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Oil prices drop amid concerns over the US economy and market oversupply
The oil price fell for a second time on Thursday after the Federal Reserve reduced interest rates, as was expected. Traders focused on the U.S. economic situation and the excess supply. Brent crude futures dropped 13 cents or 0.19% to $67.82 per barrel at 0417 GMT. U.S. West Texas Intermediate Futures fell 18 cents or 0.28% to $63.87. In response to signs of weakness on the job market, the Fed lowered its policy rate a quarter percentage point by Wednesday. It also indicated that it would lower borrowing costs steadily over the remainder of the year. Low borrowing costs usually boost oil demand and drive prices higher. But the recent move and the hint that there will be two more cuts in this year were already priced into the market, according to Priyanka Sahdeva, a Phillip Nova senior analyst. She said that Powell's message of negativity, the Fed chair, was what caught markets' interest. He emphasized weakening employment markets and sticky inflation, making the cuts look more like risk management than demand boosters. Claudio Galimberti is the chief economist at Rystad and the global director of the market analysis. He wrote a note to clients that the Fed's intention to cut rates further indicates the policymakers' assessment of the economic risk from unemployment as being higher than the inflationary threat. The market was also affected by the persistent oversupply of oil and the soft fuel demand from the United States, the largest oil consumer in the world. The U.S. crude stockpiles declined sharply in the last week, as imports plunged to a new record low and exports surged to near two-year levels, according to data released by the Energy Information Administration on Wednesday. The market was expecting a 1 million barrel increase in stockpiles. A 4 million barrel rise, however, has raised concerns about the demand in this world's largest oil consumer, and pushed prices up. (Reporting from Katya Glubkova in Singapore and Siyi LIU; Editing by Christopher Cushing, Tom Hogue).
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Iron ore prices fall on a weak China demand. Pre-holiday stocking helps limit losses
Iron ore futures prices fell on Thursday due to a lack of demand in China's infrastructure and manufacturing sectors. However, inventory replenishment before the Chinese National Day holiday helped limit losses. As of 0255 GMT, the most traded January iron ore contract at China's Dalian Commodity Exchange was down by 0.12% to 800 yuan (about $112.57) per metric ton. On the Singapore Exchange, September benchmark iron ore traded at $105.25 per ton. This is a 0.19% decrease. According to Chinese broker Galaxy Futures, on the demand side, both manufacturing and infrastructure investments continued to show negative growth year-over-year in August. Meanwhile, end-use demand for steel fell dramatically in the third quarter compared to the 7% increase year-over-year in manufacturing steel consumption during the first half. Galaxy said that the iron metals sector could benefit from the upcoming replenishment of inventories ahead of Chinese National Day holiday. Hot metal production, which is a measure of demand for iron ore, has increased from month to month to 2,4055 million tonnes, according to Everbright Futures. China's crude iron ore production in August was 8.8% higher than the previous year, at 81.63 millions metric tons. Meanwhile, shipments of the top producer Brazil increased during the third quarter. The dollar index, a measure of the U.S. currency compared to six major counterparts, dropped to its lowest level since February 2022 after the Federal Reserve cut interest rates. However, it rebounded and now stands at 97.074. Dollar-denominated investments are less affordable for holders of currencies other than the greenback. Coking coal and coke, which are used in the steelmaking process, have both fallen by 0.89% and 0.26 %, respectively. The Shanghai Futures Exchange saw a decline in all steel benchmarks. Hot-rolled coils fell 0.65%, rebar dropped 0.51%, wire rod fell 0.24%, and stainless steel declined 0.19%.
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TotalEnergies Secures Four Exploration Permits Offshore Liberia
TotalEnergies has signed four Production Sharing Contracts (PSCs) for exploration blocks offshore Liberia, which were awarded following the 2024 Direct Negotiation Licensing Round organized by the Liberia Petroleum Regulatory Agency.The agreements were signed for the blocks LB-6, LB-11, LB-17 and LB-29, covering an area of approximately 12,700 square kilometers.The blocks are located in the south of the Liberia Basin. The work program includes acquiring one firm 3D seismic survey.“TotalEnergies is enthusiastic to be part of the resumption of exploration activities in offshore Liberia. Entering these blocks aligns with our strategy of diversifying our Exploration portfolio in high-potential new oil-prone basins.“These areas hold significant potential for prospects that have the potential for large-scale discoveries that lead to cost-effective, low-emission developments, leveraging the company’s proven expertise in deepwater operations,” said Kevin McLachlan, Senior Vice-President Exploration at TotalEnergies.
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Australia's 2035 emission reduction target is lower than expected at 62%-72%
Australia set a target for 2035 to reduce emissions by 62%-70% compared to 2005, which is lower than the figure initially suggested by Australia's climate authority. The United Nations has requested that countries It is important that all countries submit their Nationally Determined Contributions (NDCs) before the end September to allow their efforts to be evaluated before the COP30 Summit in Brazil in November. Australia's resources industry is largely responsible for its high pollution levels per capita. The target is below the range of 65-75% suggested initially by the Climate Change Authority (an independent body that advises government policy on climate change) and modelled by Treasury. "The target should be both ambitious and realistic." "A target above 70% is not feasible, this advice is clear. We have chosen the highest level of ambition possible," Minister for Climate Change and Energy Chris Bowen said at a Thursday news conference. The Australian Prime Minister Anthony Albanese announced A$5 Billion ($3.32 Billion) in funding for industrial facilities to decarbonise as well as A$2 Billion for the Clean Energy Finance Corporation of Australia to continue to push down electricity prices. Albanese stated in a press release that "we are not the largest polluter nor the biggest economy, but our commitment to climate change action matters." It matters to us, to our neighbors, to our economy and to the country we leave to our children. The United Kingdom announced that it would be the most ambitious country in terms of climate targets, with a reduction of 78% compared to 2005. (1 Australian dollar = $1) (Reporting and editing by Kim Coghill, Christian Schmollinger, and Alasdair Pala in Sydney)
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As traders evaluate Fed outlook after rate cut, stocks rumble
The global stock markets were choppy Thursday, after the Federal Reserve announced its first rate reduction this year. However, the Fed signaled a measured approach for further monetary policy ease. This left investors uncertain about the pace of future movements. MSCI's broadest Asia-Pacific share index outside Japan fell 0.1%, as the benchmark was impacted by declines in New Zealand and Australia markets. Chinese stocks fluctuated between gains and losses. However, there were signs of strength on some markets. U.S. stock futures rose 0.4% following a mixed session overnight on Wall Street, while South Korean shares soared by 0.8%, and Taiwanese stocks climbed 0.4%. Japan's Nikkei 225 tacked on 1%. The global stock market fell on Wednesday, after reaching a record-high in response to the Fed's quarter point rate cut. It also indicated that it would continue to lower borrowing costs throughout the remainder of this year. In his post-meeting remarks, Fed chair Jerome Powell temperated the more aggressive expectations of easing in the markets. He said that Wednesday's action was a risk management cut, and the central banks did not have to act quickly on rates. ANZ analysts wrote in a report that the decision made and the tone of the press briefing were both balanced and restrained. They weren't at all dovish. Investors were sceptical about Powell's projections of higher inflation and stronger U.S. growth. These doubts fueled overnight trading in the U.S., as the S&P 500 closed down and the Nasdaq Composite fell. Only Stephen Miran, the new Fed Governor who joined on Tuesday, voted against a 50-basis-point cut. The currency markets are also indecisive. After the rate announcement, the U.S. Dollar fell to its lowest level since February 2022 against a basket major counterparts at 96.224. However, it rose 0.1% on Thursday to reach 97.089. The euro was stable at $1.181, after an immediate reaction to the Fed's announcement caused it to rise to its highest level since June 2021. The Chinese Yuan was unchanged at 7,103 on Thursday after China's central banks left the borrowing costs of its reverse repurchase agreements for seven-day periods unchanged, refusing to follow the Fed. The pound fell 0.1% to $1.3621 after briefly reaching its highest level since July 2, at $1.3726, on Wednesday. It is expected that the Bank of England's policy decision will be announced later on Thursday. Rates are likely to remain at 4%. According to CME Group’s FedWatch tool, traders are pricing in an 87.7% probability of another 25-bp reduction at the Fed’s next meeting in November, compared with a 74.3% likelihood a day before. Shane Oliver is the chief economist at AMP and head of investment strategies in Sydney. He said that while "the Fed continues to signal more rate cuts", it still expects a good growth. This is a combination which is positive for share markets. He added, "I think the gains are going to be limited as the markets already rallied in anticipation of a Fed rate cut and they're due for a pause or a near-term corrective." Bank of Canada reduced its key rate on Wednesday by 25 basis points to a low of 2,5%, a level not seen in three years. This was the first time in six months that the Bank had cut the rate. The Bank said it would cut the rate again if the risks to the economy increased over the next few months. GROWTH CONCERNS S&P/NZX50 dropped by 0.9% in New Zealand after data revealed a worse than expected economic contraction for the second quarter. The kiwi currency fell 0.7% against greenback. The Australian market did not fare much better. It fell 0.6%, led by a drop of up to 13.6% in the shares of gas producer Santos after a consortium headed by Abu Dhabi’s ADNOC canceled its $18.7-billion bid for the firm, claiming that commercial terms couldn’t be agreed. After the release of softer-than-expected August labour market data, the Australian dollar fell 0.2%. Full-time employment dropped unexpectedly after a sharp increase the previous month. The unemployment rate remained at 4.2%. Kerry Craig, global strategist at J.P. Morgan Asset Management, Melbourne, says that the data could cause a weakness in the Australian Dollar, which recently gained strength due to hawkish remarks from the Reserve Bank of Australia. He said that the bank was still expecting a rate reduction in November. After a slight pullback on Tuesday, bond markets rallied. The yield on the benchmark 10-year Treasury note fell to 4.0718% from its U.S. closing of 4.076%. The yield on the two-year Treasury note, which increases with traders' expectation of higher Fed Funds rates, increased a bit to 3.5385%. Gold prices rose 0.1%, to $3662.33 an ounce. This is a recovery from the dip that occurred after Wednesday's record high. Brent crude oil prices fell by 0.5% to $67.62 a barrel.
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Shanghai copper falls to a new low after Fed rate cut
Shanghai copper futures fell for the third consecutive session on Thursday after a 25 basis-point rate cut from the U.S. Federal Reserve, and a higher supply of the top consumer China. In line with expectations, the U.S. Central Bank cut its benchmark interest rate on Wednesday by a quarter-point. At its October and December meetings, the Fed indicated that it would also make further cuts. The traders closed long positions in order to take profits from bets on the rate drop. This wave of profit taking continued even after the rate decrease, which weighed on the prices of red metals used in construction and power. As of 0238 GMT, the most traded copper contract on Shanghai Futures Exchange fell below the psychologically important level of 80,000 Yuan ($11252.23) for a metric ton. The price was down by 1.05%, to 79.870 yuan per ton. Earlier in the session, the contract reached its lowest level since September 10, at 79.690 yuan. The benchmark three-month copper price on the London Metal Exchange fell 0.25% to $9,971.5 per tonne after hitting its lowest level in a week at $9925 on Wednesday. ANZ analysts also said that the higher metals production in China weighed on the sentiment in a recent note. China's refined output of copper in August increased 15% on an annual basis, reaching a near-record high level. SHFE aluminium fell by 1.05%. Nickel dropped by 0.29%. Tin declined 1.04%. Zinc shed 1.1%. Lead added 0.26%. Aluminium, nickel, lead, tin, and zinc all fell in the LME.
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Powell's comments and Fed meeting have led to a strengthening of the dollar, lowering gold.
Gold prices continued to decline on Thursday, while the dollar strengthened after the U.S. Federal Reserve, as anticipated, cut interest rates a quarter percentage point and used a measured tone on future policy easing. As of 0156 GMT spot gold fell 0.2%, to $3,654.29 an ounce. It had hit a record-high of $3,707.40 per ounce on Wednesday. U.S. Gold Futures for December Delivery fell 0.8% to $3.690. Edward Meir, Marex analyst, said that the Fed's general message was a little hawkish on interest rates. They didn't endorse lower rates with enthusiasm. "As a consequence, we saw the Dollar firm up after Fed meeting and Treasury rates also moved upwards... I believe that in the short-term, we may be a little overbought and could possibly retrace further to the $3600 mark. Gold is now more expensive for holders of other currencies due to the dollar's 0.2% rise. The Fed cut rates by 25 basis point on Wednesday, and said it would continue to lower borrowing costs throughout the remainder of this year. Fed Chair Jerome Powell described the policy as a risk management cut in response the weakening of the labour market. The central bank is currently in a situation where it has to "meet by meeting" in order to determine the future interest rate outlook. The SPDR Gold Trust is the largest gold-backed ETF in the world. Its holdings dropped 0.44% on Wednesday to 975.66 tons from 979.95 on Tuesday. The gold price has risen by 39% this year after a 27% increase in 2024. This is due to expectations of monetary policy ease by the Fed and lingering geopolitical conflicts, as well as strong central bank purchases. The price of palladium remained unchanged at $1,153.87. Platinum rose 0.4% to 1,366.75 per ounce and silver fell 0.3% to $41.53 an ounce. (Reporting and editing by Rashmi aich in Bengaluru, Brijesh patel from Bengaluru)
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Investors assess Fed's outlook after rate cut and are cautious about stocks, the dollar
The global stock markets rose on Thursday, after the Federal Reserve lowered interest rates. However, investors were cautious after the world's largest central bank indicated a measured approach towards further monetary policy ease. U.S. equity contracts advanced by 0.3% after an uneven session overnight on Wall Street. Shares in Korea and Taiwan, which opened around 0.7% higher, led the gains in Asia. Japan's Nikkei 225 tacked on 0.3%. The MSCI broadest Asia-Pacific share index outside Japan edged down 0.1% as the declines in Australian markets and New Zealand weighed on this benchmark. The global stock market fell on Wednesday, after reaching a record-high in response to the Fed's quarter-point rate cut. It also indicated that it would continue to lower borrowing costs throughout the remainder of the year. In his post-meeting remarks, Fed Chair Jerome Powell temperated the more aggressive expectations of easing in the markets. He said that Wednesday's action was a risk management cut, and the central bank did not have to act quickly on rates. ANZ analysts wrote in a report that the decision made and the tone of the press briefing were both balanced and restrained. They weren't at all dovish. Investors were sceptical about Powell's projections of higher inflation and stronger U.S. growth. These doubts fueled the U.S. trade overnight. The S&P 500, and Nasdaq Composite closed down. Only Stephen Miran, the new Fed Governor who joined on Tuesday, was against a 50-bp increase. The currency markets are also indecisive. After the rate announcement, the U.S. Dollar Index fell to its lowest level since February 2022. It was 96.224. However, it recovered to 97.074 to end the day higher. After a knee-jerk response to the Fed's announcement, the euro remained at $1.1821. It had previously reached its highest level since June 2021 of $1.19185. Sterling is flat at $1.3626 after briefly reaching its highest level since July 2, at $1.3726, on Wednesday. It is expected that the Bank of England will announce its own policy later on Thursday and keep rates at 4%. According to CME Group’s FedWatch tool, traders are pricing in an 87.7% probability of another 25 bp cut during the Fed's October meeting, up from a 74.3% likelihood a day before. Shane Oliver is the chief economist at AMP and head of investment strategies in Sydney. He said that while "the Fed continues to signal more rate cuts", it still expects a good growth. This is a combination which is positive for share markets. He added, "I think the gains are going to be limited as the markets already rallied in anticipation of Fed rate cuts and therefore they're due for a pause or a near-term corrective." Bank of Canada reduced its key rate on Wednesday by 25 basis points to a low of 2,5%, a level not seen in three years. This was the first time in six months that the Bank had cut the rate. The Bank said it would cut the rate again if the risks to the economy grew in the coming months. S&P/NZX50 dropped 0.6% in New Zealand after data revealed a worse than expected economic contraction for the second quarter. The kiwi currency fell 0.6% against the dollar. The Australian market did not fare much better. It fell 0.8%, led by a drop of up to 13.6% in the shares of gas producer Santos after a consortium headed by Abu Dhabi’s ADNOC canceled its $18,7 billion bid, claiming that commercial terms couldn't be agreed. The yield on the benchmark 10-year Treasury note rose to 4.0872% on the bond market from its U.S. closing of 4.076% Wednesday. The yield on the two-year bond, which increases with traders' expectation of higher Fed fund rates, increased a bit to 3.5552%. Gold prices increased 0.3%, to $3670.19 an ounce. This is a recovery from the dip that occurred after Wednesday's record high. Brent crude oil prices remained steady at $67.95 a barrel.
There are Fed Weeks where decades occur.
Gregor Stuart Hunter gives us a look at what the future holds for European and global markets.
Vladimir Lenin said that just as there can be decades without any action, there can also be weeks in which decades are active. Central banking is also a busy area, but it's not as busy as the central bank.
Markets are digesting U.S. Central Bank's actions, as the Federal Open Market Committee delivered a widely anticipated 25 basis point cut in rates on Wednesday. Only new Governor Stephen Miran disagreed with a 50 bps rate cut.
Scorecards for those who want to know: the Bank of Canada cut and the People's Bank of China held. The Hong Kong Monetary Authority was forced to follow the Fed.
After Wall Street's stumble, Asian markets bought into the dip Thursday, sending S&P500 e-minis and Nasdaq Futures 0.7% higher. This risk-on attitude is expected to continue in Europe where the pan-regional futures are up 0.6% and German DAX Futures are up 0.7%. FTSE Futures are also 0.2% higher.
The bond markets have also recovered after a slight pullback. The yield on the benchmark 10-year Treasury note fell to 4,068% from its U.S. closing of 4,076% on Tuesday.
The dollar held steady at 97.024 after recovering from a three-and-a-half-year low. Gold fluctuated, with gains and losses. It hit an air pocket, after reaching a record-high on Wednesday. The last price of bullion was $3,659.40.
Even with the Fed's return to an easing cycle and the sugar rush that comes along with it, the growth concerns are always there. New Zealand shares and the Kiwi dollar fell after economic data that was worse than expected, and Australian stocks also dropped following the release of lower-than-expected employment market statistics.
Santos shares fell as much as 13.6 percent after ADNOC, a consortium led from Abu Dhabi, canceled its bid of $18.7billion for the gas company. The consortium said that commercial terms couldn't be agreed. Brent crude dropped 0.2% to $67.84 a barrel.
Despite all the drama, MSCI’s broadest Asia-Pacific share index outside Japan has traded flat.
The following are key developments that may influence the markets on Thursday.
Earnings of corporations
Next, Embracer Group and Auto Trader Group
Central bank decisions
UK: Bank of England
Economic Data
UK GfK Consumer Confidence for September
France debt auctions: 3 year, 5 year, 8-year 9-year and thirteen-year government bond auctions
(source: Reuters)