Oil edges up, investors eye Trump statement on Russia
Brent crude futures rose 8 cents to $70.44 a barrel by 0011 GMT, extending a 2.51% gain on Friday. U.S. West Texas Intermediate crude futures climbed to $68.50, up 5 cents, after settling 2.82% higher in the previous session.
U.S. President Donald Trump said on Sunday that he will send Patriot air defence missiles to Ukraine. He is due to make a "major statement" on Russia on Monday.
Trump has expressed frustration with Russian President Vladimir Putin due to the lack of progress in ending the war in Ukraine and Russia's intensifying bombardment of Ukrainian cities.
In a bid to pressure Moscow into good-faith peace negotiations with Ukraine, a bipartisan U.S. bill that would hit Russia with sanctions gained momentum last week in Congress, but it still awaits support from Trump.
European Union envoys are on the verge of agreeing an 18th package of sanctions against Russia that would include a lower price cap on Russian oil, four EU sources said after a Sunday meeting.
Last week, Brent rose 3%, while WTI had a weekly gain of around 2.2%, after the International Energy Agency said the global oil market may be tighter than it appears, with demand supported by peak summer refinery runs to meet travel and power generation.
However, ANZ analysts said price gains were limited by data showing Saudi Arabia lifted oil output above its quota under the Organization of the Petroleum Exporting Countries and allies' supply agreement.
The IEA said that Saudi Arabia exceeded its oil output target for June by 430,000 barrels per day to reach 9.8 million bpd, compared with the kingdom's implied OPEC+ target of 9.37 million bpd.
Saudi Arabia's energy ministry said on Friday the kingdom had been fully compliant with its voluntary OPEC+ output target, adding that Saudi marketed crude supply in June was 9.352 million bpd, in line with the agreed quota.
Elsewhere, the release of China's preliminary commodity trade data later on Monday should highlight any ongoing signs of weaker demand, ANZ said in a note.
Investors are also eyeing the outcome of U.S. tariff talks with key trading partners that could impact global economic growth and fuel demand.
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Zawya
15 minutes ago
- Zawya
For Europe, 30% US tariff would hammer trade, force export model rethink
BRUSSELS - The 30% tariff on European goods threatened by U.S. President Donald Trump would, if implemented, be a game-changer for Europe, wiping out whole chunks of transatlantic commerce and forcing a rethink of its export-led economic model. European ministers meeting in Brussels on Monday remained convinced they can bring Trump back from the brink before his Aug. 1 deadline and reach a deal that would keep the $1.7 trillion two-way trading relationship broadly intact. But the wild swings in Trump's mood towards the European Union - which he has sometimes labelled as friendly and at other times accused of being set up specifically to destroy the United States - keep the 30% threat very much alive for now. "It will be almost impossible to continue the trading as we are used to in a transatlantic relationship," EU trade chief Maros Sefcovic said of the 30% rate before meeting ministers and officials of the 27 EU capitals to give them an update. "Practically it prohibits the trade." EU officials had been hoping they could limit the damage by agreeing a baseline tariff around 10% - the one currently in place - with additional carve-outs for key sectors like autos. Last year the United States accounted for a fifth of all EU exports - its largest partner. Trump's bugbear is the $235 billion U.S. deficit generated by the goods component of that trade, even though the U.S. earns a surplus on services. UPEND POLICY PLANS The impact of making European exports - from pharmaceuticals to autos, machinery or wine - too expensive to be viable for American consumers would be instantly tangible. Economists at Barclays estimate an average tariff rate on EU goods of 35% including both reciprocal and sectoral duties combined with a 10% retaliation from Brussels would shave 0.7 percentage points off euro zone output. This would eat up most of the euro zone's already meagre growth and likely lead the European Central Bank to cut its 2% deposit rate further. "Inflation would likely undershoot the 2% target more deeply, and for longer, prompting a more accommodative monetary policy stance – with the deposit rate potentially reaching 1% by (March 2026)," the Barclays economists said. An earlier estimate by German economic institute IW found tariffs of 20% to 50% would cost Germany's 4.3 trillion euro economy more than 200 billion euros between now and 2028. While arguably small in percentage terms, that lost activity could still upend Chancellor Friedrich Merz's plans to push through tax cuts and spend more on renewing the country's long neglected infrastructure. "We would have to postpone large parts of our economic policy efforts because it would interfere with everything and hit the German export industry to the core," Merz said at the weekend of a 30% rate. NOWHERE TO RUN Further down the line, it raises bigger questions over how Europe recoups the lost activity to generate the tax revenues and jobs needed to fund ambitions ranging from caring for ageing populations to military rearmament. Under its existing policy of trade diversification, the EU has done well in striking preliminary deals with new partners but - as the continued delay over completion of the giant EU-Mercosur trade pact shows - it has struggled to get them fully signed and sealed. "The EU does not have different markets to pull up to and sell into," Varg Folkman, policy analyst at the European Policy Centre think tank said of the long and complex timelines involved in classic free trade deals. Some observers have argued the stand-off with Trump is what the EU needs to complete long-delayed reforms of its single market, boosting domestic demand and rebalancing its economy away from the exports which account for around half of output. The International Monetary Fund has estimated the EU's own internal barriers to the free flow of activity are the equivalent of tariffs of 44% for goods and 110% for services. Mooted reforms such as creating freer cross-border capital markets have made little headway in more than a decade. "It is easier said than done. There isn't an agreement to deepen. The barriers are imposed by the EU members themselves to benefit their own," Folkman said of the web of national regulations. How all this plays into the EU's negotiating strategy in the less than three weeks ahead remains to be seen - but for now, the bloc has stuck to its line of being open to talks while readying retaliatory measures if they break down. One thing that might persuade Trump to reach a deal, some European observers suggest, is that the lingering uncertainty may by itself push back the timing of the Federal Reserve interest rate cut the U.S. president so desires. "The latest developments on the trade war suggest that it will take more time to get a sense of the 'landing zone' on of course raises uncertainty for everyone, including the Fed," AXA chief economist Gilles Moec said. "With this new for cutting quickly get even harder to justify."
Zawya
35 minutes ago
- Zawya
Central bank independence needs a better defence: Peacock
(The opinions expressed here are those of the author, a columnist for Reuters.) LONDON - Investors may be fixated on Donald Trump's attacks on the Federal Reserve, but the Bank of England also faces increasing political scrutiny, raising alarm bells about the future of central bank independence. The U.S. president has fired a regular volley of vitriol at Fed Chief Jerome Powell in recent months, demanding interest rates cuts and hinting that he will appoint a presumably more like-minded replacement when Powell's term ends next year. While Trump is not the first U.S. president to try to pressure the Fed since it formally became independent from the Treasury in 1951, his attacks are the most public, and this has caused some market wobbles. That's because history suggests that independent monetary policy is better at keeping prices in check than having politicians control interest rates, as the latter may be keen to keep borrowing costs low no matter what. The U.S. bond market has been unnerved by some of Trump's comments about the Fed in recent months, particularly when he wrote in April that Powell's termination 'cannot come soon enough.' But investors appear to be increasingly inured to the president's rhetoric, believing he will back down before doing anything truly destabilising. Relying on the markets as a safeguard, therefore, may not be enough. The Fed would be well advised to gird its defences in advance of Powell's departure, and one opportunity to do so is its periodic strategic review set to be unveiled this fall. The last review, in 2020, made the Fed's inflation targeting more flexible, allowing for periods of moderately higher inflation to balance times when it dropped below target. At a time when the U.S. president is both pressuring the Fed to lower interest rates and pursuing trade policies that could be inflationary, the Fed would be wise to drop the 'flexible' approach and instead focus on meeting its inflation target at all times. That would send a clear message to the American people that its top priority will be tamping down the cost-of-living pressures that have hit hard since 2021, helping to bolster its legitimacy with the public. FISCAL PRESSURE On the other side of the pond, the Bank of England is also facing questions about the way it operates. Britain's insurgent Reform Party, which holds a consistent lead in opinion polls, says the Bank wastes billions of pounds of taxpayers' money by paying interest to commercial banks on their reserves and should therefore stop doing this. It has also suggested one or more government officials should sit on the BoE's Monetary Policy Committee. Bank Governor Andrew Bailey pushed back in a published letter, arguing that if the official interest rate was not paid on reserves, the transmission of monetary policy to the real economy would be hampered and banks would be tempted to reduce those holdings, potentially creating a financial stability risk. He also offered a cogent defence of the ongoing benefits of quantitative easing as well as the costs. Importantly, if this government or a future one were to mandate a change to the BoE's reserves regime, it would smack of 'fiscal dominance', whereby high government debts influence the way a central bank operates. Once that box has been opened, it could lead to speculation that interest rate changes were being swayed by the same factor, a massive red flag for investors. ROOT-AND-BRANCH REVIEW The UK government's last root-and-branch review of the Bank's remit was a decade ago. Given everything that has happened since then – Brexit, COVID-19, the cost-of-living crisis – it is time for another look and would give the Bank a forum to clarify its goals and available toolkit. To silence doubters, many issues need addressing, including the diversity of thought on the Bank's policy committees, accountability to parliament and the public, the breadth of its remit, the interplay of monetary policy and financial stability and the Bank's communications. Moreover, given that quantitative easing was a leap into uncharted waters, there are legitimate questions to ask about its effectiveness, its wider impact on the economy and its reversal via quantitative tightening. The Bank is closing in on its Preferred Minimum Range of Reserves, so it is a good time to evaluate this program and then communicate the findings clearly to the public. And now is likely a good time to act. It was only three years ago that then-Prime Minister Liz Truss attacked the Bank for not foreseeing the market's reaction to her ill-fated budget. Attempting to make any changes to BoE policy in such a charged environment would have been very challenging. In stark contrast, current Finance Minister Rachel Reeves, a former BoE employee, has pledged not to interfere with its independence and would thus be far less apt to politicize any Bank action. The same won't necessarily be the case with whomever succeeds her. As former Bank of England Deputy Governor Paul Tucker said at a recent conference in London, the best way for central banks to preserve independence is to 'do their job, stick to the mandate, explain it as clearly as possible. Don't try to intervene in politics'. The problem is that politics may continue to interfere with them. (The views expressed here are those of Mike Peacock, the former head of communications at the Bank of England and a former senior editor at Reuters). Enjoying this column? Check out Reuters Open Interest (ROI), your essential new source for global financial commentary. ROI delivers thought-provoking, data-driven analysis of everything from swap rates to soybeans. Markets are moving faster than ever. ROI, can help you keep up. Follow ROI on LinkedIn, and X. (Writing by Mike Peacock; Editing by Anna Szymanski and Lincoln Feast.)
Zawya
an hour ago
- Zawya
Despite tariffs, it's still America first for Asia's legacy automakers
SEOUL/TOKYO - Toyota and Hyundai Motor may have a beef with U.S. protectionism, but they have one thing in common with President Donald Trump: when it comes to global car markets, it's America first for Asia's legacy automakers. Trump's tariffs on imported automobiles have upended the outlook for the global industry, yet the U.S. remains by far the most important market for Japan's Toyota, South Korea's Hyundai and Asian rivals including Honda and Nissan. North America accounts for at least 40% of the revenue at both Toyota and Hyundai, filings show. The market's importance is unlikely to change any time soon, industry insiders and analysts said, especially with China, now the world's biggest auto market, dominated by homegrown electric vehicle makers such as BYD. Those Asian legacy carmakers with more robust margins and a strong hybrid lineup - such as Toyota, Hyundai, Kia Corp and to a lesser extent Honda - are more likely able to weather the U.S. tariffs storm, and potentially take market share from weaker players like Nissan, analysts said. "The environment that we're in now is becoming increasingly harsh and uncertain, starting with U.S. tariffs," Mazda executive officer Noriyuki Takimura told reporters at an event in Tokyo last week. Mazda aims to strike a balance between "defensive" measures like cost-cuts and "offensive" ones like strengthening its product lineup, he said. Two Hyundai insiders and two Japanese auto executives separately told Reuters they had no intention of downsizing their U.S. businesses in response to tariffs, even as they acknowledged the difficulties ahead. All four spoke on condition of anonymity. The U.S. is Toyota's biggest market in terms of vehicles. It sold 2.3 million vehicles there in 2024, including its Lexus brand, accounting for more than a fifth of its global total. As a source of revenue, North America was second only to Japan in the last financial year. Hyundai's North American revenue was the highest in almost a decade last year. Kim Chang-ho, an analyst at Korea Investment & Securities, estimated it generates around 60% of its profits from the U.S., thanks to higher vehicle prices. Mocked in the U.S. in the 1980s for its perceived shoddy quality, Hyundai doubled down there around a decade ago, especially after tensions between Beijing and Seoul and the rise of domestic EV makers saw it start to lose ground in China. "After years of putting in effort, our brand is finally gaining recognition in the United States," one of the Hyundai insiders said. "So we will not take our hands off the U.S." 'GAME OF CHICKEN' The U.S. has seen a surge in demand for hybrids as consumers have become more concerned about the battery range, price and charging hassles of EVs. Fuel-efficient models such as hybrids will be a key driver to gaining market share, said Morningstar analyst Vincent Sun. Toyota, Hyundai and Kia have particularly strong hybrid offerings. So far, most legacy Asian automakers have avoided raising prices in the U.S. and stronger players are likely to continue to hold off doing so, despite lower profitability, analysts said. Instead, the focus will likely be on taking market share from lower-margin rivals like Nissan and Stellantis, analysts said. 'It will shape up like a game of chicken," said Kim Sung-rae, an analyst at Hanwha Investment & Securities. "Those who will hold up well will emerge as winners.' Over time, tariffs could be a catalyst to help drive consolidation in the industry, or at least deepen existing tie-ups. Investors wonder if tariffs could push Nissan to revive merger talks with Honda that fell apart this year. Mazda, which is 5.1% owned by Toyota, and Subaru, which is 21% owned by Toyota, could become more reliant on the bigger company. MORE INVESTMENT? While Hyundai and Kia have three U.S. factories, they still import about two-thirds of the vehicles sold there. Toyota manufactured 1.3 million vehicles in the U.S. last year, equal to 54% of the vehicles it sold there. Japanese automakers have invested more than $66 billion in U.S. manufacturing since the 1980s, building some two dozen plants, according to the JAMA auto lobby group. At a White House event attended by Trump in March, Hyundai announced a $21 billion investment plan, including a new steel factory, and a plan to boost U.S. production capacity to 1.2 million vehicles a year. The tariffs are likely to encourage Japanese and South Korean automakers to invest more into expanding production capacity and localising supply chains to protect their positions, said Justinas Liuima of research firm Euromonitor International. They will also continue to benefit from one aspect of U.S. protectionism: higher tariffs on Chinese EVs, which means they don't face the same Chinese competition in the U.S. that they do in emerging Asian markets, Liuima said. China ships very few cars to the United States, which imposed a 100% tariff on imported Chinese EVs under the previous administration of President Joe Biden. One of the Japanese executives said it wasn't a matter of simply boosting U.S. production, as high costs, especially of labour, would also weigh on profitability. "It is really a game-changer," Julie Boote, analyst at Pelham Smithers Associates in London, said about the potential longer-term tariff impact. Some automakers have held off giving guidance that takes into account tariffs for the full year, meaning investors may be in store for a rude awakening as companies adjust forecasts as they report quarterly earnings, she said. "There's lots of talk that it's already priced in. I don't really think it is."
