2024-06-10 04:30

A look at the day ahead in European and global markets from Rae Wee Investors in Europe will begin the week mired in uncertainty over the global interest rate outlook and the region's political landscape. French President Emmanuel Macron rolled the dice on his political future on Sunday, calling snap legislative elections for later this month after he was trounced in the European Union vote by Marine Le Pen's far-right party. His shock announcement came as the European Parliament took a shift to the right after a four-day election that concluded on Sunday, with more eurosceptic nationalists and fewer mainstream liberals and Greens. MARKET NERVES Markets took the news negatively and reacted by knocking the euro to a one-month low, while EUROSTOXX 50 equity futures and French bond futures also clocked losses. While the common currency and euro area assets have been largely cushioned by diminished euro-scepticism compared with elections in the 2010s and early 2020s, the latest developments could serve as a wake-up call. The focus for investors when broader European markets open later on Monday will likely be Italy's 10-year government bond yield gap over benchmark German paper - often used as a barometer of risk appetite in the region. RATES ANGST In the broader market, traders also continued to reel from the effects of a blowout U.S. jobs report, ahead of the Federal Reserve's June policy meeting this week. The rate cut rally which drove world shares higher last week quickly ground to a halt and left Asian stocks struggling on Monday, though trading was thinned with holidays in Australia, China, Hong Kong and Taiwan. While it's almost a given that Fed policymakers will dial back on their projections for three rate cuts this year when they announce their rate decision on Wednesday, the question is by how much. Futures point to about 36 basis points worth of easing priced in for this year, and chances for a pre-election rate cut remains a coin toss. The Fed aside, the Bank of Japan also meets this week, and expectations are for the central bank to announce a tapering of its massive bond purchases. That could offer some reprieve for the yen , which was still struggling to strengthen past the 157 per dollar level against a resurgent greenback on Monday. Key developments that could influence markets on Monday: - Euro zone Sentix index (June) - Reopening of 3-month, 6-month and 11-month French government debt auctions - Reopening of 3-month and 9-month German government debt auctions Sign up here. https://www.reuters.com/markets/europe/global-markets-view-europe-2024-06-10/

2024-06-10 02:56

MUMBAI, June 10 (Reuters) - The Indian rupee is expected to open lower on Monday, after jobs data indicated that the U.S. labour market remained robust, reducing the likelihood of Federal Reserve rate cuts later this year. Non-deliverable forwards indicate rupee will decline to around 83.48-83.50 from 83.3725 in the previous session. The rupee last week was choppy amid India's election results, which spurred foreigners to sell local equities and likely dollar sales by the Reserve Bank of India. "I would think this repeated intervention by the RBI near 83.50-83.55 and the expectation of that will mean that the higher opening (on dollar/rupee) will not have much carry through. At least initially," a currency trader at a bank said. The dollar index advanced on Friday, and the 10-year U.S. Treasury yields rose by the most in two months after data showed job growth accelerated more than expected in May. The probability that the Fed will cut rates at the September meeting dropped. Futures are now pricing in just 35 basis points of total rate cuts this year, down from nearly 50 bps before the data. U.S. wage inflation climbed in May, with average hourly earnings rising 0.4% after a 0.2% increase in April, providing one more reason to pare Fed rate cut bets. "In terms of what this means for the Fed - well it confirms that the Fed will be pushing back rate cut projections from 3 cuts this year to most probably 2 cuts this year.. we can't rule them out saying just one for this year," ING Bank said in a note. Asian currencies were down on the day with the Korean won, the Thai baht and the Indonesian rupee slipping between 0.5% to 0.8%. Asian equities dipped alongside U.S. equity futures. KEY INDICATORS: ** One-month non-deliverable rupee forward at 83.55; onshore one-month forward premium at 6 paise ** Dollar index up at 105.12 ** Brent crude futures up 0.2% at $79.8 per barrel ** Ten-year U.S. note yield at 4.45% ** As per NSDL data, foreign investors sold a net $811.2mln worth of Indian shares on June 6 ** NSDL data shows foreign investors bought a net $112.8mln worth of Indian bonds on June 6 Sign up here. https://www.reuters.com/markets/currencies/rupee-seen-weaker-after-us-jobs-data-casts-doubts-fed-rate-cuts-2024-06-10/

2024-06-10 01:59

SEOUL, June 10 (Reuters) - South Korean President Yoon Suk Yeol embarked on a trip to Central Asia on Monday to hold talks on strengthening diplomatic ties and cooperating in areas such as energy and minerals, Yoon's office said. Yoon will visit Turkmenistan with the first lady for a state visit before heading to Kazakhstan and Uzbekistan where he will sign agreements and attend business forums, according to his office. In Kazakhstan, Yoon will discuss with President Kassym-Jomart Tokayev measures to expand supply chain cooperation for critical minerals such as lithium as well as uranium. The government plans to host a summit with leaders of five Central Asian countries next year in South Korea, Yoon's office said. His trip to Central Asia is the latest global push by Seoul to broaden diplomatic ties and partnerships to ensure access to markets and to secure energy supplies and other resources. South Korea hosted its first summit with the leaders of 48 African nations this month, during which it vowed to increase development aid for Africa to $10 billion over the next six years as it looks to tap the continent's mineral resources and potential as an export market. Last month, South Korea and the United Arab Emirates signed New Tab, opens new tab a trade agreement at a summit to cut import duties and forge closer business and investment ties as it seeks to tap the investment potential of the energy rich Gulf state. Sign up here. https://www.reuters.com/markets/asia/south-koreas-yoon-heads-central-asia-talks-energy-minerals-2024-06-10/

2024-06-10 01:28

LAUNCESTON, Australia, June 10 (Reuters) - China's imports of major commodities were either openly weak in May, such as the decline in crude oil, or those showing apparent signs of strength were deceptive and largely driven by factors other than rising consumption. Arrivals of crude dipped into negative territory for the first five months of the year, with calculations based on official customs data released on June 7 showing imports of 11.0 million barrels per day (bpd) in the January to May period, down 1.2% from 11.13 million bpd in the same period last year. China, the world's largest crude importer, landed 11.06 million bpd in May, which was slightly up from April's 10.88 million bpd, but massively down from the 12.11 million bpd in May 2023. The decline in year-on-year imports has been put down to weak refining margins crimping throughput, and the 7.7% drop in fuel exports in the first five months of 2024 has also contributed to lower demand for crude. China's imports of crude are down 130,000 bpd in the first five months of the year, an outcome that is starkly at odds with the expectations of the Organization of the Petroleum Exporting Countries (OPEC). The exporter group forecast in its May monthly outlook that China's crude demand will rise 710,000 bpd for 2024 as a whole, the biggest contributor to world demand growth of 2.25 million bpd. To be fair to OPEC, the group does expect a stronger second half for China's oil demand, but even so, growth in imports is running so far behind the OPEC forecast that the second half will have to be exceptionally strong. Expectations of a stronger second half are also likely a factor driving iron ore imports. China, which buys about 75% of all global seaborne iron ore, saw imports of 102.03 million metric tons in May, up from 101.82 million in April and the third straight month arrivals of the steel raw material exceeded 100 million. That seems like a strong performance, but the additional iron ore isn't being used to pump up steel production, rather it's mainly going into inventories. INVENTORIES GAIN Port stockpiles monitored by SteelHome hit 147.3 million tons in the week to June 7, the highest in 26 months and up 40% from the seven-year low of 104.9 million, reached in October last year. Steel mills and traders have been encouraged to lift inventories by lower prices, with Singapore futures dropping to an 18-month low of $98.36 a ton in April. While the price has recovered somewhat to end at $108.70 a ton on June 7, it's still well below the $143.08 reached in early January. Copper imports also looked somewhat strong in May with imports of unwrought metal rising to 514,000 tons, up from 438,000 in April. For the first five months of the year copper imports have gained 8.8% to 2.327 million tons. But similar to iron ore, it's inventory builds that are accounting for the additional imports, with stockpiles in warehouses monitored by the Shanghai Futures Exchange rising to a four-year high of 336,694 tons last week, up from around 33,000 tons at the start of this year. Copper imports are being bolstered by increased arrivals from Russia, which is battling to sell some of its production of the industrial metal because of tighter sanctions by Western countries imposed as part of measures following Moscow's invasion of Ukraine. The major commodity where demand is higher is coal, with China's imports of all grades coming in at 43.81 million tons in May, down from April's 45.25 million, but higher than the 39.58 million from May last year. For the first five months of the year China's coal imports were 204.97 million tons, up 12.6% from the same period in 2023. The gain has largely been driven by weak domestic output, with production down 3.5% in the first four months of the year after safety checks were ordered in major coal-producing regions. With the outlook for coal production uncertain in coming months, it's possible that imports will remain robust, although much will depend on China's hydropower and renewable generation, both of which are expected to rise over the rest of 2024. The overall message from China's commodity imports is that while they aren't dire, they are hardly indicative of a strong recovery in the world's second-biggest economy. The opinions expressed here are those of the author, a columnist for Reuters. Sign up here. https://www.reuters.com/markets/commodities/chinas-commodity-imports-are-soft-even-those-that-look-strong-russell-2024-06-10/

2024-06-10 01:03

TOKYO, June 10 (Reuters) - Japan's government will highlight the need to work closely with the central bank and guide policy "flexibly" in the wake of soft consumption and uncertainty over the inflation outlook, a draft of its annual economic blueprint seen by Reuters showed. "Monetary policy has entered a new stage," which required the government and the Bank of Japan to "continue working closely and guide policy flexibly in accordance to economic and price developments," according to the draft. By keeping inflation stably around the BOJ's 2% target, policymakers will seek to create an environment where wages rise faster than inflation on a sustained basis, the draft said. The government draft will be presented to ruling party lawmakers for deliberations, before being finalised at a Cabinet meeting on June 21. In the draft, the government said consumption "lacked momentum" with the outlook on prices unclear due in part to the effect of recent yen declines. It also flagged lingering overseas risks such as the fallout from monetary tightening by central banks across the globe, and worries about soft Chinese growth. Japan is facing a "critical moment" in shifting away from a deflation-prone economy that prioritised cost cuts, towards one where higher productivity allows more companies to keep hiking prices and wages, the draft said. The government will submit legislation to next year's parliament to facilitate smoother pass-through of costs in industries like construction, transportation and agriculture, the draft said. A weak yen and subsequent rise in households' living costs have hurt Prime Minister Fumio Kishida's approval ratings, prodding the administration to highlight its efforts to generate higher wage growth. The BOJ, for its part, ended eight years of negative interest rates in March, and has signalled that it would hike rates further if it becomes more convinced that inflation will durably hit 2%. Sign up here. https://www.reuters.com/markets/asia/japan-govt-call-flexible-policy-amid-price-uncertainty-draft-blueprint-shows-2024-06-10/

2024-06-10 01:00

LONDON, June 7 (Reuters) - U.S. manufacturers are gradually emerging from a prolonged but shallow slowdown over the last two years, but progress has been fitful, and their consumption of diesel remains tepid, which is weighing on oil prices. The Institute for Supply Management's manufacturing index slipped to 48.7 (22nd percentile for all months since 1980) in May from 49.2 (26th percentile) in April and a recent high of 50.3 (34th percentile) in March. The March reading was the first time the index had climbed above the 50-point threshold, signalling expansion, since October 2022, but it has since slipped back into contraction territory for the last two months. The survey's production sub-index fell to 50.2 (21st percentile) in May from a recent high of 54.6 (45th percentile) in March, as activity rates faltered. Indicating the expansion could remain desultory for a few more months, the new orders component slumped to 45.4 (9th percentile) in May from 51.4 (27th percentile) in March. Chartbook: U.S. manufacturing and diesel use New Tab, opens new tab Manufacturers reported weaker conditions than their counterparts in services, real estate, construction, mining and farming. The ISM non-manufacturing index actually rose to 53.8 (33rd percentile for all months since 1997) in May from 51.4 (14th percentile) in March. Manufacturing provides fewer jobs and accounts for a smaller share of overall economic output but is much more energy-intensive. By contrast, services account for a far larger share of value-added, employ more people but use relatively less fuel and electricity. The manufacturing sector's sluggish performance has therefore dampened overall energy consumption – even as the faster growth in services has boosted the overall economy and employment. Expectations at the beginning of the year that an acceleration in manufacturing in the United States and the other major economies would lift diesel consumption and prices have not been realised. DISTILLATE FUEL SLUMP More than three-quarters of all diesel and other distillate fuel oils are used in freight transport, manufacturing and construction, so distillate consumption is normally correlated closely with the manufacturing cycle. But consumption of distillates has been even more lacklustre than the slow and halting recovery in manufacturing activity over the last six months. The volume of distillate fuel oil supplied to the domestic market, a proxy for consumption, was under 3.7 million barrels per day (b/d) in March 2024. Volumes supplied were the lowest for the time of year since 1998, according to estimates prepared by the U.S. Energy Information Administration. Volumes were down by 10% compared with the same month last year and by the same percentage compared with the prior 10-year seasonal average. Supply can be volatile from one month to the next. March may have been an outlier. But distillate consumption has been lagging the upturn in manufacturing for several months. Some petroleum-derived distillate fuel oils are being replaced by biodiesel and renewable fuel oils, especially in California. Even if biodiesel and renewable fuel oils are included, however, the volume of distillate supplied was down by 4-8% in March compared with last year and the 10-year average. Total petroleum and non-petroleum distillates supplied were the lowest since the first wave of the pandemic in March 2020 and before that the mid-cycle slowdown in March 2016. Total distillates supplied have been broadly flat over the past 12 months despite the reported improvement in manufacturing and freight activity. DISTILLATE INVENTORIES Reflecting tepid consumption and strong refinery crude processing to make gasoline, distillate stocks have been trending higher for the last three months. Inventories were still 10 million barrels (-8% or -0.52 standard deviations) below the prior 10-year seasonal average on May 31, according to data from the EIA. But the seasonal deficit had narrowed from 18 million barrels (-13% or -1.09 standard deviations) at the start of March. Stocks have been flat or increasing at a time of year when they would normally be depleting and have climbed to a four-year seasonal high. In response, prices for diesel other distillates have been falling faster than for crude, narrowing the gross refinery margin or crack spread. The crack spread for making diesel from Brent crude has narrowed to an average of just $19 per barrel so far in June 2024. The inflation-adjusted spread has narrowed from $46 per barrel as recently as August 2023 and a record $63 in June 2022 after Russia's invasion of Ukraine. In real terms, the spread has fallen back in line with the average for the five years between 2015 and 2019 before the pandemic and invasion. Traders expect diesel supplies to remain plentiful for the next few months, which should help contain inflationary pressures within the supply chain and give the major central banks more scope to trim interest rates. Related columns: - Renewable fuels take bite out of US diesel consumption (May 10, 2024) - U.S. manufacturers emerge from slump, set to boost fuel use (April 4, 2024) - Global freight acceleration will lift fuel prices (March 27, 2024) - Diesel prices primed to rise sharply in 2024 (February 6, 2024) John Kemp is a Reuters market analyst. The views expressed are his own. Follow his commentary on X New Tab, opens new tab Sign up here. https://www.reuters.com/markets/commodities/us-manufacturers-halting-recovery-diesel-use-tepid-kemp-2024-06-07/