Oil, Equities Lower With Inflation Data in Focus

Liubov Georges
By  Liubov Georges , DTN Energy Reporter

WASHINGTON (DTN) -- New York Mercantile Exchange oil futures and Brent crude traded on the Intercontinental Exchange posted tepid losses in early trade Tuesday as market participants awaited the release of key inflation data in the U.S. that will likely be a determining factor in the Fed's decision next month on whether to raise interest rates.

Over 60% of market participants expect the Federal Open Market Committee to lift interest rates by another 0.25% at the next meeting in May, according to the CME's Fed Watch Tool. The move would take the federal funds rate to a 5% to 5.25% target range.

A chorus of central bank officials have long promised the rates would need to go above 5% to bring down inflation to its 2% target and the incoming data gives little reason for them to reconsider. For instance, consumer inflation expectations unexpectedly jumped by 0.5% in March to 4.7%, a survey released by the Federal Reserve Bank of New York showed, with consumers most concerned about costs for college tuition and shelter. "Expectations about year-ahead price increases for gas, food, cost of rent, and medical care all continued to decline, while expectations for the cost of college education increased. Home price growth expectations rose but remain below pre-pandemic levels. Credit access perceptions and expectations deteriorated." With that in mind, markets are likely to key in on Wednesday's release of March CPI data, with consensus calling for headline inflation to ease from the prior month but prices paid for core services to remain stubbornly high. Headline and core inflation are seen to increase by 0.3% and 0.4%, respectively, from the prior month. While softer than the 0.5% advance in February, such an increase would match the September-February average and keeps year-on-year figures stubbornly high. That will likely tip the scales toward another interest rate hike at the Fed's May meeting, despite signs of an overall slowing of the broader economy.

Separately, the International Monetary Fund forecast in its Spring Economic Outlook that global growth over the next five years would be the slowest since 1990 and could be a "severe blow' to the world economy. IMF expects the world economy to expand by less than 3% this year, down from 3.4% last year, and well below the average of 3.8% over the past two decades.

"Persistently high interest rates, a series of bank failures in the U.S. and Europe, and deepening geopolitical divisions are threatening global financial stability," said IMF head Kristina Georgieva. "Advanced economies face the challenges of high inflation and poorer nations are burdened by debt, all as the United States, the European Union and others are rethinking their trade relationships with China," Georgieva added.

Near 7:45 a.m. EDT, the U.S. dollar fell more than 0.40% against a basket of foreign currencies to trade near 101.845, while failing to lend support for front-month West Texas Intermediate futures that slipped $0.22 to $79.51 barrel (bbl). International benchmark Brent declined $0.31 to $83.87 bbl. NYMEX May RBOB futures eased $0.0111 to $2.7952 gallon, while May ULSD futures retreated $0.0467 to $2.6345 gallon.

Liubov Georges can be reached at liubov.georges@dtn.com

Liubov Georges