- Oil is Falling Again with Mixed Stock Data
- The Rise in the Bond is Expected to Continue
- Inflation in China Decreased by 0.2 % in February
Oil is Falling Again with Mixed Stock Data
Oil continued its decline with the dollar strengthening and mixed stock data.
Futures in New York have lost more than 3% over the past two sessions in a volatile start to the week that included a brief surge to an October 2018 high on Monday. A stronger dollar reduces the appeal of commodities priced in the currency. The American Petroleum Institute reported crude inventories rose last week, while gasoline stockpiles fell, according to people familiar.
Despite the dip this week, crude is expected to resume its upward trend, which may encourage more activity from U.S. drillers. Oil production across American shale patches next year is expected to climb to the highest annual rate since 2019, according to a government report.
American shale oil production is expected to reach its peak next year after 2019. Refineries in the USA are starting to become operational again after the cold weather last month.
Oil prices rose sharply this year, with Saudi Arabia and OPEC + cutting oil production and vaccine developments.
“Demand is expected to improve and supply is continuing to shrink, but some are feeling the burden of this massive rally,” said Kim Kwangrae, commodities analyst at Samsung Futures Inc. “It’s a mixed market.”
According to the chairman of Hindustan Petroleum Corp, increased prices and reduced barrels from Middle Eastern suppliers as a result of OPEC+ curbs is hastening India’s drive to diversify its crude sources and seek alternative energy. Tanker owners are losing money hauling oil on a main route to China as a result of the production cuts.
West Texas Oil for April settlement fell 0.8 % to $63.48 a barrel in the Nymex market, while Brent oil for May settlement reached $66.87 a barrel on the London ICE Futures Europe market, down 1% after a 1.1 % decline in the previous session.
In addition, U.S. crude oil production averaged 11.3 million barrels per day (b/d) in 2020, down 935,000 b/d (8%) from the record annual average high of 12.2 million b/d in 2019. The 2020 decrease in production was the largest annual decline in the U.S. Energy Information Administration’s records. The production decline resulted from reduced drilling activity related to low oil prices in 2020.
The Rise in the Bond is Expected to Continue
Following the approval of the US President Joe Biden’s government’s $1.9 billion incentive package in the Senate, the exit from technology stocks accelerated as investors preferred safer investment tools.
The home of tech companies, Nasdaq officially entered the correction, dropping nearly 10.5% from its 14,095.47 peaks on February 12 to 12,609.16 on Monday. The decline in the index stemmed from the fact that investors preferred promising tools such as bonds and gold, with signals of recovery in the economy, rather than the stocks of major tech companies such as Tesla, Facebook, and Netflix, which led to Wall Street’s successive peaks last year.
While the expectation that the 10-year US Treasury bills, which saw 1.6% at the beginning of the week, will continue to increase, the US Treasury Department is of the opinion that the inflation concerns caused by the stimulus package can be eliminated.
The yield of the US 10-year Treasury bond, which reached a record level of 1.9% in January 2020, when the effects of the pandemic were not yet felt, and dropped to 0.9 % at the beginning of the year due to epidemic restrictions, strengthened again with the confidence created by the stimulus package and inflation concerns. Analysts predict that 10-year bond yields, which hovered around 1.5% on Tuesday, will rise further in the coming period.
“Most asset classes have already broken 2020 records, so we think it makes sense for bond yields to reach a record 1.9%,” said a report published by Goldman Sachs at the end of 2021.
While the increase in bond yields also raised inflation concerns, US Treasury Secretary Janet Yellen said these concerns were “unfounded”. Speaking to MSNBC, Yellen stated that Biden’s stimulus package will support millions of US citizens. “If the stimulus package increases inflation, we have the tools to deal with this problem,” she said.
Technology shares, one of the powerful weapons of the epidemic period, were negatively affected by the economic recovery expectations. Apple shares, already a victim of the global chip crisis, fell 4.2% to $116, while the company’s loss since the Nasdaq’s peak on February 12 has reached 12%. Netflix and Facebook shares fell more than 3% on Monday, while shares of Tesla, an investor’s favorite electric vehicle manufacturer, fell 5.8% to $563. Tesla’s market value has lost $244 billion in the last month, with investors worrying about volatility after investments have turned to sectors that will benefit from the recovery after the pandemic and the company bought $1.5 billion worth of Bitcoin in the past months.
With the prospects of economic recovery, bond yields approached 1.6%, and gold prices began to settle at 11-month lows. Although the slight decline in bond yields yesterday and the weakening of the dollar raised the spot gold to over $1,700 / ounce again, the strong rise in the bond is considered to be a factor that hinders gold prices as it is a rival in terms of inflation protection. Assets in the world’s largest gold-backed ETF, the SPDR Gold Trust, fell to the lowest level since April 2020 at the beginning of the week, while OANDA analysts said the rises under it will remain limited to around 1,700. Spot gold was traded at $1,709 yesterday, an increase of more than 1.5 % with the decline in the bond yesterday.
Inflation in China Decreased by 0.2% in February
February inflation in China increased by 0.6% monthly, and decreased by 0.2% annually.
The consumer price index in China increased by 0.6% in February compared to the previous month and decreased by 0.2% compared to the same month of the previous year. In the 2-month period covering the months of January and February, consumer prices decreased by 0.3% compared to the same period of the previous year.
The CPI met with the expectation, indicating China’s consumer prices remained stable during the Spring Festival holidays, Liu Xuezhi, a senior macroeconomics expert at the Bank of Communications, told the Global Times on Wednesday.
“It also shows China’s economy is recovering gradually with improving demand from the service sector which saw mild rise in prices in February compared with a month before,” Liu noted.
China’s factory gate inflation accelerated to the fastest pace since 2018 in February, official data showed on Wednesday, in line with a sharp pickup in exports and bolstering expectations for robust growth in the world’s second-largest economy.
The producer price index (PPI) rose 1.7% from a year earlier, the National Bureau of Statistics said in a statement, compared with the median forecast for a 1.5% rise from a Reuters poll of analysts and a 0.3% rise in January.
China’s exports in February grew at a record 154.9% in dollar terms from a year earlier, when the country was in a virtual shutdown during the height of the Covid-19 pandemic. But the country’s purchasing manager’s index (PMI), which gauges factory activity, expanded by the slowest pace since May.
According to data from China’s National Bureau of Statistics, producer prices in the country rose by 0.8% on a monthly basis. The annual increase in the index was 1.7%, the biggest increase since November 2018. In the 2-month period covering January and February, producer prices increased by 1% compared to the same period of the previous year.
While food prices fell 0.2%, the biggest contributor to the decline came from the price of pork, which fell 14.9%.
China’s services sector has been slow to rebound from the Covid-19 pandemic — and that’s one aspect of its economic recovery that’s been downplayed, according to S&P Global Ratings’ Asia-Pacific chief economist.
China was the only major economy that grew last year despite challenges posed by the Covid-19 pandemic. It reported a growth of 2.3% in 2020, but the performance across sectors was uneven with exports staying resilient while consumption has continued to lag.
“This is one of the most understated aspect of China’s recovery, the fact that it is so unbalanced,” Shaun Roache told CNBC’s “Squawk Box Asia” on Wednesday.
“China’s Covid strategy has been successful from a health perspective, but it is imposing a long-run economic cost in the sense that … we’re seeing the services sector come back much more slowly than people thought. That’s depressing jobs and that in turn is depressing consumer confidence,” he added.