Hong Kong - Oil was headed for its biggest weekly jump since March amid speculation major producers will act to freeze output. The dollar pared its loss for the week as stocks declined in Europe and Asia.
US crude is back in a bull market and trading above $48 a barrel, less than three weeks after it sank into a bear market. Gold lost ground for the first time this week as Bloomberg’s dollar index rose from a three-month low, supported by a technical gauge that indicated a turnaround was likely. The yen returned to the weak side of the 100 per dollar level and South Korea’s won slid to this month’s low. The Stoxx Europe 600 Index fell for the fifth time in six days, while more shares declined than rose on the MSCI Asia Pacific Index.
Commodities got a boost this week and the dollar tracked lower as minutes of the Federal Reserve’s last policy meeting kept a lid on speculation that US interest rates will be raised in 2016, even as a more hawkish tone was evident in comments made by regional Fed chiefs including New York’s William Dudley. A rate hike has the potential to fuel volatility in financial markets as central banks in Asia and Europe loosen monetary policies in a bid to revive their economies.
“The Fed could potentially move in December, but with uncertainty about US inflation and monetary conditions around the rest of the world, the pace will be extremely measured,” said Roger Bridges, chief global strategist for interest rates and currencies at Nikko Asset Management’s Australian unit in Sydney.
The next signal on the Fed’s thinking isn’t due till August 26 when Fed Chair Janet Yellen speaks at a meeting of global policy makers in Jackson Hole, Wyoming. The probability of a borrowing costs being raised this year stands at 47 percent, Fed funds futures show.
Commodities
The Bloomberg Commodity Index was down 0.4 percent as of 8.40am London time, trimming this week’s jump to 2.8 percent.
West Texas Intermediate crude was little changed at $48.22 a barrel in New York, after surging 16 percent over the last six sessions. Russia indicated this week that it is open to discussing an output freeze after Saudi Arabia’s energy minister said that informal talks among major producers next month may lead to action to stabilise the market. A deal to cap production was proposed in February but a meeting in April ended with no accord.
“The catalyst for this run was the Saudi statement on its preparedness to discuss initiatives to stabilise the price,” said Ric Spooner, chief analyst at CMC Markets in Sydney. “Oil is now getting to an interesting level, approaching the high end of the range. If WTI gets into the low $50s, we may see the current momentum start to sag a bit.”
The dollar’s rebound pushed prices of most metals lower, with gold falling 0.4 percent. Zinc slipped 0.9 percent, retreating from a 15-month high, as nickel lost 0.6 percent. Moody’s Investors Service raised its outlook for the global base-metals industry, saying prices for aluminium, copper, nickel and zinc are unlikely to deteriorate further in the medium term as economic stimulus is helping stabilise views on China, the biggest user.
Currencies
The Bloomberg Dollar Spot Index rose 0.4 percent, trimming this week’s loss to 1 percent. The measure’s 14-day relative strength index sank to 30 on Thursday, a threshold that signals to some investors that declines have been too fast and a rebound is likely. While the US central bank’s minutes showed Wednesday that officials were split on the need for an interest-rate hike in July, New York Fed chief Dudley said the previous day that the market was underestimating the likelihood of an increase.
“The Fed’s apparent lack of urgency to raise rates is encouraging expectations of further dollar declines,” said Sean Callow, a senior foreign-exchange strategist at Westpac Banking in Sydney. “Today is probably just a blip in the dollar’s lousy August so far.”
The yen weakened 0.3 percent to 100.19 per dollar, paring its weekly gain to 1.2 percent. The currency has strengthened 20 percent this year and Japan’s Vice Finance Minister Masatsugu Asakawa said on Thursday that policy makers are prepared to take action if speculative trading is evident.
The won dropped 0.9 percent, while Indonesia’s rupiah fell 0.2 percent. Five out of nine economists surveyed by Bloomberg forecast Indonesia’s central bank will lower its benchmark interest rate to 6.25 percent from 6.5 percent at a policy review on Friday. Four forecast no change.
Stocks
All 19 industry groups fell on the Stoxx Europe 600 Index, which dropped 0.6 percent.
The MSCI Asia Pacific Index was down 0.2 percent and has lost 0.6 percent since ending last week at a one-year high. Japan’s Topix index gained 0.4 percent, capping a weekly loss of 2.1 percent, and Hong Kong’s Hang Seng Index retreated 0.2 percent from its highest close since October.
“The market lacks momentum,” said Margaret Yang, an analyst at CMC Markets in Singapore. “The market has been driven by liquidity arising from loose monetary policies by central banks around the world, rather than improving economic fundamentals. Besides the rally in oil, there’s nothing that could push share prices higher.”
S&P 500 Index futures were 0.1 percent lower after the US benchmark advanced 0.2 percent on Thursday to close just shy of an all-time high.
Bonds
US Treasuries due in a decade yielded 1.54 percent, little changed on the day and up three basis points for the week. The two-year note yield, among the maturities most sensitive to the outlook for Fed policy, was little changed this week at 0.71 percent.
* With assistance from Emma O'Brien, Ben Sharples, Jonathan Burgos and Narayanan Somasundaram
BLOOMBERG