Briefs: Investors see more Fed rate hikes and no cuts till 2024; oil demand growth to slow dramatically as peak nears

Investors expect the US Federal Reserve will keep raising interest rates, with most not anticipating cuts to begin until well into 2024.

According to 70% of the 223 respondents to an Instant MLIV Pulse survey, Chair Jerome Powell and colleagues have not yet completed the rate-hiking campaign that began in March 2022 after inflation surged amid the pandemic. Thirty percent said rates have topped out.

The poll of Bloomberg Terminal users was conducted in the hours after the Federal Open Market Committee left the benchmark US rate in a range of 5% to 5.25% following 10 straight increases. But officials signalled they would likely resume tightening at some point in a bid to control prices.

Asked when the Fed will start reducing rates, about 56% said it will not do so until the second quarter of 2024 or beyond, while around 35% pencilled in a decrease in the opening three months of next year. A 10th predicted the fourth quarter of 2023.

See also: ECB delivers landmark rate cut but few signals top

Powell said on June 14 rate cuts are probably a couple years out. Treasuries declined modestly on the following day, with 10-year yields rising two basis points to 3.81%. Swaps traders see about a 50% chance that the Fed rate will be 25 basis points higher at year-end, after almost fully pricing in a rate cut at the start of June.

Sixty-one percent of those polled said tighter monetary policy will ultimately cause a recession at some point in the next year.

Investors were almost evenly divided over whether the yield on the Treasury 10-year note had peaked for this year after it set a 2023 closing high of 4.06% in March.

See also: ECB holds rates and signals cuts are still some way off

Almost 60% said the US dollar, as measured by a Bloomberg index, will be within 5% of its current value at the end of this year. The rest of the respondents were roughly split over whether the currency would gain or decline by more than 5%.

With an inflation rate that is still more than twice the central bank’s 2% target, policymakers are clearly not yet willing to declare victory in their push to regain control of prices.

In their post-meeting statement, officials said they would determine “the extent of additional policy firming that may be appropriate”. Quarterly Fed forecasts released on June 14 show borrowing costs rising to 5.6% by year-end, according to the median projection, compared with 5.1% seen in the prior version.

Officials justified their pause by saying it would let them “assess additional information and its implications for monetary policy”. — Bloomberg

Oil demand growth to slow dramatically as peak nears

Global oil demand growth will taper off over the next few years as high prices and Russia’s invasion of Ukraine speed up the transition away from fossil fuels, the International Energy Agency (IEA) said.

Consumption in 2024 will grow at half the rate seen in the prior two years, and an ultimate limit for demand will arrive this decade as electric vehicles send the use of gasoline by cars into a decline, the Paris-based IEA predicted in a medium-term outlook. It said that with production capacity still growing, markets will remain “adequately supplied” through 2028.

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“Growth in the world’s demand for oil is set to slow almost to a halt in the coming years,” said the agency, which advises major economies. “The shift to a clean energy economy is picking up pace, with a peak in global oil demand in sight before the end of this decade.”

Consuming nations have for years been engaged in a shift away from fossil fuels to limit emissions of greenhouse gases and avert catastrophic climate change. That ambition was fortified when oil and gas prices soared after Russia attacked its neighbour in early 2022.

The short-term and long-term outlooks differ greatly. The agency said that world oil markets might tighten “significantly” over the next few months as China’s fuel consumption rebounds from the pandemic, while Opec+ producers, led by Saudi Arabia, reduce production. Oil is trading at near US$75 ($100.61) a barrel in London.

Next year also looks tight, particularly in the second half, with oil inventories set to decline even as global demand growth drops to 860,000 barrels a day, compared with 2.4 million barrels a day this year, or about 2%.

Yet the subsequent years will bring a world less dependent on hydrocarbons. Global growth in fuel consumption will dwindle to just 400,000 barrels a day in 2028, according to the IEA’s report. Global demand will reach 105.7 million barrels a day by that point.

The use of gasoline — the second-biggest oil product — will decline from 2023, and for oil as a transport fuel entirely three years later, with remaining growth for the commodity largely confined to petrochemicals and aviation fuel, the IEA forecasts. The need for combustible fossil fuels will peak at 81.6 million barrels a day in 2028.

While demand is slowing, investment in new supplies is rebounding. So-called upstream spending will surge 11% in 2023 to an eight-year high of US$528 billion, helping ensure that output comfortably keeps pace with demand for the rest of the decade.

Output is set to grow by 5.9 million barrels a day, or about 6%, by 2028. That is broadly in line with the expansion in demand over the same period thanks to rising capacity in the US, Brazil and Guyana. Capacity in the Opec+ alliance will increase by just 800,000 barrels per day, led by Middle East heavyweights Saudi Arabia and the United Arab Emirates.

The anticipated levelling-off in oil consumption still will not be enough for governments worldwide to meet ambitions for limiting carbon emissions. In a report two years ago, the IEA said that the energy industry would need to halt investments in all new oil and gas projects to achieve net-zero emissions by 2050.

The agency’s forecasts have had a questionable history, such as its repeated predictions during the last decade of a looming “supply crunch” that never materialised. Its call that Russian output would immediately collapse in the wake of the invasion of Ukraine last year also proved overly pessimistic.

Opec has pushed back against the IEA’s roadmap to reduce oil consumption, insisting that greater supply investment is needed to avert price spikes and ensure energy affordability for developing economies.

Yet the IEA’s analysis indicates the energy transition has gathered momentum as the attack by Russia — a member of Opec+ — on neighbouring Ukraine spurs alarm among consumers over their reliance on oil imports. More than US$2 trillion of investment in clean energy has been lined up through 2030, according to the report.

“Russia’s invasion of Ukraine sparked a surge in oil prices and brought security of supply concerns to the fore, helping accelerate deployment of clean energy technologies,” it said. — Bloomberg

China faces millionaire exodus as economy slows

China will see the biggest net outflow of millionaires globally this year as the nation’s wealth growth slows, Henley & Partners said in a June 13 report. The advisory firm estimates China will lose 13,500 high-net-worth individuals (HNWIs) with investable wealth of more than US$1 million ($1.34 million), followed by India with an exodus of 6,500, and the UK at 3,200, according to the Henley Private Wealth Migration Report.

President Xi Jinping’s drive for “common prosperity” means China’s entrepreneurs have been flocking to more welcoming places like Singapore or setting up a back-up plan in recent years, while prolonged Covid restrictions have added to reasons for the wealthy to live abroad.

“General wealth growth in China has been slowing over the past few years, which means that the recent outflows could be more damaging than usual,” Andrew Amoils, head of research at wealth intelligence firm New World Wealth, said in the report.

China’s economy grew strongly from 2000 to 2017, but wealth and millionaire growth in the country has been negligible since then, he wrote. Meanwhile, the UK’s exodus of HNWIs is likely to double, making it the third-biggest loser of millionaires globally, above Russia in fourth place, according to the report, which cited issues from the debate over non-domiciled taxpayers to Brexit.

Australia is expected to surpass the United Arab Emirates to become the top country to attract the inflows of HNWIs, with Singapore in third place. About 5,200 millionaires will move to Australia this year.

The report adds that the figures focus only on HNWIs who have moved — namely, those who stay in their new country for more than six months a year. — Bloomberg