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August 24th - This week, bond investors will be closely watching Federal Reserve Chairman Warshs speech in Jackson Hole. The market is seeking his response to persistent inflation and fiscal issues, and long-term Treasury bonds may face further sell-off risks. Warsh has rarely provided forward-looking policy guidance since taking office in May. His speech following the last monetary policy meeting triggered a massive sell-off in the bond market, highlighting the markets high sensitivity to his speech on Friday. Molly Brooks, U.S. interest rate strategist at TD Securities, said, "I think if he continues to not provide more information, the market will be disappointed, which could further exacerbate the recent sell-off in long-term Treasury bonds." Kathy Bostjancic, chief economist at National Mutual Insurance, said that factors continuing to weigh on the bond market remain, including fiscal concerns, inflation, and market uncertainty about the Feds response. Dhiraj Narula, interest rate strategist at HSBC, said this provides Warsh with an opportunity to reassure investors by clarifying his policy outlook. He said, "In our view, if Chairman Warsh can make some judgments about potential inflationary pressures, it could be enough to reduce the term premium associated with uncertainty."On August 24th, the UKs Office for Maritime Trade Operations (UKMTO) reported that commercial shipping traffic in the Strait of Hormuz continued to decline over the past 48 hours, with shipping activity suppressed and the number of vessels passing through in both directions in single digits. The UKMTO report stated that no confirmed attacks or interference incidents were detected, but noted that Iranian threats and harassment activities persist, including drone overflights, targeted surveillance of merchant ships, and occasional VHF radio calls. These actions "continue to demonstrate Irans intention to maintain a presence along key shipping lanes and to continue to exert pressure on transit vessels." Meanwhile, the UKMTO stated that commercial traffic in the Red Sea and the Bab el-Mandeb Strait has also "continued to decline" following the Houthi blockade of Saudi Arabia on July 20th.The UK Maritime Trade Operations Office (UKMTO) stated that shipping traffic in both the Strait of Hormuz and the Bab el-Mandeb Strait has declined.On August 24, Canadian Ambassador to the United States Mark Wiseman stated that trade negotiations between Canada and the US broke down on the evening of August 22 due to multiple issues, including discrepancies between the written text of a potential agreement and what Canada believed to be the consensus reached between the two sides. In an interview on August 23, Wiseman said that no single issue led to the failure of the negotiations. The breakdown in negotiations subsequently triggered a new round of tariffs and could further escalate the Canada-US trade dispute.Iraqi Prime Ministers Security Advisor: We have proposed to Iran and Saudi Arabia the establishment of a unified security coordination committee.

In a risk-on environment with a weaker US dollar, WTI consolidates weekly losses above $83,000

Alina Haynes

Sep 09, 2022 17:17

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The price of WTI crude oil is higher for the second day in a row while paring the weekly losses at the eight-month low on Friday during the Asian session. However, by the time of publication, the black gold has reached a new intraday high of around $83.50.

 

Recent news reports from the US Treasury Department regarding the oil price cap appear to have helped drive up energy prices together with stronger sentiment and a weaker US dollar. According to the US Treasury source, "the oil price cap should be set above the marginal production cost, taking into account past Russian oil prices."

 

In other news, stronger sentiment and slow US Treasury yields cause the US Dollar Index (DXY) to fall intraday by 0.55%, to 109.05 at the latest. It's interesting to see that after a solid day, the US 10-year Treasury yields are still stuck around 3.32%, while the S&P 500 Futures tracks Wall Street's gains at approximately 4,020.

 

Recent market sentiment appeared to be aided by remarks made by US Treasury Secretary Janet Yellen, which suggested that trade relations between the US and China were set to improve. The market's attitude also appeared to have been aided by recently stronger US statistics and expectations that global central bankers will be able to offset the shock caused by inflation with a comprehensive strategy and higher rates. The Wall Street Journal (WSJ) article, on the other hand, raises some concerns about the future of China's technological enterprises and casts some doubt on the optimism.

 

A price document examined by Reuters on Friday revealed that Kuwait has decreased the official selling prices for its oil grades for the month of October from the previous month. Before the present program ends in October, US Energy Secretary Jennifer Granholm said the administration of US President Joe Biden is considering whether additional releases of crude oil from the country's emergency stockpiles are necessary. Prior to that, a Department of Energy official reportedly told Reuters that the White House was only considering releasing the 180 million barrels from the US Strategic Petroleum Reserve (SPR) that the president had already stated.

 

It should be highlighted that the recent decline in China's inflation data, coupled with the hawkish central bank activities, presents a challenge to oil purchasers. Both China's Producer Price Index (PPI) and Consumer Price Index (CPI) show unfavorable results for August. However, compared to 2.8% market expectations and 2.7% in the prior year, the headline CPI declined to 2.5% YoY, and the PPI fell to 2.3% from 3.1% projected and 4.2% in the preceding year.


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