Energy – US oil inventories rise

Oil prices ended lower, with ICE Brent hitting lows of US$75 per barrel yesterday, driven by a broader sell-off in risk assets and increasing US inventories. However, prices recovered some of the losses this morning amid uncertainty in the Middle East and concerns over supply disruptions due to Hurricane Milton. Recent reports suggest that Chevron shut its fuel-importing terminal at the port of Tampa as Hurricane Milton approached the Florida coast. The move was a precautionary measure as the company shut in production ahead of the hurricane.

The Energy Information Administration’s (EIA) inventory report was bearish for the oil market yesterday. US commercial crude oil inventories jumped by 5.8m barrels over the week, more than the average market expectation of a build of 1.3m barrels. However, it was less than the build of 10.9m barrels reported by API the previous day. Total crude oil inventories now stand at 422.7m barrels for the week ending on 4 October, which is about 4% below the five-year average. Crude oil stocks in Cushing increased by 1.2m barrels WoW to 24.9m barrels – the highest since the end of August 2024. In refined products, gasoline stocks fell by 6.3m barrels against a draw of just 572k barrels that the market was expecting, while distillate fuel oil stocks decreased by 3.1m barrels over the week (larger than the market expectations for a draw of 1.7m barrels).

Meanwhile, the latest comments from IEA officials suggest that oil demand growth could weaken further while supply could expand next year. The group said that demand is weakening, in particular from China, while supply will remain strong from the US and other major producing countries in 2025. For liquefied natural gas (LNG), the group said that a huge influx of new supply is expected from the US and Qatar next year. Meanwhile, the IEA is scheduled to release its World Energy Outlook next week.

Agriculture – Sugar prices fall on improving weather conditions

Sugar prices fell for a fourth straight session around 2% DoD to close at US¢22/lb yesterday on prospects of rains in Brazil. The top sugar production region, the Center-South of Brazil, expects light showers over the coming days, which means soil moisture could slightly improve the germination. However, raw sugar prices have increased by around 14% in the last month, due to an outbreak of fires in the country. Speculators have maintained their long-term net-long position. However, this could change over the coming days as rains forecast in Brazil, higher-than-expected sucrose content per hectare in CS-Brazil, and well above the average rainfall in India and Thailand (completion of the monsoon period) might weigh on the prices.

The USDA is scheduled to release its monthly WASDE report tomorrow. The initial market expectations suggest that the agency could decrease its US soybean ending stocks by 4m bushels to 546m bushels, while trimming its corn ending stock estimates by 69m bushels to 1,988m bushels. In global supply, the agency could slightly revise its Argentina corn estimates to 50.8mt (-0.2mt), while keeping soybean output estimates unchanged at 51mt. Similarly, Brazilian corn and soybean estimates could be trimmed slightly by 0.4mt each to 126.6mt and 168.6mt respectively. Meanwhile, global ending stocks for corn could decline from 308.4mt estimated in September to 307.3mt, while for soybeans the ending stock estimates could remain unchanged at 134.6mt.

Brazil’s total coffee exports rose 33% YoY to 4.5m bags (60kg) in September, according to data released by Cecafe Group. The group said that the Arabica coffee exports rose 32% YoY to 3.2m bags, while Robusta coffee exports surged 41% YoY to 911.9k bags for the period. The overall rise in coffee exports could be largely attributed to the rise in demand for robusta coffee beans across the globe, despite prices moving higher amid expectations for a supply deficit this year.

The latest data from Industry Group APIC shows that Brazil's cocoa grindings fell 14% YoY to 55.3kt in the third quarter of 2024. Similarly, the cocoa industry received 66.6kt of cocoa beans for the period mentioned above, down from 69.6kt seen a year ago. The decline in grindings was largely driven by the considerable crop losses and lower quality of beans due to crop diseases. Meanwhile, cumulative cocoa grindings have dropped to 169.7kt (Vs 190.4kt) in Jan’24-Sep’24.

Proposals under the National Housing Policy, including the provision of long-term housing loans, will be discussed by the Finance Ministry with Bank Negara Malaysia (BNM) and the Housing and Local Government Ministry.

Deputy Prime Minister Datuk Seri Dr Ahmad Zahid Hamidi said this was among the matters agreed upon during the Executive Committee Meeting of the National Action Council on Cost of Living (Naccol) held here Thursday.

“This is to ensure that lower-income individuals and households can own homes without being burdened by the rising house prices,” he said in a statement after the meeting.

Ahmad Zahid, who is also Naccol executive committee chairman, said the meeting also discussed the household debt-to-GDP ratio, which increased from 67.2% in 2002 to 81.2% in 2022.

He added that the residential property sector now dominates household loans, with housing credit climbing from 36% in 1997 to 59.7% in 2022, which has a significant impact on disposable income levels, and as such, the meeting agreed to look into the matter.

During the meeting, the Department of Statistics Malaysia presented the status of the Cost of Living Indicators 2023, developed to provide insights into the expenses required for households to meet a decent standard of living, including social participation.

Zahid said that Prime Minister Datuk Seri Anwar Ibrahim is scheduled to launch the indicator on Nov 2, adding that it is expected to add value to the government’s policymaking on cost-of-living issues, particularly in implementing targeted aid to target groups.

Another topic discussed was the co-payment features for Medical and Health Insurance and Takaful (MHIT), with the meeting informed that this approach could provide consumers with more options and encourage healthy competition among insurers and takaful operators to offer products suited to consumers’ financial capacities.

“According to BNM, the co-payment feature can offer prices that are 19 to 68 per cent lower compared to products without co-payment, demonstrating a good balance between supply and demand in the country’s healthcare sector,” said Ahmad Zahid.

The meeting also discussed the implementation of two co-payment features, namely deductibles and co-insurance/takaful, which could create a conducive and sustainable healthcare ecosystem through transparent medical billing and policyholder involvement.

Source: The edge markets

“Sell Japan’s currency” is becoming an ever-more popular rallying cry as investors prepare for monthly US inflation data that threaten to roil financial markets.

The Asian nation’s biggest banks are almost unanimous in saying the yen is set to keep weakening as traders trim bets on Federal Reserve interest-rate cuts, bolstering the dollar and Treasury yields. The outlook for further yen losses is emboldening traders to reload bearish positions on one of the easiest currencies to sell in the event of a hot US inflation number.

“‘Sell the yen’ is by far the most popular trade — the carry still works for hedge funds shorting the currency,” said Nick Twidale, chief analyst at ATFX Global Markets in Sydney, who’s traded the yen for a quarter of a century. “Given doubt on the size of Fed rate cuts, it’s just easier for investors to be biased short yen right this moment.”

Japan’s currency is the third-most traded in the world behind the dollar and euro, and the ample liquidity makes it easy for investors to buy and sell. The yen has already weakened for three straight years as the nation’s relatively low interest rates have made it an ideal target for so-called carry trades, where investors borrow in low-yielding currencies to fund purchases of higher-yielding assets elsewhere.

Mizuho Securities Co, Nomura Securities and MUFG Bank Ltd are among those saying there’s a risk the yen will weaken to 150 per dollar or beyond, raising the threat of renewed intervention from the authorities. The currency’s 4.5% decline over the past month is already putting officials — and yen traders — on high alert.

If US CPI beats forecasts, there’s a risk of a general rise in the dollar, Yujiro Goto, head of foreign-exchange strategy at Nomura Securities in Tokyo, wrote in a research note. “There’s also a high possibility that the dollar will attempt to recover to the ¥150 level.”

Signs of unease from Tokyo are growing. Japan’s chief currency official Atsushi Mimura told reporters Monday he was monitoring the currency market with a sense of urgency. Sudden yen moves can have a negative impact on business activity and citizens’ lives, newly appointed finance minister Katsunobu Kato said the same day.

The yen was little changed at 149.13 per dollar Thursday in Tokyo after earlier weakening to an almost two-month low of 149.55. The currency last traded at 150 on Aug 1.

Much of the yen selling pressure is being driven by the prospect of a stronger dollar.

“It’s not just the yen, I think is the simple answer — so, very much a US dollar focus rather than yen focus at the moment,” said David Sokulsky, chief investment officer at hedge fund Carrara Capital in Sydney. “The easiest trade is to be short yen.”

Economists predict key measures of US inflation may have slowed in September, even as price pressures build in some categories of goods such as used cars. The expectations for a subdued reading leaves an even greater room for an upside surprise.

“Stronger-than-expected US jobs data have helped create a favorable environment for yen carry trades to resume,” said Taro Kimura, senior Japan economist for Bloomberg Economics.

The yen “will probably suddenly go to the 150 level” if the CPI data is very strong, said Tsutomu Soma, a bond and currency trader at Monex Inc. in Tokyo. “But I think it’ll come back down quickly because of the sense of caution about intervention.”

In Singapore, hedge fund Blue Edge Advisors is also eyeing further yen weakness into the US data.

“Until all of that positioning washes out or data softens, the path of least resistance, although volatile, is higher US rates,” said Calvin Yeoh, who helps manage the Merlion Fund. “And that means it’s about a stronger dollar, weaker yen.”

Source: The edge markets

Strong job-creation data spurred a selloff in the bond market late last week, pushing yields higher as investors ditched bets that policymakers will deliver another half-point rate reduction this year. With concern over US employment subsiding, investors are now looking to Thursday’s inflation reading for signs price pressures are under control.

While Kim Rupert, an economist at Action Economics, expects a “tame” reading, “that’s not to say we can’t be surprised. And clearly, an upside surprise can add to the bearish reaction following the payroll report”.

Treasuries were little changed on Thursday, with two-year yields slightly lower near 4%, while the long end ticked higher. Money markets implied an 80% chance of a quarter-point cut from the Fed next month.

A consensus of forecasts compiled by Bloomberg predicts that, excluding the food and energy components, consumer prices rose an annualised 3.2% last month. That’s still above the Fed’s 2% target.

Citadel Securities’ Michael de Pass said on Bloomberg Television he expects only one more quarter-point cut this year from the Fed given persistent inflation and US economic resilience.

“We end up in a world where inflation remains sticky, above target, and the pace of easing slows down relative to what the market has priced in,” de Pass said.

Since last Friday’s labour-market report, traders in the futures market linked to the Secured Overnight Financing Rate have been unwinding their long positions. At the same time, some short positions have emerged as market expectations fade for aggressive Fed cuts.

Pricing in the swaps market implies traders no longer see another half-point reduction coming in the remainder of 2024. In the options market, new positions have been skewed towards hedging a scenario where the central bank eases just 25 basis points at the November meeting before holding the policy rate in December.

Minutes from the central bank’s September gathering, released on Wednesday, showed Fed chair Jerome Powell received some pushback on a half-point interest-rate cut, with some officials preferring a quarter-point reduction.

US Treasuries have slid 1.3% so far in October, set to snap a five-month gaining streak, according to a Bloomberg gauge. Also on Thursday, the market will have to digest a third round of Treasury coupon-bearing debt sales, with an auction of 30-year bonds. That follows a US$39 billion (RM166.97 billion) sale of 10-year debt on Wednesday and US$58 billion of three-year notes a day earlier.

Source: The edge markets