International benchmark Brent rose in European trade for the seventh straight session, scaling a fresh 10-month high, as markets focus on the potential of extreme shortages in the market during the fourth quarter after Saudi Arabia and Russia extended their voluntary production cuts. 

Prices are also boosted on hopes of improving fuel demand in China as recent data showed the economy has recovered strongly.

Prices Today

Brent rose 0.65% to $94.85 a barrel, the highest since November 2022, with a session-low at $93.98, after rising 0.2% on Friday, the sixth profit in a row, marking the longest streak of daily gains since late August.

Brent rose 4.25% last week, the third weekly profit in a row as markets brace for supply shortages this year.

Shortages 

The International Energy Agency said the decision by Saudi Arabia and Russia to cut crude output by 1.3 million bpd until the end of the year will cause shortages in the fourth quarter of the year.

Bank of America analysts believe such cuts will send Brent prices above $100 by the end of the year.

Conversely, OPEC maintained its optimistic outlook for demand growth worldwide this year and next year,while also expecting flexible global economic growth despite higher interest rates.

Chinese Demand

Recent strong Chinese data indicated the economy is likely recovering in the third quarter of the year and exiting the recent struggles.

China's industrial production rose 4.5% in August, beating estimates of 3.9%, while retail sales rose 4.6% in August, beating estimates of 3.0%, as unemployment fell to 5.2%.

In another stimulus step to boost the economy, the People's Bank of China decided to lower the required cash reserves held by banks by 25 basis points to nearly 7.4%.

Swiss franc rose in European trade on Monday against a basket of major rivals, recovering from two-month low against US dollar on short-covering.

The gains come ahead of the Swiss National Bank's policy meeting on Thursday, expected to raise interest rates by 25 basis points to 2%.

USD/CHF 

USD/CHF fell 0.3% to 0.8949, with a session-high at 0.8977, after closing down 0.25% on Friday, the fourth loss in a row, plumbing a two-month low at 0.8977, as investors buy up the greenback.

Franc lost 0.5% against dollar last week, the ninth weekly loss in a row, and the longest such streak of weekly losses since 2014 amid a widening interest rate gap between the US and Switzerland. 

SNB

The Swiss National Bank is convening next Thursday to discuss policies and latest economic developments. 

Markets widely expect the SNB to increase interest  rates by 25 basis points to 2%, the highest since 2008.

Another SNB rate hike would shrink the interest rate gap with the US and boost investments in the franc.

A surprise decision by the SNB to maintain interest rates would be rooted in recent inflation data, which showed consumer prices fell below 2% in August. 

US 10-year treasury yields rose on Monday, extending gains for the third straight session and hitting a 16-year high ahead of the Federal Reserve's policy meeting.

Such developments come even as markets expect the Federal Reserve to maintain interest rates unchanged this week, but markets are betting on a potential rate hike in November. 

US Yields

US 10-year treasury yields rose 1.7% to 4.415%, the highest since November 2007, with a session-low at 4.323%.

US yields rose 1% on Friday, the second profit in a row on positive US data,

The Fed

The Federal Reserve is holding its two-day policy meeting tomorrow, widely expected to end with maintaining interest rates unchanged at 5.5%, the highest in 22 years.

US Rates

Current pricing for a 0.25% Fed interest rate hike this week stands at 1%, while pricing for a 0.25% interest rate hike at the November meeting stands at 28%.

Why is the Yield Increasing?

The question arises, why have US yields hit 16-year highs given there's no chance the Fed will raise interest rates this week? 

The likely decisions are the flexibility and strength of the US economy, coupled with higher oil prices. 

US Economy

Recent US data showcase the flexibility of the world's largest economy as economic activities continue to beat estimations.

Such strong performance, coupled with increasing inflation risks as oil prices surge, could force the Federal Reserve to extend the current cycle of policy tightening. 

Global Oil Prices

Oil prices rose today for the seventh straight profit, scaling a ten-month high and on track for more gains towards $100 a barrel. 

The extensive gains came after Saudi Arabia and Russia decided to extend voluntary production cuts for three months until the end of the year, while analysts expected a single month addition.

Higher oil prices thus present inflationary pressures for global economy and could extend the current policy tightening cycle. 

The Federal Reserve has repeatedly vowed to increase interest rates again in case inflation accelerated once more. 

Gold prices rose in European trade on Monday for the third straight day, almost hitting a two-week high as the dollar slows down against a basket of major rivals.

The gains come ahead of the Federal Reserve's policy meeting this week, expected to pause interest rate hikes in order to assess US economic conditions. 

The Federal Reserve's policy decisions and statements, in addition to Fed Chair Jerome Powell's statements afterwards will provide clues on the likely path ahead for policies, especially in November.

Gold Prices Today

Gold prices rose 0.35% to $1,930 an ounce, with a session-low at $1,922, after rising 0.7% on Thursday, the second profit in a row away from a three-week low at $1,901, as the dollar stalls.

Gold prices rose 0.25% last week, the third weekly profit in a month, as the battle of major central banks with inflation approaches an end, with the European Central Bank hinting that interest rates have peeked out. 

The Dollar

The dollar index fell 0.1% on Monday, extending losses for the second session off six-month highs against a basket of major rivals.

Dollar declined ahead of the Federal Reserve's policy meeting later this week, expected to end with no change in policies. 

The Fed

The Federal Reserve is holding its two-day policy meeting tomorrow, widely expected to end with maintaining interest rates unchanged at 5.5%, the highest in 22 years.

US Rates 

Current pricing for a 0.25% Fed interest rate hike this week stands at 1%, while pricing for a 0.25% interest rate hike at  the November meeting stands at 28%. 

Estimates

Analysts believe that gold prices are carrying strong momentum as global central bank pull back from their policy tightening marathons.

Future US and European data especially on consumer prices and retail sales will offer more clarity on this issue. 

Chinese Gold Prices

Gold prices in China hit record highs last week as consumers buy up the safe haven to compensate the declining yuan values. 

The SPDR

Gold holdings at the SPDR Gold Trust rose 0.57 tonnes on Friday to a total of 880.27 tonnes, away from January 2020 lows at 879.7 tonnes.