Japan's Ruling Camp Fails To Secure Opposition Support For Tax Reforms

Energy – WTI settles below $70/bbl

Crude oil prices edged lower with NYMEX WTI closing below $70/bbl while ICE Brent settled below $73/bbl yesterday. The oil market witnessed a second straight session of decline as the strengthening dollar weighs on the complex.

The latest data from Insights Global shows that refined product inventories in the ARA region increased by just 16kt over the week to 6.3mt. The additions in gasoil and gasoline stocks were balanced by the declines reported in other oil products stocks. Gasoil stocks in the ARA region increased by 57kt week-on-week to 2.2mt for the week ending 19 December. Similarly, gasoline inventories rose by 12kt to 1.4mt over the reporting week.

In Singapore, Enterprise Singapore data shows that total oil product stocks increased by 9.7m barrels for a seventh straight week to 54.4m barrels as of 18 December, the highest since August 2020. Residue stocks increased by 11.05m barrels whilst light and middle distillate stocks decreased by 556k barrels and 813k barrels, respectively. It is reported that inventories of heavy fuels rose by the most ever in a week, with levels at the highest since June 2016.

Meanwhile, US natural gas prices moved higher for a fourth consecutive session as weekly inventory numbers reported outflows, whilst expectations of a cold start to January raised hopes for increased consumption of the heating fuel. The weekly data shows that US gas storage decreased by 125Bcf last week, slightly lower than the 127Bcf increase the market was expecting. However, this was well above the five-year average decline of 92Bcf. Total gas stockpiles totalled 3.62Tcf as of 13 December, which is just 0.6% above last year and 3.8% above the five-year average.

Metals – Indonesia mulls mining cuts

Indonesia is considering implementing deep cuts to the nickel mining quota primarily to support the falling prices of the battery metal. The Energy and Mineral Resources Ministry is said to be planning to restrict the amount of nickel ore allowed to be mined to 150mt in 2025, sharply down from 272mt this year. However, the discussions about the size of the potential reduction are still ongoing with the government. Rising supply from Indonesia and slower-than-expected demand growth have been weighing on nickel prices. However, the announcement failed to offer any immediate support to LME nickel with prices falling to their lowest since November 2020 yesterday, as market participants continue to focus on the broader weakness in risk assets.

In zinc, market reports suggest that Toho Zinc Co. located in Japan will shut down its unprofitable zinc smelting business by the year-end, as ore-processing fees continue to hover near multi-year lows. The Japanese company is also withdrawing from mining investments following a “significant loss” in the mineral resources division.

Agriculture – EU lowers corn and wheat output estimates

In its latest cereals market situation report, the European Commission estimated that the bloc’s grain production could fall to 255.8mt for the 2024/25 season, compared to its previous projections of 256.9mt. This is largely driven by a decrease in soft wheat production estimates, which fell from 112.3mt from November projections to 111.9mt for the period mentioned above. This is due to a reduction in the harvest area to 20.2m hectares from 20.3m hectares. Similarly, corn production estimates were revised down slightly to 59.5mt from its previous projections of 59.6mt.

Meanwhile, in its weekly report, the Buenos Aires Grain Exchange raised Argentina’s corn planting estimates to 65.8% complete for the 2024/25 season, up from 55.6% estimated earlier. Sufficient rain has been helpful for the planting season so far. Meanwhile, the exchange reported that the corn planting area remained unchanged at 6.3m ha for the above-mentioned period. Similarly, soybean planting estimates were raised to 76.6% for the 2024/25 season from its previous estimates of 64.7%. The exchange further added that the forecast for more showers could continue to improve the country’s wheat crop condition as well.

US weekly net export sales for the week ending 12 December show strong demand for US grains over the week. US corn shipments surged to 1,177kt, higher than the 946.9kt a week ago and 1,014kt for the same period last year. This was also higher than the average market expectations of 1,013kt. Similarly, wheat shipments rose to 458kt, higher than the 290.2kt reported in the previous week and 326kt a year ago. The market was expecting a number closer to 329kt. Meanwhile, soybean shipments stood at 1,424.2kt, higher than the 1,173.8kt reported a week ago but lower than the 2,133.4kt reported a year ago. The average market expectations stood at 1,256kt.

(Dec 20): Britain ran a smaller-than-expected budget deficit last month as a past lull in inflation pushed down interest paid on government bonds, giving a small boost to finance minister Rachel Reeves who has been under pressure following her budget announcement.

Public sector net borrowing in November was £11.249 billion (US$14.06 billion or RM63.4 billion), the Office for National Statistics said on Friday. Economists polled by Reuters had a median forecast of £13 billion for headline public sector net borrowing.

The data showed the challenge Reeves faces to meet her new fiscal rules with the economy losing momentum — the Bank of England on Thursday forecast zero growth in the last three months of 2024 — and inflation rising again.

"What will worry government is that recent economic indicators such as weak GDP growth and rising inflation are flashing amber," said Alison Ring, director of public sector and taxation at the ICAEW trade body for accountants.

"Money remains extremely tight and that is unlikely to change any time soon."

Government borrowing has been higher than expected by economists polled by Reuters in eight of 11 months so far in 2024 and the reading for October was revised up by more than £800 million.

The lower-than-expected deficit in November reflected a £1.8-billion reduction in the compensation applied to the government's inflation-linked debt as the retail price index fell 0.3% during September.

That drop in prices fully unwound in October and November.

Reeves on Oct 30 announced the biggest tax increases in three decades — most of them from higher social security contributions paid by employers — as she promised to balance day-to-day spending with tax revenues by the end of the decade.

But she also plans to increase borrowing sharply in the coming years as the new Labour government seeks to improve public services and invest more in infrastructure than had been planned by the previous Conservative administration.

The government borrowed £113.2 billion over the first eight months of the 2024/25 financial year, roughly unchanged compared with the same point in 2023/24.

Reeves has described her budget as set of one-off measures to stabilise the public finances.

Source: Theedgemarkets

Crude oil prices were on track for yet another weekly loss earlier today as pessimism about demand growth in China continued to dominate markets.

At the time of writing Brent crude was trading at $72.45 per barrel and West Texas Intermediate was changing hands for $69.91 per barrel, both down from opening in Asia. Reuters reported the benchmarks could end the week some 3% lower than they started it.

The big reason for the decline was the latest demand forecast about China, issued earlier in the week by its very own Sinopec. The company said oil demand growth in China would peak in three years at a daily demand level of some 16 million barrels or a total of 800 million metric tons.

The forecast comes days after the other state-owned energy giant, CNPC, predicted oil demand in the world’s largest oil importer may well peak next year, driven down by electric cars and LNG-powered trucks. By 2035, forecasts say, half the cars on Chinese roads will be electric.

This was enough to depress prices and the bearish mood also received some support from the jump in the U.S. dollar following the Federal Reserve’s latest rate decision. That decision saw the greenback shoot up to the highest in two years—a development that is usually negative for oil prices as the commodity is traded predominantly in U.S. dollars.

Supply forecasts have also weighed on crude oil prices this week. Several forecasters recently reported they expected the oil market to swing into a surplus next year—or remain in surplus if their assumption is for an already existing supply overhang. JP Morgan became the latest to sound a bearish note, saying it forecast a supply surplus of 1.2 million bpd in 2025 thanks to non-OPEC production growth, which the bank predicted at 1.8 million barrels daily. OPEC, on the other hand, will keep output at current levels, JP Morgan analysts said.

Source: OILPRICE

Source: AP

The Federal Reserve (Fed)’s decision to cut rates by 25bp was fully meaningless and the incoming data is a proof. The US Q3 growth was revised to 3.1% from 2.8% printed earlier, the sales growth was revised higher from 3 to 3.3% and core PCE priced – though lower than the quarter before – was also revised slightly higher to 2.20%, raising worries that even the two rate cuts from the Fed next year would be too much.

As such, the early gains were given back and the S&P500 and Nasdaq closed in the negative, the Dow Jones was flat while small and mid cap stocks saw no appetite either. Sharing the headlines with Powell, Trump threatens people of his own party to dump a bipartisan deal and risk a government shutdown if they don’t push to raise or suspend the national debt limit under Biden, so he can spend wholeheartedly when he comes to office. The US yield curve is steepening, investors are not willing to buy longer-dated maturities on prospects of higher long-term inflation and ballooning debt. And the US dollar advances toward the strongest levels in more than 2 years leaving other majors under the shadow before Xmas.

The EURUSD failed to stay above the 1.04 mark yesterday and is struggling to hold ground near the 1.0350 level, the Stoxx 600 is racing toward the 500 support, while Cable settles below the 1.25 mark on the back of a dovish no-change that the Bank of England (BoE) delivered at yesterday’s MPC meeting. Three MPC members instead of two (expected by analysts) voted to cut the rates at this week’s meeting. The other six opted for no change – wary of reigniting inflation as the government prepares to increase spending to boost growth, and as Trump threatens the world with eye-watering tariffs. Interestingly, Governor Andrew Bailey – who is clearly not the most popular central banker – had the merit of sounding rational yesterday by saying that the ‘world is too uncertain’ to commit to cut borrowing costs in February. War, Trump, climate change – there’s too much happening for anyone to claim they see the future with clarity. But one good news for the UK is that the United Kingdom is not as concerned as – say the EU, China, Canada and Mexico – by the Trump tariffs and the latter could help the British assets cope with Trump better than their peers. British stocks trade with around 40% valuation discount compared to the MSCI World peers, it has one of the fastest dividend growth among the European and American indices and they returned 10% to their investors these years including reinvested dividends. If inflation U-turns as geopolitical and trade tensions worsen, the FTSE 100 stocks will be in a good position to benefit from these developments.

Elsewhere – and this is amusing – inflation in Japan accelerated in November. The headline figure climbed back to 2.9%, the highest in three months, while core inflation advanced to 2.7%, also a three-month high. Why is this funny? Because just yesterday, the Bank of Japan (BoJ) decided to pass on a rate hike, with officials seemingly too cautious to act amid uncertainties over Trump-era policies and geopolitical tensions. Meanwhile, Japan’s interest rate sits at 0.25%, while inflation is running near 3%. The Japanese have a different relationship with inflation – they don’t despise it as much as we do. After all, decades of deflation, which is far harder to reverse, have shaped their perspective – a lesson the Chinese are now learning the hard way. But the BoJ’s decisions still feel illogical, as they don’t align with a conventional policy framework. Consequently, the USDJPY is giving back some earlier gains on the stronger-than-expected inflation figures and speculation that rising inflation might prompt BoJ action. However, since the BoJ doesn’t really tie interest rates to inflation, the USDJPY has room for further gains, especially as the US dollar continues to strengthen broadly.

In China, the People’s Bank of China (PBoC) kept its policy rates unchanged today – as expected – although the officials are now committed to put in place ‘more proactive fiscal measures’ and ‘moderately loose’ monetary policy. For now, none of these legs have been enough to bring investors back on board. The Chinese CSI 300 is preparing to close the week on a meagre note.