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Oil Prices Dip as banks caution on impact of producers meeting

Pump jacks are seen at the Lukoil company owned Imilorskoye oil field, as the sun sets, outside the West Siberian city of Kogalym, Russia, January 25, 2016. REUTERS/Sergei Karpukhin

By Karolin Schaps

LONDON (Reuters) – Oil prices slipped on Monday after banks dampened hopes that the meeting of producers in Doha next Sunday, aimed at freezing current output levels, would improve the demand-supply balance.

Brent crude futures, the global benchmark, fell by 10 cents to $41.84 a barrel by 1208 GMT, retreating from last week’s rally to a three-week high reached on Friday after a drop in the rig count of U.S. drillers to its lowest since November 2009.

U.S. WTI crude also eased on Monday, falling to $39.50 a barrel, down 22 cents from the previous session.

“Prices will move back and forth this week on expectations for Doha. This morning it seems that speculation is being scaled back again,” Commerzbank senior oil analyst Carsten Fritsch said.

Analysts at Goldman Sachs, who expect oil prices to average $35 a barrel in the second quarter, cautioned that the outcome of the meeting in Qatar could prove bearish for the market.

A production freeze at recent levels would not accelerate a rebalancing of the market, the analysts said, citing Russian and non-Iranian OPEC output that has remained close to the bank’s 2016 average annual forecast of 40.5 million bpd.

Azerbaijan, the energy minister of which will attend the Doha meeting, said on Monday that its output had dropped by 1.6 percent in the first quarter compared with a year earlier to 10.496 million tonnes.

Barclays, meanwhile, gave warning that the Doha meeting could have limited impact because some producers are unlikely to take part in an output freeze.

Bearish sentiment was further reflected in price expectations. BMO Capital Markets lowered its 2016 Brent and WTI price forecasts to $41 and $38 a barrel respectively, down from the $45 and $41.50.

Many oil market speculators agreed with a more bearish outlook as data from the InterContinentalExchange (ICE) showed that net long positions on Brent had been cut to 355,225 contracts in the week ending April 5.

However, analsts are forecasting firmer demnd for oil over the longer term.

Researchers at Bernstein expect global oil demand to increase at a mean annual rate of 1.4 percent between 2016 and 2020, compared with annual growth of 1.1 percent over the past decade.

“We expect oil markets to rebalance by the end of 2016. This will allow prices to recover towards the marginal cost of $60 per barrel,” Bernstein said, adding that global demand reach 101.1 million bpd by 2020, from the current 94.6 million bpd.

(Additional reporting by Henning Gloystein in Singapore; Editing by Greg Mahlich and David Goodman)

Wall Street predicting a rotten 2016 for U.S. Banks

Goldman Sachs sign is seen above floor of the New York Stock Exchange shortly after the opening bell in the Manhattan borough of New York

By Olivia Oran

(Reuters) – It is only April, but some on Wall Street are already predicting a rotten 2016 for U.S. banks.

Analysts say it has been the worst start to the year since the financial crisis in 2007-2008 and expect poor first-quarter results when reporting begins this week.

Concerns about economic growth in China, the impact of persistently low oil prices on the energy sector, and near-zero interest rates are weighing on capital markets activity as well as loan growth.

Analysts forecast a 20 percent decline on average in earnings from the six biggest U.S. banks, according to Thomson Reuters I/B/E/S data. Some banks, including Goldman Sachs Group Inc, are expected to report the worst results in over ten years.

This spells trouble for the financial sector more broadly, since banks typically generate at least a third of their annual revenue during the first three months of the year.

“What’s concerning people is they’re saying, ‘Is this going to spill over into other quarters?'” Goldman’s lead banking analyst Richard Ramsden said in an interview. “If you do have a significant decline in revenues, there is a limit to how much you can cut costs to keep things in equilibrium.”

Investors will get some insight on Wednesday, when earnings season kicks off with JPMorgan Chase; Co; JPM, the country’s largest bank. That will be followed by Bank of America Corp; and Wells Fargo; WFC; on Thursday, Citigroup Inc; C.N; on Friday, and Morgan Stanley; MSN; and Goldman Sachs Group Inc; on Monday and Tuesday, respectively, in the following week.

Banks have been struggling to generate more revenue for years, while adapting to a panoply of new regulations that have raised the cost of doing business substantially.

The biggest challenge has been fixed-income trading, where heavy capital requirements, new derivatives rules, and restrictions on proprietary trading have made it less profitable, leading most banks to simply shrink the business.

Bank executives have already warned investors to expect major declines across other areas as well.

Citigroup Inc; C.N; CFO John Gerspach said to expect trading revenue more broadly to drop 15 percent versus the first quarter of last year. JPMorgan Chase & Co’s Daniel Pinto said to expect a 25 percent decline in investment banking. Several bank executives have warned about declining quality of energy sector loans.

Global investment banking fees for completed merger and acquisitions, and stock and bond underwriting, totaled $15.6 billion in the first quarter, a 28 percent decline for the year-ago period, according to Thomson Reuters data.

Volatility in stock prices and plunging commodities prices caused trading volume to dry up during most of the quarter. Trading activity picked up slightly in March but was not strong enough to offset declines during the first two months of the year.

Analysts have been lowering first-quarter estimates over the last month in light of business pressures. They now expect JPMorgan to report adjusted earnings of $1.30 per share, Bank of America to report 24 cents per share, Wells Fargo to report 99 cents per share, Citigroup to report $1.11 per share, and Morgan Stanley to report 63 cents per share. Goldman is expected to report $3.00 per share, the lowest first-quarter earnings since before the financial crisis.

Matt Burnell, a Wells Fargo banking analyst, said in a research note Friday that capital markets weakness may extend at least into the second quarter.

Analysts said there may be some loan growth outside of the energy sector, and a small uptick in net interest margins, a measure of loan profitability, but overall, the tone was less-than-optimistic.

“The first quarter is going to be ugly and we don’t think that necessarily gets recovered in the back half of the year,” said Jerry Braakman, chief investment officer of First American Trust, which owns shares of Citigroup, JPMorgan, Wells Fargo and Goldman. “There are a lot of challenges ahead.”

(Reporting by Olivia Oran in New York; editing by Lauren LaCapra)

U.S. Wholesale Inventories in Sharpest Decline Since 2013

New cars are seen on the showroom floor at the Medved dealer

WASHINGTON, April 8 (Reuters) – – U.S. wholesale inventories fell at their fastest pace in nearly three years in February,pointing to a sharper slowdown in first-quarter economic growth than previously thought.

Wholesale inventories dropped 0.5 percent in February, the Commerce Department said on Friday, the sharpest decline since May 2013. Analysts polled by Reuters expected a 0.1 percent decline.

The government also revised its reading for January to show a 0.2 percent decline in inventories rather than a 0.2 percent rise.

Inventories are a key component of gross domestic product changes. The component of wholesale inventories that goes into the calculation of GDP – wholesale stocks excluding autos – dropped 0.4 percent in February.

Weak economic growth in the first quarter of recent years has led many analysts to wonder if the government is having trouble making seasonal adjustments to its data. Weak inventories in the first three months of the year could lead to catch-up growth in the economy in the second quarter as companies restock their shelves.

Economists generally expect the economy grew at less than a 1 percent annual rate in the first quarter, down from a 1.4 percent rate in the last three months of 2015.

At February’s sales pace, it would take 1.36 months to clear shelves compared with 1.37 months in January.

((Reporting by Jason Lange; Editing by Andrea Ricci); ((jason.lange@thomsonreuters.com; +1 202 310 5487; Twitter; @langejason; Reuters Messaging:; jason.lange.thomsonreuters.com@reuters.net)))

Interest Rates Unlikely to Raise Yet

By Jason Lange and Lindsay Dunsmuir

WASHINGTON (Reuters) – The Federal Reserve appears unlikely to raise interest rates before June amid widespread concern at the U.S. central bank over its limited ability to counter the blow of a global economic slowdown, minutes from the Fed’s March 15-16 policy meeting suggest.

The minutes released on Wednesday showed policymakers debated whether they might hike rates in April but “a number” of them argued headwinds to growth would probably persist, with many arguing they should be cautious about raising rates.

“Participants generally saw global economic and financial developments as continuing to pose risks,” according to the minutes.

Policymakers had signaled at the close of the March meeting that they expected to raise rates twice in 2016 but the timing of the hikes still appears up in the air.

According to the minutes, many Fed members said they were concerned that the central bank had limited firepower to respond to shocks from abroad because interest rates are already so close to zero.

“Many participants indicated that the heightened global risks and the asymmetric ability of monetary policy to respond to them warranted caution,” the minutes stated.

Investors have held doubts the Fed would raise rates at all this year and the minutes did little to shift bets on the path of policy.

Prices for fed futures contracts suggested investors still saw the chance of a rate hike in December as just better than even, and they saw virtually no chance of an increase at the April 26-27 policy meeting, according to the CME group.

“Resistance to near-term action is still quite entrenched,” said Ian Shepherdson, an economist at Pantheon Macroeconomics.

According to the minutes, several of the central bankers said elevated risks faced by the U.S. economy meant that raising rates in April “would signal a sense of urgency they did not think appropriate.”

A small minority indicated a rate hike might be warranted when the Fed meets at the end of April. After that meeting, policymakers next convene June 14-15.

Policymakers had signaled in December that four rate increases were likely in 2016, and the minutes of the March meeting highlighted the consensus within the Fed around a cautious outlook for the economy.

PROCEEDING WITH CARE

Fed chief Janet Yellen said on March 29 the U.S. central bank should “proceed cautiously” in raising rates, a view Fed Governor Lael Brainard pushed late last year which has been recently embraced by policymakers including St. Louis Fed President James Bullard, who had previously warned the Fed might hike too slowly.

Bullard said on Wednesday that economic data has been mixed since the March meeting, which could make it difficult for the Fed to raise rates this month.

The Fed left its target interest rate for overnight lending between banks at between 0.25 percent and 0.5 percent in March and in January after December’s hike which ended seven years of near-zero rates.

Global financial markets have been volatile since August amid concerns a slowing Chinese economy could drag heavily on global growth. Expectations the Fed would outpace other central banks in raising rates also tightened financial conditions by leading the dollar to strengthen in 2014 and 2015, though the consensus for caution has helped stabilize the U.S. currency.

At the same time, an inflation index closely followed by the Fed has begun to rebound, although policymakers were divided in March over whether the increase would prove lasting.

“Some participants saw the increase as consistent with a firming trend in inflation. Some others, however, expressed the view that the increase was unlikely to be sustained,” according to the minutes.

(Reporting by Jason Lange and Lindsay Dunsmuir in Washington; Editing by Andrea Ricci)

World Bank says Russia crisis to send poverty to highest in decade

By Alexander Winning

MOSCOW (Reuters) – Russian poverty rates will return to 2007 levels this year as the economy continues to contract and inflation reduces people’s purchasing power, the World Bank said on Wednesday.

The international lender’s comments add to the view that it is ordinary Russians who have borne the brunt of the country’s economic crisis, as the blow for many firms has been cushioned by the weaker rouble and state aid.

The number of poor people in Russia will rise to more than 20 million out of a population of over 140 million, the World Bank said, the largest increase in poverty since the 1998-99 crisis that included a sovereign debt default.

Birgit Hansl, lead Russia economist for the World Bank, said the government would find it difficult to combat rising poverty because of a sharp fall in budget revenues stemming from the oil price collapse. Global prices for oil, Russia’s main export, have fallen to under $40 per barrel from over $115 in June 2014, while the economy has also been hit by Western sanctions imposed over Moscow’s role in the Ukraine crisis.

“It’s clear the fiscal space is very small to continue with social expenditure increases,” Hansl told a news conference.

Among ways to help ease poverty, she said social expenditure could be better targeted, including by means testing.

Mikhail Matytsin, a World Bank poverty economist, said the crisis had also driven a dramatic shift in consumption patterns.

The World Bank sees private consumption falling by 3 percent in 2016 in Russia after a decline of over 9 percent in 2015, a far sharper slump than during the 2008-09 global financial crisis.

“This is a new adjustment to the (economic) shock,” Matytsin said, saying households had cut back most on durable goods such as cars and domestic appliances.

The World Bank now sees private consumption recovering only very modestly and stabilizing at growth levels of around 2 percent from 2018. Before the latest economic downturn, private consumption in Russia had been rising at around 6 percent each year, Hansl said.

In its latest Russia economic report, the World Bank downgraded its growth forecasts to a contraction in gross domestic product of 1.9 percent this year and tepid growth of 1.1 percent in 2017.

It previously saw a contraction of 0.7 percent in 2016 and growth of 1.3 percent in 2017. It said its weaker forecasts reflected its new assumption that the oil price would average $37 a barrel in 2016, rather than the $49 forecast previously.

The World Bank said serious structural reforms, which it has long said are needed to ensure sustainable economic growth in Russia, were not likely before the 2018 presidential election.

(Editing by Jason Bush and Catherine Evans)

U.S. Dollar Hits 17 Month Low

A U.S. one-hundred dollar bill (C) and Japanese 10,000 yen notes are spread in Tokyo

By Sam Forgione

NEW YORK (Reuters) – The U.S. dollar hit a 17-month low against the safe-haven yen on Tuesday on investor concerns about global economic growth, while the euro was set to post its first daily loss against the dollar in more than a week on soft European economic data.

The dollar extended its losses against the yen to 8.2 percent for the year, with a downturn in stocks and commodity prices fueling the latest rally in the Japanese currency. The dollar hit 110.27 yen, its lowest level since late October 2014.

The dollar was last down 0.71 percent against the yen <JPY=> at 110.52 yen in late morning U.S. trading. The dollar had weakened against the yen in recent sessions in the aftermath of Federal Reserve Chair Janet Yellen’s dovish comments last week.

“The market is maybe giving up a little bit on the global growth story,” said Thierry Albert Wizman, global interest rates and currencies strategist at Macquarie Limited in New York.

Traders cited huge options barriers at 110 yen, however, that could slow the greenback’s drop in the short term.

Investors were cautious about driving the yen much higher given the risk of intervention by Tokyo, with many wondering how much appreciation Japanese officials will tolerate before they are forced to act and weaken the currency.

The euro <EUR=> hit a session low against the dollar at $1.1337, down from a 5-1/2 month peak of $1.1437 touched on Friday.

German factory orders and a subdued start to the euro zone’s business activity in the first quarter weighed on the euro, while the currency briefly touched its session low against the dollar after Institute for Supply Management data showed a stronger-than-expected gain in the U.S. non-manufacturing sector in March.

“The concern is that going forward we will continue to see a loss of momentum in the euro zone,” said Sireen Harajli, currency strategist at Mizuho Corporate Bank in New York.

The Australian dollar hit a one-week low against the greenback of $0.7511 as oil prices fell for a third straight session. Lower commodity prices tend to reduce inflationary pressures, causing a worry for policymakers in the developed world, who want to head off the threat of deflation.

The dollar index <.DXY>, which measures the greenback against a basket of six major currencies, was last up 0.28 percent at 94.774.

(Reporting by Sam Forgione; Additional reporting by Anirban Nag in London; Editing by Dan Grebler)

Global banking Fees Fall 29 Percent

A view of the exterior of the JP Morgan Chase & Co. Corporate headquarters in the Manhattan borough of New York City,

By Anjuli Davies

LONDON (Reuters) – Global investment banking fees fell 29 percent in the first quarter of 2016 from a year earlier as market volatility put a brake on dealmaking and equity and debt capital markets activity, Thomson Reuters data published on Monday showed.

Global fees for services ranging from merger and acquisitions advisory services to capital markets underwriting reached $16.2 billion by the end of March, the slowest first quarter for fees since 2009.

Regionally, fees in the Americas totaled $8.7 billion, down 32 percent from last year. Fees in Europe were down 27 percent at $3.9 billion and the Asia-Pacific region saw an 18 percent decline to $2.6 billion.

Investment banking income was dragged down across all products as global markets were hit by volatility sparked by global growth worries, geopolitical tensions in the Middle East and a China slowdown.

Company boards and their chief executives were deterred from pulling the trigger on big transformative deals, in contrast to the record levels of activity seen last year, although the quarter saw a flurry of Chinese companies seeking Western targets.

Equity capital markets fees saw the steepest decline of 48 percent compared to a year ago, followed by a 26 percent fall in debt capital markets fees and an 18 percent decline in M&A revenue.

JPMorgan <JPM.N> topped the global league table for fees, drawing in $1.2 billion during the quarter, a decline of 23 percent compared to a year earlier but gaining slightly in overall wallet share.

The top five banks were all American, but European banks Barclays <BARC.L> and Credit Suisse <CSGN.S> each gained one place to rank sixth and seventh respectively.

<<<For the full league table click on: http://trmcs-documents.s3.amazonaws.com/3501ec8eae589bfbef9cc1729a7312f0_20160404083831_1Q2016_Global_Investment_Banking_Review.pdf >>>

(Editing by Susan Fenton)

Oil held around its lowest in a month

A worker grabs a nozzle at a petrol station in Tehran, Iran

By Amanda Cooper

LONDON (Reuters) – Oil held around its lowest in a month on Monday as investors ditched some of their bullish bets on another price rise and the chances that top exporters will agree to rein in overproduction appeared to fade.

Iran will continue increasing oil production and exports until it reaches the market position it enjoyed before the imposition of sanctions, Oil Minister Bijan Zanganeh was quoted as saying by the semi-official Mehr news agency.

Saudi Arabia, which spearheaded an initial proposal in February for producers to limit output, said last week that it would not join any effort to do so unless Iran were on board, while Russia reported its highest oil production in 30 years.

This has cast doubt on the ability of the world’s largest exporters to reach an when they meet in Doha this month to discuss how to align global supply and demand.

Hedge funds last week cut their bullish holdings of crude oil futures for the first time in six weeks. [CFTC/]

Brent crude futures were 14 cents higher at $38.81 a barrel by 1232 GMT, still close to their lowest for a month but 40 percent above their in mid-February level.

U.S. crude futures were 22 cents higher at $37.01.

“It’s not very strange to see a wave of profit-taking and some unwinding of long positions, and some people even saying they could reposition for a move towards lower prices,” said ABN Amro’s chief energy economist, Hans van Cleef.

“That’s part of a normal cycle that I think can continue this week. We might see $36 or $37 … Prices are coming down because of speculation Saudi Arabia will not join (the freeze deal) and that’s probably what we’ll see over the next three weeks – more speculation and more verbal intervention.”

Oil prices have fallen by more than 65 percent since mid-2014, when booming U.S. shale oil output and supply from within and outside OPEC created one of the largest global surpluses of crude in modern times.

Some analysts believe that even freezing production around record highs will help to reduce the surplus, given that demand is expected to continue to grow this year.

“Most of the negative news is in the price and for oil prices to weaken materially, something big would have to happen,” Gain Capital analyst Fawad Razaqzada said in a note.

U.S. production is proving more resilient to low oil prices than many expected, despite reduced drilling for new reserves as well as a jump in bankruptcies. [RIG/U]

“Given this backdrop, and the potential for an oil-freeze deal this month, the global supply-demand imbalance is likely to fade as we progress towards the latter part of this year,” Razaqzada added.

(Additional reporting by Henning Gloystein in Singapore; Editing by Dale Hudson and David Goodman)

Dollar under pressure, on track for biggest quarterly fall in five years

By Anirban Nag

LONDON (Reuters) – The U.S. dollar fell to its lowest level in five months against the euro on Thursday in trade dominated by month-end rebalancing flows, putting the dollar index on track for its worst quarterly performance in five years.

These flows are caused by global portfolio managers adjusting their existing currency hedges, with many banks taking the view that they could weigh on the dollar.

The dollar index <.DXY> was on track for its biggest monthly fall since April 2015 and its largest quarterly loss since March 2011, as dovish comments from Federal Reserve Chair Janet Yellen continued to resonate, prompting investors and speculators to cut favourable bets in the greenback.

The index was down 0.2 percent at 94.555 <.DXY>, a five-month low. The dollar was flat against the yen at 112.25 yen <JPY=>, while the euro was up 0.3 percent at $1.1383 <EUR=>, its highest since October 2015.

The common currency was on track to post a quarterly gain of 4.7 percent.

“Things have settled down a bit after those comments from Yellen, with the focus turning to the U.S. jobs data on Friday,” said Nordea FX strategist Niels Christensen.

“More than the employment numbers, what will be important are the average earnings, and if that misses expectations, then we could see the dollar come under more pressure,” Christensen added. “Yellen has left the dollar vulnerable to the downside.”

INFLATION SIGNS

U.S. nonfarm payrolls are expected to show the world’s largest economy added 205,000 jobs in March, with the jobless rate steady at 4.9 percent. Average earnings, seen as signalling inflation trends, are expected to rise by 0.2 percent. <ECONUS>

Despite signs of inflation picking up in the United States, Yellen said on Tuesday the Fed would proceed cautiously in raising rates and she highlighted external risks such as slower global growth.

Chicago Fed President Charles Evans on Wednesday underscored that caution, saying a “very shallow” series of rate hikes over the next few years is appropriate to buffer the economy from outside shocks and the risk of inflation slipping too low.

In the European session, the euro zone inflation showed some signs of improvement, but traders were cautious about pushing the euro too much higher, given the European Central Bank’s ultra-accommodative policy stance. <ECONEZ>

“The euro is likely to enter a period of range trading around the $1.10 level for the rest of the year,” said Petr Krpata, currency strategist at ING.

“The range-trading argument is based on fading effecting monetary divergence between the Fed and the ECB. The ECB seems to be reluctant to cut the depo rate further into negative territory while the Fed is unlikely to embark on an aggressive tightening cycle.”

(Additional reporting by Hideyuki Sano; Editing by Gareth Jones)

U.S. Dollar Lowest Level in 7 Weeks

An employee checks U.S. dollar bank-notes

By Sam Forgione

NEW YORK (Reuters) – The U.S. dollar hit its lowest level against the euro in nearly seven weeks on Wednesday following dovish comments from Federal Reserve Chair Janet Yellen that pushed out expectations for the central bank’s next interest rate hike.

The euro <EUR=> advanced to $1.1364, its highest against the dollar since Feb. 11, while the dollar hit a more than five-month low against the Swiss franc at 0.9592 franc <CHF=>.

The dollar index, which measures the currency against a basket of six major rivals, hit its lowest level in 12 days at 94.588 <.DXY> after posting its biggest one-day percentage decline since March 17 on Tuesday.

The ADP National Employment Report showed U.S. private employers added 200,000 jobs in March, above economists’ expectations. The data came ahead of the U.S. Labor Department’s more comprehensive March non-farm jobs report on Friday.

While the ADP data beat economists’ forecast for 194,000 jobs according to a Reuters poll, the data was not enough to halt the negative sentiment toward the dollar a day after Yellen stressed the need to be cautious in raising rates.

“It’s going to take more than one ADP number that was just okay to overcome Yellen’s dovish comments,” said Chris Gaffney, president of EverBank World Markets in St. Louis.

The dollar was on track to post its biggest quarterly percentage decline in five years, and was last down 4 percent for the first quarter.

The dollar’s losses accelerated against the euro after traders “covered” or reversed “short” bets against the euro once it crossed $1.1335, said Douglas Borthwick, managing director at Chapdelaine Foreign Exchange in New York.

The Australian dollar <AUD=D4>, which is closely correlated with commodity prices, soared to a roughly nine-month high <AUD=D4> of $0.7709 as oil prices – which are U.S. dollar-denominated – rose and became cheaper for holders of other currencies. <O/R>

U.S. crude was last up 2.8 percent at $39.36 a barrel <LCOc1>.

Against the yen, the dollar was last down 0.2 percent at 112.45 yen <JPY=> after touching an eight-day low of 112.02 yen earlier.

(The story was refiled to change the word in the analyst comment to “reversed” from “repurchased”, in the eigth paragraph)

(Reporting by Sam Forgione; Editing by Dan Grebler)

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