Lagarde's Press Conference

Crude oil futures steadied on Friday after strong US retail sales data, but Chinese economic indicators remained mixed and prices were headed for their biggest weekly loss in more than a month on concerns about demand.

Both contracts settled higher on Thursday for the first time in five sessions after data from the Energy Information Administration (EIA) showed that US crude oil, gasoline and distillate inventories fell last week.

Brent and WTI are set to fall about 6% this week, their biggest weekly decline since Sept 2, after Opec and the International Energy Agency cut their forecasts for global oil demand in 2024 and 2025 and concerns eased about a potential retaliatory attack by Israel on Iran that could disrupt Tehran's oil exports.

IG market strategist Yeap Jun Rong said while oil prices remained subdued on Friday, there were signs of near-term stabilisation after the market factored in fading geopolitical risks over the past week.

"The recent run in stronger-than-expected US economic data does offer further relief around growth risks, but market participants are also side-eyeing any recovery in demand from China, given recent stimulus unleash," he said in an email.

US retail sales increased slightly more than expected in September, with investors still pricing in a 92% chance for a Federal Reserve rate cut in November.

Meanwhile, third-quarter economic growth in the world's top oil importer China was at its slowest pace since early 2023, though consumption and industrial output figures for September beat forecasts.

China's latest data dump offered somewhat of a mixed bag, with the country now officially falling short of its 5% growth target for the year and the absence of a sizeable fiscal push seems to leave some reservations on overall oil demand, said IG's Yeap.

Markets, however, remained concerned about possible price spikes given simmering Middle East tensions, with Lebanon's Hezbollah militant group saying on Friday it was moving to a new and escalating phase in its war against Israel after the killing of Hamas leader Yahya Sinwar.

Geopolitical risks, such as developments in the Middle East, will continue to drive fears of supply disruptions and in turn short-term spikes in oil prices, said Priyanka Sachdeva, senior market analyst at Phillip Nova.

Source: The edge markets

Macro:

Japan’s core inflation slowed in September due to the rollout of energy subsidies but an index excluding the effect of fuel held steady, a sign that broadening price pressure will keep the central bank on track to raise interest rates further.

The data will be among factors the Bank of Japan (BOJ) will scrutinise at this month’s policy meeting, when the board releases fresh quarterly growth and price forecasts.

The core consumer price index (CPI), which includes oil products but excludes fresh food prices, rose 2.4% in September from a year earlier, data showed on Friday, compared with a median market forecast for a 2.3% gain.

The slowdown from a 2.8% rise in August was due largely to the government’s rollout of temporary subsidies to curb gas and electricity bills, which will likely weigh on core inflation in the coming months.

An index stripping away the effects of fresh food and fuel, which is closely watched by the BOJ as a better indicator of demand-driven price moves, rose 2.1% in September year-on-year, after a 2.0% gain in August.

"We expect inflation, excluding fresh food and energy, to remain around 2% until early next year, when it should gradually fall below 2%," said Marcel Thieliant, head of Asia-Pacific at Capital Economics.

"Accordingly, we still expect the Bank of Japan to press ahead with another interest rate hike before year end."

Japan’s core consumer inflation has exceeded the BOJ’s 2% target for well over two years, prodding the BOJ to end negative rates in March, and raise short-term rates to 0.25% in July.

BOJ governor Kazuo Ueda has said that the bank will keep raising rates if inflation remains on track to stably hit 2% as it projects. But he stressed that the bank will spend time gauging how global economic uncertainties affect Japan’s fragile recovery.

Japan’s economy expanded an annualised 2.9% in the second quarter, as steady wage hikes underpinned consumer spending, though soft demand in China and slowing US growth cloud the outlook for the export-reliant country.

Ueda has said that the driver of inflation must shift to solid domestic demand and wage growth, from rising raw material prices, for inflation to durably hit 2%.

That has put the focus on whether higher wages will prod firms to hike prices for services.

Service inflation slowed to 1.3% in September, from 1.4% in August, the CPI data showed, a sign that companies were passing on rising labour costs only at a moderate pace.

No policy change is expected at the BOJ’s next rate review on Oct 30-31, though markets are divided on whether the bank could hike rates in December, or wait until January.

A slim majority of economist polled by Reuters saw the BOJ forgoing a hike this year, with most expecting the central bank to raise rates again by March next year.

Source: The edge markets

ECB Monetary Policy Decision