Oil prices climb for second straight day
Oil prices rose in European trade on Friday for the second session on track for ten-month highs scaled earlier this week.
The gains come amid hopes for the rebound of the global economy as global central banks pause their aggressive policy tightening.
Prices are also boosted by a steep drop in US crude stocks according to official EIA data in a positive sign for demand.
Global Oil Prices
US crude rose 1.3% to $90.76 a barrel, while Brent added 0.7% to $93.92 a barrel, with a session-low at $92.29.
US crude rose 0.4% on Thursday, while Brent added 0.2%, the first profit in three days following two days of correctional losses.
Global oil prices rose 6% on average since September 5 after both Russia and Saudi Arabia extended their voluntary production cuts for three more months.
Global Economy
Global central banks including banks in Switzerland, Britain, the US, have all decided to pause interest rate hikes to gauge economic response.
Such a step will likely be followed by steps to support the economy early in 2024, which could include interest rate cuts.
A rebound in global economic conditions will obviously boost fuel demand.
US Stocks
The Energy Information Administration reported a drop of 2.1 million barrels in US crude stocks last week, while analysts expected a drop of 1.3 million barrels.
Gasoline stocks fell 800 thousand barrels to 219.5 million barrels, as distillate stocks fell 2.9 million barrels to 119.7 million barrels.
US Production
The EIA reported no change in US production at 12.9 million barrels, the highest since March 2020.
US 10-year treasury yields climb above 4.5% for first time in 16 years
US 10-year treasury yields surge on Friday for the fourth straight session, moving above 4.5% for the first time in 16 years after the bullish stance by the Fed.
The Federal Reserve buoyed the chances of another interest rate hike before the year end while raising growth, inflation forecasts.
US Yields
US 10-year treasury yields rose 0.3% to 4.509% , the highest since October 2007, after rising 1.9% yesterday, the third profit in a row, following strong US labor data.
A recent tumble in US unemployment claims last week to six-month lows also boosted the chance of another Fed interest rate hike this year.
The Fed
As expected the Federal Reserve maintained interest rates unchanged at below 5.5%, already the highest since 2001.
It's a signal for the approaching end of the current policy tightening cycle.
The Fed stated the pause intends to give a longer chance for recent policy decisions to manifest their impact on US data, even as inflation remains stubbornly away from 2%.
The Fed said it'll continue to monitor data closely, especially labor and consumer prices data and global financial developments to determine the best path ahead for policies.
Economic Outlook
The Federal Reserve's economic outlook report released yesterday included important modifications:
Growth is now revised to 2.1% this year from 1.0% in June forecasts, while 2024 growth forecasts are revised to 1.5%, and 2025 forecasts are revised to 1.8%.
Total inflation forecasts are revised to 3.3% this year, and 2.5% next year, and 2.2% in 2025.
Core inflation forecasts are revise to 3.7% this year, and 2.6% next year, and 2.3% in 2025.
The Fed maintained forecasts for target interest rates at 5.75%, hinting strongly at another interest rate hike this year.
Powell
Fed Chair Jerome Powell said Wednesday the process of controlling inflation is a long-term one, and interest rates are likely to remain high for an extended duration to bring inflation down.
He added that another interest rate hike won't impact the economy much but will help bring inflation towards the 2% medium target.
Jerome Powell expects inflation to reach the 2% target by the end of 2025, while remaining above 3% this year , adding the Fed is focused mainly on core inflation more than main inflation, which is influenced by volatile energy prices.
Gold climbs on hopes of reaching neutral global interest rates
Gold prices rose in European trade on track for the first profit in four days on hopes global central banks have reached peak interest rates, with potential interest rate cuts in the first half of 2024.
Such hopes are overshadowing the recent spikes in dollar and US treasury yields after the Federal Reserve hinted at a 0.25% interest rate hike in November.
Gold Prices Today
Gold prices rose 0.45% to $1,928 an ounce, with a session-low at $1,919, after losing 0.5% yesterday, the third loss in a row following strong US labor data, which showed unemployment claims fell to six-month lows.
Global Interest Rates
Global central banks in the US, Switzerland, and the UK decided to pause policy tightening this week to assess the impact of recent decisions on the economy.
Pausing rate hikes could very well be followed by steps to boost the economy, with potential interest rate cuts in 2024.
The Dollar
The dollar index rose 0.4% on Friday to a six-month high at 105.78 against a basket of major rivals, in turn keeping a lid on gold's gains.
US Yields
US 10-year treasury yields rose 0.3% on Friday on track for the fourth profit in a row, scaling a 16-year peak at 4.509%, reducing demand on non-yielding assets.
The Fed
As expected the Federal Reserve maintained interest rates unchanged at below 5.5%, already the highest since 2001.
It's a signal for the approaching end of the current policy tightening cycle.
The Fed stated the pause intends to give a longer chance for recent policy decisions to manifest their impact on US data, even as inflation remains stubbornly away from 2%.
The Federal Reserve's economic outlook report released yesterday included important modifications:
Growth is now revised to 2.1% this year from 1.0% in June forecasts, while 2024 growth forecasts are revised to 1.5%, and 2025 forecasts are revised to 1.8%.
Total inflation forecasts are revised to 3.3% this year, and 2.5% next year, and 2.2% in 2025.
Fed Chair Jerome Powell said Wednesday the process of controlling inflation is a long-term one, and interest rates are likely to remain high for an extended duration to bring inflation down.
He added that another interest rate hike won't impact the economy much but will help bring inflation towards the 2% medium target.
Jerome Powell expects inflation to reach the 2% target by the end of 2025, while remaining above 3% this year , adding the Fed is focused mainly on core inflation more than main inflation, which is influenced by volatile energy prices.
The SPDR
Gold holdings at the SPDR Gold Trust rose 0.58 tonnes yesterday to a total of 878.83 tonnes away from January 2020 lows.
Euro trades near six-month low ahead of major European data
Euro fell in European trade on Friday against a basket of major rivals, extending losses for the fourth straight session against US dollar and almost touching six-month lows amid growing concerns about the widening Europe-US policy gap.
Later, important European data will be released for September, and will provide important clues on the health of the euro zone economy.
EUR/USD fell 0.2% to 1.0640, with a session-high at 1.0663, after losing 0.1% yesterday, the third loss in a row, plumbing a six-month trough at 1.0617 following a spate of US data.
Interest Rate Gap
The current interest rate gap between Europe and the US shrank to just 100 basis points, the lowest since May 2022, however it could rise again to 125 basis points in November.
Analysts now expect the European Central Bank to pause raising rates in November after effectively reaching neutral levels in September.
However, the Federal Reserve is expected to raise interest rates by 25 basis points at the November meeting after pausing rate hikes at the September meeting.
Major Sectors
Now investors await a slew of important European data for September on the manufacturing and services sectors, which will impact euro's standing considerably.