Morning Bid: Rates, oil lifted by China's green shoots
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[March 18, 2024] A
look at the day ahead in U.S. and global markets from Mike Dolan
A rare positive surprise from Chinese industry and retail has unnerved
interest rate and energy markets some more, upping the stakes at this
week's major central bank meetings.
Although stock markets continue to sidestep the rebound in borrowing
rates over the past week - moves seeded by both stubborn inflation
readouts and brighter growth and earnings signals - the prospect of a
more significant Chinese recovery may add pressure to the delicate
balance.
China's factory output and retail sales beat expectations in the
January-February period, according to official data released on Monday,
marking a solid start for 2024 and offering relief to policymakers
fearful of the drag from the ongoing property bust.
Industrial output rose 7% in the first two months - the quickest growth
in almost two years. Retail sales slowed to 5.5% from 7.4% in December
but also slightly beat forecasts.
Chinese stocks <.CSI300) closed at their highest for the year and have
now recaptured 12% of the past year's withering slump since the start of
February. Global stocks and U.S. futures started the busy week on a more
positive note as a result.
But the impact of a punchier Chinese economic rebound on global oil and
commodities comes at a critical juncture for inflation-watchers, central
banks and bond markets.
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U.S. crude oil prices - irked additionally by supply factors and
geopolitical concerns from Russia to Gaza - pushed further above $80 per
barrel on Monday to their highest since early November. That has lifted
year-on-year oil price gains to 22% - the fastest annual pace since
December 2022.
With Russia's predictable weekend election result tightening Vladimir
Putin's 25-year grip on power, Ukraine's continuing attacks on the
country's oil refineries are having an impact on energy markets at the
margins too.
On Saturday, one of the strikes sparked a fire at the Slavyansk refinery
in Krasnodar, which processes 8.5 million metric tons of crude oil a
year, or 170,000 barrels per day. A Reuters analysis found the attacks
have idled around 7% of Russian refining capacity - which feeds demand
from China and India - in the first quarter.
The oil price irritant will do little to ease the fresh angst in
Treasury debt markets, where 2- and 10-year yields hit their highest in
almost a month early on Monday ahead of this week's latest Federal
Reserve meeting.
U.S. Treasury exchange-traded funds are now down 2% for the year to
date, with long duration versions containing 20 and 30-year bonds off
about 6% for 2024.
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A trader works on the floor at the New York Stock Exchange (NYSE) in
New York City, U.S., March 7, 2024. REUTERS/Brendan McDermid
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There is no hope of a Fed rate cut this week, but their new economic
projections may be a wild card - potentially signaling fewer
interest rate cuts and a later start to the policy easing than they
previously had estimated.
Futures markets are now not pricing a full Fed rate cut until July,
seeing only a 50-50 chance of a move as soon as June and just 75
basis points of easing over the whole year.
U.S. March homebuilder sentiment readings are due out later on
Monday, but are unlikely to have much of a bearing on this week's
Fed meeting - where discussions will also likely start on possible
tapering of the central's bank's balance sheet rundown.
The brighter growth and edgier oil and inflation outlook also ups
the ante for tomorrow's Bank of Japan decision, where speculation is
now rife the BOJ will end its negative interest rate policy
following months of second-guessing and after news last week of the
highest wage growth in more than 30 years.
The Nikkei newspaper on Saturday became the latest media outlet to
flag the policy move as soon as Tuesday.
But Japanese markets now seem well prepared for the shift - with the
yen softening to its weakest level in almost two weeks near 150 per
dollar and the Nikkei stock benchmark rallying more than 2% on
Monday.
The dollar was steady more generally.
In company news, the day ahead is likely to be dominated by
artificial intelligence bellwether Nvidia's annual developer
conference. Nvidia's stock price was up 2% ahead of the bell in
anticipation.
Key diary items that may provide direction to U.S. markets later on
Monday:
* U.S. NAHB March housing index; Canada Feb producer prices
* Nvidia's annual developer conference
* US Treasury auctions 3-, 6-month bills
(By Mike Dolan, editing by Ed Osmond, mike.dolan@thomsonreuters.com)
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