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Stocks steady, oil continues to fall as traders await Warsh
The news that Iranian fuel could soon be available on global markets prompted a drop in?bond yields on Wednesday. Stocks and currencies also remained quiet ahead of Kevin Warsh’s first Federal Reserve meeting. Brent crude futures are now trading below $80, and have fallen more than a third from their peak after news that the U.S. would lift sanctions against Iranian oil as part of the agreement to end the conflict. Even though the conflict has depleted strategic oil reserves, the prospect of additional supply helped to push yields down on U.S. Treasuries and a rally of global bonds. Luka Belobrajdic is an economist with Westpac. He cautioned that sanctions are unlikely to be lifted immediately and depended on the sustainability of peace. The yields on ten-year Japanese bonds fell by four basis points, to 2.61%. In Australia, the yields on ten-year Australian bonds dropped by almost six bps, to 4.78%. The U.S. and Iran agreement due to be signed this Friday has been confirmed in public only a few times. A three-month blockade of the 'Strait of Hormuz' has pushed U.S. crude oil reserves down to their lowest level since 1983. Wall Street futures in Asia traded slightly higher, while FTSE and European futures declined 0.2%. The chipmaker-heavy'markets' in Tokyo and South Korea brushed off a negative lead overnight from U.S. semiconductor share sales, but a 1.7% drop for Taiwan's TSMC dragged Taiwan benchmark 1% down. MSCI's broadest Asia-Pacific share index outside Japan was largely flat, and in China AI gains were able to offset the sagging consumer stock prices in response to weak retail sales figures. FED ON HOLD WARSH IN FOCUS The dollar has been held in a state of stagnation by traders as they wait to see how Warsh balances his dovish presidency with the markets that?expect an increase this year. The euro is barely moving this week. It's hovering around $1.16. The expected rate increase in Japan on Tuesday failed to lift the yen. However, the downside was protected due to the possibility of an official intervention. It remained at 160.3 per dollar. The Fed Funds rate is unlikely to change, so focus on the press conference and Warsh's voting, as well as the committee members' projections in March, when most of them expected rates to be cut. "We expect Warsh to downplay the forward guidance and instead advocate patience on policy rate and inflation - leaning dovish in relation to market pricing," said Xiao Cui senior economist at Pictet Wealth Management. If Warsh accepts the possibility that rates will rise and doesn't push back against market pricing, it could be interpreted as "hawkish." The Riksbank of Sweden is expected to "stay on hold" but still forecast an increase, whereas the British "inflation rate is projected to accelerate to 3% annually due to higher oil prices. Gold, which is down by more than 20% since January's peaks, bounced from support at $4,000 per ounce to $4,300 on Wednesday. Bitcoin, meanwhile, found support just above $64,000, trading just below $65,900. (Reporting and editing by Jacqueline Wong; Tom Westbrook)
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Gold prices steady as investors wait for details of US-Iran agreement, Fed verdict
The gold price was steady?on a?Wednesday?, near a week-high, as investors awaited more details about the U.S. Iran agreement and the Federal Reserve policy decision following Kevin Warsh’s first meeting as Chairman. As of 0420 GMT, spot gold was unchanged at $4,331.29 an ounce. U.S. Gold Futures for August Delivery was down 0.1% to $4,351.40. Bullion reached a new high of $4.370.82, a more than?one-week old record. A U.S. official said that the deal would allow Iran to begin selling oil after it is signed. President Donald Trump has also stated it will prevent Tehran from acquiring a nuclear bomb. On the back of expectations for Iranian supply, oil prices remained near their lowest level in three months. This eased inflation concerns. Ilya spivak, global macro head at Tastylive, said that the rally (in gold) has lost some of its vigor as attention is now focused on the Fed's monetary policy announcement. Spivak stated that "this marks the first FOMC to be chaired Kevin Warsh, and traders seem uncertain about how he'll reconcile his hawkish record with rising inflation and the pressure from White House to make a pivot towards dovishness." The majority of Fed policymakers believe they must keep the U.S. Projections due later today are expected to show that short-term borrowing rates will remain unchanged for the entire year. A small number of projections pencil in a rate increase to prevent inflation from becoming entrenched. According to CME FedWatch, traders see a 59% probability of a U.S. interest rate increase in December. This is down from 70% the week prior to the announcement of the U.S. Iran peace deal. When rates are high, gold tends to lose its appeal as it doesn't yield any interest. Westpac analysts stated in a research report that "over the longer term structural support for gold is expected to continue, driven by ongoing Asian demand as well as continued central bank purchases, which are used to hedge against geopolitical risks and policy uncertainties." Silver spot fell by 0.2%, to $70.05 an ounce. Platinum lost 0.7%, to $1,792.05, while palladium dropped 0.8%, to $1,341.23. (Reporting and editing by Rashmi aich, Sherry j. Phillips, Eileen Soreng).
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Oil prices drop as investors consider a deal to end the Iran War, but uncertainty remains about Hormuz
The oil prices fell on Wednesday as investors evaluated the?U.S. - Iran peace deal. However, uncertainty about?the full resumption?of shipping through the?Strait?of Hormuz's?limited further drops. Brent crude futures fell 16 cents or 0.2% to $78.80 per barrel at 0340 GMT. U.S. West Texas Intermediate dropped 25 cents or 0.3% to $75.80 per barrel. On Tuesday, both benchmarks fell 5% in a second session straight to reach their lowest levels in three months on the hope that an agreement between the U.S. and Iran would allow oil to flow through Strait. "Markets have stripped out the embedded geopolitical risks premium in oil price," said Priyanka Sackdeva, Senior Market Analyst at Phillip Nova. The road to normalisation is far from straightforward. Although political agreements are progressing, the physical tanker traffic in the Strait is still not fully recovered. The United States would lift their blockade on Iran's ports and Iran would allow oil tanker travel through the Strait of Hormuz, which has been effectively blocked by U.S.-Israeli strikes since February 28. Hiroyuki Kikukawa is the chief strategist at Nissan Securities Investment. He said that oil markets have?retreated due to expectations the Strait of Hormuz will reopen after the peace agreement. However, traders are holding off on further sales pending more details. He added that WTI will likely remain volatile within a range between $10 above and below $80 per barrel. Prior to the closure of the Strait, about a quarter of the world's crude oil and natural gas liquefied supplies passed through it. Tuesday details of the interim agreement began to emerge. President Donald Trump said it would prevent Tehran from acquiring a nuclear weapon and a U.S. government official stated that it would allow Iran?to sell oil upon signing. The not-yet-public memorandum extends a flimsy ceasefire that was agreed to in April by 60 days, allowing time for further talks towards a permanent truce. Industry officials say it will take weeks, even months, to return to the pre-war levels of production and refinement. Israel has disassociated itself from both the April ceasefire agreement and the latest U.S.Iran pact. This creates uncertainty as to whether the pact will be honoured. Lebanon's National News Agency reported that Israeli drone strikes on three vehicles in southern Lebanon Tuesday killed at least four people and injured others. This prompted a rare public criticism from President Trump. Data showed that China's crude throughput in May fell by 9.1% on the previous year, to its lowest level in nearly four years. It also indicated that refiners are starting to draw on their stockpiles in the face of the Iran War. Sources said that the American Petroleum Institute's report showed that U.S. crude stock fell by 8.3 million barrels during the week ending June 12. The Energy Information Administration is expected to release official figures at 10:30 am. ET (1430 GMT), on Wednesday. Reporting by Yuka Obaashi in Tokyo, Jeslyn Lerh in Singapore and Clarence Fernandez; editing by Sonali Paul & Clarence Fernandez
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Gold gains as bets on rate hikes decline ahead of Fed decision
Gold rose for a 'fifth consecutive day' on Wednesday, as a sigh of relief over a U.S. - Iran peace deal eased expectations that the U.S. would raise interest rates. Investors awaited more details about the agreement and the Federal Reserve policy meeting. As of 0230 GMT spot gold was trading at $4,341.12 an ounce. This is near the one-week high reached on Monday. U.S. Gold Futures for August Delivery?rose by 0.2% to $4361.10. Details are beginning to emerge about a U.S. - Iran interim deal that will end the Middle East conflict. Donald Trump said it would prevent Tehran from acquiring a nuclear weapon and a U.S. government official stated that the deal would allow Iran oil sales once signed. The oil price hovered at a low of three months after news broke that Iranian fuel could?soon' hit the global market, which eased inflationary fears. The pullback in oil has cooled expectations of rate hikes and eased some upward pressure on rates. The rally in gold is losing steam, as attention turns to the Fed's monetary policy announcement, said Ilya SPivak, Tastylive's head of global macro. Investors are focusing on the U.S. Fed's policy announcement and remarks due later today, with rates expected to stay unchanged. Spivak stated that "this marks the first FOMC meeting chaired Kevin Warsh, and traders are still unsure of how he'll reconcile his hawkish record with rising inflation and pressure from a White House requesting a pivot to a more dovish stance." According to the 'CME FedWatch' tool, traders now expect a?59% probability of a?U.S. rate increase in December. This is down from 70% the week prior to the announcement of the U.S./Iran peace agreement. When rates are high, gold loses its appeal because it does not earn interest. Westpac analysts wrote in a research report that "Over the long term, structural support for gold is expected to continue, driven by continued Asian demand and continuing central bank purchases as hedges?against?geopolitical and political risks." Silver spot rose 0.3% to $70.38 an ounce. Platinum was up 0.5% at $1,812.80 and palladium gained 0.3%.
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As traders await Warsh, oil prices drop on Iran's supply prospects
Crude prices falling on news that Iranian oil may soon reach global markets sparked a fall in bond yields on Wednesday. Stocks and currencies were quieter before Kevin Warsh's first meeting as Federal Reserve Chair. Brent crude 'futures' plunged below $80, the cheapest since March when the 'U.S. - Iran conflict began. According to a senior U.S. Official, the U.S. has agreed to waive sanctions against Iranian oil as part of the agreement that ends the war. This could lead millions of barrels more of Iranian oil being supplied. U.S. bonds yields dropped and rates in Asia followed, with 10-year Japanese rates down 1.5 basis points to 2.63 percent and 10-year Australian rates down almost 5 basis points to 4.78 percent. Kim Fustier is a senior oil and Gas analyst at HSBC. The bank believes it will be until the 'end of September before the markets price in a complete normalisation of the?flow of the Hormuz. The U.S. and Iran agreement is due to be signed this Friday. However, few details have been confirmed. A three-month blockade of the 'Strait of Hormuz' has drained the oil reserves of the United States, which are now at their lowest level since 1983. Overnight, Wall Street investors reduced crowded bets made on semiconductor and tech stocks, bringing the Nasdaq index down by 1.15%. Meanwhile, the Dow reached a new record, thanks to a rise in financial and industrial stocks. Futures in Asia were slightly positive, but chip-heavy markets like Taiwan and South Korea slid lower. MSCI's broadest Asia-Pacific share index outside Japan also fell by about 0.3%. Japan's Nikkei rose 0.4%. Hong Kong and Shanghai stock markets were largely steady. FED?ON HOLD WARSH IN FOCUS The dollar has been held in a state of anticipation as traders wait to see if Warsh can balance his dovish presidency with the expectations of the markets for a rise this year. The euro was only slightly firmer?this past week to hover around $1.16. The expected rate increase in Japan on Tuesday failed to lift the Japanese yen. However, the downside was protected due to the possibility of an official intervention. The Fed funds rate is unlikely to change, so focus on the committee's projections and the press conference. In March, most members predicted that rates would be cut this year. "We expect Warsh will downplay 'forward guidance' and instead advocate patience on policy rate?and inflation – leaning dovish in relation to market pricing," said Xiao Cui senior economist at Pictet Wealth Management. If Warsh does not oppose market pricing and embraces the possibility for rate increases, it could be perceived as hawkish. (Reporting and editing by Jacqueline Wong; Tom Westbrook)
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Investors weigh the impact of Iran's war ending and Hormuz reopening on oil prices as they stabilize.
Investors questioned whether the Iran War will end and the Strait of Hormuz will reopen. Brent crude futures rose 47 cents (0.6%), to $79.43 per barrel. U.S. West Texas Intermediate was up 48 cents (0.6%), to $76.53 per barrel as of 0038 GMT. The benchmarks for both fell 5% on Tuesday, a second consecutive session. They reached three-month lows in hopes that a U.S. Iran deal would allow oil to flow through the Strait. Oil markets fell on the expectation that the Strait of Hormuz will reopen after the?peace accord, but traders held back further sales pending more details, said Hiroyuki Kikukawa. Kikukawa is the chief strategist of Nissan Securities Investment. He added that WTI will likely remain volatile between $10 above and below $80 per barrel. Tuesday, details of the interim peace agreement began to emerge. U.S. president Donald Trump said it would 'rule out' a nuclear weapon for Tehran. A U.S. official stated that it would allow Iran oil sales upon signing. The not-yet-public memorandum extends the tenuous ceasefire that was announced in April for another 60 days, allowing talks to lead to a permanent truce. The deal would see the United States lift its blockade on Iran's ports while Tehran would allow oil tanker traffic to flow through the Strait which has been effectively blocked since U.S.-Israeli strikes?on February 28, 2009. Officials in the industry say it will take weeks, even months, to return to levels of production and refinement that existed before World War II. Israel has disassociated itself from the April ceasefire as well as the latest U.S. Iran agreement, increasing uncertainty about whether the new truce is going to hold. Lebanon's National News Agency reported that Israeli drone strikes on three vehicles in the southern Lebanon killed at least four people, and injured others. Trump has issued a rare public rebuke to Israel's military tactics. Data showed that China's crude throughput in may?fell by 9.1% over the past year, to its lowest level in nearly four years. This also indicated that refiners are starting to draw down on stockpiles in the face of the Iran War. According to sources, the American Petroleum Institute's report revealed that U.S. crude stockpiles fell by 8.3 million barrels during the week ending June 12. The Energy Information Administration is expected to release official figures at 10:30 am. This exceeded the expectations of a 4.6-million barrel draw. ET (1430 GMT), on Wednesday. Reporting by Yuka Obabayashi, Editing by Sonali Paul
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Russian-held Crimea restricts motorcycle use, claiming they sound like drones
Moscow-installed officials in Crimea have banned motorised vehicles such as quad bikes, motorcycles and scooters from being used at night. They claim that they sound like drone attacks. The peninsula's Russian-installed Governor, Sergei Aksyonov said that the ban would be enforced between 8 p.m. to 6 a.m. on Wednesday. He called it a temporary measure for the protection of military and important facilities. The moped's noise interferes with the operation of defense systems. "Their engines sound like drones,"?Oleg?Kryuchkov, Aksyonov’s advisor, said on Telegram separately on Tuesday. "The enemy is enlisting your children for nighttime rides." The Crimea ban does not apply to larger vehicles or cars. Ukraine recently intensified drone attacks against?Crimea - home to Russia's Black Sea Fleet - targeting the peninsula’s supply routes, causing a fuel shortage as the holiday season begins. Mikhail Razvozhayev said that the limit of 20 litres of fuel (5.3 gallons of gasoline) per car would remain at local petrol stations, in a Telegram message posted late Tuesday. Sources say that a Ukrainian drone attack on Tuesday halted the operations of the oil refinery in Moscow, adding to the damage done by the strike and spreading the fuel crisis further into the country. On Wednesday morning, Sergei Sobyanin, the Mayor of Moscow, said that Russian defence systems had shot down 10 drones headed for Moscow overnight. Donald Trump, the U.S. president, said that Russia should make peace in Ukraine after a "very successful" meeting with President Volodymyr Zelenskiy on Tuesday. His comments sparked cautious optimism from G7 leaders about the possibility of a peace agreement. (Reporting and editing by Lincoln Feast in Tokyo. Reporting by Jekaterina Glubkova.
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Officials say that four people were killed in Russian attacks on eastern Ukrainian towns
Officials and prosecutors reported late Tuesday that Russian 'attacks' on cities in Ukraine’s east and south-east had killed four people and set a residence and shopping centre ablaze. In the Donetsk Region, which is the center of Ukraine's frontline, prosecutors said that three people died in two bombings in the city of Slovansk. Five people were also injured. Sloviansk forms part of the "fortress belt" heavily defended by military forces and is seen as a key location in containing a slow-moving Russian attack on Donetsk. National police in?the southeast Ukrainian city of Zaporizhzhia? said that a wave dozens of drones had killed one man and injured seven other people. Online pictures showed flames on the roof and inside of a building. At least one façade was reduced to rubble. Regional Governor Ivan Fedorov confirmed that there were five attacks?on the city. Fire broke out at a home and shopping centre, and an education institution was damaged. Could not independently verify these reports. Russia and Ukraine deny that they deliberately targeted civilians during the war which began with Russia's full scale invasion of Ukraine in 2020. Reporting by Ron Popeski, Oleksandr Kozoukhar and Mark Porter; editing by Jamie Freed and Mark Porter
All eyes on the way Warsh walks his line in MORNING BID EUROPE
Tom Westbrook gives us a look at what the future holds for European and global markets.
Kevin Warsh wraps up his Federal Open Market Committee (FOMC) meeting, with tumbling oil and a tentative offer of peace as a backdrop that will allow interest rates to be held at the current level.
The market will be watching his vote, how he conducts himself at the news conference and his ability to explain the outlook. Warsh does not like "forward guidance" and could choose to avoid a projection of interest rates in the U.S. Central Bank's quarterly economic outlook.
He was chosen by Donald Trump, the U.S. president, to lower rates. With inflation over target and employment solid, markets are expecting a rate hike. He will be questioned about it, and the dollar has been dithering in anticipation of his response.
Investors might interpret his failure to push back against market pricing as a hawkish message. If he doesn't, investors may worry about inflation.
He will also be facing a boardroom in which his predecessor Jerome Powell still has a voice. Shinichi Uchida, the Deputy Governor of the Bank of Japan, may have provided a model of how to maintain a steady hand. He was able to maintain policy flexibility without scaring the markets.
Uchida received some extra support from the Japanese?finance minister, who is lurking behind the scenes, threatening to intervene on the currency market if the yen falls again.
Asian markets were mostly flat?on Wednesday. Warsh was the star of the show, and oil sellers took a breather to await the confirmed details of the U.S.Iran agreement. Brent futures are now trading below $80 per barrel, following reports that the U.S. is planning to lift sanctions against Iranian oil. Sweden's Riksbank will likely be on hold, but hint at a possible hike later in the year.
The British inflation rate is expected to rise to 3% due to the higher oil price, while final European figures are unlikely to differ from preliminary readings.
The following are key developments that may influence the markets on Wednesday.
- Rate Decisions in the U.S.A. and Sweden
British inflation
U.S. Retail Sales Data (Editing by Muralikumar Aantharaman).
(source: Reuters)