Oil hits three-month highs on U.S.-China trade hopes

NEW YORK (Reuters) – Oil prices touched more than three-month highs on Friday, supported by rising hopes that the United States and China would soon reach a deal to end their trade war, but new record U.S. oil production limited gains.

Brent crude futures briefly reached $67.73 a barrel, their strongest since mid-November. The global benchmark traded 10 cents higher at $67.17 a barrel by 11:47 a.m. EST (1647 GMT). Brent was on track for a weekly gain of about 1.4 percent.

U.S. West Texas Intermediate (WTI) crude futures were up 41 cents to $57.37 per barrel, after hitting $57.81 earlier on Friday, also their highest since mid-November. WTI was heading for a more than 3-percent weekly rise.

U.S. crude oil production hit a record 12 million barrels per day (bpd) and inventories jumped last week to their highest since October 2017, according to U.S. Energy Information Administration data released on Thursday.[EIA/S]

The broad outline of a possible U.S.-China trade deal was beginning to emerge from talks between the two countries, sources told Reuters on Thursday.

Both sides are pushing for an agreement by March 1, the end of a 90-day truce agreed by U.S. President Donald Trump and Chinese President Xi Jinping late last year.

“Should risky assets receive some additional optimistic news out of the ongoing U.S.-China trade talks amidst potential weakening in the U.S. dollar, WTI could easily achieve our stated target to the $58 area today,” Jim Ritterbusch, president of Ritterbusch and Associates, said in a note.

Prices continue to be supported by supply cuts led by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia. The group, known as OPEC+, agreed in December to cut output by 1.2 million bpd to prevent a crude supply glut from growing.

Surging U.S. crude oil production, is partly offsetting OPEC’s cuts.

“We see total U.S. crude production hitting 13 million bpd by year-end, with 2019 averaging 12.5 million bpd,” U.S. bank Citi said following the release of the EIA report.

The bank said that some weeks could see 4.6 million bpd of gross crude exports by year-end, topping last week’s record of 3.6 million bpd.

The market is awaiting data for this week’s U.S. rig count, an indicator of future production, due after 1 p.m. EST. Last week, drillers increased the number of oil rigs operating for a second week in a row, General Electric Co’s GE.N Baker Hughes energy services firm said. [RIG/U]

With U.S. supply surging, Goldman Sachs said it expected non-OPEC supply to grow by 1.9 million bpd this year, more than offsetting the OPEC cuts.

That means much will depend on demand, which Goldman said it expected to grow by 1.4 million bpd this year.

Given the supply and demand picture, Goldman said it expected an average Brent price of $60-$65 per barrel in 2019 and 2020.

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Dollar falls on U.S.-China trade hopes, Swedish crown tumbles

NEW YORK (Reuters) – The dollar slipped against a basket of other currencies on Tuesday as traders scaled back their safe-haven greenback holdings on optimism that a fresh round of talks between China and the United States would help resolve their trade conflict.

The dollar index hit a near-two-month peak on Friday after last week’s negotiations in Beijing failed to result in a deal, although officials from both sides said the talks had produced progress on contentious issues.

Bloomberg TV reported on Monday that the White House is pushing for a pledge from China that it will not devalue its currency as a part of a trade deal.

“We are hoping to hear more positive news on trade,” said Dean Popplewell, chief currency strategist at Oanda in Toronto. “The dollar should come under pressure as it loses some safe-haven appeal.”

The dollar index, which tracks the greenback against six other major currencies, was down 0.42 percent at 96.5. On Friday, it hit 97.368, the highest since Dec. 17.

The yuan hit a two-week peak versus the greenback at 6.7425 in offshore trading.

U.S. financial markets were closed on Monday for the Presidents Day holiday.

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Among other major currencies, the Swedish crown tumbled after weak inflation data spurred sales of the currency and a paring of bets that interest rates would rise this year.

Last week, the crown rose after Sweden’s central bank said it would stick to its plan to raise rates in the second half of 2019.

The currency plunged more than 1 percent to a two-year low against the dollar at 9.4180, after a report showed inflation slowed in January.

Against the euro, it was headed for its biggest daily decline in more than 15 months. It touched 10.621, its weakest since September.

The euro appreciated against the dollar on trade optimism. It reversed earlier losses after data showed Italian industrial orders dropped 5.3 percent in December from a year earlier.

Euro zone bond yields, notably those of German bunds, fell amid the cloudy European economic outlook, weighing on the euro. When European Central Bank policymakers meet on March 7, they are expected to lower growth and inflation projections.

The euro was up 0.25 percent at $1.13410 , holding above a three-month low of $1.1234 set last week.

The single currency, however, fell against the British pound as data showed domestic workers’ salaries grew at the fastest pace in a decade in late 2018.

The euro was 0.83 percent lower at 86.80 pence, while the pound was up 1.13 percent at $1.307.

Sterling’s gains were limited ahead of British Prime Minister Theresa May’s meeting with the EU to find a way to get their Brexit deal through the UK Parliament.

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Global shares slip from four-month high, Swedish crown slumps

LONDON (Reuters) – European and Asian shares hovered near four-month highs on Tuesday as investors took heart from some progress in Sino-U.S. trade talks, while the yen dribbled lower as Japan’s central bank said it could ease policy again.

World markets were struggling a bit for direction after a slow but buoyant start to the week and with a fresh round of Sino-U.S. trade talks, this time in Washington, being held later.

Stocks traders were largely happy to keep their powder dry.

Europe’s main bourses spent most of their first hour dithering before eventually heading lower [.EU] after a subdued Asian session had seen most markets there barely get out of first gear. [.T]

Currency dealers had at least a bit more to keep them busy. [/FRX]

The yen had slipped to 110.70 per dollar after Japan’s central bank governor had said it could redeploy stimulus if the yen’s relative strength this year hurt the economy and inflation prospects.

The euro was just above $1.13 after more talk of ultra-cheap ECB bank loans, while Sweden’s crown dived to a 2-year low against the dollar as inflation data came in weak just two months after a rise in interest rates.

“Stokkie (dollar vs Swedish crown) is off to the races,” said TD Securities’ head of global research, Richard Kelly.

“You had especially weak inflation and as you see (from the yen and euro) it comes against this backdrop of central banks becoming more dovish again,” although he also said that bond markets has seen far less reaction to the Swedish data.

Most other currencies were stuck in familiar ranges.

Sterling was flat at $1.2923, with the ongoing Brexit talks between Britain and the European Union overpowering strong employment and wage data, while the Australian dollar held at $0.7112.

The precious metals market was more animated, with palladium surging to a record high of $1,471.0 per ounce as stricter emissions standards are seen increasing demand for the auto catalyst metal.

Gold held around $1,323.66 per ounce after earlier rising to a near 10-month high of $1,327.64 too.

Oil prices were mixed, with Brent futures off 29 cents at $66.21, although that was not far from Monday’s $66.83 which was the highest since mid-November. U.S. crude futures added 21 cents to $55.8. [O/R]

WALMART

E-mini futures for the S&P 500 and the Dow were a shade weaker ahead of a busy day of U.S. earnings, including from the world’s biggest retailer Walmart which is expected to report a 1.8 percent increase in revenue.

In Asia, Japan’s Nikkei nudged up 0.1 percent after holding flat for most of the day. Australian shares climbed 0.3 percent to a 4-1/2 month peak, after gaining over 8 percent so far this year, partly on expectations the central bank could ease policy to temper pressure on growth.

Chinese shares slipped into the red though after surging in the previous session, with the blue-chip index off 0.2 percent.

HSBC – Europe’s biggest bank – saw its shares fall 3 percent as it missed forecasts due to slowing growth in its two home markets of China and Britain.

The results spoke to a wider problem for European banks, which are struggling to return to growth after a decade of post-crisis restructuring due to a worsening global economic outlook.

Trade talks were also dominating headlines again with a new round of negotiations between the United States and China expected in Washington on Tuesday, and follow-up sessions at a higher level later in the week.

Reports of progress in the talks have kindled hopes among investors that the two countries can reach a compromise in their trade war by a March 1 deadline, although few details from the talks have emerged.

President Donald Trump said last week he might extend the March 1 deadline, which would stop an immediate increase in tariffs on $200 billion worth of Chinese imports to 25 percent from 10 percent.

Reflecting changing sentiment, Chinese shares have risen rapidly so far this month, with MSCI’s China A shares index up 6.5 percent, by far the best performance among major markets despite China’s weakening economy.

Additionally, investors are now seen returning to riskier asset markets after the U.S. Federal Reserve signalled earlier this year it could halt rate hikes in light of U.S. economic softness.

“In the last week, it seems like global central banks have started a possible process of monetary easing,” Bank of America-Merrill Lynch strategist Ajay Singh Kapur said in a note.

“If so, this would be very positive for Asia/EM stocks,” Kapur added.

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Berry Global gets until March 13 to decide on takeover of packager RPC

(Reuters) – UK’s takeover panel said on Tuesday that plastics maker Berry Global Group now has until March 13 to announce a firm intention to make an offer for British packager RPC Group.

Berry Global said last month it was considering a cash offer for RPC, in a challenge to a 3.3 billion pound ($4.3 billion) bid from the U.S. company’s former parent, Apollo Global.

RPC, Europe’s biggest plastic packaging company, said on Tuesday it continues to engage with Berry, but did provide any further details.

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West ups defense spending to keep ahead of Chinese tech: conference report

MUNICH (Reuters) – The United States led a rise in Western defense spending in 2018 as it moved to keep ahead of Chinese and Russian pushes into advanced military technology, a report said on Friday.

And U.S. President Donald Trump will likely press European states to spend even more at a NATO conference in April, the International Institute for Security Studies (IISS) said. European powers would together have to find an extra $102 billion to meet his latest demands, it added.

Worldwide outlays on weapons and defense rose 1.8 percent to more than $1.67 trillion in 2018 – with the United States on its own responsible for almost half that increase, according to “The Military Balance” report released at the Munich Security Conference.

Western powers were concerned about Russia’s upgrades of air bases and air defense systems in Crimea – the peninsula it seized from Ukraine in 2014, the annual report said. Its stationing of an S-400 air defense system there increased Moscow’s reach in the Black Sea, where it seized three Ukrainian ships last year.

But “China perhaps represents even more of a challenge, as it introduces yet more advanced military systems and is engaged in a strategy to improve its forces’ ability to operate at distance from the homeland,” it added.

China’s stated ambition to modernise its People’s Liberation Army by 2035 was “supported by defense spending that has been on a relentlessly upward trajectory”.

Slower Chinese economic growth had caused a slight deceleration in spending – but the defense budget still grew nearly six percent between 2017 and 2018.

MISSILES, ARTIFICIAL INTELLIGENCE

“Chinese naval capability is entering a new phase,” as it launched cruisers and began sea trials for its first indigenous aircraft carrier, the report said.

Beijing was also improving its air force and pushing into new technologies including very high speed cruise missiles and artificial intelligence.

Western states “still retain an edge over adversaries, but the gap is narrowing. The pace of change may mean that in the future, advantages – if they exist at all – may be held only fleetingly, before the other side catches up.”

Trump would probably keep up his pressure on NATO allies to increase their defense spending to 2 percent of their gross domestic product, the report said.

“As of late 2018, doing this would mean that NATO European states would have to find an extra $102 billion, on top of the amount they currently spend,” it added.

Major U.S. and European arms makers that would benefit from any increase include Lockheed Martin, Airbus and Rheinmetall.

The institute said there was a serious lack of transparency regarding military expenditures in the Middle East and North Africa, where known military spending accounted for 4 percent to 11 percent of GDP.

No assessment was available for Syria, Libya, or “particularly opaque” states such as Qatar and the United Arab Emirates, it said.

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Risk of U.S. corporate recession rises as earnings outlook dims

LONDON (Reuters) – The outlook for Wall Street earnings has deteriorated significantly in recent months, data shows, raising the risk that companies in the United States may slip into recession before its economy does – with Europe close behind.

Analysts on average expect the S&P 500’s first-quarter earnings per share to drop 0.3 percent year-on-year, according to I/B/E/S Refinitiv data.

That’s a big drop from the 8.2 percent rise expected as recently as October and would mark the first contraction in U.S. company earnings in three years.

Analysts have also made deep cuts to forecasts for the rest of the year.

They still expect growth in the remaining three quarters, meaning Wall Street would avoid a technical recession typically defined as a fall in two consecutive quarters. But only just, as the lowered growth forecasts are meager.

For a graphic on U.S. earnings estimates over time: tmsnrt.rs/2TRqqof

The swift pace and size of the cuts have kindled concerns that the downward trend will continue, particularly as companies struggle with squeezed margins and large amounts of debt.

The full-year estimate stands at just 4.2 percent now, down more than half from 10.2 percent in October.

It’s pretty gloomy on the other side of the Atlantic too. Analysts anticipate barely any growth among European companies listed on the STOXX 600 at the slowest in 18 months, data shows.

For a graphic on European earnings estimates over time: tmsnrt.rs/2EaTT7f

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Asian stocks slip after grim U.S. retail sales data

TOKYO (Reuters) – Asian stocks slipped on Friday after grim U.S. retail sales figures raised fresh doubts about the strength of the U.S. economy, offsetting optimism on trade talks between the United States and China.

Also casting a shadow, the White House said U.S. President Donald Trump will declare a national emergency to try to obtain funds for his promised U.S.-Mexico border wall, drawing immediate criticism from Democrats.

Japan’s Nikkei dropped 1.1 percent while MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.25 percent in early trade, with South Korea’s Kospi shedding 1.0 percent.

In the United States, the S&P 500 lost 0.27 percent on Thursday, a day after it hit a 10-week high on rising hopes that Washington and Beijing could reach a trade deal.

U.S. retail sales tumbled 1.2 percent in December, recording their biggest drop since September 2009 as receipts fell across the board.

The shockingly weak report led to economic growth estimates for the fourth-quarter being cut to below a 2.0 percent annualized rate, with the Atlanta Fed forecasting a 1.5 percent growth, much below its previous forecast of 2.7 percent about a week ago.

Kazushige Kaida, head of foreign exchange at State Street in Tokyo, said he was “very surprised” by the U.S. retail sales data.

“The extraordinary weakness, however, appears to be owing in part to the government shutdown, though the exact extent of its impact is not clear,” he said.

“It would be premature to think the U.S. economy has lost steam completely. We have to wait for figures in the next couple of months,” Kaida said.

The collapse in retail sales came along with data showing an unexpected increase in the number of Americans filing claims for unemployment benefits last week.

The closely-watched four-week average of the volatile data rose to the highest level in more than a year

That prompted Fed fund futures to price in a small chance, about 15 percent, of a rate cut this year.

U.S. Federal Reserve Governor Lael Brainard said the central bank should stop paring its balance sheet by the end of this year.

Daisuke Uno, chief strategist at Sumitomo Mitsui Bank, said the Fed “appears to be laying the ground work to end its balance sheet reduction early”.

The 10-year U.S. Treasuries yield fell to 2.655 percent, wiping out most of their rise this week.

In the currency market, the weak U.S. data dented the dollar.

The U.S. currency fetched 110.50 yen, stepping back from Thursday’s seven-week peak of 111.13.

The dollar’s weakness saved the euro from testing its 2018 low of $1.1216. The common currency stood at $1.1295 after having fallen to $1.1248 on Thursday following economic data showing Germany’s economy stalled in the fourth quarter.

The British pound slipped to $1.2800, after touching a near one-month low of $1.2773 after Prime Minister Theresa May lost a symbolic Brexit vote in parliament, weakening her hand as she seeks to renegotiate her withdrawal agreement with Brussels.

Traders are waiting for results of a meeting on Friday between the Trump administration’s top two negotiators and Chinese President Xi Jinping in Beijing.

There has been no decision to extend a March 1 U.S. deadline for a deal, White House economic adviser Larry Kudlow said on Thursday.

Oil prices found support as top exporter Saudi Arabia said it would cut crude exports and deliver an even deeper output cut.

Brent crude futures rose to as high as $64.81 per barrel, their highest level in 12 weeks, on Thursday.

U.S. crude futures rose 0.9 percent in early Friday trade to $54.89 per barrel.

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Dollar drops after retail data suggests slowing U.S. economy

NEW YORK (Reuters) – The dollar fell on Thursday after a report that U.S. retail sales recorded the biggest drop in more than nine years in December, suggesting a sharp slowdown in economic activity at the end of 2018.

The Commerce Department said on Thursday that retail sales fell 1.2 percent, the largest decline since September 2009 when the economy was emerging from recession. Data for November was revised slightly down to show retail sales edging up 0.1 percent versus 0.2 percent as previously reported.

The sharp drop suggested a moderation in the pace of consumer spending, which accounts for more than two-thirds of the U.S. economy, in the fourth quarter.

“The dollar had been looking good until retail sales came in much weaker than expected. The data suggests there is less in the economy than people had thought, and has pushed the dollar lower,” said Daniel Katzive, head of foreign exchange strategy North America at BNP Paribas.

The dollar index, which measures the currency against a basket of six rivals, was down 0.14 percent, last at 96.997 .

Following the retail data release, a forecast model by the Atlanta Federal Reserve revised downward the U.S. economy’s expected fourth-quarter growth rate to under 2 percent. And JPMorgan Chase & Co cut its estimates of where the U.S. Federal Reserve will leave interest rates over the next two years, with just one hike this year and another in 2020.

Thursday’s data is supportive of the Fed’s current inclination toward patience in its rate-hiking cycle. After four increases in 2018, market participants are anticipating the central bank will hold off on raises for the next one or two quarters.

“The Fed is on hold for Q1 and by the time it needs to make a decision on policy again, we’ll have a lot more data and we’ll have a better sense if this is softness associated with equity market concerns, or whether there was something more profound going on,” said Katzive.

The euro rose on the back of the dollar’s move, up 0.29 percent, last at $1.130.

Earlier on Thursday, the single currency hit a three-month low after economic data showed Germany’s economy stalled in the fourth quarter of 2018. Broadly, the euro zone economy slowed as expected year-on-year in the last three months of 2018. The fall was cushioned, however, by hopes of progress in China-U.S. trade talks, which supported the currency.

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German data fails to sink euro as U.S. tariffs eyed

LONDON (Reuters) – The euro rose from a three-month low on Thursday as hopes of progress in China-U.S. trade talks lifted risk appetite towards major currencies across the board, with the British pound the only laggard before a parliamentary debate on Brexit.

Even economic data showing Germany’s economy stalled in the fourth quarter of 2018 with Italy already in recession failed to pull the euro significantly lower in quiet trading.

“If we had a negative print on German growth that may have hit the euro but we need to await for more details on his strategy towards the European auto sector before pushing the euro higher,” said Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets in London.

Market analysts fear that U.S. President Donald Trump could turn his attention to European imports after China and potentially impose tariffs on European automakers in the coming days.

The United States is the main export destination of European Union cars, well ahead of China, and the impact is significant especially for Germany, which has the biggest value added in exports of cars to the U.S.

Massive option expiries amounting to $1.2 billion around $1.13 were expected to keep the euro spot market in a tight range.

Risk appetite grew after China reported dollar-denominated exports rose 9.1 percent in January from a year earlier and imports dropped 1.5 percent.

Graphic: World FX rates in 2019 tmsnrt.rs/2egbfVh

The strong trade data fuelled gains by the Chinese currency in the offshore market. The yuan gained a quarter of a percent to 6.7635.

The Australian dollar, a barometer for global risk appetite, was up 0.6 percent at $0.7132 and on track for its best three-day rising streak so far this year.

Bloomberg reported President Donald Trump was considering pushing back by 60 days a March 1 deadline for resolving trade disputes with China, citing people familiar with the matter. On Wednesday, Trump had said the talks were “going along very well”.

Elsewhere, German data showed its economy stalled in the final quarter of 2018, narrowly avoiding recession. But the numbers were in line with forecasts and weak eurozone GDP data for the quarter had already tempered expectations.

Broadly, the euro zone economy slowed as expected year-on-year in the last three months of 2018.

The euro rose 0.1 percent to $1.1271 and just above a three-month low of $1.1248.

The pound fell more than a quarter of a percent to the day’s low at $1.2806 before a parliamentary vote that could give investors a sense of which way a forthcoming vote on Prime Minister Theresa May’s deal with Brussels will go.

Citi Economic Surprise Index: tmsnrt.rs/2TPNxj1

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Swedish crown, Kiwi dollar gain as central banks disappoint doves

LONDON (Reuters) – The New Zealand dollar and Sweden’s crown rose after their central banks broke with the growing caution of the world’s major monetary-policy makers, surprising traders who had expected more dovish signals.

The kiwi was the stand-out performer after the neutral tone of the Reserve Bank of New Zealand’s policy announcement, which came as hopes for a breakthrough in talks between the United States and China to end their trade war boosted riskier assets.

The Swedish crown also stormed higher after the Riksbank said the economic outlook had not changed much since December and it would stick to its plan to lift interest rates in the second half of 2019.

“The Fed’s policy pivot isn’t shared by every central bank in the world, and markets have reacted to ‘business as usual’ from both the RBNZ and Riksbank,” said Kit Juckes at Societe Generale.

The kiwi rallied as much as 1.7 percent to $0.6852 as traders rushed to cover short positions. Sweden’s crown rose 0.7 percent against the euro to 10.42 and 0.6 percent versus the dollar to 9.208.

Signaling another major policy shift for the Federal Reserve after it put off raising rates further, Cleveland Fed President Loretta Mester said on Tuesday the central bank would make plans to stop letting its bond holdings diminish.

(For a graphic on risk reversals, click tmsnrt.rs/2UUEVYD)

TRADE HOPES

Elsewhere, investors chased riskier assets on signs of a detente in the U.S.-China trade war. That led to a pause in the dollar’s recent rally after an eight-day winning streak ended overnight.

The dollar index rose marginally to 96.788. It stood at $1.1318 against the euro, slightly firmer.

U.S. President Donald Trump said on Tuesday that he could see letting the March 1 deadline for reaching a trade agreement with China “slide for a little while,” if the two sides were close to agreement.

Together with a possible deal to avert another partial U.S. government shutdown, the optimism sent stocks soaring.

Jane Foley, currencies strategist at Rabobank, cautioned that there was “a lot of evidence that global growth is slowing and a lot of evidence to be suspicious of an end to the U.S.-China trade war.

“There will still be a long way to go,” she added.

The Australian dollar added 0.2 percent to $0.7111.

The dollar rose 0.2 percent versus the yen to 110.69.

Sterling hovered near $1.29 after consumer inflation in January fell to a two-year low.

The currency was unmoved after the UK’s chief Brexit negotiator was overhead saying British lawmakers would face a choice between Prime Minister Theresa May’s Brexit deal or a long extension to the March deadline for leaving the European Union.

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