SYDNEY (Reuters) – Shares struggled and the yen gained on Wednesday, with markets in China faltering on their return from a long holiday as investors fretted over Sino-U.S. tensions, while oil ended an extended winning streak on oversupply risks amid weak demand.
FILE PHOTO: People wearing protective face masks, following an outbreak of the coronavirus, are reflected on a screen showing Nikkei index, outside a brokerage in Tokyo, Japan February 28, 2020. REUTERS/Athit Perawongmetha
Wall Street futures turned negative after starting higher, with E-minis for the S&P500 ESc1 off 0.3%.
China, opening for the first time since Thursday, started on the backfoot with the blue-chip index .CSI300 down 0.6%. Australian shares skidded 0.8%.
“There is a distinct risk-off tone to greet China coming back from holiday,” said Stephen Innes, chief global markets strategist at AxiCorp.
“With Trump and the company still on the Wuhan Lab rampage, traders are incredibly cautious this morning, weighing all the possible China responses. And the one that would hurt the most would be for China to reduce imports of U.S. oil.”
Global financial markets have been caught this month between grim economic figures and worries about worsening U.S.-China relations, and optimism over easing COVID-19 lockdowns in many countries.
U.S. President Donald Trump has repeatedly taken aim at China as the source of the pandemic and warned that it would be held to account.
On Tuesday, he urged China to be transparent about the origins of the novel coronavirus that has killed more than a quarter of a million people worldwide since it started in the Chinese city of Wuhan late last year.
Elsewhere, Hong Kong’s Hang Seng index .HSI added 0.7% while South Korea’s KOSPI was also upbeat, rising 1%. Japanese markets were closed for a public holiday.
That left MSCI’s broadest index of Asia Pacific shares outside of Japan .MIAPJ0000PUS up 0.3% in relatively light volumes.
On Wall Street overnight, the S&P 500 pared earlier gains after U.S. Federal Reserve Vice Chair Richard Clarida warned that economic data would get much worse before getting better.
The index .SPX finished 0.90% higher, the Dow .DJI rose 0.6% and the Nasdaq Composite .IXIC added 1.1%.
In currencies, the yen scaled a three-year high against the euro and a seven-week peak on the dollar on Wednesday, after a court decision challenging German participation in Europe’s stimulus program and worries about a bumpy global recovery spooked investors. [FRX/]
Germany’s highest court on Tuesday gave the European Central Bank three months to justify purchases under its bond-buying programme, or lose the Bundesbank as a participant in a scheme aimed at cushioning the economic blow from the coronavirus.
The euro EUR= hit a one-week low of $1.0826 overnight and slumped to a three-year trough of 115.09 yen EURJPY= in Asia, as traders fretted about both the scheme and the euro’s future.
The safe-haven yen JPY= cracked through resistance against the dollar to hit a seven-week high of 106.20. The Aussie AUD=D3 and kiwi NZD=D3 slipped slightly on the greenback, though held above 64 cents and 60 cents respectively. The pound GBP= was steady at $1.2431.
The dollar index =USD was flat at 99.810.
Traders will keep an eye for the ADP National Employment Report of private U.S. payrolls on Wednesday. It could foretell the damage to be revealed on Friday in the official U.S. government measure of jobs in April, estimated to show nearly 22 million jobs were lost last month.
In commodities, U.S. crude futures CLc1 slipped 6 cents to $24.5 a barrel after five straight sessions of gains while Brent crude LCOc1 was flat at $30.97. [O/R]
Oil prices had gained recently as European and Asian countries had ended their lockdowns to halt the coronavirus spread and as producers had axed supply after the demand crunch.
But analysts cautioned the rebalancing of the market would be choppy.
“We’re talking about normalisation of supply and demand but we’ve got a long way to go,” said Lachlan Shaw, National Australia Bank’s head of commodity strategy.
“There are a lot of supply cuts that have come through. That combined with some early signs of demand lifting has meant the rate of inventory build is slowing.”
FILE PHOTO: HSBC’s building in Canary Wharf is seen behind a City of London sign outside Billingsgate Market in London, Britain, August 8, 2018. REUTERS/Hannah McKay
(Reuters) – HSBC Holdings Plc (HSBA.L) Chairman Mark Tucker has warned Britain against a ban on networking equipment made by Huawei Technologies Co Ltd, claiming the bank could face reprisals in China, the Telegraph reported on Saturday.
Tucker made the claim in private representations to British Prime Minster Boris Johnson’s advisers, the newspaper reported here citing industry and political sources.
Britain designated Huawei a “high-risk vendor” in January, capping its 5G involvement at 35% and excluding it from the data-heavy core of the network. It is looking at the possibility of phasing Huawei out of its 5G network completely by 2023, according to officials.
Reporting by Ismail Shakil in Bengaluru; Editing by Dan Grebler
OPEC and its partners concluded their meeting on Saturday afternoon, announcing that it would extend its current production cut deal.
Algeria’s Energy Minister Mohamed Arkab, OPEC’s current President summed up the group’s sentiment by saying that “Despite the progress achieved to date, we cannot afford to rest on our laurels,”.
The last couple of days, the cartel’s de-facto leader Saudi Arabia negotiated with other OPEC members and some non-OPEC countries including Russia, Kazakhstan and Azerbaijan to extend the current 9.7 million bpd output cuts for at least another month.
Most countries partaking in the record production cuts were willing to continue the current deal, but poor compliance from countries like Iraq, Nigeria and Kazakhstan has caused discontent among other OPEC members, some of which have even made deeper cuts than agreed on in April.
During the virtual meeting on Saturday, the cartel agreed that the countries that were unable to reach full conformity in May and June will have to compensate for this in July, August and September.
Oil prices effectively doubled during the month of May as global demand started to recover and record output cuts and worldwide well shut-ins decreased the monster glut.
While the OPEC+ deal extension undoubtedly will have a bullish effect on markets, prices aren’t likely to rip much higher on Monday as the OPEC+ news has largely been priced in already.
For oil prices to make a full recovery, global demand will have to recover and crude inventories have to be drawn down, both of which will likely take up to two years. Pioneer’s Scott Sheffield said that the quick rebound of demand to around 94-95 mb/d following the “reopening” of so many economies will give way to stagnation, saying that demand won’t reach pre-pandemic levels until 2022 or even 2023.
For now, the next bullish catalyst for oil could come from Saudi Aramco, which could set the trend for higher oil prices in June as it is expected to release its OSPs (official selling prices) on Monday. Aramco’s OSPs are often a leading indicator for Iraqi, Iranian and Kuwaiti crude prices, and last month, Brent futures rallied after Riyadh hiked its prices for crude to Asia.
OPEC, Russia and allies agreed on Saturday to extend record oil production cuts until the end of July, prolonging a deal that has helped crude prices double in the past two months by withdrawing almost 10 per cent of global supplies from the market.
The group, known as OPEC+, also demanded countries such as Nigeria and Iraq, which exceeded production quotas in May and June, compensate with extra cuts in July to September.
OPEC+ had initially agreed in April that it would cut supply by 9.7 million barrels per day (bpd) during May-June to prop up prices that collapsed due to the coronavirus crisis. Those cuts were due to taper to 7.7 million bpd from July to December.
“Demand is returning as big oil-consuming economies emerge from pandemic lockdown. But we are not out of the woods yet and challenges ahead remain,” Saudi Energy Minister Prince Abdulaziz bin Salman told the video conference of OPEC+ ministers.
Benchmark Brent crude climbed to a three-month high on Friday above $42 a barrel, after diving below $20 in April. Prices still remain a third lower than at the end of 2019.
WATCH | Canadian oil producers don’t see relief after OPEC deal to cut output:
Richard Masson, chair of World Petroleum Council-Canada, says Ottawa needs to move soon if it plans to help producers, as companies face ‘really tough decisions.’ 0:55
“Prices can be expected to be strong from Monday, keeping their $40 US plus levels,” said Bjornar Tonhaugen from Rystad Energy.
Saudi Arabia, OPEC’s de facto leader, and Russia have to perform a balancing act of pushing up oil prices to meet their budget needs while not driving them much above $50 US a barrel to avoid encouraging a resurgence of rival U.S. shale production.
1 billion barrels of excess oil inventories
The April deal was agreed under pressure from U.S. President Donald Trump, who wants to avoid U.S. oil industry bankruptcies.
Trump, who previously threatened to pull U.S. troops out of Saudi Arabia if Riyadh did not act, spoke to the Russian and Saudi leaders before Saturday’s talks, saying he was happy with the price recovery.
While oil prices have partially recovered, they are still well below the costs of most U.S. shale producers. Shutdowns, layoffs and cost cutting continue across the United States.
As global lockdown restrictions to halt the spread of the coronavirus are being eased, oil demand is expected to exceed supply sometime in July but OPEC has yet to clear 1 billion barrels of excess oil inventories accumulated since March.
Tonhaugen said Saturday’s decisions would help OPEC reduce inventories at a rate of 3 million to 4 million bpd over July-August.
“The quicker stocks fall, the higher prices will get. And that is crucial for many OPEC+ economies, whose fiscal budgets count on oil sales,” he said.
Nigeria’s petroleum ministry said Abuja backed the idea of compensating for its excessive output in May and June.
Iraq, with one of the worst compliance rates in May, agreed to extra cuts although it was not clear how Baghdad would reach agreement with oil majors on curbing Iraqi output.
Iraq produced 520,000 bpd above its quota in May, while overproduction by Nigeria was 120,000 bpd, Angola’s was 130,000 bpd, Kazakhstan’s was 180,000 bpd and Russia’s was 100,000 bpd, according to OPEC+ data.
OPEC+’s joint ministerial monitoring committee, known as the JMMC, would now meet every month until December to review the market, compliance and recommend levels of cuts.
The next JMMC meeting is scheduled for June 18, while the next full OPEC and OPEC+ meeting will take place on Nov. 30-Dec. 1.
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