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Retail sales in the US rose sharply in August
Retail sales in the U.S. rebounded much more than expected during August, as households stocked up on motor vehicles and restocked for the new school term. This reinforced the economy's resilience at a time when consumers are becoming more concerned about high inflation. The Commerce Department's Census Bureau reported on Wednesday that retail sales rose 1.2% in August after a 0.5% decline in July. This was the first drop in nine months. The economists polled predicted that retail sales (which are mainly?goods, and are not adjusted to inflation) would rebound by 0.8% following a previously reported drop of?0.6% in July. Estimates varied from a 0.2% increase to as high as 1.1%. The increase in receipts at service stations was partly due to higher gasoline prices. The U.S. war against Iran and the high oil prices have caused supply chain stress, which has led to households continuing to spend. The consumer has become more selective, and is looking for lower priced goods. This month, consumer sentiment declined. Recent stock market gains and steady wage growth are supporting spending. Savings is also down and households are tapping into their nest egg. The strong retail sales combined with rising price pressures, and a labor market that has regained its equilibrium after stumbling through most of the summer, have further strengthened?financial markets' expectations that Federal Reserve will increase interest rates on Wednesday. Retail sales, excluding automobiles and gasoline, building materials, and food services, surged by 1.4% in August after a 0.4% drop that was not revised. The economists expected that core retail sales, the ones which most closely correspond to consumer spending in terms of GDP, would rise by 0.4%. Estimates of economic growth for the third-quarter currently exceed 2.0% annualized. Last quarter, the economy grew by 1.5%.
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Sources: Drone attacks have put Russian refineries in Syzran and Saratov on hold.
Three industry sources confirmed that the Rosneft owned oil refineries in the Volga River?cities of Syzran & Saratov have ceased?processing? following Ukrainian drone attacks earlier this month. The plant in Syzran was shut down on Tuesday. Saratov's operations were suspended last Friday. This week, despite the announcement made by U.S. president Donald Trump that both countries had agreed to cease their attacks on energy infrastructures of each other, Russia and Ukraine have continued to attack each other. The shutdown of refineries in Russia will probably worsen the domestic fuel shortages, which were already a problem due to restrictions on gasoline, diesel and jet fuel exports. Rosneft has not responded to our request for comment. SYZRAN'S MAIN UNIT DAMAGED Sources claim that a drone attack damaged several facilities at the Syzran refinery, including the CDU-6 main crude distillation unit, which has a daily capacity of 17,100?metric tons, or 71% of its processing capacity. The refinery's repairs could take a minimum of a month. When the strike on September 15 occurred, the refinery's CDU-5, which has a daily capacity of 7,100 tonnes, or 29%, was being repaired following an earlier drone attack in July. SARATOV ATTACKED AGAIN Saratov's refinery has stopped processing crude oil since September 11, following another drone strike. Sources said that the plant had also suspended operations on September 8, due to fires and equipment damage caused by a previous drone strike. The plant was planning to resume processing between September 10 and 11th. Saratov's refinery was also closed for several weeks following a drone attack on August 2. The?Syzran refining plant, located in Russia’s Samara region has a capacity to process crude oil of 150,000 barrels a day or 8.5 million tonnes per year. Saratov refinery's capacity is 140,000 barrels per day or 7.0 million tons of metric tonnage. Separate industry sources claim that the Syzran Refinery will process 4.3 million tonnes of crude oil in 2024, and produce?0.8 millions tons of gasoline and 1.5 million?tons diesel, and 0.7million tons?of fuel?oil. According to industry sources, Saratov refinery will process 5.8 million tonnes of crude oil in 2024 and produce 1.2 million metric tons of gasoline, as well as 1.9 million metric tons of diesel fuel, and 1.0 metric tons of fuel.
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Google signs largest carbon-removal agreement yet and aims to scale up new model
Google's biggest carbon-removal agreement yet involves backing a Brazilian project run by developer Terradot. The project aims to?cut methane emission from rice farming?and.capture carbon dioxide in the atmosphere. Executives told. It is the largest rock-weathering project in history, covering more than 200,000 acres of land in the southern state Rio Grande do Sul. The goal is to speed up a natural process by which certain rocks absorb CO2 out of the air. Google's head for carbon removal Randy Spock said that the initiative is the first of its kind to combine methane removal and carbon removal. Methane is a "super-pollutant" greenhouse gas, which warms the air?more rapidly than carbon dioxide. It helps slow down global warming. However, carbon dioxide removal will still be needed to remove centuries' worth of accumulated emissions. "We need to do both." Spock stated that we do not have the luxury to focus all our resources solely on scaling up long-term 'carbon removal' or on tackling short-lived superpollutants. The project will generate one million metric tonnes of credits for methane abatement by 2030, and one million tons of credits for carbon removal by 2040. These credits are generated and verified separately. The carbon-removal component of the deal is 10x larger than previous rock weathering projects. According to an assessment of 2021 by the U.N., rice paddies are responsible for 10 to 12 percent of global methane emission. Environment Programme. The COP31 climate talks to be held in Turkey later this summer will focus on accelerating action against methane. Lower Costs The pressure is on the big tech companies to invest in clean energy and carbon removal to combat emissions from AI-driven data centres. Google has invested in Terradot after taking a stake in the company in 2024. The Intergovernmental Panel on Climate Change said that removal was needed to achieve the global climate goals. However, critics argue it could allow companies to pollute now. The companies stated that the model could be replicated and 'expanded' across Brazil’s 1.5 million hectares of rice fields, as well as in other rice-growing areas such India and Vietnam. Terradot will launch multiple pilots in different countries by 2026. Commercial scale-up is scheduled for?2028. Google and Terradot didn't disclose the price for the credits. However, a publicly revealed?2024 agreement for 90,000 tonnes of carbon removal by Terradot implied that the price was around $300 per ton. This is a lot higher than the $100 threshold many developers target to stimulate broader demand. James Kanoff, CEO of the company, said that while it is not yet $100 per ton at this time, "it represents a significant step towards that". Terradot stated that verification can add up to $100 per ton in enhanced rock weathering costs. This allows carbon removal to continue for longer, before third-party verifying would reduce this cost.
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Bonds steady as stocks rise, oil prices fall
Global stocks rose?on Wednesday, as recent increases in government bond yields?and oil prices stalled in advance of an important U.S. Federal Reserve?interest-rate decision later that day. MSCI's global equity index gained 0.2%, after having fallen in the two previous sessions. A?index? of Asia-Pacific stocks outside Japan rose 0.6% to end a four-day loss streak. The majority of European bourses were trading higher. The pan-European STOXX 600 gained 0.6%, and benchmarks in Germany, France, and Spain also saw gains. Futures that track the major U.S. stock indices also point to a higher opening after the benchmark S&P 500 closed lower on Tuesday, for the second consecutive session. The yield on the benchmark Treasury bond of 10 years reached its highest level since 2007. The yield on the 10-year Treasury Note in the United States fell to 4.97%, after reaching 5% earlier in the day. On Tuesday, it rose above the threshold for the first time since 2007 to reach its highest level since 2007. Federal Reserve announces its policy at 2 p.m. Kevin Warsh will hold a presser at 2 p.m. ET, followed by the announcement of the Federal Reserve's policy decision. It's a matter of credibility that he raises rates now. "If he does not hike this evening, there could be problems for the Fed's independence, credibility and the stock market," Michael Nizard said, the head of multi-assets and overlay at Edmond de Rothschild Asset Management, in Paris. It's also about guidance and a response function from the Fed. It's difficult to define?exactly? what a Fed reaction function is today. U.S.?President Donald Trump repeatedly expressed a preference to lower interest rates. He said last month that the U.S. will stop trading with nations with whom it has a trade surplus if the Fed does not reduce rates. The traders have mostly ignored those comments, and now see a rate increase as almost certain. According to CME Group’s FedWatch tool the markets are pricing in a 92.7 percent probability that the Fed will announce a 25 basis-point rate hike. This is up from 61.2 percent a week earlier. The dollar index (which measures the U.S. against six other currencies) held steady at 99.64. This is near a two-week peak. The Japanese yen remained at 155 to the dollar, after slipping in the two previous sessions. This is ahead of Friday's Bank of Japan policy announcement when the markets expect interest rates to reach their highest level since 31 years. British stocks rose and the pound fell 0.1% after an inflation reading in the UK did not change expectations before the Bank of England's policy announcement on Thursday. The markets were expecting the rates to stay the same. Rates are still expected to increase by the end of the year. Sterling could strengthen in coming weeks if BoE announces hikes amid rising inflation and energy costs. The Japanese yen could also weaken if BoJ's messages fall short of market expectations," UBS Global Wealth Management analyst said in a?note. As fuel supply disruptions sparked by the Middle East conflict raise concerns about energy-driven price inflation, central banks around the world are considering tightening monetary policy. Brent crude futures fell 1.5% to $107.1 per barrel on Wednesday after rising 2.9% the previous day. This was due to reports that Saudi Arabia offered additional crude cargoes through Oman, which eased concerns about 'the extent of supply disruptions. Digital assets have continued to fall after a steep selloff during the previous session when the U.S. Senate voted not to advance comprehensive cryptocurrency legislation backed up by Trump. Bitcoin rose 0.1%, to $75,954, after falling 4% the day before. Ether was flat, at $2,411, following a drop of 6.3% in the previous session.
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Sources say that at least 60 people have been killed by a gold mine collapse in West Kordofan in Sudan.
Three local sources reported that at least 60 people were killed when a gold mine collapsed in Sudan's West Kordofan State?on Sunday. A local rights group claimed some miners may still be alive and called for an urgent rescue effort. The Kordofan Observatory monitoring team?said Wednesday that over 70 artisanal miner were 'dead or unaccounted for after a series adjacent mining shafts collapsed? at the al-Zara Mine in the Fouja Area, northwest of al-Nuhud. According to eyewitness reports, the group reported that another survivor was still alive below ground. The group said that no specialist rescue teams were present and the fragile, sandy soil was hindering residents in their attempts to recover bodies and rescue miners using basic tools. Three local sources, who spoke to the media on Wednesday, blamed the high death rate at the remote site on a lack in safety procedures and rescue equipment. Sudan is one of Africa's biggest gold producers. However, the majority of this?gold?is produced by dangerous artisanal miners and then smuggled outside the country. The paramilitary Rapid Support Forces (RSF) who control the state rely heavily on gold mining as a source of income.
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Highlights of EU Commission Chief's 'State of the Union' Address
Ursula von der Leyen, President of the European Commission, called on EU member states to create a new partnership in order to tackle climate change and other major challenges that face us all. Von der Leyen addressed a wide range of issues in her 73-minute "state of union" speech to the European Parliament at Strasbourg. She began with the opening lines of Charles Dickens Tales of Two Cities which, she claimed, also described the world of today. "It was a good time, but it was also a bad one". CANADA Von der Leyen stated that the EU is opening the door for Canada to become the first "associate" member of the 27-nation block, a statut which is not set forth in EU Treaties. Canada and the EU united in defense of Ukraine and believed in the democratic ideals and that power did not belong to the "strongest, richest, or loudest". The EU-Canada relationship should be at the highest possible level, focusing on cooperation in the areas of economic security, smart manufacturing, defence industries and the Arctic. Von der Leyen called the daily?EU goods deficit of EUR1 billion "unsustainable", and claimed that a tipping-point had been reached. She said that dialogue with Beijing had to produce results, and it was both parties' interest to find a resolution. "Let's be clear: We will use all of the tools available to us to rebalance your relationship. Words can be good. "Words are good, but actions are better," said she. She said that the EU would create a European Corporation for critical raw materials in order to stockpile and help procure supplies. CLIMATE Von der Leyen stated that the EU would launch a climate insurance alliance to increase insurance coverage for extreme weather events. Only 25% of the catastrophe losses in Europe is covered by private insurance. It means that national budgets are far too often the last-resort insurer. She said that we need to?take action to close this deficit. The European Commission is also presenting a European Heatwave Plan, which includes early warning systems, health preparedness and a water initiative that addresses leakage and improves risk management, as well as addressing the insurance gap. Von der Leyen proposed an upcoming European firefighting aircraft fleet to combat wildfires. Von der Leyen supported calls from leading U.S. artificial-intelligence labs to slow down the development of this technology. As the models get more powerful, these risks are more apparent. The models being developed will enable hacking at a level that we have never imagined. They will be soon in the hands of adversaries that see the world differently than us," von der Leyen said to EU legislators. "CEOs from the most advanced companies tells us it's time to slow down the self-recursive model. To keep up with the pace of innovation. "If the people who are developing the technology?are clear, we should also be," she said. Von der Leyen said that the EU should also step up its work to establish guardrails in conjunction with like-minded partners such as Britain and Canada. SOCIAL MEDIA The European Commission is set to propose Thursday that children under 13 years old are banned from using social media and parents can supervise "mini accounts" with limited features, and restrictions on time until the child turns 15 years old. UKRAINE/SECURITY Von der Leyen pledged that the EU will give its "strongest ever support" to Ukraine during the upcoming winter. She predicted that this would be the most difficult of the war caused by Russia's invasion. She said that the EU would provide aid to Ukraine in terms of humanitarian assistance, and also increase power and heating supplies and strengthen Ukraine's defences. The European Commission chief proposed also a European Security Council which could?bring together the EU and other partners like Britain, Canada and?Norway?and establish an "emergency safety protocol" to allow EU members?to trigger?discussions in response to crises. MIGRATION The European Commission is proposing a system of emergency response to deal with sudden and massive influxes of migrants. "Europe must have the ability to defend its borders at any time. Particularly in scenarios where mass movements are engineered, weaponized and manipulated. "We will propose a European Emergency Response Framework", she said. The framework will only be activated under strict criteria, and it offers a limited time of flexibility to the affected countries.
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Data shows that Asia's diesel refining margins are at a record high of over $87 per barrel.
LSEG data showed that the Asian sulphur diesel refinery margins have reached a record high of slightly over $87 per barrel. The gains were primarily due to concerns about regional supply. According to data, this compares to pre-war levels around $22 per barrel. The last time the margins reached a record was at $85.6 per barrel towards the end of March. Front-month time-spreads hovered at just over $11 per barrel, nearing a five-month-high. In recent months, Asian refiners increased crude shipments and diesel production to take advantage of robust margins. They also shipped more diesel to distant markets like Africa to make up for shortages in the West. Sources and analysts have said that there are growing concerns about the near-term Asian oil supply risk. The market is now watching for another round of production cuts or run reductions as the escalating tensions of the Middle East increase the possibility of crude delivery delays. The Asian diesel situation is becoming more complex. In the past, Asia was better supplied by higher exports of?China and Korea, said Abhisek Kumar, senior oil market analyst with Sparta Commodities in a recent note. "But Asia is no longer immune from the risk premium." Fears about crude availability and Saudi disruption of supply have begun to lift Asian diesel. Since late last week, a few refiners began selling 'October spot cargos. The market is unsure whether the volumes will be comparable to September or August.
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Merz confidante backs tax cuts as German fuel prices hit record
Thorsten Frei is a senior conservative German lawmaker and a close confidante to Chancellor Friedrich Merz. He said that lowering the gasoline sales tax would be a logical step. Merz's?government is trying to reduce the record high prices?at the pump in advance of the state elections at the weekend, whose results could put pressure on the chancellor. The price of E10, the most common gasoline sold in Germany, is at an all-time-high for the past four days. This is due to the increase in international oil prices, which have reached $100 per barrel as a result of the U.S. and Israeli war against Iran. The national average daily price for one litre of E10 jumped to EUR2.30 ($10.05 per?gallon), up from EUR2.286. TAX REDUCTION FOR ENERGY RELIEF Frei told RTL/ntv lowering the energy tax, 'which was done by the government in May and July, could be an option. 'As well as reducing sales tax to 7% rather than 19%. He added that the discussions should be quick and focussed on how to implement measures by October 1st. Merz, the leader of a cabinet meeting on Wednesday, didn't present any specific measures Tuesday, but promised to make proposals "very soon". He rejected a tax on windfall profits, claiming it had no legal basis. Before the state elections on Sunday in Berlin and Mecklenburg/Western Pomerania, the chancellor wants to show that he is able to act on concerns of voters. Last week, the far-right Alternative for 'Germany (AFA) defeated Merz's Christian Democrats in Saxony-Anhalt. A poll conducted by INSA on Wednesday showed that his CDU was at 7% of the vote in Mecklenburg/Western Pomerania. This is almost half the result the party achieved in the 2021 elections. Merz, the head of Merz’s conservative parliamentary party, Frei, confirmed his support for Merz on Wednesday. Frei said, "We must resolve the many problems that we face in Germany."
The Morning Bid - A time to Hike?
The Federal Reserve's decision on policy will be the main event of the week. The markets are overwhelmingly expecting a quarter point rate hike by the Federal Reserve, its first since 2023. This is due to the resurgence of oil prices and the recent breaching of the important 5% Treasury yield mark.
Fed Chair Kevin Warsh could find himself in a collision course with the White House if he increases rates, given Donald Trump's preference for an easing of policy. Warsh could lose credibility if he does not act, given the economic data that supports a rate hike.
Warsh will face a major challenge with today's announcement and its messaging. The Fed chairman struck a hawkish note at Jackson Hole, last month. With U.S. unemployment still low and inflation above target, Warsh's credibility will be tested if he doesn't raise the benchmark rate.
Donald Trump is still pushing for the U.S. having the lowest borrowing rates in the world. The U.S. President recently threatened to "stop trading" with certain countries if the Fed did not lower rates. However, markets haven't taken this threat seriously.
The traders' biggest question is whether today's hike would be a one-off event or the beginning of a tightening cycle. When Warsh speaks today at 2:30 pm (1830 GMT), traders will closely watch his remarks for any hints on the future.
Fed watchers will be closely watching the Fed chair's every word and action for clues as to what is coming.
Recent expectations of monetary tightening have helped push the 10-year Treasury yield over the 5% mark. The 10-year Treasury yield dipped from this level on Tuesday, after reaching a 19-year peak of 5.041%. It has since tested it several times.
At a Congressional hearing held on Tuesday, U.S. Treasury Sec. Scott Bessent admitted that the higher yields reflected the U.S. deficit, among other things, but defended the recent bond purchases, which he said had helped to contain the rise in borrowing costs. He also attributed the rising yields to global issues.
He has a good point on the second. The resurgence of energy prices is causing new inflation fears, and bond yields are increasing globally.
Saudi Arabia has suspended loading operations in its Yanbu port after the latest Middle East tensions escalated. Brent and WTI crude settled at their highest level since May 19, Tuesday.
Early on Wednesday, oil prices fell, partly due to news about rising U.S. crude stocks, which helped stabilize bond and equity markets, that had fallen on Tuesday. Brent crude has risen around 19% in the last month because of increased Middle East supply disruption.
For more information on the other big story of the past week, AI safety concerns, we must go back to Bessent’s congressional hearing. When questioned about recent concerns?about the pace?of technological development, he defended the Trump Administration's AI strategy. He stressed a balance between competitiveness and safety against China.
Chart of the Day
The financial markets bet heavily on Fed policymakers to raise their benchmark rate by a quarter percentage point. This would bring it up to a range of 3.75%-4.00% and signal future tightening.
Watch today's events
* Fed announcement of interest rates at 2 p.m. (EDT), Fed Chair Kevin Warsh gives a press conference at 2:30 p.m.
* U.S. retail sales for August (8:30 am EDT)
Check out Mike Dolan’s latest column to see how Trump's pledge of $5,000 per person could be viewed by an increasingly hawkish Fed.
Listen to the latest Morning Bid Daily Podcast, where we discuss the impact of today's hike on Warsh and Trump's relationship.
Subscribe to the podcast and hear journalists discussing the latest news in finance, markets, and markets.
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(source: Reuters)