But the impact of a stronger Chinese economic recovery on global oil and commodities comes at a critical time for inflation watchers, central banks and bond markets.
Oil prices, further bothered by supply factors and geopolitical concerns from Russia to Gaza, pushed above $80 a barrel on Monday, hitting their highest level since early November. This brought the year-on-year increase in oil prices to 22%, the fastest annual pace since December 2022.
With the weekend’s predictable election result in Russia strengthening Vladimir Putin’s 25-year grip on power, Ukraine’s continued attacks on the country’s oil refineries are also having a marginal impact on energy markets.
On Saturday, one of the strikes sparked a fire at Krasnodar’s Slavyansk refinery, which processes 8.5 million tons of crude oil a year, or 170,000 barrels a day. A Reuters analysis found that the attacks shut down about 7% of Russian refining capacity – which fuels demand from China and India – in the first quarter.
The fractious oil price will do little to ease the new angst in Treasury debt markets, where 2- and 10-year yields hit their highest in nearly a month early Monday ahead of the latest Treasury meeting. Federal Reserve this week.
U.S. Treasury ETFs are now down 2% year to date, with the long-duration versions containing 20- and 30-year bonds down about 6% for 2024.
There’s no hope of a Fed rate cut this week, but their new economic projections could be a wild card, potentially signaling fewer interest rate cuts and a later start to policy easing than they had previously estimated.
Futures markets now don’t price in a full Fed rate cut until July, seeing only a 50% chance of intervention as early as June and just 75 basis points of easing over the entire year.
US homebuilder sentiment data for March will be released later on Monday, but is unlikely to have much influence on this week’s Fed meeting, where discussions about a possible reduction in the central bank’s balance sheet are also likely to begin.
Brighter growth and a more favorable outlook for oil and inflation also raise the stakes for tomorrow’s decision by the Bank of Japan, where speculation is now rife the BOJ will end its negative interest rate policy after months of second-guessing and after last week’s news of higher wage growth. in more than 30 years.
Saturday’s paper became the latest media outlet to report the political move as early as Tuesday.
But Japanese markets now appear well prepared for the change, with the yen weakening to its weakest level in nearly two weeks, near 150 per dollar, and the stock benchmark Nikkei rising more than 2% on Monday.
The dollar remained stable more generally.
In corporate news, the day ahead is likely to be dominated by artificial intelligence leader Nvidia’s (NASDAQ:) annual developer conference. In anticipation, Nvidia’s stock price rose 2% before the bell.
Key diary items that could provide guidance to US markets later on Monday:
*March NAHB US Housing Index; February producer prices in Canada
* Nvidia Annual Developer Conference
* The US Treasury auctions 3- and 6-month bills