2024-03-18 05:45

OSLO, March 18 (Reuters) - Norway began its first auction on Monday for the right to build a commercial offshore wind farm, offering up to 1.5 gigawatts (GW) of capacity in what the government hopes will be the start of a massive development of renewable electricity. "Bids are coming in ... This is a very good day for Norway," Energy Minister Terje Aasland told NRK radio later in the day, after it was announced the auction would continue on Tuesday. Some analysts had feared no bids would be made amid soaring developing costs for the global offshore wind industry. "The auction has continued throughout the day and has taken a break. The auction will start again at 09.00 (local time) tomorrow, Tuesday," the energy ministry told Reuters. The ministry will present the winner when bidding ends. It declined to say how many groups were involved in the bidding. "I hope for a good auction with several strong players who want to develop offshore wind at Soerlige Nordsjoe II," Astrid Bergmaal, state secretary at Norway's energy ministry, told Reuters ahead of the 0800 GMT bidding start. Soerlige Nordsjoe II is close to Norway's North Sea border with Denmark and some 200 kilometres (124 miles) from Norwegian shores. It is part of the government's wider ambition to offer 30 GW of offshore wind capacity by 2040. The descending-bids auction offers state support through a 15-year contract for difference (CfD) nominated in Norwegian oere per kilowatt hour (kWh), and capped at a total of 23 billion Norwegian crowns ($2.17 billion). Five groups pre-qualified for the auction in February but Germany's EnBW (EBKG.DE) , opens new tab has since confirmed that it would not participate. "The key factors in EnBW's decision were the requirement for the developer to build and own the high-voltage direct current transmission connector and the limitation of state support," the company said. The remaining groups are: While Shell and others have raised questions over the project's profitability, all four groups declined to say if they would bid when asked by Reuters. The offshore wind industry is struggling with cost increases from rising interest rates and supply chain bottlenecks. Big names such as Orsted, Vattenfall, TotalEnergies and Iberdrola dropped plans to participate in the auction. ($1 = 10.6081 Norwegian crowns) The Reuters Power Up newsletter provides everything you need to know about the global energy industry. Sign up here. https://www.reuters.com/business/energy/norway-holds-inaugural-offshore-wind-auction-amid-uncertainty-over-bids-2024-03-18/

2024-03-18 05:34

March 18 (Reuters) - A look at the day ahead in European and global markets from Wayne Cole It's been a mostly quiet start to a busy week in Asia, though China came bearing positive surprises as industrial output and retail sales beat forecasts. A 7% y/y jump in output for January and February, combined to smooth out the Lunar New Year effect, handily topped the 5% market median and adds to evidence that factory growth globally is picking up again. Eyes are now on a raft of PMIs due on Thursday to reinforce the message. Not so hot was a 9% y/y drop in Chinese property investment, the country's Achilles heel and another argument for the People's Bank of China to lower loan rates on Wednesday. It's a packed week for policy makers as central banks in the United States, Japan, UK, Switzerland, Norway, Australia, Indonesia, Taiwan, Turkey, Brazil and Mexico all meet. Speculation is rife the Bank of Japan (BOJ) will end eight years of negative interest rates on Tuesday and cease or amend its yield curve control policy. The Nikkei newspaper on Saturday became just the latest media outlet to flag the move, after major companies granted the biggest pay hikes in 33 years. There is a chance the BOJ might wait for its April 26 meeting given that is when it will issue updated economic forecasts, though it has dropped so many hints recently that the market is fully priced for a move now. One-month rates have climbed into positive territory for the first time since 2016, albeit to just 0.01%. So discounted is a change that the yen has been easing broadly and the dollar has regained the 149.00 handle. That, in part, reflects expectations the BOJ will be at pains to emphasise it is not aiming to tighten policy but rather slowly transition to something less extraordinary. As a result, the market sees rates around 0.26% by the end of the year which would still make the yen the funding currency of choice for carry trades. DOT PLOTS IN FOCUS The Reserve Bank of Australia (RBA) also meets Tuesday and is certain to hold at 4.35%, though there is a chance it might further water down its tightening bias. Likewise, the Federal Reserve is considered certain to keep U.S. rates at 5.25-5.5% on Wednesday and all eyes will be on the FOMC dot plots for rates and inflation. Analysts assume policy makers will look through the recent run of unhelpfully high inflation readings as a seasonal and statistical aberration, but there has to be a risk the median dot plot shifts to two 25 bps rate cuts this year rather than the former three cuts. Futures now imply around a 58% chance of a first rate cut in June, compared to 75% a week ago, and have about 73 basis points of easing priced in for this year. Much will depend on what tone Chair Jerome Powell chooses to adopt at his post-meeting media conference, with cautious optimism being favoured recently. The Bank of England (BoE) meets Thursday and is likely to hold at 5.25% - a cut is priced as a 2% chance. A first easing in June is put at 50-50, with 25 bps fully priced in for August and 60 bps for all of 2024. Inflation data for February is due on Wednesday and the outcome could set the tone for the meeting. Markets see rather more chance - around 29% - the Swiss National Bank (SNB) could trim its 1.75% rate on Thursday. Consumer price inflation is running 0.6 ppts below the bank's 1.8% first-quarter forecast, while core inflation of 1.1% is the lowest since January 2022. The Swiss franc has eased from record highs on the euro over the last couple of months, breaking through the floor of a huge upward trend channel stretching back to early 2021. Yet, the franc's real effective exchange rate is still the highest it's been since a brief crisis-induced spike in 2011 and a major disinflationary drag on the economy, arguing for lower rates now that the SNB has backed away from intervention. Key developments that could influence markets on Monday: - Bank of Japan starts two-day policy meeting - Participation by ECB bank supervisor Claudia Buch in fireside chat - Euro Zone final inflation data for Feb and the total trade balance for Jan Get a look at the day ahead in European and global markets with the Morning Bid Europe newsletter. Sign up here. https://www.reuters.com/markets/europe/global-markets-view-europe-2024-03-18/

2024-03-18 05:29

LAUNCESTON, Australia, March 18 (Reuters) - The profit margin for making diesel in Asia is coming under sustained pressure from a glut of supplies as major exporters boost shipments and fewer cargoes head to Europe because of concerns over shipping via the Red Sea. The crack spread, or profit margin, of making a barrel of gasoil, the building block for middle distillate fuels such as diesel and jet kerosene, at a typical Singapore refinery ended at $20.33 a barrel on March 15. This was down from the previous close of $20.87 a barrel and just above the eight-month low of $19.89, reached on March 13. The margin is down 28% from the high so far in 2024 of $28.26 a barrel, hit on Feb. 13. The weakness comes as several indicators are flashing warning signs for diesel in Asia. Stockpiles of middle distillates in Singapore, the regional trading hub for refined fuels, surged 8% last week to reach the highest since September 2021 as net exports of diesel dropped by 98%, and those of jet fuel by 26%, according to official data released on March 14. Total middle distillate inventories in Singapore were 10.97 million barrels last week, up from 9.99 million the prior week, with stockpiles being boosted by an increase in arrivals from South Korea and China. Despite the weakening crack spread for gasoil, refineries in Asia still have some incentive to export cargoes as a profit margin of around $20 a barrel is still above the 2023 lows of about $11. But the likelihood of the crack spread dropping to match last year's lows are increasing, especially as more diesel heads into Asia and less towards destinations west of the Suez Canal. The attacks on shipping using the Red Sea to transit the Suez Canal by Yemen's Iran-aligned Houthi group have led some shippers to divert cargoes to go around the Cape of Good Hope, a longer and costlier voyage. This has cut the volumes of refined fuels heading to Europe from Asia, a situation compounded by declining European demand as the northern winter ends. WINDOW SHUT LSEG Oil Research said in its latest report on Asia's distillate market that the East-West arbitrage window is "firmly shut" with flows at three-year lows. Just 140,000 metric tons of middle distillates went from East Asia to the West in February, and so far for March just 75,000 tons have been assessed, LSEG said. India is also usually a major shipper of diesel to Europe, but shipments in the first quarter are likely to average 535,000 tons a month, which LSEG said will be the lowest first-quarter average since 2020, when the COVID-19 pandemic first hit. India is instead sending more cargoes to Asia, with flows to the region exceeding 700,000 tons for both January and February, the most since August. Add in rising exports from China and the result is higher inventories in the Singapore hub. Exports from Singapore to major regional importers such as Indonesia and Australia are also weakening, placing further downward pressure on margins. Total middle distillate shipments to Asian buyers dropped to 5.07 million tons in February, down from 5.94 million in January, and LSEG vessel-tracking and port data point to a further decline in March. The factor that may limit the decline in the middle distillate profit margin is the upcoming refining maintenance season in Asia, which will see several units taken offline, mainly in the second quarter. This may limit exports in the region, but questions remain over whether enough supply will be curtailed to offset lower shipments to Europe from Asian refiners. The opinions expressed here are those of the author, a columnist for Reuters. Get a look at the day ahead in U.S. and global markets with the Morning Bid U.S. newsletter. Sign up here. https://www.reuters.com/markets/commodities/inventory-builds-red-sea-concerns-pressure-asia-diesel-margins-russell-2024-03-18/

2024-03-18 05:14

SINGAPORE, March 18 (Reuters) - Even as the Bank of Japan prepares for a pivotal change in monetary policy, analysts say much more will need to be done to materially shift the roughly $3 trillion of yen Japanese investors have parked in global bond markets and yen trades. Japanese investors have invested trillions of yen overseas in their quest to earn anything better than the near-zero returns at home under the BOJ's decades-long effort to end deflation. The BOJ might change that policy as soon as this week. Rising wages and other business activity suggest stagnation is over, meaning little need for the BOJ to continue to keep short-term rates negative. Anticipation of better growth has drawn foreign money into Japanese stocks (.N225) , opens new tab and driven yen bond yields higher. It has also put the spotlight on the $2.4 trillion of foreign debt Japan's life insurance companies, pension funds, banks and trust firms collectively hold, and how much of those investment flows will return home. But these holdings earn yen investors upwards of 5%, so investors will barely react if the BOJ raises its rates by 10 or 20 basis points, analysts say. "I honestly don't think it will have a big impact on flows," says Alex Etra, a senior strategist at analytics firm Exante Data. Japan's overall foreign portfolio investments were 628.45 trillion yen ($4.2 trillion) at the end of December, Ministry of Finance data shows - more than half in interest rate-sensitive debt assets, and most of it long term. The BOJ embarked on its quantitative and qualitative easing (QQE) in May 2013. Between then and now, Japanese investment in foreign debt was about 89 trillion yen, nearly 60% of which belonged to pension funds, including the giant Government Pension Investment Fund or GPIF. Exante's Etra says the country's pension funds routinely do not hedge their overseas bond investments for currency risk and their returns on foreign bonds are attractive, particularly when translated into yen. HEDGING IS PAINFUL "I’m not a huge believer of that repatriation story," said Gareth Berry, currency and rates strategist at Macquarie Bank. "If you look at the numbers down the last 20 years, in fact there was very, very little repatriation even during the GFC," he said, referring to the Global Financial Crisis of 2008. In contrast to pension funds, Japan's big banks and life insurance firms tend to hedge their foreign bond holdings, to mitigate any risk to their deposits and other yen liabilities. Flows data shows this class of investors, which includes Japan Post Bank (7182.T) , opens new tab and cooperative bank the Norinchukin Bank, has gradually trimmed foreign debt holdings since 2022. Nomura strategist Jin Moteki says investors such as insurance firms will repatriate foreign investments only when there is sufficient yield at home in Japanese government bonds (JGBs). He estimates serious repatriation will occur only when 20-year JGB yields touch 2%, which implies a roughly 50 basis points rise in longer yields. Nomura expects the BOJ to raise the overnight rate to 0.25% by October. "In our view, the potential repatriation that might be triggered by the end of YCC is likely to be around 45 trillion yen, at a maximum. We also expect Japanese life insurance companies to become potential main players of the repatriation," Moteki said. Moreover, if short-term yen rates rise just as the Fed starts cutting its rates, hedging costs would fall, making FX-hedged investments in U.S. Treasuries more appealing. Japan Post Bank, Norinchukin and GPIF did not immediately reply to Reuters' requests for comments on their investment plans. CARRY AND VOLATILITY The implications of the BOJ exiting negative rates on the murkier world of FX carry trades depend heavily on the signals the BOJ sends on the trajectory for rates, rather than just the first hike. The yen has for decades been the funding currency of choice for trades in which investors borrow zero-cost yen and swap it for higher-yielding dollars. These short-term trades are hugely profitable, but also highly susceptible to small changes in interest and exchange rates. A 3-month dollar-yen carry trade earned 7% annualised in December, but now earns only 5%, because both the yen and Japanese yields have risen. There is no easy way to estimate the amount of such trades either. Japan's overall short-term lending to foreigners is cumulatively around $500 billion, and could be a rough gauge of outstanding carry trades. The 'carry' in these trades could shrivel quickly if the market started pricing in higher short- and medium-term yields. James Malcolm, currency strategist at UBS in London, notes that a change of about 10 basis points in the interest rate gap between dollars and yen has roughly led to a 1% move in the dollar-yen rate in the past two to three years. "Now, when you have a large carry trade built up, the risk is that modest changes cause capitulation and FX moves much further by generating its own dynamic." ($1 = 149.0200 yen) Get a look at the day ahead in Asian and global markets with the Morning Bid Asia newsletter. Sign up here. https://www.reuters.com/markets/asia/boj-wont-sway-japans-trillions-investment-abroad-2024-03-18/

2024-03-18 04:38

Brent and WTI crude futures close at highest since Oct. 2023 U.S. gasoline futures close at highest since Aug. 2023 Iraq to reduce crude exports in coming months Saudi Arabia's January crude exports down for second month NEW YORK, March 18 (Reuters) - Oil prices climbed about 2% to a four-month high on Monday on lower crude exports from Iraq and Saudi Arabia and signs of stronger demand and economic growth in China and the U.S. Brent futures rose $1.55, or 1.8%, to settle at $86.89 a barrel, while U.S. West Texas Intermediate (WTI) crude rose $1.68, or 2.1%, to settle at $82.72. That pushed both benchmarks into technically overbought territory with Brent closing at its highest since Oct. 31 and WTI closing at its highest since Oct. 27. In other energy markets, U.S. gasoline futures closed at their highest since Aug. 31. On the supply side, Iraq, OPEC's second-largest producer, said it would reduce crude exports to 3.3 million barrels per day (bpd) in coming months to compensate for exceeding its OPEC+ quota since January, a pledge that would cut shipments by 130,000 bpd from last month. In January and February, Iraq pumped significantly more oil than an output target established in January when several members of the Organization of the Petroleum Exporting Countries (OPEC) and allies like Russia, a group known as OPEC+, agreed to support the market. In Saudi Arabia, OPEC's largest producer, crude exports fell for a second straight month, down to 6.297 million bpd in January from 6.308 million bpd in December. In Russia, meanwhile, Ukrainian attacks on energy infrastructure have idled around 7% of refining capacity in the first quarter, according to a Reuters analysis. Market participants said refinery outages will push Russia to increase oil exports through its western ports in March by almost 200,000 bpd to around 2.15 million bpd. In the U.S., meanwhile, oil output from top shale-producing regions will rise in April to the highest level in four months, according to a federal energy outlook. SIGNS OF GROWING DEMAND In China, the world's biggest oil importer, factory output and retail sales beat expectations in the January-February period, marking a solid start for 2024 and offering some relief to policymakers even as weakness in the property sector remains a drag on the economy and confidence. "Crude oil is up ... today. With demand for crude from China continuing to be a dominant factor," analysts at energy consulting firm Gelber and Associates said in a note. China's crude oil throughput in January and February rose 3% compared to the same two months a year earlier as refineries raised production to meet strong demand for transport fuels over the busy Lunar New Year travel period. In the world's biggest economy, the U.S. Federal Reserve (Fed) is widely expected to keep interest rates unchanged when it ends its latest two-day policy meeting on Wednesday. Stronger-than-expected U.S. economic growth and stickier inflation this year have led investors to push back expectations on the Fed's first rate cut to June, from May, and reduce bets on how many cuts are likely this year. Lower interest rates would reduce the cost of buying goods and services, which could boost economic growth and increase oil demand. In a move expected to boost oil demand, U.S. Energy Secretary Jennifer Granholm said crude oil stockpiles in the Strategic Petroleum Reserve (SPR) at year-end will be at or exceeding the level that would have existed prior to massive sales two years ago. In other U.S. news expected to boost oil demand, BP's (BP.L) , opens new tab 435,000 bpd Whiting, Indiana, refinery has returned to normal operations for the first time since a February power outage. Get a look at the day ahead in U.S. and global markets with the Morning Bid U.S. newsletter. Sign up here. https://www.reuters.com/markets/commodities/oil-prices-rise-tighter-supply-geopolitical-risks-2024-03-18/

2024-03-18 00:28

Asian stock markets : US stocks jump, MSCI world index gains China output, retail sales beat forecasts Markets brace for BOJ to end negative rates Fed seen on hold, but might signal slower rate cuts NEW YORK/LONDON, March 18 (Reuters) - Global stocks rose on Monday while Treasury yields crept higher ahead of this week's raft of central bank meetings that could end subzero interest rates in Japan and set a blueprint for U.S. rate cuts this year. MSCI's broadest index of stocks (.MIWD00000PUS) , opens new tab added 0.47% by the close of trade in New York, helped in part by upbeat industrial output and retail sales data from China. In the United States, the Dow Jones Industrial Average (.DJI) , opens new tab rose 0.2%, the S&P 500 (.SPX) , opens new tab added 0.63%, and the Nasdaq Composite (.IXIC) , opens new tab jumped 0.82%. The U.S. Federal Reserve is considered certain to keep rates at 5.25-5.5% when it ends its policy meeting on Wednesday, and investors mostly expect the Fed to begin cutting rates by June or July. "The market focus is very much on the start of rate cuts. Not that the Fed is expected to cut at this meeting, but any clues Chair (Jerome) Powell might offer for when the first rate cut could come," said Chris Low, chief economist at FHN Financial. Some analysts have warned of the possibility that the Fed might signal a higher-for-longer outlook on policy, given the stickiness of inflation at both consumer and producer levels. "Recent U.S. data indicate gradual steps towards increasing inflation risks," Dana Malas, a strategist at SEB Bank, said in a note. "That the road to 2% would be straight is wishful thinking; setbacks are inevitable. Disinflationary forces are still stronger than inflationary pressures." The probability of a U.S. rate cut as early as June has dropped to 56%, from 75% a week earlier, and the market has only 72 basis points of easing priced in for 2024 compared to more than 140 basis points a month ago. This sent two-year Treasury yields up 0.9 basis points to yield 4.7319%, after they climbed 24 basis points last week, while 10-year yields rose 2.8 basis points to 4.332%. The Fed is also expected this week to start talking about how it might slow the pace of its bond sales, perhaps halving it to $30 billion a month. Several other central banks including in Japan, Britain, Switzerland, Norway, Australia, Indonesia, Taiwan, Turkey, Brazil, and Mexico also meet this week and, while many are expected to hold steady, there is plenty of scope for surprises. Japan on Tuesday could end the longest run of negative interest rates in history, after its companies decided on the biggest pay hikes in 33 years. However, there is a chance the Bank of Japan might wait for its April meeting, when it will issue updated economic forecasts. The Japanese yen weakened 0.10% versus the greenback at 149.17, while the euro was down 0.17% to $1.0868. Earlier in the day, Asian markets closed higher after Chinese data beat expectations. Japan's Nikkei (.N225) , opens new tab closed up 2.7%, while Shanghai's blue chip index finished up about 1%. ACROSS THE POND European stocks (.STOXX) , opens new tab gave up earlier gains and the pan-European STOXX 600 index (.STOXX) , opens new tab lost 0.26% by 1515 GMT. The Bank of England meets on Thursday and is expected to keep rates at 5.25% as wage growth cools, while markets see some chance the Swiss National Bank might ease this week. , The ascent in the dollar and yields has taken little shine off gold, which added 0.2% at $2,159.33 an ounce , having fallen 1% last week and away from all-time highs. Oil prices have had a better run after the International Energy Agency raised its view on 2024 oil demand, while the supply outlook was clouded by Ukrainian strikes on Russian oil refineries. U.S. crude rose 2.33% to $82.93 per barrel and Brent was at $87.00, up 1.95% on the day. Get a look at the day ahead in U.S. and global markets with the Morning Bid U.S. newsletter. Sign up here. https://www.reuters.com/markets/global-markets-wrapup-1-2024-03-18/