2024-05-17 06:32

Weak GDP data alone won't derail BOJ's rate hike plan Consumption, wage, service price data key to rate hike timing BOJ chief Ueda faced calls to moderate yen falls at govt council Political pressure to prod Ueda to keep dropping hawkish signals TOKYO, May 17 (Reuters) - Japan's weak consumption may heighten, rather than tame, already growing political pressure on the central bank to raise interest rates to slow the yen's declines blamed for hurting households via higher import costs. Such pressure will likely prod Bank of Japan Governor Kazuo Ueda to keep dropping hawkish signals on the policy outlook, but with plenty of caveats to hedge against the chance consumption may take longer than expected to rebound, analysts say. The yen has depreciated by roughly 10% against the dollar so far this year despite the BOJ's decision in March to end eight years of negative rates, as markets focused on the still-huge divergence between U.S. and Japanese interest rates. Data released on Thursday showed Japan's economy shrank more than expected in the first quarter, partly as rising living costs from the weak yen hurt consumption. Exports also slumped in a sign of the fading benefits to manufacturers from the weaker currency. The soft readings alone likely won't force the BOJ to overhaul a steady rate hike plan laid out in April, as policymakers are focusing more on whether consumption will rebound later this year as they project, analysts say. But they will heighten the importance of upcoming data on consumption, wages and service inflation, in gauging the timing of the next rate hike, they say. "The BOJ is likely sticking to the view rising wages will lift consumption. But it will probably wait for second-quarter gross domestic product (GDP) data, due out in August, to check whether that's indeed the case," said Naomi Muguruma, chief bond strategist at Mitsubishi UFJ Morgan Stanley Securities. GRUMBLINGS CONTINUE The weak yen has become a headache for Prime Minister Fumio Kishida by cooling consumption. Renewed price pressures from import costs are casting doubt on whether Kishida, already suffering from low approval ratings, can meet his pledge to turn inflation-adjusted wages positive in coming months. While the BOJ has ruled out using monetary policy to affect currency moves, rising concern over the demerits of a weak yen has led some government and business executives to call on the central bank to hike interest rates from near-zero levels. Inflation must stay moderate so firms can earn enough to keep raising wages, Masakazu Tokura, head of business lobby Keidanren, told the government's top economic council on May 10. "Given the risk of the weak yen causing excessive price rises, I hope the government and the BOJ aim to achieve appropriate levels of inflation around 2%," Tokura told the meeting, where Ueda was also present. Mana Nakazora, a private-sector member of the council, also urged the BOJ to help "moderate downward pressure on the yen" with monetary policy, according to the minutes of the meeting. The discussions followed escalating government pressure that was already forcing the BOJ to modify its dovish policy communication in April that was blamed for triggering further sharp yen falls. After a meeting with Kishida on May 7, Ueda said the BOJ will be "vigilant" to yen moves in setting monetary policy. A day later, he said the BOJ may hike rates if yen falls affect prices significantly. The remarks contrasted with those on April 26, when he said recent yen falls won't immediate affect inflation - a comment that pushed the yen below 160 to the dollar and triggered suspected yen-buying intervention by the government. While the yen has since recouped some losses to hover around 155, government grumblings continue. Finance Minister Shunichi Suzuki told reporters on Tuesday the government and the BOJ must "avoid causing friction" with any policy divergence - remarks administration aides describe as a reminder for the central bank to pay heed to government concerns over the weak yen. "In reality, current yen levels have a big negative impact on people's livelihood," a source close to Kishida's administration told Reuters. In theory, hiking interest rates when the economy is weak makes little sense. The case is somewhat different for Japan, where short-term rates remain stuck around zero despite inflation exceeding the BOJ's 2% target for two years. A modest hike in nominal interest rates will still keep inflation-adjusted, real borrowing costs deeply negative. Former BOJ executive Eiji Maeda said the BOJ likely won't raise rates for the sole purpose of slowing the yen's declines. But he said the impact of yen moves on prices may have become bigger than when Japan was mired in deflation. "From this perspective, the impact a weak yen could have on inflation is important in guiding monetary policy," said Maeda, who expects the BOJ to hike rates as early as July. Sign up here. https://www.reuters.com/markets/rates-bonds/boj-may-face-more-pressure-hike-rates-weak-yen-hits-consumer-spending-2024-05-17/

2024-05-17 06:30

Brent posts first weekly gain in three weeks China's factory output topped forecasts in April U.S. consumer prices increase less than expected in April U.S. oil rig count rises for the first time in four weeks Russia's Tuapse oil refinery on fire after drone attacks NEW YORK, May 17 (Reuters) - Oil prices settled about 1% higher on Friday, with global benchmark Brent crude recording its first weekly gain in three weeks, after economic indicators from the world's top two oil consumers - China and the U.S. - bolstered hopes for higher demand. Brent settled 71 cents higher, or 0.9%, at $83.98 a barrel. U.S. West Texas Intermediate crude (WTI) gained 83 cents, or 1.1%, to $80.06. For the week, Brent gained about 1%, while WTI rose 2%. China's industrial output rose 6.7% year-on-year in April as a recovery in its manufacturing sector gathered pace, pointing to possibly stronger demand to come. China also announced major steps to stabilise its crisis-hit property sector. The Chinese figures showed potential for demand construction and supported oil prices, said Bob Yawger, director of energy futures at Mizuho. However, government data showing a drop in China's annual refined output may have offset that support. Declines in oil and refined product inventories at global trading hubs have also created optimism about demand, reversing a trend of rising stockpiles that had weighed heavily on crude oil prices in previous weeks. The U.S. oil rig count rose by one this week to 497, the first increase in four weeks, energy services firm Baker Hughes (BKR.O) New Tab, opens new tab said. Recent U.S. economic indicators have fed into the optimism over global demand for oil. U.S. consumer prices rose less than expected in April, data showed on Wednesday, boosting expectations of lower interest rates. "Consumer prices were not as bad as expected," said Tim Snyder, economist at Matador Economics. "It gave the U.S. a little bit of a boost." Lower U.S. interest rates could help soften the dollar, which would make greenback-denominated oil cheaper for buyers holding other currencies. Meanwhile, a fire started at Russia's Tuapse oil refinery overnight after a wave of Ukrainian drone attacks. The extent of the damage was unclear. On the supply side, investors were mostly looking for direction from the upcoming OPEC+ meeting on June 1. "With the price of Brent crude hovering below $90, a level quietly being targeted by Saudi Arabia and others, the upcoming OPEC+ meeting is likely to result in a rollover of current production cuts," Saxo Bank analyst Ole Hansen said in a note. Money managers raised their net long U.S. crude futures and options positions in the week to May 14, the U.S. Commodity Futures Trading Commission (CFTC) said. Sign up here. https://www.reuters.com/business/energy/oil-set-weekly-gain-signs-improving-demand-2024-05-17/

2024-05-17 06:15

SHANGHAI/SINGAPORE, May 17 (Reuters) - China is widely expected to hold benchmark lending rates steady on Monday, a Reuters survey showed, although expectations are growing for a cut in the mortgage reference rate as the authorities scramble to boost housing. The loan prime rate (LPR), normally charged to banks' best clients, is calculated each month after 20 designated commercial banks submit proposed rates to the People's Bank of China. The survey of 33 market watchers, conducted this week, found 27, or 82% of all respondents, expect the one-year and five-year LPRs to stay unchanged. Among the other six respondents, four predicted a steady one-year LPR but a five- to 20-basis-point reduction to the five-year tenor, while the remaining two projected similar cuts to both rates. Most new and outstanding loans in the world's second-largest economy are based on the one-year LPR, now at 3.45%. The five-year LPR, which serves as the mortgage reference rate, is at 3.95% after a February cut to shore up the property market. In the latest step to support property, China will allow local government authorities to buy some homes at "reasonable" prices to provide affordable housing, the official Xinhua news agency said on Friday. The property sector and weak retail continued to drag on the economy last month, even as industrial output beat forecasts, data showed on Friday. The central bank left a key policy rate unchanged when rolling over maturing medium-term lending facility loans on Wednesday, as a weak currency continued to constrain Beijing's monetary easing efforts. Some traders argued that the traditional dividend payment season is looming, when overseas listed Chinese companies have to make foreign exchange purchases to fulfil such payouts to their offshore shareholders. Such FX payments are expected to pile additional downside pressure to the yuan , which has lost about 1.8% to a resurgent dollar this year. HSBC expects $66 billion worth of dividends are set to be made this year. However, expectations for a cut to the mortgage reference rate are on the rise after the authorities announced a string of measures to rescue the beleaguered property market, long considered a major drag on the economy. "Further property de-stocking efforts and timely RRR/LPR cuts as well as the push on equipment upgrade and durables trade-in are essential, in our view, to bring back credit demand," Citi analysts said in a note. Sign up here. https://www.reuters.com/markets/rates-bonds/china-expected-stand-pat-lending-rates-may-2024-05-17/

2024-05-17 06:15

MOSCOW, May 17 (Reuters) - Authorities have managed to contain a fire at an oil refinery in Russia's town of Tuapse that broke out after a Ukrainian drone attack, officials in the Krasnodar region said on messaging app Telegram. (This story has been refiled to correct the spelling of Krasnodar in the headline) Sign up here. https://www.reuters.com/world/europe/russian-oil-refinery-fire-after-drone-attack-contained-2024-05-17/

2024-05-17 06:09

Rate cut in June 'may be appropriate' depending on data ECB risked easing prematurely by pushing forward rate cuts Schnabel says cannot pre-commit to future rate path TOKYO, May 17 (Reuters) - European Central Bank (ECB) board member Isabel Schnabel said the central bank may slash interest rates in June, but advocated caution about further cuts in borrowing costs given uncertainty over the outlook, Japan's Nikkei newspaper reported. The ECB left interest rates unchanged last month but made clear that its next move will be a cut, most likely on June 6, provided wage and inflation data stay on their current, relatively benign path. "Depending on the incoming data and our new Eurosystem staff projections, a rate cut in June may be appropriate," Schnabel said in an interview with Nikkei in Frankfurt that was posted on its website on Friday. "But the path beyond June is much more uncertain. Recent data have confirmed that the last mile of disinflation is the most difficult," she said. After many years of "very high" inflation and with price risks still tilted to the upside, pushing forward the timing of rate cuts would risk easing monetary policy prematurely, she said. "Further progress in inflation and especially domestic inflation, which is proving stickier, is needed to foster our confidence that inflation is going to sustainably return to our 2% target in 2025 at the latest," Schnabel was quoted as saying. Schnabel said the ECB could not pre-commit to any particular rate path because of "very high uncertainty" over the outlook for inflation. "We should move cautiously. We should look very carefully at the data because there is a risk of easing prematurely," she said, when asked whether the ECB should move slowly in cutting rates beyond summer, according to the Nikkei. Schnabel, however, said geopolitical shocks such as from the escalating tension in the Middle East could pose upside risks to the inflation outlook. "Over the longer run, geopolitical fragmentation would pose further upside risks to inflation by reducing the efficiency and reliability of global supply chains," she said. She declined to comment when asked about Japan's suspected recent currency intervention to prop up the yen, the Nikkei said. Prospects that Japanese interest rates will stay well below those of the United States had pushed the yen to a 34-year low of 160.245 to the dollar on April 29, triggering suspected yen-buying intervention by Japanese authorities. Schnabel said she "wouldn't overstate the narrative of monetary policy divergence," when asked whether the likelihood of the ECB cutting interest rates before its U.S. counterpart could affect the currency market. "Since the beginning of the year, four rate cuts have been priced out for the U.S. and three rate cuts for the euro area," she said. "The correlation of policy expectations across the two countries remains high in historical comparison. This has been reflected in rather contained exchange rate movements of the euro against the U.S. dollar since the start of the year," Schnabel said. Sign up here. https://www.reuters.com/markets/europe/ecbs-schnabel-calls-caution-rate-cuts-beyond-june-nikkei-reports-2024-05-17/

2024-05-17 05:36

NEW YORK/LONDON, May 17 (Reuters) - The dollar retreated against major currencies on Friday as market speculation continues to swirl about the timing of Federal Reserve interest rate cuts amid signs of cooling yet persistent inflation and a softening U.S. economy. While consumer prices for April, reported on Wednesday, rose less than expected - leading to a risk-on flavor in equity markets - various Fed officials have sounded words of caution about when rates may fall, limiting the dollar's decline this week. The dollar index , which tracks the U.S. currency against six peers, slid 0.04% to 104.44 after earlier trading about 0.3% higher. "The market has turned cautious on the prospect for rate cuts in the near term. The overall picture, though, does appear consistent with a fading of the U.S. exceptionalism trade," said Karl Schamotta, chief market strategist at Corpay in Toronto. "We are seeing signs of slowing momentum in the U.S. economy," Schamotta added. "All of that is translating into less upward pressure on the dollar at the same time you are seeing a brightening of prospects elsewhere." Futures markets reduced the outlook for lower U.S. rates, with less than 45 basis points of cuts seen by December, down from almost 50 on Wednesday, and a cut of 21 bps in September, down from almost 25 bps. "The market over-reacted perhaps on Wednesday, and now we're seeing a little bit of that over-reaction come off and that inflation could re-accelerate," said Matt Weller, global head of research at FOREX.com in Grand Rapids, Michigan. U.S. inflation accelerated in the first quarter amid strong domestic demand after moderating for much of last year. Last month's slowdown was a relief after data on Tuesday showed a jump in producer prices in April. Policymakers said on Thursday that still-high inflation warrants keeping rates at current levels, and that reaching the Fed's 2% inflation target will take longer than previously thought. A surprisingly large 0.9% jump in import prices on Thursday kindled worries that rising import costs will only add to inflationary pressures. Even though markets are pricing European rate cuts beginning in June, recent data has shown some upside surprises. Germany's economy grew more than expected last quarter and investor morale is at a two-year high. Euro zone consumer inflation data on Friday came in at 2.4% year-on-year in April, in line with a Reuters poll. The euro rose 0.06% against the dollar to $1.0872. Euro zone policymakers have increased confidence that inflation will ease back to target next year due to easing price pressures, ECB Vice-President Luis de Guindos said on Friday. Largely disappointing Chinese data on Friday helped keep market risk sentiment in check. Factory output topped forecasts but retail sales slowed and home prices fell at their fastest pace in more than nine years. Sterling rose 0.31% to $1.2705, while the dollar gained 0.17% on the Japanese yen at 155.64. In cryptocurrency markets, bitcoin was up 1.89% at $66,517.00. Sign up here. https://www.reuters.com/markets/currencies/dollar-set-weekly-drop-us-slowdown-signs-2024-05-17/