OIL: Crude Moderately Higher As Trade Fears Abate
Oil prices are slightly higher during APAC trading helped by news that the US and EU would continue trade talks and that reciprocal tariffs would be delayed until July 9, the original timeframe. The USD index is down 0.3%, which is also providing support to dollar-denominated crude.
- WTI is up 0.4% to $61.76/bbl off the intraday low of $61.51. It rose to $62.14 early in the session following the US-EU trade news, approaching initial resistance at $62.75, 50-day EMA. Gains continue to be seen as corrective but a clear break of the 50-day EMA would signal a stronger reversal.
- Brent is 0.4% higher at $65.06, off the intraday low of $64.77. It reached $65.40 earlier. Technicals suggest a short-term bullish theme but in the medium-term it is bearish. The bear trigger is at $58, while initial resistance is $66.24, 50-day EMA.
- Through geopolitical and trade headlines, crude continues to watch OPEC closely. It meets on Sunday to decide output plans from July. It has decided to increase production substantially this year as it focuses on gaining market share rather than on prices and thus penalising overproducing members. Another rise is generally expected increasing excess supply for 2025 and likely 2026 further.
- The US and UK are closed today for holidays. ECB President Lagarde speaks later.
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US TSYS: Extraordinary Measures And Cash Look Sufficient To Head Off X-Date
Treasury has about $164B in "extraordinary measures" available as of April 23 to avoid hitting the debt limit, per its regular report out Friday. That's out of a maximum total of $375B (they have used $211B).
- With Treasury cash looking healthy (around $600B), that's a fair amount of dry powder to get through the summer months to wait out the debt limit impasse. Tax receipts have looked strong with tariff revenues also starting to boost cash flows, further reducing the near-term urgency to adjust bond issuance.
- This has also helped push back analyst “x-date” expectations to later in the summer/September. We expect to hear from Treasury about its own x-date assumptions next week.
US TSYS: Treasury Market Trading Stayed Orderly In April: Fed Report
Liquidity across financial markets including the Treasury market deteriorated after President Trump's April 2 reciprocal tariffs announcement but market functioning was generally orderly, according to the Federal Reserve's semiannual report on financial stability, released Friday. (PDF link is here)
- Treasury market liquidity has been poor for years and yields were particularly volatile in early April, contributing to a deterioration in market liquidity, the Fed said.
- Nevertheless "trading remained orderly, and markets continued to function without serious disruption," according to the report, which looked at information available as of April 11.
FED: Ex-Gov Warsh: Fed Has Failed To Satisfy Price Stability Remit
From our Washington Policy Team - Some fairly sharp words today from ex-Fed Governor Warsh on the central bank (who for what it's worth is seen by betting markets as by far the frontrunner for the next Fed Chair):
- The best way for the Federal Reserve to safeguard its independence is for policymakers to avoid expanding the institution's role over time, including wading into policy areas that are outside its core mission, former Fed Governor Kevin Warsh, a leading contender to replace Jerome Powell as chair next year, said Friday.
- "I strongly believe in the operational independence of monetary policy as a wise political economy decision. And I believe that Fed independence is chiefly up to the Fed," Warsh said in a speech at a Group of Thirty event on the sidelines of the IMF meetings. "Institutional drift has coincided with the Fed’s failure to satisfy an essential part of its statutory remit, price stability. It has also contributed to an explosion of federal spending." His speech made no mention of Trump's tariffs or the appropriate monetary policy to deal with them.
- He said the ideas of data dependence and forward guidance widely adopted by Fed officials are not especially useful and might even be counterproductive.
"We should care little about two numbers to the right of the decimal point in the latest government release. Breathlessly awaiting trailing data from stale national accounts -- subject to significant, subsequent revision -- is evidence of false precision and analytic complacency," he said.
"Near-term forecasting is another distracting Fed preoccupation. Economists are not immune to the frailties of human nature. Once policymakers reveal their economic forecast, they can become prisoners of their own words. Fed leaders would be well-served to skip opportunities to share their latest musings."
