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- Battered crude oil prices bounced back from their lows on Thursday, propelling solid gains in Asian shares and the dollar. Thursday’s gains built on Wall Street’s consolidation overnight in which major indexes finished with declines of more than 1 percent, but well off the 3 percent plus they plumbed in the previous session when U.S. crude had dropped to 2003 lows.
- The dollar bounced back from a one-year low against its perceived safe-haven Japanese counterpart. The greenback added about 0.4 percent to 117.38 yen JPY= after falling as low as 115.97 on Wednesday, even as it marked impressive gains against some emerging market currencies. Emerging market countries bear the brunt of the selling because the slowdown in global growth and volatility in commodities causes significant economic damage for these countries. U.S. data out on Wednesday undermined the dollar overnight. U.S. consumer prices unexpectedly fell in December, suggesting inflation was more sluggish than the U.S. Federal Reserve believed. Other Wednesday data showed a drop in housing starts and building permits last month, which led investors to pare expectations of further interest rate hikes this year.
- China’s fragile stock markets started weaker on Thursday after Wall Street struck its lowest levels since 2014, though the main indexes for Shanghai and Shenzhen bourses still clung to gains for the week. The currency also had a volatile start to 2016, but the People’s Bank of China (PBOC) has kept a steady course for the yuan’s daily midpoint fix, from which it can vary by up to 2 percent, for two weeks. The Thursday fix was barely changed at 6.5585 per dollar. The central bank was also generous with liquidity ahead of the Lunar New Year holiday by injecting a net 315 billion yuan ($48 billion) into the banking system for the week, a much larger chunk of cash than it provided ahead of the holiday period last year. On Wednesday, the central bank said that it would improve policy coordination to promote economic growth and curb financial risks, though it provided no details on steps or timing. Two surprise yuan devaluations in six months and a cooling economy have only reinforced market expectations that something will have to give. Speculators have taken to using the yuan’s cheaper offshore forwards market to wager China will finally devalue the currency around March or April. Oil prices stabilised in early trading on Thursday after hitting fresh 2003 lows the session before, but analysts said a persistent global glut would keep pressuring markets. U.S. oil futures crashed below $27 dollars a barrel on Wednesday for the first time since 2003, caught in a broad slump across world financial markets as traders worried that a huge oversupply in crude was coinciding with an economic slowdown, especially in China. Yet broader market sentiment remained bearish as producers around the world pump 1-2 million barrels of crude every day in excess of demand, creating a huge storage overhang. At the same time, concerns are growing that China’s economy could slow further, hitting demand. Prices were likely to come under more pressure after the release later in the day of the U.S. Energy Information Administration’s official storage data. The American Petroleum Institute said crude stocks rose by 4.6 million barrels last week, well above a 2.9 million barrel gain seen. Separately, Thursday’s government report from the Energy Department could show that U.S. crude stockpiles increased by 3.0 million barrels for the week ending on Jan. 15. nvestors continued to digest bearish comments from the International Energy Agency (IEA) a day earlier when the Paris-based organization warned that oil prices worldwide “could drown in oversupply” if current conditions persist. In its monthly oil report released on Tuesday, the IEA said global markets could face an estimated supply excess of 1.5 million barrels per day if demand continues to limp behind at its current pace. Barring unforeseen changes, global supply is expected to outstrip demand by more than 1 million bpd for the third straight year. Crude prices remain near decade lows in the wake of Saturday’s Implementation Day announcement that will enable Iran to ramp up exports by approximately 500,000 bpd over the next several weeks. The lifting of multi-year sanctions against the Persian Gulf state is expected to push crude prices down even lower, as Iran plans to increase exports to as much as 3.4 million bpd once its return to global markets is completed.