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RUSSIA'S CRUDE DILEMMA TO DRIVE OIL PRICES FURTHER (1215 EDT/1615 GMT)
The crude reality for the export of Russian oil is more of it is being loaded marked "destination unknown" and more is sitting on the water, factors likely to drive prices higher.
Russia's oil exports are starting to struggle to find a market due to the U.S. import ban and a high degree of "self-sanctioning" by European oil and gas companies, Morgan Stanley said in a note on Thursday.
"We expect flow to the U.S. and Europe to diminish, possibly sharply. With little domestic storage capacity, we estimate that this will eventually lead to a reduction in Russia's production by about 1 million barrels a day, visible from April," it said.
The International Energy Agency said in a report two weeks ago that 3 million barrels a day of Russian oil output could be shut in as sanctions take hold and buyers shun the exports, a forecast Morgan Stanley said is possible but not its base case.
Russian crude trades at about a $30 a barrel discount and history suggests when sufficiently discounted it tends to find a market. However, even a 1 million barrel a day decline would significantly tighten the market further.
While moderately slower growth will shave demand by about 600,000 barrels a day, Morgan Stanley raised its price forecast for Brent crude in the third quarter to $120 a barrel, up from a prior $100 a barrel.
(Herbert Lash)
THIS JUST IN - WATER IS WET: JOBLESS CLAIMS, HOUSING STARTS, ET AL (1105 EDT/1505 GMT) Market participants were served a data salad on Thursday, and the taste was familiar: the jobs market is tight, the housing wave has crested, the supply chain is tangled and prices are hot.
And the sky is blue.
The number of U.S. workers filing first-time applications for unemployment insurance dipped last week to 214,000, undershooting consensus by 7,000 according to the Labor Department.
That's within the lower end of the range associated with healthy labor market churn, but with job openings hovering near record levels and the unemployment rate at pre-COVID lows, the number suggests employers are reluctant to hand out pink slips amid a tight jobs market.
"With the tight labor market likely to persist in 2022, employers will continue to hold on to existing workers while remaining staunchly in hiring mode," writes Lydia Boussour, lead U.S. economist at Oxford Economics. "This will continue to put downward pressure on jobless claims and likely drive them even lower in coming months."
Ongoing jobless claims reported on a one-week lag, posted a larger than expected decline, coming in at 1.419 million, sinking even further below the 1.7 million, pre-pandemic level.
Combined with a steadily increasing labor market participation rate, the data bodes well for the March employment report.
A report from the Commerce Department showed groundbreaking on new U.S. homes jumped 6.8% last month to 1.769 million units at a seasonally adjusted annualized rate (SAAR).
The increase was more than double the 3.2% analysts expected.
The surge in housing starts reflects the fact that homebuilders are rushing to replenish the supply of homes on the market, which plummeted to record lows in the wake of a COVID-driven stampede for the suburbs.
But that lack of supply, along with steadily rising mortgage rates is starting to dent demand, with affordability drifting beyond the reach of many potential buyers, a state of affairs reflected by Wednesday's downtick in NAHB homebuilder sentiment.
As such building permits, a more forward-looking housing market indicator, dropped 1.9% to 1.850 million units SAAR.
"Homebuilders are seeking to take advantage of the acute shortage of inventory of existing homes by offering more new homes as an alternative," says Ian Shepherdson, chief economist at Pantheon Macroeconomics.
"The risk of this strategy is that housing demand is now softening in the face of significantly higher mortgage rates, so homebuilders could find themselves soon with too much inventory, which will depress their margins," he said.
The Federal Reserve had its say later in the morning with its industrial production report for February.
Industrial output hit the consensus nail on the head, gaining 0.5% and marking an abrupt deceleration from January's 1.4% increase.
"The manufacturing recovery continues at a decent pace," Shepherdson adds. "The war in Ukraine and China's anti-Covid measures are a threat, but for now the picture looks good, with non-auto output on course for a 5% annualized increase in the first quarter."
Capacity utilization, a measure of economic slack, held steady at 77.6% instead of inching up to 77.8% as foreseen by the market. Still, the trendline has returned to where it was before mandated lockdowns shuttered U.S. factories two years ago.
Finally, activity at mid-Atlantic factories has unexpectedly accelerated this month.
The Philly Fed Business index delivered a robust surprise to the upside, adding 11.4 points to 27.4, defying the one-point decline economists projected.
The Philly Fed's boastful surge stands in stark contrast with Tuesday's dire Empire State print, which showed factory activity in New York State unexpectedly plunging into contraction territory.
An Empire State/Philly Fed reading above zero indicates expanded activity versus the previous month.
The bad news: the six-month outlook edged lower, and in another sign that the current inflationary cycle is proving to be the opposite of transitory, the prices paid component 11.7 points to an even 81.
"Manufacturing output continues to expand even as supply side constraints and shortages remain headwinds for factories," says Rubeela Farooqi, chief U.S. economist at High Frequency Economics. "In the near term, there could be some downside risk from lockdowns in China and disruptions arising from the war in Ukraine."
Wall Street appeared to be taking a breather after a robust, two-day rally, with the major U.S. stock indexes turning pale red in late morning trading.
Energy shares got a boost from surging crude prices , while the FANG+ stocks weighed.
WALL STREET SEES GROWTH IN FED TIGHTENING CYCLE (1010 EDT/1410 GMT)
Stocks on Wall Street are rising on Thursday as the welcoming of the Federal Reserve finally starting to tighten monetary policy spoke to a growing economy despite concerns about the difficulties posed by inflation.
Stocks opened lower, but rebounded, with energy the biggest gaining sector as oil prices rose back above $100 a barrel. Financials are leading decliners.
Growth is up, and outpacing a decline in value .
The initial stages of a rate hike cycle historically are often good for stocks as it shows the economy is growing, but this tightening cycle is a little different as its meant to combat inflation, said Tim Ghriskey, chief investment strategist at Inverness Counsel.
"Inflation is a type of growth, it's price growth, but it can be quite destructive," Ghriskey said.
Here is your early trade snapshot:
(Herbert Lash)
U.S. 10-YEAR TREASURY YIELD: STREAK IN JEOPARDY (0900 EDT/1300 GMT)
In the wake of the Federal Reserve's first rate hike since December 2018, the U.S. 10-Year Treasury yield's eight-day winning streak is in jeopardy on Thursday.
On Wednesday, the yield hit 2.2460%, or its highest level since May 2019, before it closed at 2.1920%. It is down to around 2.16% on Thursday.
The yield's recent run certainly appears stretched, suggesting it is ripe to stall. It last rose eight-straight days in April 2018, and nine days in a row in February/March 2017.
Of note, there have been two other nine-day winning streaks. One in March 2012 and the other in June 2006. Using Refinitiv daily data available back to January 1980, the yield has never risen more than nine-straight days.
With recent sharp swings related to hot inflation data, the war in Ukraine, and the Fed, the yield has gyrated in a near 60-basis point range this month alone.
However, on Wednesday, it probed several weekly Gann Lines acting as resistance in the 2.22%/2.24% area, from which it is now backing off. If the yield were to break below another Gann Line, acting as support at 1.88%, last week's low at 1.6680% could come under fire again.
That said, on an Elliott Wave basis, a five-wave advance from the March 2020 low, at 0.3180%, suggests a trend inflection favoring higher yields over the long-term. If so, pull backs should, ultimately, prove to be corrective:
Traders will be watching for the yield to confirm a longer-term trend change in the event it can take out the monthly log-scale resistance line from its September 1981 high, which now resides around 2.85%.
Such a turn would also see the yield above its descending 200-month moving average, now around 2.67%, which it has not closed above since March 1989.
(Terence Gabriel)
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(Terence Gabriel is a Reuters market analyst. The views expressed are his own)