Rate Pushback

Central bank officials and investors are pushing back against expectations for interest-rate cuts in 2024, which risks weighing on global risk sentiment. Several policymakers from the European Central Bank signaled it’s too early to consider lowering borrowing costs, prompting traders to pull back on bets for rate reductions. In the US, markets are bracing for at least six quarter-point cuts this year, prompting a warning from BlackRock Vice Chairman Philipp Hildebrand that such bets could prove excessive once inflation turns out to be stickier than anticipated.

Ship Struck

Houthi militants hit a US-owned commercial ship carrying steel products off the coast of Yemen with an anti-ship ballistic missile on Monday, underscoring warnings that vessels should steer clear of the Red Sea. The maritime industry had already been warned on Friday to stay away from the region, prompting numerous shipowners — among them gas tankers from Qatar — to find longer alternative routes. Oil edged lower amid the attack, suggesting that at this point, traders don’t see the Red Sea conflict endangering crude production and flows from the wider Middle East.

China Woes

China may only achieve moderate growth this year, according to a survey of economists released by the World Economic Forum in Davos. The nation is “a notable exception as weak consumption, lower industrial production and distress in property markets weigh on the prospects of a stronger rebound in 2024,” the report showed. The findings come after China’s central bank held a key interest rate on Monday, disappointing investors who had expected the first cut since August.

Oil Market Concerns

Oil markets face another long day with plenty of headline risk given the tensions in the Red Sea. After Houthi militants hit a US-owned commercial vessel with an anti-ship ballistic missile on Monday, the possibility of further military retaliation by the US remains elevated. Warnings that one of the world’s most important trade arteries remains too risky for navigation at present mean substantial disruption for commercial shippers. That lengthens voyages, raises costs, and ties up greater volumes of crude oil at sea

Oil Market Yesterday

Oil prices were mixed on Tuesday, after losses in the previous session, as markets weighed broad economic concerns against weather-related U.S. demand-supply issues and continued tensions in the Middle East that led to more tanker diversions.

Four tankers used for shimpents of Qatari liquefied natural gas (LNG) have resumed course after pausing for several days amid maritime attacks by Yemen's Iran-aligned Houthis in the Red Sea, LSEG shiptracking data showed on Tuesday. At least six more oil tankers were steering clear of the southern Red Sea on Monday, as disruptions increase on the vital route for energy shipping in the wake of U.S.-led strikes against Houthi targets in Yemen.

Lukoil's NORSI oil refinery in Nizhny Novgorod may halve high-octane gasoline output after an emergency stoppage at one of two plant's catalytic cracking unit, industry sources said on Monday.

Portfolio investors purchased petroleum in the first full week of 2024, reversing sales the previous week and continuing the pattern of choppy trading that has continued since early December. Hedge funds and other money managers bought the equivalent of 54 million barrels in the six most important petroleum futures and options contracts over the seven days ending on Jan. 9.

MACRO Economics

The dollar rose on Tuesday as investors pared back bets on near-term rate-cuts by the U.S. Federal Reserve following hawkish comments from European Central Bank officials, while worries of more attacks on ships in the Red Sea weighed on risk sentiment.

U.S. Treasuries sold off sharply in Asia on Tuesday, especially at shorter tenors, as remarks from European central bankers offered a hawkish lead-in to a policy speech from the Federal Reserve's Christopher Waller.

Euro zone government bond yields rose on Monday after European Central Bank officials said cutting interest rates too fast may prove self-defeating.

Gold prices were subdued on Tuesday as the dollar and Treasury yields rose, while traders waited to hear from a slew of U.S. Federal Reserve speakers this week for more clarity on the central bank's rate cut prospects. outlook this yea