Energy – China increases oil import quota

Oil prices finished yesterday stronger on the back of little fresh developments. ICE Brent settled almost 2.4% higher on the day, taking it back above $76/bbl. Prices, however, are under some pressure in early morning trading today. Possibly, yesterday's strength was in response to the lack of any outcome from US Secretary of State, Antony Blinken’s, latest visit to Israel. There had been hopes that following the killing of Hamas leader, Yahya Sinwar, there could be some de-escalation in the war. On top of this, the market continues to wait for Israel’s response to Iran’s missile attack. The uncertainty around how this plays out would leave speculators hesitant to be too short the market, something speculators had been before this most recent escalation, due to demand concerns and a bearish 2025 outlook.

Numbers from the API overnight showed that US crude oil inventories increased by 1.6m barrels over the last week, a bit above the roughly 1m barrel build the market was expecting. Meanwhile, refined products saw draws with gasoline and distillate fuel oil inventories falling by 2m barrels and 1.5m barrels, respectively. The more widely followed EIA weekly report will be released later today.

The Chinese government increased the 2025 crude oil import quota for private refiners by 6% year-on-year to 257m tonnes (a little over 5.1m b/d), after keeping it unchanged for four consecutive years. The higher quota comes as new refining capacity ramps up, while quotas could still be adjusted depending on demand and capacity. However, refiners that have not imported crude oil over the last two years will not be allocated any quotas.

European gas prices strengthened yesterday with TTF continuing to trade above EUR40/MWh. Middle East tension continues to support gas prices, while a production halt at Equinor’s Sleipner B platform in the North Sea would have also provided some upside. In addition, dry weather conditions in Brazil have reduced hydropower generation, leaving Brazil to rely more on LNG imports for power generation. A continuation of this in the months ahead would leave the global LNG market tighter than expected over the Northern Hemisphere winter.

Metals – Global steel output falls

Global steel production declined by 4.7% YoY to 143.6mt in September due to lower output from major producers, including China, Japan, and Russia, the latest data from the World Steel Association (WSA) shows. Cumulatively, global steel output fell 1.9% YoY to 1,394.1mt over the first nine months of the year. Chinese steel production fell 6.1% YoY to 77.1mt last month, while cumulative output declined 3.6% YoY to 768.5mt in Jan’24-Sep’24. Production in Russia and Japan decreased by 10.3% YoY and 5.8% YoY respectively in September.

In copper, the International Copper Study Group’s (ICSG) latest update shows that the global copper market remained in a surplus of 54kt in August. The group estimates a total surplus of 535kt over the first eight months of the year as the production growth rate outpaced the demand recovery. The supply surplus was higher when compared to a surplus of just 75kt during the same period last year. Global mine and refined copper production increased by 2% YoY and 5% YoY, respectively, while overall apparent refined demand increased by 2.5% YoY over the first eight months of the year.

The latest LME COTR report shows that investors decreased their net bullish position for copper by 642 lots to 72,114 lots for the week ending 18 October 2024. A similar move was seen in zinc, with speculators decreasing their net bullish bets by 40 lots to 38,029 lots over the last reporting week. In contrast, money managers increased net bullish bets for aluminium by 8,676 lots to 120,478 lots as of last Friday.

Agriculture – Cocoa falls on higher port arrivals

Cocoa futures trading in New York extended losses for a third straight session with prices falling more than 5% at one point yesterday, on account of higher bean deliveries reported to ports in the Ivory Coast. Data shows that bean arrival at Ivorian ports totalled 192.8kt as of 20 October, up 13% from last year. Favourable weather conditions are also expected to benefit the Ivorian crop. Last week, the Ivory Coast raised its 2024/25 harvest forecast by 10% to 2.1-2.2mt, following a fresh count of pods the previous month.

Price pressures have eased substantially over the past two years, but a disconnect remains between what US inflation data show and what millions of Americans experience with their finances.

That’s in part because price levels are still higher than they were before the pandemic. Another explanation: the government’s key inflation measure excludes a number of major everyday costs that have surged in recent years.

Property taxes, tips and interest charges from credit cards to auto loans aren’t factored into the Bureau of Labor Statistics’ consumer price index. The CPI also leaves out a key aspect of home insurance, as well as brokerage fees and under-the-table payments to babysitters and dog walkers — costs that can add up.

“The CPI is capturing the goods and services that you purchased for consumption, but there are things that affect your cost of living that are outside of that,” said Steve Reed, a BLS economist who works on the index. “And so it can’t realistically be priced.”

The CPI rose 2.4% in the year through September, the smallest advance since early 2021. Inflation has subsided since the Federal Reserve started hiking interest rates in 2022, which sent rates for mortgages, credit cards, auto loans and student debt soaring. While interest payments make up a big chunk of many Americans’ expenses, the CPI measures the price changes in the items bought, not the debt incurred to finance those purchases.

For example, roughly US$628 billion (RM2.72 trillion) in credit card debt is rolled over or unpaid every month when the typical interest rate charged is around 22%. That means that while the underlying purchased item or service was included in the official measure, millions of dollars in credit card interest payments aren’t being counted.

“It’s one thing that’s definitely impacting the way people spend money,” said Pete Earle, economist at the American Institute for Economic Research and creator of the everyday price index that aims to track daily purchases that can’t be easily avoided. “It’s not really inflation, but it’s definitely something that should be taken into account.”

It gets a bit tricky with housing, which the BLS views as an investment decision rather than an everyday expense. That means that home prices, as well as associated costs like mortgage payments and property taxes — which add up to thousands of dollars a year and fluctuate with prices — are left out.

The same principle applies for how the CPI measures home insurance — it takes into account coverage for personal property but not the dwelling, or the actual structure itself. The latter, which reflects the home’s price, is the more significant component that affects a homeowner’s annual premium.

The overall gauge, which is known as the CPI for all urban consumers, draws from a sample that covers over 90% of the US population and comprises areas with at least 10,000 people. Since the measure is based on the average consumer, someone whose medical care comprises a larger-than-typical share of their expenses may experience a different rate of inflation than the norm, or a household that uses solar energy rather than fuel.

“The CPI does not necessarily measure your own experience with price change,” the BLS says on its website. “A national average reflects millions of individual price experiences; it seldom mirrors a particular consumer’s experience.”

The pricing challenges aren’t unique to the CPI. For example, the personal consumption expenditures price index, produced by the Bureau of Economic Analysis, also has some quirks when it comes to measuring certain expenses like health care. While the Fed prefers the PCE gauge, White House economists say that the CPI tends to more closely track consumers’ actual out-of-pocket spending.

Behaviour shifts

In today’s economy, Americans deal with a myriad of firms trying to extract a payment. Some of these charges are brought about by shifts in consumer behaviour and take time to be incorporated into the CPI — such as fees for grocery bags, airline baggage and meal delivery providers, as well as service charges some restaurants tack onto bills.

Other items are outside the scope of the CPI market basket, and consequently can make the consumer feel that their real cost-of-living isn’t accurately being measured.

Here are a few other expenses that don’t make it into the CPI:

Optional tips: Tips are excluded except in the rare cases when the restaurant makes them mandatory such as for large parties, which are built into the bill. But any sort of optional tipping isn’t captured — even as tipping has become more widespread, and essentially coerced — with highlighted suggested amounts that have escalated and been built into payment processing software at retailers.

Gambling activity: The cost of a Mega Millions ticket doubled in 2017 to US$2, and in April 2025 it will jump to US$5. Mega Millions tickets are sold in 45 states and Washington, DC. But lottery tickets, as well as sports betting, aren’t included in the CPI.

Marijuana use: While cannabis is legal in many states for medical and/or recreational purposes, the government doesn’t have robust documentation at the national level to track prices.

Illegal activity: Technological advancements have made parking or speeding violations much easier to capture with photo enforcement. These tickets can be costly for consumers yet don’t make it into the CPI.

Source: The edge markets

Global growth is expected to ease slightly to 3.2 per cent in 2024 and remain at that level in 2025, the IMF announced Oct 22, while warning that the stable figures masked “important” regional and sectoral shifts.

In its new World Economic Outlook (WEO) report, the International Monetary Fund also estimates that global inflation will continue to ease, hitting 5.8 per cent in 2024, before falling to 4.3 per cent in 2025.

“We are seeing inflation moving in the right direction without a major slowdown in economic growth or a global recession,” IMF chief economist Pierre-Olivier Gourinchas told AFP in an interview ahead of the report’s publication.

“In our baseline analysis, in advanced economies (inflation) will be back at central bank targets in 2025,” he continued, adding it would take “a little bit longer” for emerging markets.

The Fund’s WEO report noted that global growth is expected to trend to a lacklustre 3.1 per cent by 2029, and warned of growing risks to that metric.

Beneath the relatively calm outlook for growth through 2025, “the picture is far from monolithic,” the Fund said, warning of “important sectoral and regional shifts” taking place over the past six months.

The WEO’s publication comes a day after the IMF and World Bank Annual Meetings got underway in Washington, bringing together finance ministers and central bankers from around the world for meetings on the health of the global economy.

Strong growth in US

The report finds that the United States has remained an engine of global growth – in sharp contrast with the euro area, where expansion remains slow.

The world’s largest economy is now expected to grow by 2.8 per cent in 2024, down ever-so-slightly from the 2.9 per cent seen in 2023, but still a shade better than the Fund’s previous estimate in July.

It is then expected to ease somewhat to 2.2 per cent in 2025 – up 0.3 percentage points from July – as fiscal policy is “gradually tightened and a cooling labour market slows consumption,” the IMF said.

“The US economy has been doing very well,” Mr Gourinchas said, pointing to strong productivity growth and the positive effects of a surge in immigration on economic growth.

He added that the United States is “very close” to achieving a soft landing – a rare feat in monetary policy, where inflation falls to within targets without spurring a severe recession.

In Europe, growth is still trending higher, but remains low by historical standards, and is on track to be at an anaemic 0.8 per cent in 2024, rising slightly to 1.2 per cent in 2025.

While France and Spain saw upgrades in their outlook for 2024, the IMF cut its projections for German growth by 0.2 percentage-points in 2024, and by half a percentage-point in 2024, citing its “persistent weakness in manufacturing.”

There was some good news in the United Kingdom, where growth is projected to accelerate in both 2024 and 2025, “as falling inflation and interest rates stimulate domestic demand.”

China and India slow

Growth in Japan is expected to slow sharply to just 0.3 per cent in 2024, before accelerating to 1.1 percent in 2025, “boosted by private consumption as real wage growth strengthens,” according to the IMF.

The Fund expects the growth in economic output in China to continue to cool, easing from 5.2 per cent in 2023 to 4.8 per cent in 2024, and then falling further to 4.5 percent in 2025.

“Despite persisting weakness in the real estate sector and low consumer confidence, growth is projected to have slowed only marginally,” the IMF said, pointing to “better-than-expected” net exports from the world’s second-largest economy.

The slowdown in India looks set to be more pronounced, with the IMF pencilling in growth of 7.0 per cent in 2024, down from 8.2 percent in 2023.

It is then set to slow even further to 6.5 per cent, as the “pent-up demand accumulated during the pandemic” runs out, the IMF said.

The IMF expects growth in the Middle East and Central Asia to pick up slightly to 2.4 per cent in 2024, before jumping to 3.9 per cent in 2025 as the temporary effect of oil and shipping disruptions fade.

And in Sub-Saharan Africa, the IMF predicts that growth will remain unchanged at 3.6 per cent in 2024, rising to 4.2 per cent in 2025 as weather shocks abate and supply constraints ease.

Source: Straitstimes

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The direction of European Central Bank (ECB) borrowing costs is clear but the pace at which they’ll be lowered is still to be decided, according to president Christine Lagarde, who didn’t rule out bigger moves.

Speaking on Tuesday on the sidelines of the International Monetary Fund (IMF) and World Bank annual meetings, Lagarde said disinflation is on the right track, describing recent numbers as “relatively reassuring”.

“I think for me, the direction of travel is clear,” she told Bloomberg Television in Washington. “What we have done starting in June is I think the sensible approach and one that should be continued with that caution element about it.”

“You will have people the whole week saying, oh, it should be 50, it should be 25,” Lagarde said. “No. Direction of travel clear, pace to be determined on the basis of backward- and forward-looking element using the three criteria and applying judgement.”

The ECB has stepped up the speed of its rate-cutting as inflation recedes more quickly than anticipated and concerns about the health of the eurozone’s 20-nation economy build. While officials aren’t offering many pointers on how rapidly or by how much borrowing costs will fall from here, investors are betting on quarter-point moves at the next four meetings and a deposit rate of 2% by mid-2025.

Fuelling such wagers are indications that inflation could sustainably reach the 2% target sooner than thought. France’s Francois Villeroy de Galhau has suggested that the goal may actually be achieved as early as the start of next year.

Price gains eased below 2% in September for the first time since 2021 due to tumbling energy costs. There are lingering worries, though, as wage growth and services prices remain elevated. A temporary uptick in inflation is expected in the coming months and Lagarde, despite her optimism, still had some words of caution.

“We are not looking at one data point,” she said. “We are looking at a lot of data to make sure that this disinflationary process continues to be well on track.”

The comments came in the wake of newly released projections by the IMF, which cut its forecasts for eurozone growth both this year and next because of a weak industrial performance in Germany and Italy.

The economy is also struggling, led by what’s shaping up to be a second straight year of contraction for Germany. And policymakers must grapple with any economic fallout should Donald Trump retake the US presidency, as well as keep an eye on the Federal Reserve’s own loosening cycle.

In Europe, a long-anticipated jump in consumer spending is still on the cards, but is taking longer than hoped, Lagarde said.

“The timing of that is being extended and the European consumers certainly in general do not have the same propensity to consume than the US consumers,” Lagarde said.

Source: The edge markets

Electric car manufacturer Tesla likely still owns its entire Bitcoin stash worth $780 million despite transferring all the funds to unidentified wallets on Oct. 15, according to a blockchain analytics firm.

“We believe that the Tesla wallet movements that we reported on last week were wallet rotations with the Bitcoin still owned by Tesla,” Arkham Intelligence said in an Oct. 22 X post.

Tesla split the 11,509 Bitcoin between seven wallets holding between 1,100 and 2,200 BTC on Oct. 15, Arkham noted. Wallet addresses “1Fnhp” and “1LERL” received the largest batches worth $142.2 million and $128.1 million, respectively.

The massive transfers initially fueled fears of a potential market dump — prompting anxiety on social media platforms like X.

But the wallets haven’t moved any Bitcoin funds since Oct. 15, Arkham’s data shows.

It also hasn’t reflected on Bitcoin’s price, which increased 5% from the time of Tesla’s transfers to $69,220 on Oct. 21, CoinGecko data shows. Bitcoin has since pulled back 2.3% to $67,600.

While it isn’t clear exactly why Tesla made the transfers, Arkham noted some observers speculate the funds may be moving to a custodian, potentially allowing billionaire Elon Musk’s firm to secure a loan against the Bitcoin.

Tesla currently uses Coinbase Prime Custody to store its Bitcoin.

Tesla executives could reveal their plans with the Bitcoin during its third-quarter earnings call scheduled after the bell on Oct. 23.

If Arkham’s analysis is correct, Musk’s firm remains the fourth largest corporate Bitcoin holder, trailing only business intelligence firm MicroStrategy and Bitcoin miners Marathon Digital and Riot Platforms, according to Bitcoin Treasuries data.

Musk’s spacecraft manufacturing business, SpaceX, still holds 8,285 Bitcoin worth $560 million, the seventh-largest Bitcoin holdings by a private firm.

Tesla first purchased Bitcoin in February 2021, buying $1.5 billion worth of the cryptocurrency.

Tesla CEO Elon Musk briefly accepted Bitcoin as a payment for the company’s vehicles in March 2021 but reversed the decision a few weeks later.

Source: COINTELEGRAPH