Pump Prices Shift Higher as Hurricane Milton Wreaks Havoc

Economic

Summary:

The national average for a gallon of gas popped two pennies higher to $3.21 since last week as large swaths of the country deal with severe back-to-back storm damage.

The national average for a gallon of gas popped two pennies higher to $3.21 since last week as large swaths of the country deal with severe back-to-back storm damage. Like Hurricane Helene, Milton will not severely impact national gasoline supplies but will affect demand in areas with destroyed infrastructure, flooded roads, and power outages.

Overseas, the tension between Iran and Israel continues, which is causing a slow wobbling in the price of oil but no steady upward movement.

“All this terrible weather lately could cause regional prices to rise as drivers flock to the few open stations with gas,” said Andrew Gross, AAA spokesperson. “But as roads are cleared and power is restored, stations will be able to be re-supplied, so any upward pressure on prices should be fleeting.”

With an estimated 1.2 million AAA members living in households with one or more electric vehicles, AAA tracks the average kilowatt-per-hour cost for all levels of public charging by state. Today’s national average for a kilowatt of electricity at a public charging station is 35 cents.

According to new data from the Energy Information Administration (EIA), gas demand surged from 8.52 million b/d last week to 9.65. Meanwhile, total domestic gasoline stocks plunged from 221.2 million barrels to 214.9, while gasoline production increased last week, averaging 10.2 million barrels daily.

Today’s national average for a gallon of gas is $3.21, 5 cents less than a month ago and 47 cents less than a year ago.

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Warren Takunda

Economic

Economists say UK headline CPI inflation will dip below the Bank of England's 2.0% target when September's figures are reported next week, thanks to the fall in global oil prices over the summer months.

However, for those requiring a stronger Pound Sterling, the development could deal another setback as it could prod the Bank of England to speed up the pace at which it lowers interest rates.

"Oil prices have swung sharply higher more recently, but an earlier drop in fuel prices likely pushed headline inflation to 1.8%Y in September," says Bruna Skarica, Chief UK Economist at Morgan Stanley.

The most recent forecasts from the Bank of England's Monetary Policy Committee (MPC), issued in August, show headline CPI inflation was expected at 2.10% in September.

"All of the undershoot relative to the MPC's call is accounted for by falling motor fuel prices," says Robert Wood, Chief UK Economist at Pantheon Macroeconomics.

Global oil prices fell to their lowest levels since 2021 in September but have since recovered, meaning the bottom for forecourt fuel prices will be in the rearview mirror.

Investment bank consensus forecasts update: The end-2024 and 2025 guide from Corpay has been released. It shows a sizeable uplift was made to the consensus forecasts for GBP/EUR.

The Pound is 2024's best performing major currency thanks to the Bank of England's cautious approach to lowering interest rates, having only cut once, in August.

At 5.0%, Bank Rate is now the highest central bank policy rate in the G10. This ensures UK assets such as bonds yield superior returns for international investors than in other comparable nations.

This foreign demand for UK assets creates inflows and boosts the Sterling: the Pound to Euro exchange rate traded as high as 1.20 at the end of September, and the Pound to Dollar exchange rate tested 1.34.

Inflation Surprise to Send Pound Sterling to New One-month Lows Against Euro and Dollar_1

The Bank of England's Governor Andrew Bailey caused a tumble in the Pound on October 03 when he said the Bank could be more "activist" on cutting interest rates if the data allowed.

Could the data be about to allow the Bank to become more "activist"?

To be sure, a fall in headline inflation owing to falling oil prices will be welcome, but it won't necessarily shift the dial on more stubborn aspects of the inflation basket.

The Bank could look through this development, particularly given that oil prices have since risen owing to the war in the Middle East.

However, analysts at Morgan Stanley think we will also see a solid decline in services inflation, which is a measure that the Bank of England is closely scrutinising when considering interest rates.

Inflation Surprise to Send Pound Sterling to New One-month Lows Against Euro and Dollar_2

Image courtesy of Pantheon Macroeconomics.

This is because services inflation reflects domestic economic realities and unless it falls back notably, headline inflation will always tend to rise back above 2.0%.

A fall in services inflation would, therefore, be particularly welcome at the Bank of England and bolster expectations for a quickening in the tempo of Bank Rate reductions.

Economists say falling airfares and hotel costs would mainly drive the decline of September's services inflation.

"We expect core inflation to again come in below the BoE's forecasts," says Skarica.

The Bank of England forecasted core CPI inflation at 3.42% in September and services at 5.52%.

Pantheon Macroeconomics expects services inflation to slow to 5.4% year-over-year in September from 5.6% in August.

This undershoot will put the Pound under pressure and see it potentially print fresh multi-month lows against the Euro and Dollar.

Source: Poundsterlinglive

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The Conference Board

Economic

The Conference Board's real GDP forecast for the Global Economy was unchanged at 3.1% for 2024 and 3.1% for 2025. However, our projections for several major economies have changed over the last month.

US Growth Prospects Improving

US economic activity is poised to moderate slightly toward the end of 2024, but not to the degree that we previously forecasted. Recently revised data showed that US real GDP grew at a robust 3.0% quarterly annualized rate in Q2 2024. Additionally, revised data show that consumer spending and income have been growing at a faster pace than previously reported. Healthy consumer spending and a surge in inventory building ahead of the East- and Gulf-Coast port strikes prompted an upgrade to our Q3 2024 real GDP growth estimate.

Still, we continue to anticipate some growth deceleration in Q4 2024. There may be a slow start to Q4 real GDP growth due to consecutive natural disasters, but the weakness likely will be reversed in coming months as rebuilding efforts take shape. Consumer spending activity is likely to also lose some momentum as the mix between goods and services buying becomes more balanced, and households continue to reallocate spending towards cheaper goods. Nonetheless, real GDP is likely to expand by 2.5% in 2024.

Quarterly growth prospects should improve in 2025, as interest rates fall, and if businesses continue to retain workers. Lower interest rates will facilitate some revival in the housing market, and more household purchases of durable goods, for which prices are falling. Absent major changes in tax or industrial policies in 2025, household consumption, business investment, and government spending should pick up pace over the course of the year. Still, base effects may cap the annual rate of 2025 real GDP growth at 1.7%.

Recent data underscore the US labor market’s resilience. September jobs data were much stronger than anticipated and July and August payrolls were revised higher. Furthermore, the unemployment rate fell to 4.1%. Importantly, key inflation gauges continue to slow and are on course to converge on the Fed’s 2-percent target by mid-2025. Against this backdrop, the Fed began cutting interest rates in September 2024 (by 50bp) and we expect the federal funds rate to fall to around 3% by around this time in 2025.

Europe’s Growth Prospects Soften

While the Euro Area economy expanded by more than expected in H1 2024, it lost some momentum in H2 as Germany faltered and is likely to fall into a technical recession. Weak German Q2 2024 activity does not appear to be reversing now in the second half of the year. For example, German manufacturing PMIs have sunken deeper into contractionary territory. We expect Q3 2024 GDP growth to be negative following the contraction reported in Q2 2024. Germany’s economy is forecasted to contract by 0.1% in 2024 relative to 2023, but 2025 growth should improve.

On a more positive note, Euro Area inflation has fallen below the European Central Bank’s (ECB) 2.0% objective. Core inflation remains elevated but is expected to gradually cool as well. Slower inflation and softer regional growth, should prompt continued interest rate cuts by the ECB. Following two rate cuts in March and June, we expect two more rate cuts this year and additional cuts in 2025.

MENA Growth Downgraded on Regional Strife

Turmoil in the Middle East is impacting economic activity in the region. There is a great deal of uncertainty in this part of the world. Given that no solution to these disruptive trends appears imminent, we lowered our forecasts for several economies. However, rising energy prices may partially offset some of the geopolitically-induced headwinds to growth for oil producers.

Risks to Global Growth

Our global forecast is rooted in key assumptions about prospects for ‘soft landings’ in several large economies around the world, including the United States. Thus far, monetary authorities in these economies have been successful in their work to cool high inflation using restrictive policy without triggering deterioration in GDP growth.

However, even as key central banks moderate restrictiveness as inflation targets come into sight, downside risks remain. Geopolitical developments in the Middle East are worsening. In the event that strife escalates further and, for instance, impacts energy production or transportation, the economic outlook for the region and the world more broadly could be negatively impacted. Meanwhile, the outcomes of US elections in November also pose risks to the global economic outlook. Depending upon which parties control the executive and congressional branches, there could be major changes in regulations, and tax, trade, and industrial policies having spillover effects on the rest of the world.

To stay updated on all economic events of today, please check out our Economic calendar

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Owen Li

Economic

Malaysia’s industrial production index (IPI) increased by 4.1% in August 2024, propelled by the moderate growth in the manufacturing sector, said the Department of Statistics (DOSM).

“The industrial production index (IPI) moderated to 4.1% in August 2024, as compared to an increase of 5.3% in the preceding month (July),” said chief statistician Datuk Seri Dr Mohd Uzir Mahidin.

Mohd Uzir said the increase was primarily supported by the expansion of the output in the manufacturing sector at 6.5%, compared to 7.7% in July.

“This is followed by the positive growth of 4.1% (July 2024: 7.0%) in electricity output.

“Inversely, the output of the mining sector continued to decline year-on-year (y-o-y) for two consecutive months by recording a 6.4% decline in August 2024, compared to a 5.0% decline in July,” he said in a statement on Friday.

For a month-on-month (m-o-m) comparison, DOSM said the IPI rebounded to 1.7% in August 2024 after declining by 1.5% in the previous month.

It added that the increase in manufacturing output in August 2024 was supported by the production in export-oriented industries, which softened to 6.3% growth as against 7.8% recorded in July 2024.

“The growth was mainly supported by the resilient growth observed in the manufacture of vegetable and animal oils as well as fats, which recorded an increase of 22.6% (July 2024: 21.9%), and the manufacturing of rubber products at 11.1% (July 2024: 10.5%).

“In addition, the manufacturing of computers, electronics and optical products also contributed to the increase by recording 8.7% growth (July 2024: 5.0%),” it said.

DOSM added that on a m-o-m comparison, the export-oriented industries improved by 3.0% in August 2024 versus a 3.3% decline in July.

It also said that the domestic-oriented industries continued to rise by registering 7.1%, slightly slower than the 7.5% increase recorded in the preceding month.

“This robust performance was largely influenced by a favourable growth in the manufacture of fabricated metal products, except machinery and equipment as well as the manufacture of motor vehicles, trailers and semi-trailers which increased by 10.3% (July 2024: 9.1%) and 7.7% (July 2024: 3.9%), respectively,” it said.

DOSM also noted that the IPI for several other countries, including Singapore, the US, and Taiwan, experienced higher output growth in August 2024, while China, South Korea, and Vietnam continued to grow but slower than the preceding month.

“Conversely, Japan and Thailand declined during the month. Cumulatively, throughout the first eight months this year (January–August 2024), the IPI picked up by 4.1% as compared to the same period in 2023, with all sectors posting an expansion, namely the mining index (1.8%), manufacturing index (4.4%) and electricity index (6.7%),” it added.

Source: The edge markets

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Alex

Commodity

Crude oil prices have been on a retreat towards the end of the week but still look set to book another weekly gain, supported by the situation in the Middle East and worry about the security of supply.

In a fresh update, Reuters reported that Gulf states were lobbying with Washington to convince Israel not to target Iranian oil sites on fears that this would prompt retaliatory attacks by Iran-affiliated groups on those Gulf states’ own oil infrastructure.

“The Iranians have stated: 'If the Gulf states open up their airspace to Israel, that would be an act of war',” a Saudi analyst close to the kingdom’s ruling family told Reuters.

“The Gulf states aren't letting Israel use their airspace. They won't allow Israeli missiles to pass through, and there's also a hope that they won't strike the oil facilities,” an unnamed source from the Gulf said. The oil kingdoms had made it clear earlier that they would not be taking a side in that war.

The possibility of such a development has clear bullish implications for the price of oil in the case of an oil-focused escalation, especially in light of Israel’s apparent decision not to consult the U.S. on everything it does on the battlefield and outside it.

Hurricane Milton also helped push oil prices higher this week after it made landfall in Florida, although it did not wreak the devastation expected from a Category 5 hurricane as it lost a lot of its destructive power before landfall.

“Investors are evaluating how hurricane damage might impact the U.S. economy and fuel demand,” NS Trading president Hiroyuki Kikukawa told Reuters. “Oil prices are likely to hover around the current 200-day average levels, with the primary concern being whether Israel will retaliate against Iranian oil facilities.”

Benchmarks added some 3% on Thursday as Israel’s government met to discuss its retaliatory move against Iran. Earlier on Friday, Brent crude was hovering around $80, with West Texas Intermediate above $75 per barrel.

Source: OILPRICE

Risk Warnings and Disclaimers

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Alex

Economic

Markets

US September inflation printed hotter than expected and contained some important hawkish details such as rising food prices and accelerating supercore services inflation (to an annualized 3mMA of around 4%). Several Fed officials including NY’s Williams, Chicago’s Goolsbee and Richmond’s Barkin were not too worried and focused on the broader picture in which inflation is moving in the right direction. Bostic was the odd one out. In an interview with the Wall Street Journal, the Atlanta Fed president said he was comfortable with skipping a meeting if the data say that’s appropriate.

Coming shortly after a strong ISM, stellar payrolls and yesterday’s CPI, Bostic’s comments briefly sparked an uptick in yields and the dollar. The former finished lower nonetheless, unable to ignore the sharp jump in weekly jobless claims to the highest in more than a year (256k). North Carolina and Florida alone make more than 12k of the net 33k advance from the week before. Both states were hit by hurricane Helene.

Net daily changes in US yields varied between -6.4 bps (2-yr) to +1.8 bps (30-yr). Underperformance of the long end was way more significant before an excellent 30-yr bond auction called off an intraday yield sprint of almost 7 bps (30-yr). The German yield curve’s shift was similar though much less sizeable (-2.7 bps to +0.6 bps). A fragile risk environment and proper gains in oil (Brent +3.7%) provided a cushion for the dollar. EUR/USD ended slightly lower (1.0934). DXY tested the 103 big figure for the first time since mid-August.

Today’s economic calendar is a meagre one (Michigan consumer sentiment) and the US has a long weekend coming (Columbus Day on Monday). We don’t expect markets to move much in such an environment. The October US yield rally lost some steam, especially at the front where the 4% mark serves as a difficult-to-break resistance level. The dollar’s recent recovery may therefore ease a little as well. EUR/USD 1.0907 (50% retracement on the April-September EUR/USD rise) serves as first support.

The financial start of the Q3 earnings season serves as a wildcard. We’d also mention a highly anticipated stimulus announcement of the Chinese finance minister tomorrow. It’s seen as a second chance after the country’s economic planning agency underwhelmed investors on Tuesday. Hopes this time around are for a massive CNY 2tn package.

News & Views

“The French economy is holding up, but our public debt is colossal. It would be both cynical and fatal not to see it, say it and recognize it.” And so French Finance Minister Armand yesterday evening unveiled a 2025 budget which delivered a combined €60.6bn in spending cuts (2/3) and tax hikes (1/3) which should reduce the deficit from 6.1% of GDP to 5% next year. The aim is to get below the 3% deficit threshold by 2029, two years after the official EU goal. The debt ratio is projected to hit 114.7 of GDP from 112.9% this year. The government uses 1.1% growth and 1.8% inflation in its calculations. In the proposal, spending cuts zoom in things like medical costs, unemployment and reducing the number of public servants.

Temporary levies on large companies (revenue > €1bn) should raise around €12bn over the next two years. Company stock buybacks would be subject to an exceptional tax when the shares are canceled. A 20% tax rate floor will be introduced for individuals earning €250k annually or couples earning double the amount to counter tax shelter effects. A controversial measure is delaying the indexation of pensions until July 1. The budget bill will be discussed in parliament starting next week and needs to be adopted by the end 2024. The government’s lack of parliamentary majority makes it extremely vulnerable to obstructions and confidence votes.

The Bank of Korea lowered its policy rate a first time this morning, from 3.5% to 3.25%, after keeping it level since January 2023. The central bank expects inflation to stabilize at the 2% target level and growth to moderate further. Growth uncertainties increased though due to the delayed recovery in domestic demand. Regarding financial stability, housing prices in the Seoul area and household debt growth are anticipated to gradually slow due to the effects of tightened macroprudential policies.

The Board will thoroughly assess the trade-offs among variables such as inflation, growth, and financial stability, and carefully determine the pace of further policy rate cuts. Five members want to keep rates steady over the next three months, with one in favor of keeping the door open for a cut. Governor Rhee’s view are not disclosed. The Korean won barely manages to gain ground this morning with USD/KRW holding near recent highs around 1350.

Graphs

GE 10y yield

The ECB cut policy rates by 25 bps in June and in September. Stubborn inflation (core, services) still is a source of concern, but very weak PMI’s and soft comments of Lagarde (and other MPC members) suggest the ECB is likely to step up the pace of easing with an October cut. Spill-overs from strong US data prevented a test of the 2.0% barrier. 2.00-2.35% might serve as a ST consolidation range.

US 10-y yield

The Fed kicked off its easing cycle with a 50 bps move. Powell and Co turning the focus from inflation to a potential slowdown in growth/employment made markets consider more 50 bps steps. Strong US September payrolls suggest the economy doesn’t need aggressive Fed support for now, but the debate might resurface as the economic cycle develops. For the US 10-y, 3.60% serves as strong support. The steepening trend is taking a breather.

EUR/USD

EUR/USD twice tested the 1.12 big figure as the dollar lost interest rate support at stealth pace. Bets on fast and large rate cuts trumped traditional safe haven flows into USD. An ailing euro(pean economy) partially offset some of the general USD weakness. After solid early October US data, the dollar regained traction, with EUR/USD breaking the 1.1002 neckline. Targets of this pattern are near 1.08.

EUR/GBP

The BoE delivered a hawkish cut in August. Policy restrictiveness was indicated to be further unwound gradually. The economic picture between the UK and Europe also (temporarily?) diverged to the benefit of sterling, pulling EUR/GBP below 0.84 support. Dovish comments by BoE Bailey ended by default GBP-strength. Uncertainty on the UK budget to be released end this month is becoming an additional headwind for the UK currency.

Source: ACTIONFOREX

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Warren Takunda

Stocks

Asian stocks were mixed on Friday as Chinese markets declined as investors await a key briefing about the details of the upcoming stimulus plan this weekend.

U.S. futures rose while oil prices were lower.

Chinese stocks fell in morning trading on Friday. The Shanghai Composite lost 1.6% to 3,249.14, and the CSI 300 Index, which tracks the top 300 stocks traded in the Shanghai and Shenzhen markets, gave up 1.9%.

Hong Kong markets were closed Friday for a public holiday. On Tuesday, the index dropped more than 9%, marking its worst loss since the 2008 global financial crisis.

All market attention was on a briefing China’s Ministry of Finance has scheduled for tomorrow, where it is expected to unveil long-anticipated fiscal stimulus plans. Earlier this week, details of economic stimulus plans from Beijing officials disappointed the markets, as many had hoped that the new fiscal policies would follow the steps of the previous announcements made in late September aimed at reviving the struggling property market and boosting economic growth.

Elsewhere, South Korea’s central bank cut its benchmark interest rate by 25 basis points to 3.25% on Friday, signaling a shift to an easing cycle intended to stimulate economic growth. This is the Bank of Korea’s first rate cut since 2020, which comes after a contraction in gross domestic product in the second quarter, along with an inflation rate in September that fell below the central bank’s target of 2%.

The Kospi in Seoul added 0.4% to 2,610.64.

Australia’s S&P/ASX 200 dipped 0.1% to 8,218.40.

On Thursday, U.S. stocks edged back from earlier records after reports showed inflation was a touch warmer last month than expected and more workers filed for unemployment benefits last week.

The S&P 500 slipped 0.2% to 5,780.05, and the Dow Jones Industrial Average dipped 0.1% to 42,454.12 after setting an all-time high the day before. The Nasdaq composite edged down by 0.1% to 18,282.05.

Stocks had stormed to records in large part on excitement about easing interest rates, now that the Federal Reserve is cutting them as it widens its focus to include keeping the economy humming instead of just fighting high inflation.

Thursday’s report showed inflation slowing to 2.4% in September from 2.5% in August, according to the consumer price index, but economists were expecting an even sharper slowdown to 2.3%. And after ignoring the swings for food, gasoline and other energy prices, underlying trends that economists say can be a better predictor for where inflation is heading were a touch hotter than expected.

At the same time, a separate report showed 258,000 U.S. workers filed for unemployment benefits last week. That number is relatively low compared with history, but it was a sharper acceleration than economists expected. Hurricane Helene and a strike by workers at Boeing may have helped make the number look worse.

In the bond market, Treasury yields rose immediately after the release of the economic data, only to then swing up and down as traders tried to handicap what it would all mean for the Fed.

The yield on the 10-year Treasury held at 4.07%, the level it was at late Wednesday. The two-year Treasury yield, which more closely tracks expectations for the Fed, fell to 3.96% from 4.02% late Wednesday.

In other dealings, U.S. benchmark crude oil lost 19 cents to $75.66 per barrel. Brent crude, the international standard, declined 27 cents to $79.13 per barrel.

The dollar rose to 148.69 Japanese yen from 148.51 yen. The euro cost $1.0942, up from $1.0936.