Blog

By Amanda Cooper

LONDON (Reuters) -Global stocks rose on Tuesday, while gold edged up on the back of a weaker dollar, ahead of U.S. inflation figures that could set the tone for trading in a week filled with central bank meetings.

The U.S. Federal Reserve is widely expected to keep rates on hold Wednesday, with the spotlight squarely on comments from Chair Jerome Powell during his news conference and the central bank’s economic projections.

Before that, the U.S. Labor Department’s Consumer Price Index (CPI) report on Tuesday is expected to show inflation still cooling, but staying well above the Fed’s 2% annual target, with core CPI expected to come in at 4%.

Equities have rattled higher, while bond yields have fallen in recent weeks on the back of growing investor conviction that interest rates are about to fall quite swiftly, as the U.S. economy in particular coasts towards a soft landing.

“The market, in my view, now wants to enjoy a bit of a rally on the back of increasing Fed rate-cut expectations. The problem I have now is I think we’ve basically reached the limit of how much the Fed can cut, i.e., what’s priced into the curve without introducing a significant recession risk,” said Kallum Pickering, senior economist at Berenberg.

Caution among investors has tempered volatility. Headline inflation has cooled more quickly than many expected, including consumers, who a year ago predicted price pressures would be running at a rate of 4.2% at this point, versus 3.2% right now, based on the University of Michigan’s monthly one-year inflation expectations index.

But other components of the CPI report have proven far stickier. One such gauge, the owners’ equivalent rent – which measures the change in the cost of shelter for homeowners – is at 6.8%, having peaked only in April this year at 8.2%, compared with the peak in the headline at 9.1% back in April 2022. Wage growth has slowed, but is still at 4%.

The MSCI All-World index, which is trading around four-month highs, was up 0.2%. In Europe, the STOXX 600 <.STOXX > was broadly steady close to 22-month highs, while U.S. index futures were flat on the day.

Markets are now pricing in a 48% chance of a rate cut in March compared with 57% a week earlier, according to the CME FedWatch tool. Futures show traders expect at least four quarter-point cuts next year.

FAST AND LOOSE

Financial conditions have loosened since the Fed met in November and that will most likely influence the central bank’s thinking, analysts said.

“The Fed will feel that it cannot afford to have financial conditions ease further, as that could potentially re-accelerate labour demand and put renewed upward pressure on the rate of consumer inflation,” said Erik Weisman, chief economist and portfolio manager at MFS Investment Management. “Whether the market takes the hint remains to be seen and will likely be driven by the unfolding macro data more than Fed jawboning.”

In a busy week for central banks, the European Central Bank, Bank of England, Norges Bank and the Swiss National Bank all meet on Thursday.

The yield on 10-year Treasury notes fell 5.4 basis points to 4.2% after lacklustre three- and 10-year note auctions on Monday.

Investors were reluctant to buy Treasuries in the auctions given thinner liquidity with the inflation data and the Fed meeting coming up.

The Treasury Department will sell $21 billion in 30-year reopened bonds on Tuesday, after Monday’s auction of $50 billion in reopened three-year notes and $37 billion in 10-year notes.

In currency markets, the yen recovered some of the previous day’s losses, which were triggered by a Bloomberg report that cited sources as saying Bank of Japan officials saw little need to exit their negative-rates policy straight away. The yen surged last week against the dollar, driven by brief optimism that a shift could come as early as this month.

The yen strengthened 0.7% to 145.15 per dollar, recouping most of Monday’s 0.8% decline. The BOJ meets next week. [FRX/]

The dollar index, which measures the U.S. currency against six others, fell 0.3% to 103.75.

Gold edged higher after touching a three-week low in the previous session and was last up 0.4% at $1,988 an ounce, while Brent crude futures fell 0.4% to $75.70 a barrel.

(Reporting by Ankur Banerjee; Editing by Kim Coghill, Gerry Doyle and Chizu Nomiyama)

By Tom Westbrook and Alun John

SINGAPORE/LONDON (Reuters) – The dollar ticked lower on Tuesday and the yen regained some ground it had lost in the past two sessions as traders turned their focus to U.S. inflation data later in the day and a slew of central bank meetings ahead.

The dollar was 0.68% lower at 145.18 yen. The pair has had a volatile few days, with the yen surging on remarks taken as hawkish from the Bank of Japan before falling back on a news report playing down the prospect of an imminent policy change.

“There is talk of a pivot by the Bank of Japan to higher rates and there is some speculation it could come as soon as next week,” ANZ economist Tom Kenny said.

“A hike now seems premature with a backdrop of weak consumer spending,” he said, though trends in inflation and wages suggest sustainable inflation and ANZ anticipates Japan starting its journey out of super-accommodative negative rates by April 2024.

The euro ticked up 0.3% to $1.0797, and sterling gained 0.1% to $1.2566. The dollar index which tracks the greenback against six peers was down 0.3% at 103.76.

Investors in sterling were digesting data that showed British wage growth slowed by the most in almost two years, though pay is probably still rising too fast for the Bank of England to relax its tough stance against cutting interest rates.

Higher iron ore prices and a rebound in Chinese property shares helped nudge the Australian and New Zealand dollars higher.

Forty years to the day after its float, the Aussie gained 0.32% to $0.6589. The currency started around $0.9000 and has averaged $0.7550 since 1983. It used to be used by global investors as a liquid proxy for commodities, and now for exposure to China, Australia’s largest trading partner. [AUD/]

The New Zealand dollar rose 0.44% to $0.6146.

EYES ON CPI

U.S. inflation data, due at 1330 GMT, will frame Wednesday’s Federal Reserve policy decision.

The dollar has been slipping since October’s benign U.S. inflation report but found footing on upbeat jobs data published on Friday. The Fed is considered all but certain to hold rates at 5.25%-5.50% this week, putting the focus on policymakers’ so-called dot plots on the rate outlook and Chair Jerome Powell’s press conference.

Economists polled by Reuters expect headline inflation to have been flat for November, and core inflation to keep steady at an annual pace of 4% – well above the Fed’s 2% target.

“It feels like a ‘risk on’ morning as everyone hopes for a soft CPI number to convince us that the hawkish comments from Fed policy makers are just hawkish comments,” said Kit Juckes head of FX strategy at Societe Generale.

“Everyone is just waiting for the numbers.”

Markets are pricing in substantial rate cuts from central banks next year, and see a roughly 50% chance the first Federal Reserve rate cut will come as soon as March, according to the CME’s Fedwatch tool.

Officials at the Fed, the Bank of England and the European Central Bank at least publicly continue to about an extended rate plateau however.

Later in the week, the ECB, BoE, Norges Bank and the Swiss National Bank all meet, with Norway considered the only possible hiker. There is also a risk the SNB could dial back its support for the franc in FX markets.

The franc made an almost nine-year high on the euro last week and was trading steady on Tuesday at 0.9451 francs to the common currency.

(Reporting by Tom Westbrook in Singapore and Alun John in London; Editing by Sonali Paul, Kim Coghill and Alison Williams)

By Alex Lawler

LONDON (Reuters) – Oil slipped on Tuesday, giving up earlier gains, as concern over excess supply and slowing demand growth outweighed escalating supply risks in the Middle East after an attack by the Iran-aligned Houthis on a tanker.

A cruise missile launched from Houthi-controlled Yemen struck a commercial chemical tanker, causing a fire and damage but no casualties in the latest such attack to heighten safety risks for tankers in vital shipping lanes.

Brent crude futures for February fell 32 cents, or 0.4%, to $75.71 per barrel by 1105 GMT, while U.S. West Texas Intermediate crude futures for January delivery slipped 19 cents, or 0.3%, to $71.13.

Although the attack on the vessel helped oil to rally earlier, “sentiment remains negative”, said Tamas Varga of broker PVM. “There is no help coming from the demand side of the oil equation. The fundamental backdrop is discouraging.”

Global oil demand growth is set to slow in 2024 with OPEC and the International Energy Agency split on the extent, and a recent OPEC+ deal to limit supply underwhelmed the market. OPEC and the IEA both update their forecasts this week.

Investors were also cautious ahead of a crucial U.S. inflation report and interest rate decision. The Consumer Price Index (CPI) report is due out on Tuesday, while the Federal Open Markets Committee’s two-day policy meeting ends on Wednesday.

“All attention will be on the U.S. CPI data today to potentially set the tone for U.S. policymakers at their upcoming meeting,” Yeap Jun Rong, market analyst at IG, said in a note.

Also in focus are talks at the COP28 climate summit, where negotiators are awaiting a new draft deal after many countries criticised a previous version as too weak because it omitted a “phase-out” of fossil fuels.

And coming into view are the latest U.S. inventory reports, which are expected to show a 1.5 million-barrel drop in crude stocks. The first report is at 2130 GMT from the American Petroleum Institute.

(Additional reporting by Emily Chow and Muyu Xu; editing by Kim Coghill and Jason Neely)

By Alex Lawler

LONDON (Reuters) -Oil rose on Tuesday as an attack by the Iran-aligned Houthis on a chemical tanker escalated geopolitical tension in the Middle East, though concerns over excess supply and slowing demand kept a lid on gains.

A cruise missile launched from Houthi-controlled Yemen struck a commercial chemical tanker, causing a fire and damage but no casualties in the latest such attack to heighten safety risks for tankers in vital shipping lanes.

Brent crude futures for February rose 21 cents, or 0.3%, to $76.24 a barrel by 0915 GMT, while U.S. West Texas Intermediate crude futures for January delivery gained 27 cents, or 0.4%, to $71.59.

Although the attack on the vessel has helped oil to rally, “sentiment remains negative,” said Tamas Varga of broker PVM. “There is no help coming from the demand side of the oil equation. The fundamental backdrop is discouraging.”

Investors were cautious ahead of a crucial U.S. inflation report and interest rate decision. The Consumer Price Index (CPI) report is due on Tuesday, while the Federal Open Markets Committee’s two-day policy meeting will end on Wednesday.

“All attention will be on the U.S. CPI data today to potentially set the tone for U.S. policymakers at their upcoming meeting,” Yeap Jun Rong, market analyst at IG, said in a note.

Also in focus are talks at the COP28 climate summit, where negotiators are awaiting a new draft deal after many countries criticised a previous version as too weak because it omitted a “phase-out” of fossil fuels.

And also coming into view are the latest U.S. inventory reports, which are expected to show a 1.5 million-barrel drop in crude stocks. The first report is at 2130 GMT from the American Petroleum Institute.

(Additional reporting by Emily Chow and Muyu Xu; Editing by Kim Coghill)

By Amanda Cooper

LONDON (Reuters) -Global stocks rose on Tuesday, while commodities such as oil and gold edged up on the back of a weaker dollar ahead of U.S. inflation figures that could set the tone for trading in a week filled with central bank meetings.

The U.S. Federal Reserve is widely expected to hold rates on Wednesday, with the spotlight squarely on comments from Chair Jerome Powell during his news conference, as well as the central bank’s economic projections.

Before that, the U.S. Labor Department’s Consumer Price Index (CPI) report on Tuesday is expected to show inflation still cooling, but staying well above the Fed’s 2% annual target, with core CPI expected to come in at 4%.

Equities have rattled higher, while bond yields have fallen in recent weeks on the back of growing investor conviction that interest rates are about to fall quite swiftly, as the U.S. economy in particular coasts towards a soft landing.

“The market, in my view, now wants to enjoy a bit of a rally on the back of increasing Fed rate-cut expectations. The problem I have now is I think we’ve basically reached the limit of how much the Fed can cut, i.e., what’s priced into the curve without introducing a significant recession risk,” said Kallum Pickering, senior economist at Berenberg.

Caution among investors has tempered volatility. Headline inflation has cooled more quickly than many expected, including consumers, who, a year ago predicted price pressures would be running at a rate of 4.2% at this point, versus 3.2% right now, based on the University of Michigan’s monthly one-year inflation expectations index.

But other components of the CPI report have proven far stickier. One such gauge, the owners’ equivalent rent – which measures the change in the cost of shelter for homeowners – is at 6.8%, having peaked only in April this year at 8.2%, compared with the peak in the headline at 9.1% back in April 2022. Wage growth has slowed, but is still at 4%.

The MSCI All-World index, which is trading around four-month highs, was 0.2%. In Europe, the STOXX 600 <.STOXX > held in positive territory, while U.S. index futures rose 0.1-0.2%.

Markets are now pricing in a 48% chance of a rate cut in March compared with 57% a week earlier, according to CME FedWatch tool. Futures show traders expect at least four quarter-point cuts next year.

FAST AND LOOSE

Financial conditions have loosened since the Fed met in November and that will most likely influence the central bank’s thinking, analysts said.

“The Fed will feel that it cannot afford to have financial conditions ease further, as that could potentially re-accelerate labour demand and put renewed upward pressure on the rate of consumer inflation,” said Erik Weisman, chief economist and portfolio manager at MFS Investment Management. “Whether the market takes the hint remains to be seen and will likely be driven by the unfolding macro data more than Fed jawboning.”

In a busy week for central banks, the European Central Bank, Bank of England, Norges Bank and the Swiss National Bank all meet on Thursday.

The yield on 10-year Treasury notes fell 4.6 basis points to 4.192% after lacklustre three- and 10-year note auctions on Monday.

Investors were reluctant to buy Treasuries in the auctions given thinner liquidity with the inflation data and the Fed meeting coming up.

The Treasury Department will sell $21 billion in 30-year reopened bonds on Tuesday, after Monday’s auction of $50 billion in reopened three-year notes and $37 billion in 10-year notes.

In currency markets, the yen recovered some of the previous day’s losses, which were triggered by a Bloomberg report that cited sources as saying Bank of Japan officials saw little need to exit their negative-rates policy straight away. The yen surged last week against the dollar, driven by brief optimism that a shift could come as early as this month.

The yen strengthened 0.46% to 145.51 per dollar, recouping some of Monday’s 0.8% decline. The BOJ meets next week. [FRX/]

The dollar index, which measures the U.S. currency against six others, fell 0.21% to 103.84.

Gold edged higher after touching a three-week low in the previous session and was last up 0.2% at $1,985 an ounce, while Brent crude futures held steady at $76 a barrel.

(Reporting by Ankur Banerjee; Editing by Lincoln Feast, Kim Coghill and Gerry Doyle)

By Tom Westbrook and Alun John

SINGAPORE/LONDON (Reuters) -The dollar ticked lower on Tuesday and the yen regained some ground it had lost in the past two sessions as traders turned their focus to U.S. inflation data later in the day and a slew of central bank meetings ahead.

The dollar was 0.47% lower at 145.54 yen. The pair has had a volatile few days, with the yen surging on remarks taken as hawkish from the Bank of Japan before falling back on a news report downplaying the prospect of an imminent policy change.

“There is talk of a pivot by the Bank of Japan to higher rates and there is some speculation it could come as soon as next week,” said ANZ economist Tom Kenny.

“A hike now seems premature with a backdrop of weak consumer spending,” he said, though trends in inflation and wages suggest sustainable inflation and ANZ anticipates Japan starting its journey out of super-accommodative negative rates by April 2024.

The euro ticked up 0.22% to $1.0788, and sterling was steady at $1.2556. The dollar index which tracks the greenback against six peers down 0.2% at 103.86.

Higher iron ore prices and a rebound in Chinese property shares helped nudge the Australian and New Zealand dollars higher

Forty years to the day after its float, the Aussie gained 0.3% higher to $0.6588. The currency started around $0.9000 and has averaged $0.7550 since 1983. It used to be used by global investors as a liquid proxy for commodities, and now for exposure to China, Australia’s largest trading partner. [AUD/]

The New Zealand dollar rose 0.44% to $0.6148.

EYES ON CPI

U.S. inflation data, due at 1330 GMT, will frame Wednesday’s Federal Reserve policy decision.

The dollar has been slipping since October’s benign U.S. inflation report but found footing on upbeat jobs data published on Friday. The Fed is considered certain to hold rates at 5.25%-5.50% this week, putting the focus on policymakers’ so-called dot plots on the rate outlook and Chair Jerome Powell’s press conference.

Economists polled by Reuters expect headline inflation to have been flat for November, and core inflation to keep steady at an annual pace of 4% – well above the Fed’s 2% target.

“It feels like a ‘risk on’ morning as everyone hopes for a soft CPI number to convince us that the hawkish comments from Fed policy makers are just hawkish comments,” said Kit Juckes head of FX strategy at Societe Generale.

“Everyone is just waiting for the numbers.”

Markets are pricing in substantial rate cuts from central banks next year, and see a roughly 50% chance the first Federal Reserve rate cut will come as soon as March, according to the CME’s Fedwatch tool.

Officials at the Fed, the Bank of England and the European Central Bank at least publicly continue to about an extended rate plateau however.

Later in the week, the ECB, BoE, Norges Bank and the Swiss National Bank all meet, with Norway considered the only possible hiker. There is also a risk the SNB could dial back its support for the franc in FX markets.

The franc made an almost nine-year high on the euro last week and traded a little softer than that at 0.9461 francs to the common currency on Tuesday.

(Reporting by Tom Westbrook in Singapore and Alun John in London; Editing by Sonali Paul and Kim Coghill)

By Ankur Banerjee

SINGAPORE (Reuters) -Asian shares rose on Tuesday while the dollar drifted lower as investors stayed cautious ahead of a crucial U.S. inflation report later in the day that will set the tone for a week filled with central bank meetings.

The U.S. Federal Reserve is widely expected to hold rates on Wednesday, with the spotlight squarely on comments from Chair Jerome Powell during his press conference as well as the central bank’s dot plot and economic projections.

Before that, the U.S. Labor Department’s Consumer Price Index (CPI) report later on Tuesday is expected to show inflation still cooling but staying well above the Fed’s 2% annual target, with core CPI expected to come in at 4%.

That has meant investors are hesitant in placing major bets, with futures indicating European stock markets are set for a muted open. Eurostoxx 50 futures was up 0.11%, German DAX futures 0.17% higher and FTSE futures up 0.06%.

In Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.54%.

“I think a soft landing is now firmly priced into markets and quickly becoming the consensus outlook for 2024,” said Ben Bennett, APAC investment strategist for Legal and General Investment Management (LGIM).

“So if the data strays far from that path, there could be some disappointment.”

A slew of economic data along with comments from Fed officials stoked expectations at the start of the month that the Fed would start cutting rates early next year, but investors have since dialled back some of those expectations.

Markets are now pricing in a 48% chance of a rate cut in March compared with 57% a week earlier, according to CME FedWatch tool. Markets, though, have priced in a 75% chance of a cut in May.

Financial conditions have loosened since the last Fed meeting at the start of November and that will likely weigh on the central bank’s thinking, analysts say.

“The Fed will feel that it cannot afford to have financial conditions ease further, as that could potentially re-accelerate labour demand and put renewed upward pressure on the rate of consumer inflation,” said Erik Weisman, chief economist and portfolio manager at MFS Investment Management.

“Whether the market takes the hint remains to be seen and will likely be driven by the unfolding macro data more than Fed jawboning.”

In a busy week for central bankers, the European Central Bank, Bank of England, Norges Bank and the Swiss National Bank all meet on Thursday.

In Asia, China’s blue-chip stocks eased 0.11%, while Hong Kong’s Hang Seng index rose 0.60% as investors looked for signs of policy support after data showed China’s November consumer prices posted their fastest fall in three years.

The yield on 10-year Treasury notes fell 3.1 basis points to 4.208% after a lacklustre three- and 10-year note auctions on Monday. [US/]

Investors were reluctant to buy Treasuries in the auctions given thinner liquidity with the inflation data and the Fed meeting on the horizon this week.

The Treasury Department will sell $21 billion in 30-year reopened bonds on Tuesday, following Monday’s auction of $50 billion in reopened three-year notes and $37 billion in 10-year notes.

In currency markets, the Japanese yen remained in the spotlight as expectations that the Bank of Japan was ready to walk away from its ultra loose monetary policy faded after Bloomberg reported on Monday, citing sources, that BOJ officials see little need to rush out of negative rates.

The yen strengthened 0.54% to 145.39 per dollar, recouping some of the steep overnight losses. The BOJ is due to meet next week. [FRX/]

The dollar index, which measures the U.S. currency against six rivals including yen, fell 0.135% to 103.92.

Gold prices edged higher after touching a three-week low in the previous session and were last at $1,987.49 an ounce. [GOL/]

U.S. crude rose 0.7% to $71.82 per barrel and Brent was at $76.51, up 0.63% on the day. [O/R]

(Reporting by Ankur Banerjee; Editing by Lincoln Feast and Kim Coghill)

By Tom Westbrook

SINGAPORE (Reuters) -The dollar drifted lower and the yen stabilised in the Asia session on Tuesday as traders turned their focus on U.S. inflation data and a slew of central bank meetings ahead.

The dollar was 0.5% lower at 145.46 yen. The pair has had a volatile few days, with the yen surging on remarks taken as hawkish from the Bank of Japan before falling back on a news report downplaying the prospect of an imminent policy change.

“There is talk of a pivot by the Bank of Japan to higher rates and there is some speculation it could come as soon as next week,” said ANZ economist Tom Kenny.

“A hike now seems premature with a backdrop of weak consumer spending,” he said, though trends in inflation and wages suggest sustainable inflation and ANZ anticipates Japan starting its journey out of super-accommodative negative rates by April 2024.

Higher iron ore prices and a rebound in Chinese property shares helped nudge the Australian and New Zealand dollars higher and other currencies were broadly steady.

The New Zealand dollar rose 0.5% to %0.6154.

Forty years to the day after its float, the Aussie crept 0.4% higher to $0.6596. The currency started around $0.9000 and has averaged $0.7550 since 1983. It used to be used by global investors as a very useful liquid proxy for commodities, and now for exposure to China, Australia’s largest trading partner.

The euro traded at $1.0765, while sterling was at $1.2577.

EYES ON CPI

U.S. inflation data, due at 1330 GMT, will frame Wednesday’s Federal Reserve policy decision.

The dollar has been slipping since October’s benign U.S. inflation report but found a footing on upbeat jobs data published on Friday. The Fed is considered certain to hold rates at 5.25%-5.50% this week, putting the focus on the so-called dot plots for rates and Chair Jerome Powell’s press conference.

Economists polled by Reuters expect headline inflation to have been flat for November, and core inflation to keep steady at an annual pace of 4% – well above the Fed’s 2% target.

“Further upside surprise to data may continue to see markets pare back their bets on aggressive (rate) cuts, alongside a firmer dollar,” said OCBC FX strategist Christopher Wong in Singapore.

“But a softer print may see dollar gains moderate in pace.”

Later in the week, the European Central Bank, Bank of England, Norges Bank and the Swiss National Bank all meet, with Norway considered the only possible hiker. There is also a risk the SNB could dial back its support for the franc in FX markets.

The franc made an almost nine-year high on the euro last week and traded a little softer than that at 0.9442 francs to the common currency on Tuesday.

========================================================

Currency bid prices at 0541 GMT

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar

$1.0770 $1.0765 +0.06% +0.00% +1.0771 +1.0762

Dollar/Yen

145.4900 146.1950 -0.48% +0.00% +146.1600 +145.5000

Euro/Yen

156.71 157.31 -0.38% +0.00% +157.3400 +156.5500

Dollar/Swiss

0.8766 0.8787 -0.22% +0.00% +0.8785 +0.8767

Sterling/Dollar

1.2582 1.2555 +0.22% +0.00% +1.2583 +1.2555

Dollar/Canadian

1.3554 1.3574 -0.14% +0.00% +1.3579 +1.3555

Aussie/Dollar

0.6596 0.6568 +0.45% +0.00% +0.6597 +0.6564

NZ

Dollar/Dollar 0.6156 0.6124 +0.51% +0.00% +0.6157 +0.6120

All spots

Tokyo spots

Europe spots

Volatilities

Tokyo Forex market info from BOJ

(Reporting by Tom Westbrook; Editing by Sonali Paul and Kim Coghill)

SINGAPORE (Reuters) -Oil prices ticked up on Tuesday as investors played cautious ahead of key interest rate decisions and inflation data releases, but concerns over supply surplus and slower demand growth kept a lid on gains.

Brent crude futures for February were up 26 cents, or 0.3%, to $76.29 a barrel as of 0342 GMT, while U.S. West Texas Intermediate crude futures for January delivery gained also gained 26 cents, or 0.4%, at $71.58 a barrel.

“All attention will be on the US CPI data today to potentially set the tone for US policymakers at their upcoming meeting,” said Yeap Jun Rong, market analyst at IG, in a note.

The U.S. Consumer Price Index (CPI) report is due on Tuesday, while the Federal Open Markets Committee’s (FOMC) two-day monetary policy meeting will end on Wednesday.

The U.S. Federal Reserve is widely expected to hold rates steady on Wednesday, but the November Fed minutes showed that policymakers were still concerned that inflation could be stubborn, leaving the door open for additional tightening if needed.

“Further inflation progress will be on watch to validate the effectiveness of current restrictive policies in place and give more room for the Federal Reserve (Fed) to consider rate cuts in 2024 if economic conditions worsen,” said Yeap.

Also providing a lift to oil prices, a cruise missile launched from Houthi-controlled Yemen struck a commercial chemical tanker, causing a fire and damage but no casualties, two U.S. defence officials told Reuters on Monday.

The strike is one of the latest attacks by the Iran-aligned Houthis against ships in the Red Sea, escalating geopolitical tension in the region and heightening safety risks for tankers in vital shipping lanes.

Meanwhile, oil investors remain sceptical that total supply will drop after the OPEC+ group pledged to cut 2.2 million barrels per day (bpd) for the first quarter of 2024, as output growth in non-OPEC countries is expected to lead to excess supply next year.

The voluntary cut may not be long enough, analysts and traders said, as crude oil physical and futures prices show increasing signs of surplus ahead of their implementation.

“Growth at US shale oil operations continues to surprise on the upside, while gains across other non-OPEC producers have been unexpectedly large,” said ANZ Research analysts in a note.

Both WTI and Brent are in a contango market structure, when prompt contracts are less than later-dated contracts, for first several months of 2024. That indicates investors feel there is lower demand for crude or adequate supply for those months.

“The market should get a fresh take on fundamentals when OPEC and the International Energy Agency release their monthly oil market reports this week. The oil market is also watching negotiations at COP28,” said ANZ analysts.

A coalition of more than 100 countries had been pushing for an agreement that would for the first time promise an eventual end to the oil age, but are up against opposition from OPEC members.

(Reporting by Emily Chow and Muyu Xu; Editing by Christian Schmollinger and Kim Coghill)

By Summer Zhen

HONG KONG (Reuters) – Investors in Chinese stocks next year will be seeking out businesses with global reach or other insulation from an economic downturn, after three straight years of China underperforming world markets.

Companies in defensive sectors such as health, medical innovation and exporters in the electric vehicles supply chain and advanced manufacturing, as well as multinationals such as e-commerce firm PDD Holdings, will top the list.

That’s despite sell-side analysts turning bullish on China’s broader market for next year, with Morgan Stanley and Goldman Sachs forecasting Chinese equities to outperform the S&P 500.

“Since economic recovery is slower than expected, we lowered exposures which are sensitive to macro cycles,” said Wang Qing, chairman at Shanghai Chongyang Investment Management.

Chongyang is instead buying defensive high-dividend stocks, medical innovators with global competitiveness, and advanced manufacturing backed by Beijing, Wang said, declining to list any investments by name.

This follows China’s blue chip CSI300 index sinking to five-year lows and losing 12% over 2023 against a 15% gain for global stocks as the Chinese economy struggled with a property crunch and a slow recovery from COVID-19.

Hong Kong’s Hang Seng fared even worse, sliding more than 18% to trade on a forward price-to-earnings ratio below six, against 21 for the S&P 500.

Performance over the last 10 months crushed the optimism that infused the beginning of the year, with four straight months of foreign outflows in the second half of the year totalling a net 138 billion yuan ($19 billion) withdrawn from Chinese equities via the Stock Connect scheme.

“Investors (have) struggled to think what the next growth driver for China will be,” said Caroline Yu Maurer, head of China and specialised Asia strategies at HSBC Asset Management.

Goldman analysts target 4,200 for the CSI300 by the end of 2024, up 23% from Monday’s close at 3,419. Morgan Stanley forecasts the blue chip index at 3,850 at the end of next year and the Hang Seng – which finished Monday at 16,201 – at 18,500, up 14%.

In contrast, Goldman sees the S&P 500 up less than 2% from current levels to 4,700 by the end of next year. Morgan Stanley sees it falling to 4,500. [MKTS/GLOB]

EXPORTERS AND MULTINATIONALS

Real estate is casting the longest shadow. The sector that once accounted for a quarter of China’s economy is reeling from a series of developer failures and a crisis of confidence that fund managers want to see resolved before they commit capital.

Moody’s slapped a downgrade warning on China’s credit rating last week, in part due to the property malaise. Shares of Country Garden, once China’s biggest private property developer and now battling to service its debt, are down 73% this year.

The Hang Seng index of mainland developers is down 44%.

With the property shock ricocheting through the economy and dampened consumption, Morgan Stanley estimates the number of MSCI China companies missing analyst earnings expectations in the third quarter was the most since 2018.

New York hedge fund Indus Capital Partners is among several investors turning away from exposure to China’s domestic demand.

We see value in “some exporters and multinationals, and cheap (state-owned enterprises) aligned with and otherwise not of great concern to the government,” said Indus partner John Pinkel, without naming specific companies.

The stock of PDD, which owns U.S.-based shopping app Temu, for example, is up 75%. Discount retailer Miniso also has a global footprint and its shares are up 80% this year.

Global asset manager Invesco is overweight on Chinese assets in its Asian portfolios, and strategist David Chao highlighted the attractiveness of global expansion, citing the success of Japanese companies abroad while growth slowed at home.

To be sure, there are bargain hunters.

Wenli Zheng, a portfolio manager at T. Rowe Price, says shipmakers have record orderbooks and the timing is ideal to buy good but perceived economically sensitive companies that are trading cheaply, such as Kanzhun, a recruiter, or mall operator China Resources Mixc Lifestyle.

Jefferies said it has turned “tactically positive” on China given an appreciating yuan and cheap valuations, and LSEG data shows sellside analysts think Chinese firms will see their strongest earnings expansion in seven years in 2024.

Yet BofA Securities’ November survey of 265 Asia fund managers found a majority are either waiting for improvement or looking elsewhere, suggesting no rush to add to their exposure to China.

($1 = 7.1872 yuan)

(Reporting by Summer Zhen; Additional reporting by Samuel Shen in Shanghai; Editing by Tom Westbrook and Tom Hogue)