut taxes and boost infrastructure spending would boost demand while his proposals to deport illegal immigrants and impose tariffs on cheap imports, if implemented, are seen likely to drive inflation higher. That prospect has given rise to expectations that U.S. interest rates will rise faster than earlier anticipated, making the dollar stronger, but investors are still trying to assess what opportunities a Trump presidency will bring. The dollar's strength has fanned fears investors could shift funds to the United States from emerging markets. Emerging market stocks managed to rise 0.3 percent on Tuesday after having fallen 7 percent over the previous four sessions. U.S. retail sales rose more than expected in October, pointing to sustained economic strength that could allow the Federal Reserve to raise interest rates next month.

U.S. retail sales rose more than expected in October as households bought motor vehicles and a range of other goods, pointing to sustained economic strength that could allow the Federal Reserve to raise interest rates next month. The Commerce Department said on Tuesday retail sales increased 0.8 percent last month, also boosted by demand for building materials, likely as households cleaned up and made repairs in the wake of Hurricane Matthew. Adding to the report's strong tone, September retail sales were revised up to show a 1.0 percent increase instead of the previously reported 0.6 percent rise. The combined September and October sales gain was the largest two-month rise since early 2014. Sales were up 4.3 percent from a year ago. Excluding automobiles, gasoline, building materials and food services, retail sales jumped 0.8 percent last month after an upwardly revised 0.3 percent gain in September. These so-called core retail sales, which correspond most closely with the consumer spending component of gross domestic product, were previously reported to have risen 0.1 percent in September. September's upward revision to core retail sales suggests that the economy's 2.9 percent annualized growth rate in the third quarter could be raised when the government publishes its second GDP estimate later this month. The report also reinforced views that the Fed will raise interest rates at its Dec. 13-14 policy meeting. Rate hike prospects have also been boosted by a rally in U.S. stocks in the wake of the last week's election of Republican candidate Donald Trump as the next president, despite a lot of hand-wringing over his proposed policies. But inflation is creeping higher. A separate report on Tuesday from the Labor Department showed import prices increased 0.5 percent in October after gaining 0.2 percent in September. In the 12 months through October, import prices fell 0.2 percent, the smallest decrease since July 2014, after declining 1.0 percent in September.

America's manufacturers are urging President-elect Donald Trump to back off from his most threatening trade rhetoric and pursue a more nuanced approach to trade with China and Mexico, avoiding unilateral tariff actions and focusing on negotiations. Corporate lobbying groups, some chief executives and pro-trade lawmakers also say they eventually even hope to persuade Trump that free-trade agreements can help grow the U.S. economy and create jobs. For now, these groups are bracing for higher trade tensions with China and potential changes to the 22-year-old North American Free Trade agreement with Canada and Mexico.

Oil futures rose on Wednesday, shrugging off an industry report that showed an unexpected build in U.S. crude stocks, and adding to gains of nearly 6 percent from the previous session. Oil prices had surged on Tuesday as members of he Organization of the Petroleum Exporting Countries (OPEC) were set to renew efforts on concrete steps to implement a deal on cutting output in the face of a persistent global glut. Both contracts had opened lower after Asian trading started following an after-hours report on Tuesday from the U.S. industry group, the American Petroleum Institute (API), that showed crude stocks rose last week. OPEC agreed to an outline of a supply cutting deal in September but with two weeks to go before a Nov. 30 meeting, disagreements persist among members and non-OPEC Russia on crucial details. OPEC secretary-general Mohammed Barkindo will travel to member nations, including Iran and Venezuela, over the next few days to discuss the deal. Crude inventories climbed by 3.6 million barrels to 488.8 million barrels in the week ended Nov. 11, the API report showed, compared with analyst expectations for an increase of 1.5 million barrels. Official figures on stockpiles from the U.S. Energy Information Administration are due later in the day.

 

[PYX Markets London]

Daily Market Outlook 21st November

Asian shares were on the defensive on Monday, undermined by fears that the strength in the U.S. dollar and rising U.S. bond yields since Donald Trump's election to president could accelerate fund outflows from emerging markets. Trump's unexpected election victory has led to a major repricing of assets, with investors rushing to buy U.S. stocks and the dollar, while dumping bonds and emerging market assets. Carrying out even some of Trump's plans for deregulation and tax cuts would undermine assumptions investors had long held - that the U.S. economy would grow modestly and inflation would remain tame in the foreseeable future. As expectations grow that the Federal Reserve might have to raise interest rates faster than expected under Trump's reflationary policies, markets have moved towards U.S.-dollar based assets at the expense of emerging nations. Heightened uncertainty prompted investors to demand a larger premium for holding long-term U.S. debt, with the 10-year U.S. Treasuries yield US10YT=RR soaring to 2.364 percent by last week from around 1.86 percent before the elections. To be sure, investors have little idea to what extent Trump can implement his proposals, including slapping tariffs on major trading partners such as China and Mexico and going ahead with heavy tax cuts that would widen the U.S. fiscal deficit. Some investors think the market will have a reality check as soon as differences start to emerge between the new administration and Congress over some of Trump's policies. The data from the U.S. financial watchdog showed on Friday that in the first week after the U.S. elections speculators hardly increased their net long positions in the dollar. Many emerging market currencies remained under pressure on fears investors could bring their money back to the United States. The Malaysia ringgit hit 14-month low MYR= while the Philippine peso PHP= edged near its 2008 low. The Organization of the Petroleum Exporting Countries is moving closer to finalizing its first deal since 2008 to limit output, with most members prepared to offer Iran flexibility on production volumes, ministers and sources said.

The dollar nudged up to a six-month high in early Asian trading on Monday, as investors continued to back bets that the administration of President-elect Donald Trump would embark on expansionary fiscal policies and boost growth. Data from the Commodity Futures Trading Commission released on Friday showed that speculators trimmed their dollar bets in the week through Nov. 15, as profit taking reduced net long positions after they had risen seven straight weeks. Japanese yen net longs, meanwhile, posted their lowest level since early June, the data showed, with the yen a casualty of the dollar's strong rally. And expectations that a Trump presidency will usher in higher growth and lead to faster-than-expected Fed hikes have helped power the dollar to 13-1/2-year highs against a basket of currencies. James Bullard, a voting member of the U.S. central bank's rate-setting committee, said last week that the Fed will raise U.S. interest rates in December barring a major shock, such as global market volatility or bad U.S. jobs data.

Oil prices rose around 1 percent on Monday as producer cartel OPEC moved closer to an output cut to rein oversupply that has kept prices low for over two years. Traders said that markets were being supported by advancing plans by the OPEC to cut production in a bid to prop up the market following over two years of low prices as a result of output exceeding demand. Such a deal has proved tricky to agree as some producers, most notably Iran, have been reluctant to cut output. But an agreement has become more likely as Iran, keen to increase output after international sanctions against it were lifted last January, was expected to be given an exemption if it agrees to cap its production rather than cutting it, leaving the onus of a an outright reduction on other OPEC-members, including its political rival and de-facto OPEC-leader Saudi Arabia. As a result, Barclays said that some form of production cut deal was likely, but the bank added that any such agreement might have little impact on markets. Beyond the talk of a potential production cut, there were also signs of ongoing market weakness. Japan on Monday reported a fall of 9.5 percent in crude oil imports in October from the same month a year earlier, to 2.78 million barrels per day.

 

[PYX Markets London]

Daily Market Outlook 24th November

Most Asian stock markets fell on Thursday as upbeat economic data strengthened the prospect for higher U.S. interest rates, while the dollar's bull run continued with U.S. bond yields propelled to multi-year highs. Such a view - which has also lifted expectations for more U.S. rate hikes next year - was reinforced on Wednesday after new orders of U.S. manufactured capital goods rebounded in October. Consumer sentiment also jumped in November. he common currency has dropped nearly 4 percent in November. State banks or foreign exchange authorities in China, India, Indonesia and the Philippines were all suspected of intervening to slow the slide in their currencies on Thursday.

The dollar was hovering at a fresh 14-year peak against the other majors currencies on Wednesday, after the release of mixed U.S. data failed to dampen optimism over the strength of the economy. The Universtity of Michigan said its consumer sentiment index rose to 93.8 in November from 91.6 the previous month, beating expectations for an unchanged reading. In addition, the U.S. Commerce Department said durable goods orders climbed 4.8% last month, compared to expectations for a gain of 1.5%. Core durable goods orders, which exclude volatile transportation items, rose 1% last month, compared to a forecast increase of 0.2%. On a less positive note, the U.S. Department of Labor said initial jobless claims in the week ending November 19 increased by 18,000 to251,000 from the previous week’s total of 233,000 (initially 235,000). Analysts had expected jobless claims to rise by 15,000 to 250,000 last week. Another report showed that U.S. new home sales fell by 1.9% to 563,000 units last month, disappointing expectations for a 0.3% increase. The greenback has remained supported amid expectations that President-elect Donald Trump’s plans to ramp up fiscal spending and cut taxes will spur economic growth and inflation. Faster growth would spark inflation, which in turn would prompt the Fed to tighten monetary policy a faster rate than had previously been expected. The U.S. dollar has also been boosted by bets that the U.S. central bank will almost certainly raise interest rates next month. Fed Chair Janet Yellen on Thursday reiterated that a rate hike “could well become appropriate relatively soon.” Research group Markit earlier reported that its euro zone composite purchasing managers’ index, which measures the combined output of both the manufacturing and service sectors, increased to 54.1 November from the prior month’s reading of 53.3 and above forecasts for no change. The German manufacturing PMI slipped to 54.9 this month from 55.0, while the services PMI climbed to a six-month high of 55.0 from 54.2. Markit also said its French manufacturing PMI declined to a two-month low of 51.5 in November from 51.8 the previous month, while the services PMI rose to a two-month high of 52.6 from 51.4.

Nov 23 Federal Reserve policymakers appeared confident on the eve of the U.S. presidential election that the economy was strengthening enough to warrant interest rate increases soon, minutes from the Fed's Nov. 1-2 meeting showed. The minutes released on Wednesday back the consensus view on Wall Street that the Fed is poised to raise rates in December. Policymakers left borrowing costs unchanged earlier this month, just days before Republican Donald Trump triumphed in the Nov. 8 presidential contest. Voting members of the Fed's rate-setting committee saw equal risks the economy would overshoot or undershoot their forecasts for continued growth and a tightening labor market. "Almost all of them continued to judge that near-term risks to the economic outlook were roughly balanced," according to the minutes. Seventeen policymakers participated at the November policy meeting, of whom 10 had a vote. Among the wider group of participants, most said it "could well become appropriate" to raise rates "relatively soon," according to the minutes. Fed Chair Janet Yellen said last week in congressional testimony that Trump's election did nothing to change the Fed's plans for a rate increase "relatively soon." Oil prices were little changed on Thursday as uncertainty ahead of a planned OPEC-led crude production cut and thin liquidity due to the U.S. Thanksgiving holiday kept traders from making big new bets on markets. Traders said market activity was low due to the U.S. holiday, and there was a reluctance to take on big price directional bets due to uncertainty about a planned oil production cut, led by the OPEC. OPEC is due to meet on Nov. 30 to coordinate a cut, potentially together with non-OPEC member Russia, but there is also disagreement within the producer cartel as to which member states should cut and by how much. Most analysts believe some form of production cut will be agreed, but it is uncertain whether it will be enough to prop up a market that has been dogged by a fuel supply overhang for over two years, resulting in a record three years of falling investments into the sector, according to IEA. Beyond OPEC, traders said the strong U.S.-dollar, which is at levels last seen in 2003 against a basket of other leading currencies .DXY, was influencing oil prices. A strong dollar, in which oil is traded, makes fuel purchases more expensive for countries using other currencies at home, potentially crimping demand.

 

[PYX Markets London]

Daily Market Outlook 30th November

Asian stocks tried to stabilize after a rocky November month drew to a close, but Wednesday's session brought new anxieties as Chinese equities and commodities tanked amid worries that Beijing's efforts to support its currency could squeeze liquidity. Analysts said moves by China's central bank in recent days to shore up a sliding yuan were sucking additional funds from the banking system, which is pushing up domestic borrowing costs. While it held near its highest levels since Nov. 11, the index was set for a second consecutive monthly drop in a sign of the uncertainty around U.S. President-elect Donald Trump's administration and the outlook for global growth. A six percent rise in the dollar since Trump's upset U.S. election win has hammered emerging markets, as investors pulled money out in favor of U.S. dollar-based assets on bets Trump will boost fiscal spending, growth and inflation. More than $16 billion have been sucked out of emerging markets in the two weeks following the Nov. 8 vote but stock exchange data in India, Indonesia, Philippines, Taiwan, Thailand and South Korea indicate the outflows may be slowing. The dollar's recent gains - 7 percent versus the yen and 3 percent against the euro - has come on the back of expectations of stepped up fiscal spending, higher inflation and a faster pace of monetary tightening by the Federal Reserve. However, market watchers say further dollar gains will be hard fought.

The U.S. economy grew faster than initially estimated in the third quarter, notching its best performance in two years, buoyed by strong consumer spending and a surge in soybean exports. In a separate report, U.S. home prices rose 5.5% in the year to September, meaning house prices overall have now fully recovered from their plunge during the 2008 financial crisis. A third report showed U.S. consumer confidence rebounded in November to its highest level in nine years despite uncertainty surrounding the policies of President-elect Trump. U.S. gross domestic product increased at a 3.2% annual rate instead of the previously reported 2.9 percent pace, the Commerce Department said in its second GDP estimate on Tuesday. Economists had forecast third-quarter GDP growth being revised up to a 3.0% rate.. Data ranging from housing to retail sales and manufacturing output also suggest the economy retained its momentum early in the fourth quarter even as exports appear to be faltering amid a reversal of the boost to growth provided by soybean exports in the third quarter. The Commerce Department said consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at a 2.8 percent rate in the third quarter and not the 2.1 percent pace reported last month. That was still a slowdown from the second quarter's robust 4.3 percent pace. A separate report from the Conference Board showed its consumer confidence index surged in November, climbing back to levels seen before the 2008 recession. Consumers were upbeat about the labor market and current business conditions. Spending on non-residential structures, which include oil and gas wells, was revised sharply higher to show it increasing at its fastest pace since the first quarter of 2014.

Iran and Iraq are resisting pressure from Saudi Arabia to curtail oil production, making it hard for the Organization of the Petroleum Exporting Countries to reach a deal to limit output and boost the price of crude when it meets on Wednesday. OPEC sources told a meeting of experts in Vienna on Monday failed to bridge differences between OPEC's de facto leader, Saudi Arabia, and the group's second- and third-largest producers over the mechanics of output cuts. On Tuesday, tensions rose further after Iran wrote to OPEC saying it wanted Saudi Arabia to cut production by as much as 1 million bpd, much more than Riyadh is willing to offer, OPEC sources who saw the letter told Reuters. OPEC, which accounts for a third of global oil production, made a preliminary agreement in Algiers in September to cap output at around 32.5-33 million bpd versus the current 33.64 million bpd to prop up oil prices, which have halved since mid-2014. OPEC said it would exempt Iran, Libya and Nigeria from cuts as their output has been crimped by unrest and sanctions. The deal was seen as a victory for Iran. Tehran has long argued it wants to raise production to regain market share lost under Western sanctions, when its political arch-rival Saudi Arabia increased output. Tehran has sent mixed signals, saying it wanted to produce as much as 4.2 min bpd. Iran's letter to OPEC suggested Saudi Arabia should cut output to 9.5 mn bpd. The headquarters of the OPEC is seen in Vienna, Austria, November 29, 2016. Iraq has also been pressing for higher output limits, saying it needs more money to fight the militant group Islamic State. Iran and Iraq together produce over 8 million bpd, only slightly behind long-time leader Saudi with 10.5 million bpd. As tensions within OPEC mounted, Saudi Energy Minister Khalid al-Falih said at the weekend that oil markets would rebalance even without an output-limiting pact. He had previously said Riyadh was keen for a deal. One of Saudi Arabia's main allies, UAE Energy Minister Suhail bin Mohammed al-Mazroui, said on Tuesday the market would indeed rebalance itself within six months although an output deal would help speed the process. The papers also propose Saudi Arabia reduce production to 10.07 mn bpd from 10.54 million bpd in October and that Iran freeze output at 3.797 million bpd, according to the source.

 

[PYX Markets London]

Daily Market Outlook 31st January

Asian shares slipped on Tuesday as stringent curbs on travel to the U.S. ordered by President Donald Trump brought home to investors that he is serious about putting his controversial campaign pledges into action. Global stocks posted their biggest loss in six weeks after Trump signed an executive order on Friday to bar Syrian refugees indefinitely and suspend travel to the United States from seven Muslim-majority countries, sparking widespread protests. The mood soured further after Trump fired the federal government's top lawyer after she took the extraordinarily rare step of defying the White House. Still, most share prices were up on the month, supported by signs of accelerating momentum in the global economy and hopes of large fiscal stimulus from Trump. The Japanese currency showed no reaction after the Bank of Japan kept its policy on hold, as expected. Recent data has suggested the economy is slowly regaining traction. Worries are also growing about a political shift to populist leaders in Europe. Conservative leader Francois Fillon, seen as the front-runner, is now battling to contain a scandal over allegedly unlawful payments to his wife while the Socialists on Sunday picked a hard-left candidate, possibly helping popular far-right leader Marine Le Pen. News that Germany posted a national inflation rate of 1.9 percent stoked talk of an unwinding of monetary stimulus by the European Central Bank, even though the inflation outcome was below expectations. Data on Monday showed U.S. consumer spending accelerated in December while inflation showed some signs of picking up last month.

The dollar slipped against the yen on Tuesday, as the Japanese currency benefited from its safe-haven status, with the appetite for risk curbed by U.S. President Donald Trump's hardening defence over his immigration policies. The latest blow against the dollar was initiated after Trump ordered a temporary ban over the weekend on the entry of refugees and people from seven Muslim-majority countries. On Monday, the president fired acting U.S. Attorney General Sally Yates after she refused to defend Trump's new travel restrictions. Selling of the dollar appeared to have briefly gained momentum after Trump's move, said a dealer at a Japanese bank. The Bank of Japan's well-anticipated decision to stand pat on monetary policy on Tuesday had little lasting impact, although the dollar did briefly rise above 113.700 following the announcement before drifting lower again. While the BOJ on Tuesday maintained a pledge to guide short-term interest rates at minus 0.1 percent and the 10-year government bond yield to around zero percent, the financial markets have begun to speculate about when the central bank might allow long-term rates to drift higher. U.S. consumer spending accelerated in December as households bought motor vehicles and cold weather boosted demand for utilities amid a rise in wages, pointing to sustained domestic demand that could spur economic growth in early 2017. There are also signs that inflation firmed last month. The growth outlook was further bolstered by other data on Monday showing a jump in contracts to buy previously owned homes. A strengthening economy, rising price pressures and tightening labor market could allow the Federal Reserve to raise interest rates at least three times this year. The Commerce Department said consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.5 percent after gaining 0.2 percent in November. The rise was the biggest in three months and in line with economists' expectations. Consumer spending increased 3.8 percent in 2016 after a 3.5 percent rise in 2015. With domestic demand firming, inflation showed some signs of picking up last month. The PCE price index rose 0.2 percent after edging up 0.1 percent in November. The economy grew at a 1.9 percent annual rate in the fourth quarter, restrained by a wider trade deficit. Private domestic demand, however, increased at a solid 2.8 percent rate. The economy expanded at a 3.5 percent rate in the third quarter.

Oil prices dipped on Tuesday as rising U.S. drilling activity offset efforts by OPEC and other producers to cut output in a move to prop up the market. The falls reflect a sentiment that efforts led by the OPEC to cut output by almost 1.8 bpd in order to end overproduction were so far not big enough to offset rising U.S. drilling. Following months of rising drilling activity, U.S. oil production has risen by 6.3 percent since July last year to almost 9 million bpd, according to data from the U.S. EIA. U.S. bank Goldman Sachs estimates that year-on-year U.S. oil "production will rise by 290,000 bpd in 2017" if a backlog on rigs that are still to become operational is accounted for. With the differing outlook between global oil markets and that in the United States, traders said a renewed focus on the spread between Brent and WTI futures has emerged.

 

[PYX Markets London]

Daily Market Outlook 6st February

Asian shares crept up on Monday as Wall Street gathered momentum into a busy week of earnings with more than 100 major companies due to report, while the dollar was again hobbled by a lack of progress on U.S. fiscal stimulus. A private survey out of China showed activity in the services sector remained strong in January as companies reported a solid increase in orders, though the pace of growth eased. Local markets seemed unimpressed and Shanghai stocks were barely changed .SSEC. Dealers are still absorbing Friday's surprise move by China's central bank to raise short-term interest rates and whether its attempts to reduce leverage in the system this year will dampen growth. While the rate increases were modest, they suggested Beijing was intent on both containing capital outflows and reining in risks to the financial system created by years of debt-fueled stimulus. Growth in China's services sector remained robust in January as companies reported a solid increase in orders, though the pace of expansion eased from the previous month, a private business survey showed. The services PMI fell marginally to 53.1 in January on a seasonally adjusted basis, from 53.4 in December, the Markit/Caixin services PMI showed. Though activity in services slowed slightly from December, strong growth looks set to continue, in line with policymakers efforts to rebalance the economy toward services and consumption, which are the biggest drivers of growth in the world's second-largest economy. Expansion in new business for services firms slowed slightly from December but remained robust. Caixin's composite PMI covering both the manufacturing and services sectors showed a similar pattern of solid but slightly easing growth, falling to 52.2 in January from the previous month's near 4-year high of 53.5.On Wall Street, banks had ended Friday strongly as President Donald Trump moved to roll back regulations intended to prevent a repeat of the global financial crisis. Friday's payrolls data also showed U.S. jobs jumped more than expected in January as construction firms and retailers ramped up hiring, but wages growth still slowed.

The dollar started the week on the back foot on Monday, after U.S. data showed a smaller-than-expected rise in wages in January that reinforced expectations the Federal Reserve will refrain from raising interest rates next month. While the headline figure of Friday's nonfarm payrolls report for January showed a greater-than-expected rise in job growth, the unemployment rate edged up and wage growth was disappointing. That implied inflation would not attain a pace that would prompt the U.S. central bank to raise interest rates soon. The chance of a June increase was seen at more than 60 percent. The Fed, which raised rates in December, has forecast three rate increases this year. Whether it sticks to that pace depends on labour market strength as well as if President Donald Trump's stimulus steps succeed in boosting growth and inflation Still, San Francisco Fed President John Williams said on Friday that the Fed can prepare to raise interest rates this year without knowing details of any new U.S. fiscal policies because inflation is firming and the labour market looks good. While Trump's immigration curbs and renewed sanctions on Iran grabbed most attention, he also on Friday ordered reviews of major banking rules that were put in place after the 2008 financial crisis. Adding to the smaller-than-expected rise in U.S. wage growth, concerns about the potential impact of Trump's policies also dampened the dollar's outlook. Investors fretted that his protectionist trade policies and statements about other countries' currency manipulations would offset any dollar lift from his stimulus policies and deregulation.

Oil prices rose on Monday, with traders shifting money into crude futures as the dollar weakened, and on concerns that new U.S. sanctions against Iran could be extended to affect crude supplies. Traders said the rising prices were a result of cash being poured into crude futures due to a weakening dollar and because of a generally firm outlook thanks to producer efforts to cut output. Investors raised their net long U.S. crude futures and options positions in the week to Jan. 31 to a record 412,380 lots, the U.S. Commodity Futures Trading Commission said on Friday. The dollar has lost almost 4 percent in value against a basket of other currencies since early January, making investments into other products, including crude futures, more attractive. Traders said that tensions between Tehran and Washington were also supporting oil as a recent Iranian ballistic missile test prompted U.S. President Donald Trump to impose sanctions on individuals and entities linked to Iran's elite Revolutionary Guards military unit. On the supply-side, the OPEC and other producers like Russia are trying to reduce a global fuel supply overhang by cutting their output by a planned average of almost 1.8 million barrels per day (bpd) during the first half of the year. Despite this, crude was held back by rising U.S. drilling activity, where 17 oil rigs were added in the week to Feb. 3, bringing the total up to 583, the most since October 2015, according to Baker Hughes on Friday. BMI Research said that around 6 percent of Chinese refining capacity would shut down at some point during the first half of the year, equivalent to around 900,000 bpd of capacity. A 6.7-percent reduction to 68.81 million tonnes between 2016 and 2017 crude import quotas for China's independent refiners will also weigh on the overall import demand, said BMI.

 

[PYX Markets London]

Daily Market Outlook 8th February

Asian share markets retreated on Wednesday and the euro was pressured as doubts over the policies of U.S. President Donald Trump and an election looming in France sapped investor confidence. A raft of strong global economic data and hopes that Trump's talk of economic stimulus measures had helped to support world share markets, and the dollar, since late last year. But the lack of detail on Trump's stimulus plans and some other policy stances taken after he was sworn in on Jan. 20 have unsettled investors. Trump's protectionist leanings on international trade and controversy over his move to temporarily ban the entry of immigrants from seven Muslim-majority countries have caused alarm. Uncertainty on the new administration's currency policy is also keeping foreign exchange markets on edge. The pair may see limited moves for now as traders look to a meeting between Trump and Japanese Prime Minister Shinzo Abe on Friday. The euro EUR=, on the other hand, shed 0.6 percent on Tuesday and last stood at $1.0682, hit by rising concerns that the far right could win France's presidential vote and take the country out of the euro. While most investors expect Le Pen to be defeated in the run-off by a more moderate candidate, markets are nervous after last years’ experience of the Brexit referendum and Trump's victory. In addition, wrangling over Greece's bailout are starting to haunt the market ahead of the euro group meeting on Feb. 20, with two-year Greek debt GR2YT=RR yield soaring to near 10 percent on Tuesday, compared to around six percent just about two weeks ago. Elsewhere, the Chinese yuan dipped slightly following Tuesday's data that showed China's foreign exchange reserves unexpectedly fell below the closely watched $3 trillion level in January for the first time in nearly six years. Still, the market impact was limited as the fall in the reserves, of $12.3 billion to $2.998 trillion, was the smallest in seven months, indicating China's renewed crackdown on outflows appears to be working, at least for now.

The U.S. trade deficit fell in December as exports hit their highest level in more than 1-1/2 years amid record shipments of technology products, but strengthening domestic demand points to further rises in imports, which could constrain economic growth. The Commerce Department said on Tuesday the trade gap dropped 3.2 percent to $44.3 billion, ending two straight months of increases. The trade deficit rose 0.4 percent to a four-year high of $502.3 billion in 2016. That represented 2.7 percent of gross domestic product, down from 2.8 percent in 2015. President Donald Trump has blamed U.S. trade policy for the loss of American factory jobs and has vowed to make sweeping changes, starting with pulling out of the 12-nation Trans-Pacific Partnership trade pact Trump also wants to renegotiate the North American Free Trade Agreement, which was signed in 1994 by the United States, Canada and Mexico. But economists do not believe these protectionist measures will eliminate the deficit. U.S. financial markets were little moved by the report as the government published an estimate of the goods deficit last month. Trade slashed 1.7 percentage points from gross domestic product in the fourth quarter, leaving output rising at a 1.9 percent annualized rate. The economy grew at a 3.5 percent pace in the third quarter. The improvement in the deficit at the end of the year could set up trade to be a modest drag on growth in the first quarter. In December, exports of goods and services increased 2.7 percent to $190.7 billion, the highest since April 2015, as shipments of advanced technology goods such as aerospace, biotechnology and electronics, hit a record high.

Oil prices dropped on Wednesday to extend falls from the previous day, as a massive increase in U.S. fuel inventories and a slump in Chinese demand implied that global crude markets remain oversupplied despite OPEC-led efforts to cut output. The sharp declines came on the back of unexpectedly big increases in U.S. fuel inventories, as reported by the API on Tuesday. Gasoline stocks rose by 2.9 million barrels, compared with expectations for a 1.1-million barrel gain. Despite this, the U.S. bank said "this data vastly overstates a likely modest year-on-year decline in gasoline demand," and that its "outlook for global strong demand growth (remains) unchanged". Outside the United States, there were other signs of market weakness. China's 2016 oil demand grew at the slowest pace in at least three years, Reuters calculations based on official data showed. China's implied oil demand growth eased to 2.5 percent in 2016, down from 3.1 percent in 2015 and 3.8 percent in 2014, led by a sharp drop in diesel consumption and as gasoline usage eased from double-digit growth. The slowing occurred as the economy expanded by only 6.7 percent in 2016, the slowest pace in 26 years. Slowing demand and ongoing high inventories undermine efforts by the Organization of the Petroleum Exporting Countries and other producers including Russia to cut output by almost 1.8 million bpd during the first half of this year in order to prop up prices and rebalance the market. Despite this, both Brent and WTI are down over 6 percent since early January, when the cuts started to be implemented.

 

[PYX Markets London]

Daily Market Outlook 22nd February

Asian stocks rose on Wednesday, joining a record-setting session for global markets as investors cheered upbeat factory activity in Europe and solid earnings on Wall Street. The euro, however, has not followed suit as the currency markets focused more on potential political turbulence in the euro zone. The common currency was up a modest 0.1 percent at $1.0544 after losing more than 0.7 percent the previous day. Polls suggesting improving support for far-right French presidential candidate Marine Le Pen have undermined sentiment and weighed on the common currency. The dollar had risen overnight following hawkish comments from Cleveland and Philadelphia Fed Presidents Loretta Mester and Patrick Harker. Mester expressed comfort at raising rates at this point, while Harker reportedly said a March rate hike was on the table. Financial markets are waiting on the Fed's Jan. 31-Feb. 1 policy meeting minutes due later in the day for fresh hints on the central bank's stance toward interest rates. The focus will be on the Fed's economic assessment in the minutes, which should emphasize a recent uptick in economic data, although the market may still remain skeptical about the chances of a near-term rate hike, said Christopher Wong, senior FX strategist for Maybank. The Mexican currency surged 1.7 percent against the dollar overnight, breaking the psychological level of 20 per dollar or the first time since Donald Trump's November U.S. election victory. Hurt by Trump's threats to impose trade barriers on Mexico and hit by the prospect of higher U.S. rates, the peso weakened to a record low of roughly 22 per dollar in January.
The dollar lost ground in Asian trading on Wednesday as investors awaited the minutes of the Federal Reserve's latest meeting for clues as to the pace of interest rate hikes, while Europe's political woes kept a bruised euro under pressure. The Fed minutes due to be released later on Wednesday could either reinforce or undermine recent hawkish comments from central bank policy makers. Cleveland Fed President Loretta Mester said late on Monday in a speech in Singapore that she would be comfortable raising rates at this point if the economy maintained its current performance. Philadelphia Fed President Patrick Harker also told reporters on Monday that he would support an interest rate increase at a mid-March policy meeting as long as inflation, output and other data until then continue to show the U.S. economy is growing. Bank of Japan Governor Haruhiko Kuroda said the chance of the central bank lowering interest rates deeper into negative territory was low for now, backing market expectations that no additional monetary easing would be forthcoming in the near future. Japanese Finance Minister Taro Aso said that Japan was not thinking now of issuing negative rate Japanese government bonds. An Elabe poll showed the lead of centrist Emmanuel Macron and conservative rival Francois Fillon over Le Pen falling to 18 and 12 points respectively, suggesting Le Pen may have more chance of springing a surprise if she can make it through to the second round of the elections in May. But underpinning the single currency, purchasing manager index (PMI) reports showed the euro zone economy expanded much faster and more smoothly than expected. The dollar retreated later during the U.S. session, after market research group Markit said that its flash services Purchasing Managers’ Index (PMI) eased to 53.9 in February, falling short of analysts’ expectation of an increase to 55.8. Despite a strong round of Eurozone manufacturing data, the euro struggled for upside momentum, as concerns over upcoming elections in France and the Netherlands continued to weigh on the single currency.
Oil prices held near multi-week highs on Wednesday after OPEC signaled optimism over its deal with other producers to curb output to clear a glut that has weighed on markets since 2014. The data is set to be released on Thursday, a day later than normal, following a U.S. public holiday on Monday. Last week's numbers showed U.S. output helped boost crude and gasoline inventories to record highs, amid faltering demand growth for the motor fuel. That has kept a lid on prices after they climbed following an agreement by the OPEC and other producers to cut output by about 1.8 million bpd. Mohammad Barkindo, OPEC secretary general, told an industry conference in London on Tuesday that January data showed conformity from member countries participating in the output cut had been above 90 percent. Oil inventories would decline further this year, he added. Goldman Sachs, however, noted that a rebound in U.S. drilling activity had exceeded even its own above-consensus expectations.

 

[PYX Markets London]

Daily Market Outlook 3rd March

U.S. stock futures dropped and Asian shares were on the defensive on Monday as investors weighed the near-certain prospect of an interest rate hike in the United States this month against news of slower growth in China this year. Risk appetite also took a hit on rising geopolitical tensions in East Asia, as North Korea fired four ballistic missiles early in the day, while a spat between China and South Korea over missile defense deepened. Federal Reserve Chair Janet Yellen on Friday all but confirmed market expectations for an interest rate rise in March barring any sharp deterioration in economic conditions. In the United States, President Donald Trump accused predecessor Barack Obama on Saturday of wiretapping him during the late stages of the 2016 election campaign, an accusation rejected by both Obama and former top U.S. intelligence official. Keeping risk appetite in check was rising tensions over North Korea, which on Monday fired four ballistic missiles, three of which landed in Japan's exclusive economic zone, Japanese Prime Minister Shinzo Abe said, the latest in a series of provocative tests by the reclusive state. The move came just after Japanese media reported on Saturday U.S. Secretary of State Rex Tillerson is due to visit Japan, South Korea and China this month to discuss North Korea on his first trip to the region since he took up his post. Adding to the tensions in the region, South Korea's trade minister said on Sunday Seoul's responses against discriminating action by China towards South Korean companies will be strengthened. South Korean media said last week Chinese government officials had given verbal guidance to tour operators in China, to stop selling trips to South Korea days after the Seoul government secured land for a U.S. missile-defense system.

Dollar slipped in Asian trading on Monday, as investors locked in gains after its rise last week on growing expectations of a U.S. interest rate hike later this month. Market participants also kept a wary eye on developments in North Korea, which fired four ballistic missiles early on Monday, three of which landed in Japan's exclusive economic zone. Federal Reserve Chair Janet Yellen said on Friday that the central bank is set to raise its benchmark interest rate later this month as long as economic data on jobs and inflation holds up, in comments that likely cement a rate hike at the Fed's next meeting on March 14-15. In addition to Yellen, four other top U.S. central bank officials spoke at various times during the day. Fed funds futures prices show traders see more than an 85 percent chance of a rate increase this month, up from just a one in three chance early last week, according to CME Group's Fed Watch tool. Still, speculators reduced bullish bets on the U.S. dollar in the week ended Feb. 28, pushing net longs to their lowest since early October, according to Commodity Futures Trading Commission data released on Friday and calculations by Reuters. U.S. political developments also weighed on the dollar. Trump on Saturday accused his predecessor Barack Obama of wiretapping him during the 2016 election campaign, an accusation rejected by Obama and a top former intelligence official. The controversy distracts from policy issues on which investors are still waiting for details, said Masashi Murata, senior currency strategist at Brown Brothers Harriman. South Korea special prosecutor: President Park colluded with friend to receive Samsung bribe. Kazakhstan parliament passes reforms reducing presidential powers Scandal-hit French presidential candidate Francois Fillon said on Sunday he was staying in the race but left the door open to talks with senior members of his party who are increasingly anxious about his candidacy. Fillon's fellow conservative Alain Juppe would reach the second round should he replace him, an opinion poll said on Sunday.

Oil prices fell in Asian trade on Monday, wiping out some of the gains of the previous session amid worries lower growth targets in China could cut oil demand and ongoing concern over Russia's compliance with a global deal to cut oil output. But worries over escalating violence in the Middle East put a floor under prices. China aims to expand its economy by around 6.5 percent this year, Premier Li Keqiang said in his work report at the opening of the annual meeting of parliament on Sunday. China also plans to cut steel and coal output this year in an effort to tackle pollution, its top economic planner said on Sunday, while China's newly appointed banking regulator vowed on to strengthen supervision of the lending sector. Meanwhile, figures by Russia's energy ministry released last week showed February oil output was unchanged from January at 11.11 million barrels per day (bpd), casting doubt on Russia's moves to rein in output as part of a pact with oil producers last year. That came as oil prices rose on Friday as the dollar weakened modestly after a speech by U.S. Federal Reserve Chair Janet Yellen, which suggested a rate increase would come at the end of its two-day meeting on March 15. A weaker dollar bolsters commodity prices, including oil. While a rate hike would be supportive for the U.S. dollar, analysts said a near-term hike was already largely priced in. Crude oil prices were also supported by news of increasing supply disruptions in the Middle East, ANZ said in a note on Monday. That followed new doubts over Libya's attempts to revive its oil production after an armed faction entered two major oil ports on Friday, pushing back forces that captured and reopened the terminals in September.

 

[PYX Markets London]

Daily Market Outlook 10th March

Asian stocks edged up and the dollar rose to 1-1/2-month highs versus the yen on Friday, ahead of the closely-watched U.S. non-farm payrolls report due later in the day. Wall Street was marginally higher the day before, underpinned by speculation the widely-anticipated labor market report on Friday would show U.S. payrolls growth in February was far more than economist forecast. The employment figures are drawing particular interest as chances of the Federal Reserve raising interest rates several times this year could improve if the data underlines U.S. economic strength. Cementing views of tighter U.S. policy was also a report on Thursday that showed the number of Americans applying for unemployment benefits rose to 243,000 last week, rebounding from a near 44-year low, but continuing to point to a tightening labor market. The dollar did not fare as well against the euro after the common currency enjoyed a lift the previous day on European Central Bank head Mario Draghi's suggestion on Thursday it was less necessary to prop up the market through ultra-loose monetary policy. German, British and Italian bond yields extended their rise in Asia as the region's investors reacted to Draghi's comments, traders said.

While an imminent hike in U.S. interest rates is putting a downdraft on gold prices, bullion's allure as a safe haven is likely to limit the downside, traders and analysts say, owing to uncertainties in the United States and Europe. Gold slumped to a 10-month low in mid-December after rates were increased for the first time in a year, but gold investors don't appear to be as jittery ahead of the next Fed meeting and a near-certain rate rise on March 14-15. The previous slide came also as equity investors cheered the election of U.S. President Donald Trump, but gold has since recovered about 7 percent on a lack of clarity on Trump's policies and worries about upcoming elections in Europe. Higher interest rates make it less attractive to hold non-interest bearing gold, while a firmer U.S. dollar also makes gold more expensive for buyers in other currencies. However, the 121,720 lots at Feb. 28 were still less than half of the 286,921 contracts held in July 2016, when speculative fever was at its peak as gold prices hit over 2-year highs at $1,374.91 an ounce. Meanwhile, gold is expected to be boosted by political risks stemming from Britain's exit from the EU and upcoming contentious elections elsewhere in Europe. Investors are also focused on softer than expected initial jobless claims data that came a day ahead of a key nonfarm payrolls report for February due to be released on Friday, with a gain of 190,000 jobs expected and seen as key to cement widespread expectations of a Fed rate hike. Gold struggled to take advantage of a pull-back in the dollar, after initial jobless claims missed analysts’ forecasts while investors’ expectations of a March rate hike grew ahead of key non-farm payrolls report due to be released on Friday. U.S. Department of Labor said Thursday, initial jobless claims increased by 20,000 to 243,000 in the week ending March 4 from the previous week’s total of 223,000. Analysts expected jobless claims to rise by 12,000 to 235,000 last week.

Crude held gains in Asia on Friday after another sharp drop overnight after Saudi Arabia warned that an extension of a coordinated oil output cut beyond June 30 is not guaranteed with investors turning attention to weekly rig count data in the U.S. Ahead, investors are awaiting an update after the number of active U.S. rigs drilling for oil. Laswt week, figures showed oil rigs rose by 7 for the seventh weekly increase in a row. That brought the total count to 609, the most since October 2015, showing the sustained strength of a supply response as crude stays above $50 a barrel in a narrow range since the end of November when an output cut pact was announced. Overnight, Saudi sources reportedly told a meeting of U.S. shale oil firms that an extension of a pact by OPEC and non-OPEC nations to trim almost 1.8 million barrels per day (bpd) from global markets in the first half of the year is not a good assumption to make for drilling plans. The supply response by shale drillers will again be in sharp focus on Friday when figures on U.S. rig drilling from oilfield services firm Baker Hughes are due. However, the issues and the overall effect of higher production as oil prices held steadily above $50 a barrel had already hit the market this week as Brent and West Texas Intermediate took a more than 5% tumble. Trading volumes on exchanges reach the highest since early December, with over 430K contracts in Brent crude for May delivery and more than 911,000 contracts of WTI for delivery in April changing hands. As well, crude oil inventories in the U.S. rose more than quadruple the forecasts by 8.21 mn barrels at the end of last week, the EIA said on Wednesday, marking nine straight weeks of gains and taking the total to 528.4 million barrels. The market had forecast a gain of around 2 mn barrels. Gasoline stocks however dropped a much sharper than expected 6.6 million barrels, while distillate supplies dropped 2.7 mn barrels, also more than seen. The data offset a report that showed crude imports by China, the world's second largest buyer, rose to the second-highest level on record in February, reaching 8.286 mn bpd, up 3.5% from a year ago, according to trade data released on Wednesday, just shy of December's record 8.57 mn bpd and up on 8.01 mn bpd in January.