Posts Tagged ‘interest rate’

Argentina raises interest rate to 60%

August 30, 2018

Central bank acts after peso’s sharp sell-off resumes in morning trading

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By Colby Smith and Robin Wigglesworth in New York and Benedict Mander in Buenos Aires

Argentina ratcheted up interest rates by 15 percentage points to 60 per cent on Thursday as the central bank sought to arrest the plunge in the peso to a new record low.

As the country battled to reassure investors that it can address its economic vulnerabilities, the bank‘s drastic action initially offered some support for the embattled currency. But the peso — which has now lost roughly half its value this year — swiftly fell back to a fresh record low of 39.6 per dollar on Thursday — down almost 14 per cent on the day.

President Mauricio Macri on Wednesday surprised the market by asking the International Monetary Fund to speed up the release of its $50bn bailout package to shore up next year’s budget, triggering Argentina’s latest round of financial turmoil.

The central bank’s interest rate hike to the highest level of any developed country was described as a “bold policy response” by Alberto Ramos, head of Latin American economic research at Goldman Sachs.

But he warned that the government would still have to ditch its policy of “ gradualism” in crimping the budget deficit and accelerate spending cuts markedly to restore confidence.

“This is a battle that the central bank will not be able to win alone. They need a fiscal shock,” he said. “It is politically difficult but its the least costly option.”

The tumbling peso added further pressure to emerging market currencies, with Turkey’s lira falling as much as 5.5 per cent against the dollar as worries continued to swirl over the country’s economy and finances. The lira sell-off was exacerbated by news that the deputy governor of the central bank, Erkan Kilimci, is preparing to resign for a role at the Development Bank of Turkey.

Argentina’s turmoil also exacerbated the sell-off in the developing world’s financial markets. The FTSE Emerging Index of EM equities fell 1.2 per cent, its biggest decline in three weeks, and JPMorgan’s EM currency gauge slid 1 per cent to a new record low.

Marcos Peña, Argentina’s cabinet chief, had attempted to project calm before the central bank acted, denying that Mr Macri was considering a cabinet reshuffle.

“We are not facing an economic failure,” Mr Peña said on Thursday morning. “This is a transformation, not a failure. In that transformation there are more difficult moments, and moments when it seems that things are going more easily.”

Christine Lagarde, managing director of the IMF, said late on Wednesday said that it would revise its programme “in consideration of the more adverse international market conditions”.

Edward Al-Hussainy, a senior analyst at Columbia Threadneedle, estimated that Argentina needs to raise about $15bn a year over the next three years, which means even the IMF’s $50bn credit line — the biggest in its history — leaves “little room for error”.

Nicolás Dujovne, the economy minister, sought to calm markets late on Wednesday by insisting the government would create a “ceiling” for this year’s budget deficit of 1.3 per cent of economic output. He said the “only way” to return to normality is to keep reducing the deficit.

But Walter Stoeppelwerth, head of research at investment bank Balanz Capital, said the IMF would likely demand tougher austerity measures in exchange for the early release of funds.

“I expect the IMF to demand an even lower primary deficit in 2019, and social unrest will undoubtedly increase,” he said. “Now we are in an old style IMF programme with a deeper recession and a large nominal devaluation.”

The price to insure against a default on Argentina’s debt also rose sharply on Thursday, with the price of a five year “credit-default swap” on the country’s government bonds jumping 68 basis points to 724 bps, according to Bloomberg data from IHS Markit.

That means that investors consider Argentina to be the second-riskiest sovereign borrower in the world, after Venezuela, which has already defaulted on its debts, and ahead of Lebanon, Turkey, Pakistan and Iraq.

“The markets are overreacting. It is not a problem of a lack of dollars, it is a total lack of confidence in the peso,” said Miguel Acevedo, the president of the Argentine Industrial Union, a business association.



Inflation in the Philippines Expected to Spark Interest Rate Hike

August 2, 2018

The Bangko Sentral ng Pilipinas will likely hike its policy rate again, this time by 50 basis points (bps) instead of the traditional 25 bps adjustment to contain rising inflation and lend some strength to the local currency, analysts from Japanese bank Nomura said.

Central bank Governor Nestor Espenilla last month signaled that monetary authorities are building the case for a third rate hike this year, saying the BSP is considering a “strong follow-through monetary adjustment” next week amid risks posed by “excessive volatility” in foreign exchange markets.

Inflation spiked to a fresh five-year high of 5.2 percent in June from May’s 4.6 percent, putting the year-to-date figure at 4.3 percent, or above the BSP’ 2-4 percent target range. The central bank has responded by delivering back-to-back rate hikes.

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In a research note, economists at Nomura said there’s a 70 percent probability that the central bank will raise its benchmark rate by 50 bps and a 30 percent chance of a 25 bps move.

Nomura also expects the policy statement to remain hawkish, with BSP “clearly leaving the door open for further hikes.”

“We put a lot of weight in Governor Espenilla’s comments because he tends to be deliberate in his signals, and, as decisions at the last two meetings demonstrate, there is ultimately follow-through action even though decisions are collective on the part of the monetary board,” the Japanese bank said.

“The drivers of inflation have clearly broadened, which would be seen by BSP as a sign of more second-round effects alongside recent demands for wage and transport fare hikes,” it added.

The BSP’s economic research department forecasts inflation to spike 5.1-5.8 percent in July due to higher prices of electricity, food, fuel and transportation costs. Meanwhile, Nomura projects inflation in July to hit a new peak of 5.6 percent, which would be the highest print since 2009.

People have blamed soaring prices on the Duterte administration’s tax reform law, which raised excise levies on fuel and “sin” products, among others. Supply-side factors like higher global oil prices—exacerbated by the continuing depreciation of the peso—are also pushing up commodity prices.

The peso has weakened by more than 6 percent against the US dollar since the start of the year, making it one of Asia’s worst-performing currencies. Although higher policy rates could help fight outflows, Nomura said weak global risk sentiment poses a headwind.

The BSP’s Monetary Board is scheduled to review policy settings on August 9 a few hours after the Philippine Statistics Authority reports second-quarter gross domestic product growth, which Nomura expects to clock in at 6.8 percent, unchanged from the previous quarter.

The government will release the July inflation data on August 7.


Turkey hikes interest rate again as vote looms

June 7, 2018

The Turkish central bank on Thursday hiked interest rates for the second time in two weeks, prompting the lira to rally strongly with elections on the horizon.

The 125 basis point (bps) headline interest rate hike comes after the bank raised its emergency rate by 300 bps on May 23.

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On Thursday the bank said it would raise the one-week repo rate to 17.75 percent from 16.5 percent, after a monetary policy committee (MPC) meeting.

The one-week repo rate has been the bank’s policy rate since June 1, after a long-awaited overhaul of its interest rates.

The lira surged after the bank’s announcement at 1100 GMT, gaining 1.7 percent against the dollar to reach 4.48 after previous record lows last month.

Before the bank’s move, the lira was at 4.58 against the greenback. Since January, the lira has lost over 18 percent against the dollar and over six percent in the past month.

The hikes come despite repeated calls for lower interest rates by President Recep Tayyip Erdogan, who has called interest rates the “mother and father of all evil”.

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The bank’s decision to raise rates was hoped for by the markets after the inflation rate jumped in May from 10.85 percent to 12.15 percent from the same period last year.

The bank said in a statement that the “tight stance” in monetary policy would be maintained until “inflation outlook displays significant improvement”.

“If needed, further monetary tightening will be delivered,” the bank added.

Timothy Ash, senior emerging markets sovereign strategist at BlueBay Asset Management, said the decision “should help improve sentiment, and stabilise the market a bit into the elections”.

Turks will vote in parliamentary and presidential elections on June 24 in a surprisingly tight contest, with Erdogan seeking a second mandate as president.



Erdoğan calls on citizens to convert their dollars, euros into Turkish Lira

May 27, 2018

Turkish President Recep Tayyip Erdoğan called on Turkey’s citizens on May 26 to convert their dollar and euro savings into lira, as he sought to bolster the ailing currency which has lost some 20 percent of its value against the U.S. currency this year.

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“My brothers who have dollars or euros under their pillow. Go and convert your money into lira. We will thwart this game together,” Erdoğan said at a rally in the eastern Erzurum province ahead of parliamentary and presidential elections on June 24.

The presidential elections that will be held on June 24 will be critical for Turkey as the executive presidential system approved by the constitutional amendments will be fully in effect after the president is elected.

Less than a month ahead the elections, the Turkish economy is struggling.

The Turkish Central Bank decided to raise the top interest rate 300 basis points to 16.5 percent in an emergency meeting on May 23, after the Turkish Lira’s daily depreciation of 5 percent against the United States dollar. The dollar/lira rate hit an all-time high, reaching 4.93 hours before the bank raised interest rates.

One dollar had traded for 3.65 liras on average in 2017.

After the rate hike decision, the lira gained strength to 4.55 against the dollar but weakened to near 4.8 on May 24.

The lira has lost more than 20 percent of its value against the dollar since the start of the year.

Concerns about management of the economy and the independence of the Central Bank after the snap elections on June 24 are said to be affecting the depreciation of lira, alongside high inflation, a rising current account deficit, and the rally of the dollar.

UK unemployment holds at lowest since 1975

January 24, 2018
© AFP/File | Britain’s unemployment rate remains at the lowest level in more than 40 years, according to official data that showed wages growth still lagging inflation
LONDON (AFP) – Britain’s unemployment rate remains at the lowest level in more than 40 years, according to official data Wednesday that showed wages growth still lagging inflation.The jobless rate — or the proportion of the workforce that is unemployed — stood at 4.3 percent in the three months to the end of November, the Office for National Statistics said in a statement.

This was helped by a stronger-than-expected rise in employment to 32.2 million people — the highest level since records began in 1971, the ONS added.

Unemployment fell 3,000 to 1.44 million people.

“The latest labour market figures provided further reassurance that the economy held up in the fourth quarter of last year,” said Paul Hollingsworth, economist at Capital Economics research group.

“The 102,000 rise in employment in the three months to November was far stronger” than market forecasts.

Average weekly earnings meanwhile grew 2.5 percent in the year to November, but still lower than overall UK inflation.

“With the employment rate returning to a joint record-high and the number of vacancies setting a new record, demand for workers clearly remains strong,” said ONS statistician David Freeman.

“Nevertheless, inflation remains higher than pay growth and so the real value of earnings continues to decline.”

Price rises accelerated across the UK during 2017 after Britain’s referendum vote in favour of leaving the European Union pushed down on the pound, hiking the cost of imported goods.

Consequently, the Bank of England raised its main interest rate in November for the first time in a decade — to 0.5 percent from a record-low 0.25 percent.

The pound however is in recovery mode, in part on rising expectations of further rate tightening from the BoE in 2018.

Federal Reserve Expected to Deliver Rate Increase

June 14, 2017

Central bank is likely to lift its benchmark interest-rate range to between 1% and 1.25% after its meeting concludes Wednesday

Janet Yellen arrived for a Group of Seven meeting in Bari, Italy, in May. The Federal Reserve chairwoman will speak at a 2:30 p.m. EDT press conference Wednesday.

Janet Yellen arrived for a Group of Seven meeting in Bari, Italy, in May. The Federal Reserve chairwoman will speak at a 2:30 p.m. EDT press conference Wednesday. PHOTO: ALBERTO PIZZOLI/AGENCE FRANCE-PRESSE/GETTY IMAGES

The Federal Reserve is likely to raise short-term interest rates by a quarter percentage point after its two-day policy meeting concludes Wednesday, the fourth such increase since December 2015. Officials also will release new projections for the economy and interest rates, and could announce their plan for shrinking the Fed’s portfolio of Treasury and mortgage bonds. The central bank will release a statement and the forecasts at 2 p.m. EDT, and Fed Chairwoman Janet Yellen holds her quarterly press conference at 2:30 p.m. Here’s what to watch for:

The Upward Path for Interest Rates

As in previous years, the Fed and markets are at odds over the central bank’s projected path of rate increases. Fed officials in March raised their benchmark federal-funds rate to a range between 0.75% and 1%, and penciled in two more quarter-point rate rises this year. The new forecasts to be released Wednesday will show whether they are sticking to that story. Investors, though, see a nearly 50% probability that this week’s rate increase will be the last one this year, according to fed-funds futures data from CME Group . In the past, the Fed has eventually lowered its expectations to match market estimates.

Balance Sheet in the Balance

Investors will be particularly attuned to any new Fed information on its plans for shrinking its $4.5 trillion portfolio of bonds and other assets. Officials have laid out a tentative plan to slowly let those securities run off the balance sheet as they mature. It is still unclear how long and gradual the Fed will want this process to be, or when it will begin. Expect to get a few more answers Wednesday, either from the Fed statement or from Ms. Yellen during her press conference.

The New Low on Employment

How low can the unemployment rate go? In March, Fed officials anticipated it would end the year at 4.5%. It already is at 4.3% and still could fall farther. Clearly, officials are going to have to revisit their employment projections for 2017. And they could lower their 4.7% estimate for the longer-term unemployment rate, the level that signals a fully healthy labor market. If they do, it might help explain why inflation pressures have been so muted.

Inflation, the Perpetual Weakling

Inflation hit the Fed’s 2% target in February after undershooting it for nearly five years, which appeared to validate officials’ economic outlook. Since then, though, the personal-consumption expenditures price index—the Fed’s preferred gauge—sunk back to 1.7% in April. Officials say the recent drop is merely a temporary phenomenon. But what if it isn’t? Look to the statement and Ms. Yellen’s press conference for clues about the Fed’s latest thinking on sluggish price gains.

The Chairwoman’s Future

Ms. Yellen’s term as chairwoman ends next February. But her term on the Fed’s board of governors isn’t up until 2024. In the past, Fed chairmen have stepped down once their term at the helm is up to avoid upstaging their successors. Ms. Yellen hasn’t ruled out staying on if she isn’t offered a second term as chairwoman. If she does, it would give President Donald Trump one less seat to fill on the seven-member Fed board. Mr. Trump hasn’t ruled out reappointing her, but isn’t expected to do so. Ms. Yellen may give insight into her thinking during her press conference.

Write to David Harrison at

China’s economy is on the verge of a painful credit crunch

March 23, 2017

Published: Mar 22, 2017 4:38 p.m. ET

China’s 7-day repo rate rocketed to its highest level since late 2014 earlier this week

The People’s Bank of China


One of China’s most widely used interbank borrowing rates surged to its highest level since late 2014 earlier this week, stoking worries that a painful credit crunch could be looming as the country’s central bank moves to tighten monetary conditions, according to a research note from Goldman Sachs.

China’s seven-day repurchase (repo) rate shot to 5.5% on Tuesday from 3.85% on Monday, before settling at 5% on Wednesday.

Goldman Sachs

For anyone who follows Chinese politics, the sudden jump in interest rates is hardly surprising: At an annual meeting of China’s parliament that concluded a week ago, the country’s leaders said that tackling risks related to the country’s growing pile of risky debt would become a priority.

The Goldman team, led by MK Tang, the investment bank’s senior China economist, said it expects interbank rates to remain fairly volatile in the coming days as the People’s Bank of China (PBOC) prepares for its quarterly macroprudential assessment, which will take place at the end of March.

Persistently higher rates could create problems for Chinese companies and financial institutions that are heavily reliant on short-term credit to finance their operations, as the chart below illustrates.

Goldman Sachs

Economists have widely cited China’s growing pile of bad debt as a potential risk to the global financial system. China has overtaken the eurozone to become the world’s largest banking system by the aggregate value of loans outstanding, as the Financial Times reported earlier this month. China’s economy has relied heavily on debt to drive growth since the global financial crisis.

Last week, the PBOC decided to raise short-term policy rates for the third time in three months, mirroring a similar move undertaken by the Federal Reserve just a day earlier.

Goldman Sachs

China’s complex monetary policy framework consists of a ticket of “interbank” and “policy” rates. Beginning in mid-2015, the central bank endeavored to keep interbank rates, which are determined by market conditions, relatively steady. But it has recently changed tack, signaling its intention to dissociate the policy rate, which governs interest on loans and deposits generated by banks, from the interbank rate, which also applies to repo transactions undertaken by nonbank financial institutions.

Much of the increase in the interbank rate has been driven by nonbank financial institutions, which are generating a rising share of the country’s loans. As of the end of February, interbank repo borrowing by various funds was over 30% — high by historical standards, according to Goldman Sachs.

Goldman Sachs

Like many global central banks, the PBOC resorted to a series of stimulus measures to help bolster its sagging economy in the wake of the financial crisis. It loosened restrictions on how much capital banks needed to hold in reserve and slashed interest rates, among other measures.

Lenders in need of short-term liquidity often turn to the repo market, where they can find funding by pledging debt securities as collateral.

China’s seven-day repo rate is based on transactions in the country’s interbank repo market that occur between 9 a.m. and 11:30 a.m. local time. It is important to note that nonbank financial institutions, which account for an increasing share of loans originated in the world’s second-largest economy, also participate in this market.

Most interest-rate swaps that originate in the country reference the 7-day repo rate as a baseline.


 (Who really knows?)

 (January 24, 2017)

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Investors Ready for Week of Events That Could Rattle Markets

March 13, 2017

Expected Federal Reserve rate increase, possible Brexit move could push traders to reverse course in unison

Traders are bracing for an eventful week. Pic: AP

Updated March 12, 2017 9:07 p.m. ET

The powerful surge in global stocks and commodities in 2017 faces another hurdle this week as a quick succession of potentially market-moving events challenges investors to place their bets on the next direction for leading asset classes.

Traders are bracing for an eventful week, as an expected Federal Reserve rate increase, Dutch elections and a potential step by the U.K. toward exiting the European Union play out amid markets that appear vulnerable to sudden reversals.

Throughout a strong 2017 rally in global stocks and commodities, some analysts have worried that improving economic fundamentals were driving outsize investor bets that left many asset markets “crowded.” Investors with large positions can be quick to retreat on any disappointing news or data, leading to a cascade of selling as similarly positioned traders scramble to reduce risk.

Those fears were borne out in part last week, when oil prices tumbled nearly 9% over three trading days after U.S. crude stockpiles hit a record high. The price declines short-circuited a yearlong rally in which oil prices doubled to more than $50 a barrel from their February 2016 low, and left many traders worrying that further declines could be at hand as the market grapples with the true risks posed by a longstanding global supply glut.

“The market ignored and ignored … and then it just gave up,” said Dan Pickering, head of the asset-management arm of Tudor, Pickering Holt & Co. “When it gave up, it gave up a lot.”

While playing the oil market poses its own unique challenges — from divining the underlying health of the global economy to determining the efficacy of the Organization of the Petroleum Exporting Countries’ decision to reduce output — many traders warn that the conditions that led to oil’s sudden sell-off exist in other markets, ranging from US stocks and wealthy nations’ government bonds to many commodities.

Central banks pose one hurdle to the continuation of the markets’ recent successes as the tide of global easy money is turning. Robust U.S. job gains and growing wage pressure nearly ensure the Fed will raise short-term interest rates when a two-day policy meeting ends Wednesday. The U.S. central bank will also likely signal a growing conviction that it will follow through with more rate increases later this year. Meetings at the Bank of England and the Bank of Japan are likely to underscore the idea that additional accommodation by global central banks, which helped fuel market rallies, is now off the table.

Meetings at the Bank of England and the Bank of Japan are likely to underscore the idea that additional accommodation by global central banks, which helped fuel market rallies, is now off the table.

For now at least, investors appear to have accepted the turn away from easy money. The Dow industrials and S & P 500 each have set more than a dozen closing records this year. The CBOE Volatility Index, which rises when investors are fearful of stockmarket declines, is on pace for its lowest yearly average on record, according to WSJ Market Data Group. In the past three months, the S & P 500 has posted only one move of more than 1 per cent in either direction.

“I’ve been very surprised at the market’s complacency,” said Leo Grohowski, chief investment officer at BNY Mellon Wealth Management. “Many asset classes are pricing in a fair amount of hope. Hope is never a good investment strategy.” He has been using options and futures to protect against possible downside in the stock market.

Many investors expect markets to sail through the coming weeks. Futures trading indicates investors believe a Fed rate increase at this week’s meeting is nearly a sure thing. Market action also has been muted ahead of Dutch elections and the possibility of the UK triggering the Article 50 clause to begin the Brexit process.

Even with investors’ optimism, there is some worry that it wouldn’t take much to lead to unruly action in the markets. Bullish wagers on commodities such as cotton and, until recently, copper have been at all-time highs. Flows into emerging-market stock and bond funds have been rising alongside the prices of commodities those markets export.

Just before oil prices plunged last week, investors’ wagers on rising US oil prices still outnumbered bets on falling prices more than eight to one, with the size of the bullish position near a record hit last month. Many of those bets were based on anticipation that the global glut of oil would fall and that OPEC would keep cutting production for the rest of this year, assumptions that some began to question last week.

The sharp declines surprised many analysts, who said supply-and-demand fundamentals are little changed from two weeks ago, when oil prices hit a one year high of $US54.45 a barrel. In February, U.S. crude prices remained in their narrowest band since 2003. But wagering that prices would rise had become one of financial market’s most popular bets — something that exacerbated the past week’s sell-off.

“If everyone has the same bet on, there’s only so much room to run through the door when the fire alarm gets pulled,” said Mark Benigno, co-director of energy trading at INTO FCStone Inc.

Hedge-fund exposure to stocks is approaching record levels, according to a report earlier this month by Dubravko Lakos-Bujas, US equity strategist at J.P. Morgan Chase & Co.

At the same time, short positions across stocks, exchange-traded funds and equity futures recently fell to near their lowest levels in 10 years, Mr Lakos-Bujas’s data said, which has led to more fretting by some investors.

“I fear that the pace of this rally we’ve seen is unsustainable,” said Joseph Tanious, investment strategist for Bessemer Trust.


European investors in particular have a busy calendar. In the Netherlands, the party of Geert Wilders, an anti-Muslim nationalist, is now second in polls to the conservative party of the current prime minister—after a long stretch in the lead. A surprisingly strong performance for Mr. Wilders, who wants the Netherlands out of the euro, would likely nudge Dutch yields back up after Wednesday’s election. Though Mr. Wilders isn’t expected to gain power, investors would interpret support for him as a mark against European integration.

Oil Climbs as More Producers Join Output Cuts

December 12, 2016

Updated Dec. 12, 2016 8:25 a.m. ET

Oil prices surged by more than 4% on Monday after more oil-producing nations agreed to slash production, a move aimed at pushing the oversupplied oil market into a rebalance, or even a deficit, to prop up a crude market that had been stuck in a two-year slump.

Brent crude, the global oil benchmark, rose 4.2% to $56.62 a barrel on London’s ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading up 4.8% at $53.98 a barrel.

Energy stocks also soared on the news. In London, Royal Dutch Shell PLC was up 3.3% while in Milan, Eni SpA traded 3.16% higher. In Hong Kong, PetroChina was up 2.4% and Cnooc was up 1.8%.


Over the weekend, a group of heavyweight producers outside of the Organization of the Petroleum Exporting Countries, including Russia, agreed to scale back their output by 558,000 barrels a day. The move would come on top of the cut of 1.2 million barrels a dayagreed to by OPEC in late November. The total reduction represents almost 2% of the global supply.

The deal is viewed as a feather in the cap for Saudi Arabia the oil cartel’s de facto leader and the world’s largest crude producer.

“It has been the long-term goal of Saudi Arabia to get the involvement of Russia and this has been a major geopolitical development and I think it is historic,” said Olivier Jakob an analyst from the Switzerland-based consultancy Petromatrix.

“Russia has been very linked to Iran and with this latest development it is also reaching out a little bit to the wider gulf area,” said Mr. Jakob.

The non-OPEC cuts, if carried out as described over the first half of 2017, would represent an unprecedented level of cooperation among oil-producing countries that have been groping for ways to lift oil prices out of a two-year funk.

“This is truly a historic event,” Russian Energy Minister Alexander Novak said. “It is the first time that so many oil-producing countries from different parts of the world have gathered in one room to accomplish what we have done.”

The bulk of the cuts—300,000 barrels a day—have been pledged by Russia, which produces more crude oil than any other country. Other output reductions are promised by 10 other countries, including Oman, Azerbaijan and Sudan.

Bernstein Research noted that some of the non-OPEC supply cuts would come from natural decline but that most would come from self-imposed cuts.

The market got an extra boost of confidence on reports that Saudi Arabia indicated that, if necessary, the kingdom may be willing to take a deeper cut than the 486,000-barrel cut it had agreed in the November meeting.

“The latest development is buoying optimism in the market. It shows that the OPEC has overcome a significant hurdle,” said Vivek Dhar, a commodities strategist atCommonwealth Bank of Australia.

However, he also warned that compliance by the agreed parties remains a glaring downside risk, given these oil producers haven’t always been forthcoming about their production levels, despite their pledges to rein in output.

The production-cut deal will take effect Jan. 1, and the oil producers will reconvene in six month to assess the deal.

“At this stage, the safe assumption is that they will be [compliant], especially, in the first few months,” said Ric Spooner, chief market analyst at CMC Markets.

Another concern is how fast the U.S. shale producers will ramp up their production in a bid to capture the higher prices.

“Last week the U.S. oil rig count rose by 21 rigs to 498 which was the biggest one week gain since July 2015”, noted SEB Markets in a recent report.

“Our main concern is that market has become comfortably numb in relation to rising rig counts,” said Bjarne Schieldrop, chief commodities analyst at SEB Markets.

“We won’t really see any physical supply response from the added rigs before the second half of 2017. I think this is setting in motion a new boom and bust cycle with a big rise in oil rigs, “said Mr. Schieldrop.

Higher oil prices are also ramping up inflation expectations, pushing yields on government bonds higher early Monday, with the yield on the 10-year U.S. Treasury last at 2.426% after a sharp rise on Friday to 2.469%. The yield on a similar bond in Japan reached its highest level since mid-February, last at 0.070% compared with 0.056% Friday. Yields rise as prices fall.

The weekend’s deal “clearly is going to secure inflationary pressures” going into the first quarter of 2017, said Stuart Ive, a private client manager at OM Financial Ltd. in New Zealand.

Nymex reformulated gasoline blendstock—the benchmark gasoline contract—fell 4.97% to $3.56 a gallon. ICE gasoil changed hands at $496 a metric ton, up $18.25 from the previous settlement.


Global Stocks Slide Monday, Oil Jumps Ahead of Fed Rate Decision

December 12, 2016

BEIJING — Stocks fell on Monday ahead of a Federal Reserve meeting that is expected to raise U.S. interest rates, while oil prices jumped after several non-OPEC countries agreed to join the cartel in cutting output.

KEEPING SCORE: Britain’s FTSE 100 was down 0.3 percent to 6,933 and Germany’s DAX shed 0.2 percent to 11,186. France’s CAC 40 was flat at 4,763. On Wall Street, the future for the Dow Jones industrial average was up 0.1 percent and that for the Standard & Poor’s index was unchanged.

FED WATCH: Investors expect Fed governors, meeting Thursday, to raise rates for only the second time in a decade. The Fed has kept rates close to zero since the 2008 global crisis but its leaders have indicated the U.S. economy has strengthened enough to start gradually returning to normal policy. The election of Donald Trump, who has promised tax cuts and higher spending, has raised questions about whether the Fed will delay future moves to see how that plays out. Investors are expected to look at Fed comments on the economic outlook for clues to its next move on rates.

ANALYST’S TAKE: “A quarter-point rate hike looks almost certain,” Jim O’Sullivan of High Frequency Economics said in a report. “The tone of the statement will probably be a more upbeat than last time, but we don’t expect projections to change significantly.”

OIL MARKET: OPEC, the club of major oil exporters persuaded 11 non-members to cut oil production, a move aimed at draining a worldwide oil glut and boosting low prices that have squeezed government finances in Russia and Saudi Arabia. The Organization of Petroleum Exporting Countries said non-members agreed to cut 558,000 barrels per day for six months starting Jan. 1. Those non-member cuts come on top of an OPEC decision Nov. 30 to reduce member output by 1.2 million barrels a day. Saudi oil minister Khalid Al-Falih said Saturday’s deal would stabilize the market through next year and encourage industry investment. Al-Falih said the deal “is meant to accelerate the natural process of rebalancing” the oil market.

Benchmark U.S. crude surged $2.19 to $53.69 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose 66 cents on Friday. Brent crude, used to price international oils, jumped $2.24 to $56.57 in London. The contract added 44 cents the previous session.

ASIA’S DAY: Earlier, the Shanghai Composite Index tumbled 2.5 percent to 3,152.97 points and Hong Kong’s Hang Seng lost 1.5 percent to 22,410.10. Tokyo’s Nikkei 225 shed 0.9 percent to 19,155.03 and India’s Sensex lost 0.5 percent to 26,606.01. Seoul’s Kospi gained 0.1 percent to 2,027.24 while Sydney’s S&P-ASX 200 was unchanged.

SOUTH KOREA: The opposition-controlled legislature passed an impeachment motion Friday against President Park Geun-hye following accusations by prosecutors that she colluded with a longtime friend to extort money and favors from South Korea’s biggest companies and gave that confidante influence over government decisions. Prime Minster Hwang Kyo-ahn is to lead a caretaker government while a court weighs Park’s fate. Park has apologized for putting trust in her friend, Choi Soon-sil, but has denied any legal wrongdoing.

CURRENCY: The dollar rose to 115.77 yen from Friday’s 115.29 yen. The euro also gained, to $1.0600 from $1.0562. The Russian ruble rose to its strongest against the U.S. dollar in over a year thanks to the gain in the price of oil, a key Russian export. The ruble jumped 2.6 percent to be worth 60.98 against the dollar, its highest level since October 2015.