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Oil rebounds on U.S. stocks drawdown, but declining OPEC compliance weighs

Crude oil prices bounced back on Wednesday as a decline in U.S. inventories underpinned the market, although a dip in compliance with OPEC efforts to reduce output and near record supplies capped gains.

The benchmark for global oil market, Brent futures (LCOc1) gained 47 cents, or 0.9 percent to $50.93 a barrel by 0641 GMT. U.S. West Texas Intermediate crude (CLc1) rose 37 cents, or 0.8 percent, to $48.02 a barrel.

On Tuesday, WTI slid 2.4 percent to its lowest close since March 21 and Brent closed at its lowest level this year, erasing all of the gains made since OPEC agreed to reduce production in November.

"There is precautionary buying following API data and leading to EIA data tonight," said Ric Spooner, chief market analyst at CMC Markets in Sydney.

"The lower oil gets, there is potential for forming a base. We are near lows made in March both in Brent and West Texas and if we do see, as many expect, a good run of draw in inventories into the summer, I think there is some upside potential."

U.S. crude stocks fell last week, and both gasoline and distillate inventories also dropped, data from industry group the American Petroleum Institute (API) showed on Tuesday.

Crude inventories fell by 4.2 million barrels in the week ended April 28 to 528.3 million barrels, compared with analyst expectations for a decrease of 2.3 million barrels. Crude stocks at the Cushing, Oklahoma, delivery hub fell by 215,000 barrels, API said.

The U.S. government will release its Energy Information Administration (EIA) inventory data on Wednesday at 1430 GMT.

"The supply of crude oil continues to decline. This is evident in both spot and forward supply data," commodities brokerage Marex Spectron said in a note.

"Demand remains strong and in spite of lower refinery profitability we see increasing capacity utilization rates."

Production from the Organization of the Petroleum Exporting Countries (OPEC) fell for a fourth straight month in April, a Reuters survey found on Tuesday, as top exporter Saudi Arabia kept production below its target while maintenance and unrest cut production in exempt nations Nigeria and Libya.

But more oil from Angola and higher UAE output than originally thought meant OPEC compliance with its production-cutting deal slipped to 90 percent from a revised 92 percent in March, according to Reuters surveys.

OPEC pledged to reduce output by about 1.2 million barrels per day (bpd) for six months from Jan. 1 - the first supply cut deal since 2008. Non-OPEC producers are cutting about half as much.

Russia had cut oil output by 300,790 barrels per day as of May 1 compared with October 2016, Russia's Energy Ministry said on Wednesday.

Crude oil discharged on ships worldwide in April was near a record high of 45 million barrels per day, according to Thomson Reuters Eikon data.

This indicates supplies remain high, but it also implies strong demand, especially from Asia.

While OPEC countries are cutting production, exports of U.S crude oil to Asia have spiked.

Forex - Dollar edges lower as U.S. data continues to weigh

The dollar edged lower against other major currencies on Tuesday, as the previous session’s downbeat U.S. economic reports continued to weigh and as trading was expected to remain quiet with no U.S. data set to be released throughout the session.

EUR/USD was up 0.17% at 1.0916.

The greenback remained under pressure after the Institute of Supply Management said its manufacturing purchasing managers’ index fell to 54.8 in April from 57.2 the previous month, compared to expectations for a downtick to 56.5.

A separate report showed that U.S. personal spending was flat in March, confounding expectations for a 0.2% rise and after a 0.1% gain.

GBP/USD held steady at 1.2887.

Elsewhere, USD/JPY rose 0.19% to trade at 112.06, the highest since March 31.

Earlier Tuesday, data showed that China’s Caixin manufacturing PMI slipped to 50.3 in April from 51.2 the previous month, compared to expectations for an unchanged reading.

The Australian dollar was steady, with AUD/USD at 0.7528 after the Reserve Bank of Australia left its benchamark interest rate unchanged at 1.50% in a widely expected move.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was little changed at 98.97.

Infosys plans to hire 10,000 U.S. workers after Trump targets outsourcing firms

India-based IT services firm Infosys Ltd (NS:INFY) said it plans to hire 10,000 U.S. workers in the next two years and open four technology centers in the United States, starting with a center this August in Indiana, the home state of U.S. Vice President Mike Pence.

The move comes at a time when Infosys and some of its Indian peers such as Tata Consultancy Services (NS:TCS) and Wipro Ltd (NS:WIPR) have become political targets in the United States for allegedly displacing U.S. workers' jobs by flying in foreigners on temporary visas to service their clients in the country.

The IT service firms rely heavily on the H1-B visa program, which U.S. President Donald Trump has ordered federal agencies to review.

In a telephone interview with Reuters from Indiana, Infosys Chief Executive Vishal Sikka said his company plans to hire U.S. workers in fields such as artificial intelligence.

"When you think about it from a U.S. point of view, obviously creating more American jobs and opportunities is a good thing," Sikka said.

While Indian outsourcing firms have recruited in the United States, Infosys is the first to come out with concrete hiring numbers and provide a timeline in the wake of Trump's visa review.

Last month, two industry sources told Reuters that Infosys was applying for just under 1,000 H-1B visas this year. One of the sources said that was down from about 6,500 applications in 2016 and some 9,000 in 2015.

Indian IT service firms, which typically flood the lottery system each year with thousands of applications, have been among the largest H1-B recipients annually.

Indian politicians and IT industry heads have been lobbying U.S. lawmakers and officials from the Trump administration to not make drastic changes to visa rules, as this could hurt India's $150 billion IT service sector.

The 10,000 new U.S. jobs would be a small part of Infosys' overall workforce of more than 200,000.

Sikka said Infosys has already hired 2,000 U.S. workers as part of a previous effort started in 2014.

"We started small at first and have been growing since then," Sikka said. "The reality is, bringing in local talent and mixing that with the best of global talent in the times we are living in and the times we're entering is the right thing to do. It is independent of the regulations and the visas."

The four hubs being set up will not only have technology and innovation focus areas, but will also closely serve clients in sectors such as financial services, manufacturing, healthcare, retail and energy, said Infosys.

The first hub, which will open in Indiana in August 2017, is expected to create 2,000 jobs by 2021, the company said.

UNSUSTAINABLE MODEL

Infosys did not disclose the financial impact of its plans. It declined to comment on whether the planned U.S. jobs would account for a large percentage of overall hiring in the coming two years.

Based on Infosys' recent hiring trends, however, the planned hirings in the U.S. could account for a substantial portion of the company's net workforce additions over the period.

Infosys, which added nearly 18,000 jobs in 2015, slowed its hiring pace considerably, creating just about 6,000 jobs in 2016 amid market uncertainty caused by Brexit and heightened clamor for tougher U.S. immigration laws that led some U.S. clients to hold-off on new projects.

"Hiring locally is a compulsion and it's not just because of what's happening in the U.S.," said Harit Shah, research analyst at Reliance Securities. "The model itself is not sustainable."

The company cautioned last month that it would struggle to reach its ambitious $20 billion revenue target by 2020, as the Indian software service sector has been hit by cautious client spending due to a rising protectionist wave globally.

The United States is the largest market for Indian software service companies, but other countries like Australia have also begun to target Indian IT service companies that use temporary visa programs.

Shares in Infosys were down less than 1 percent in midday trading in India, following news of the U.S. hiring plans.

Forex - Dollar edges higher in holiday-thinned trade, euro dips

The dollar edged higher against a basket of the other major currencies in quiet trade on Monday, with several markets in Asia and Europe closed for the May Day holiday.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, rose 0.16% to 99.06.

The dollar was boosted after U.S. Congressional leaders reached a deal late Sunday to fund the government, averting a government shutdown later this week.

The deal, which includes a $12.5 billion increase for defense and $1.5 billion for border security, must now be passed by the House of Representatives and the Senate by Friday, in order to avoid the first government shutdown since 2013.

The dollar pushed higher against the yen, with USD/JPY rising 0.32% to 111.89.

The U.S. Department of Labor said Friday that the employment cost index, the broadest measure of labor costs, increased 0.8% in the first quarter, the largest increase since the fourth quarter of 2007.

The data offset another report showing that the U.S. economy posted its slowest growth in three years in the three months to March, with gross domestic product growing at a 0.7% annual rate.

The slowdown was due in large part to a near-stagnation in consumer spending, which grew by just 0.3%.

The yen’s losses were held in check as investors continued to monitor geopolitical developments around North Korea, following another North Korean missile test-launch on Saturday which Washington and Seoul said was unsuccessful.

The euro was a touch lower, with EUR/USD dipping 0.09% to 1.0886, but demand for the single currency continued to be underpinned by Friday’s stronger-than-forecast euro zone inflation data.

The annual rate of inflation in the euro area rose by 1.9% in April, Eurostat said, the highest level in over three years.

The data fueled expectations that the European Central Bank could adopt a more hawkish stance at its next policy meeting in June.

Meanwhile, sterling was lower, with GBP/USD down 0.29% to 1.2914, easing back from Friday’s seven-month highs of 1.2964.

The pound shrugged off data on Friday pointing to a showdown in UK growth at the start of the year as higher inflation, which has risen sharply since the Brexit vote, eroded consumer spending.

Demand for sterling continued to be underpinned in the run-up to the election called by Prime Minister Theresa May, who says she wants to strengthen her hand ahead of Brexit negotiations.

Oil prices inch down on China economy worries, but OPEC cuts support

Oil prices edged down on Monday as a disappointing Chinese economic survey clouded the outlook for demand, although talk that OPEC-led crude output cuts could be extended continued to offer support.

NYMEX crude for June delivery (CLc1) was down 12 cents at $49.21 a barrel by 0619 GMT.

London Brent crude for new front-month delivery in July (LCOc1) was down 15 cents at $51.90.

A faster-than-expected slowdown of growth in China's manufacturing sector in April weighed on prices. An official survey showed on Sunday that producer price inflation cooled and policymakers' efforts to curtail financial risks in the economy weighed on demand.

"The moderation in the China PMI could see commodity prices come under some modest pressure," ANZ said in a note.

The price declines mark the third consecutive week that oil has started with a drop, with high inventories also dragging on markets that have been grappling with a global supply glut for the last few years.

Iran's oil minister said on Saturday that OPEC and non-OPEC countries had given positive signals for an extension of output cuts, which Tehran would also back.

The Organization of the Petroleum Exporting Countries (OPEC)meets this month to discuss oil supply policy.

If OPEC agrees to extend the cuts, then bloated global inventories could drain by the end of the year, a Reuters poll of economists and analysts showed.

Saudi Arabia's Energy Minister Khalid al-Falih said on Saturday there was consensus with Central Asia over oil markets and production levels..

Money managers cut their net long U.S. crude futures and options positions for the first time in four weeks in the week to April 25, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday.

U.S. President Donald Trump on Sunday stepped up contacts with allies in Asia to secure their cooperation to pressure North Korea over its nuclear and missile programs.

Trump's calls to the two Asian leaders came after North Korea test-launched another missile that Washington and Seoul said was unsuccessful but which drew widespread international condemnation.

Gold prices hold steady with U.S. politics, data in focus

Gold prices held steady on Friday, as global geopolitical tensions reignited some safe-haven demand, although investors were still eyeing the release of U.S. economic reports later in the day.

On the Comex division of the New York Mercantile Exchange, gold futures for June delivery were little changed at $1,266.36.

The June contract ended Thursday’s session 0.13% higher at $1,265.90 an ounce.

Futures were likely to find support at $1,260.70, the low of April 26 and resistance at $1,279.90, the high of April 25.

Market sentiment weakened after U.S. President Donald Trump said he will either renegotiate or terminate a "horrible" trade deal with South Korea.

The comments came shortly after Trump said that there is a chance the U.S. could have ‘a major conflict with North Korea.’

On Wednesday, the U.S. President proposed slashing tax rates for businesses to 15% from the current 35% for public corporations and 39.6% for small businesses, and on overseas corporate profits returned to the country.

Analysts said traders were disappointed by the lack of new details about the tax reform plan and on skepticism that any comprehensive tax changes will be approved by the House and Senate.

Meanwhile, the U.S. Congress began moving to extend Friday's budget deadline until May 5 and is expected to pass legislation allowing more time to finalize a spending deal to fund the federal government through September and avoid a shutdown.

Without the congressional extension or a longer-term funding bill, federal agencies will run out of money by midnight Friday.

Market participants were also looking ahead to the release of reports on U.S. first-quarter growth and consumer sentiment, due later Friday.

Elsewhere in metals trading, silver futures for May delivery gained 0.24% to $17.376 a troy ounce, while copper futures for May delivery added 0.12% to $2.596 a pound.

Forex - Dollar almost unchanged vs. other majors in cautious trade

The dollar was almost unchanged against other major currencies on Friday, as geopolitical tensions re-emerged and investors eyed the release of U.S. economic reports later in the day.

Markets were jittery after U.S. President Donald Trump said he will either renegotiate or terminate a "horrible" trade deal with South Korea.

The comments came shortly after Trump said that there is a chance the U.S. could have ‘a major conflict with North Korea.’

Market participants were also looking ahead to the release of reports on U.S. first-quarter growth and consumer sentiment, due later Friday.

EUR/USD was little changed at 1.0871 after weakening broadly on Thursday when European Central Bank President Mario Draghi said there isn’t enough evidence to change the ECB’s inflation outlook.

The remarks came after the central bank left its benchmark interest rate unchanged at a record-low 0.0%, in line with forecasts.

GBP/USD held steady at 1.2904, just off a six-month peak of 1.2916 hit overnight.

Elsewhere, USD/JPY held steady at 111.22 after data earlier showed that Japan’s household spending declined 2.0% in March, compared to expectations for a 0.8% fall.

Data also showed that Japan’s consumer price index rose by an annualized rate of 0.2% last month, below expectations for a 0.3% gain.

Meanwhile, industrial production dropped 2.1% in March, according to preliminary data, compared to forecasts for a 0.8% slide.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was steady at 99.06.

Oil prices fall on oversupply

Oil prices fell on Thursday, weighed down by oversupply, but losses were limited by expectations that major exporters would agree to extend production cuts to try to rebalance the market.

Benchmark Brent crude was down 30 cents at $51.52 a barrel by 0800 GMT, almost 9 percent below this month's peak. U.S. light crude was down 35 cents at $49.27.

Traders reported ample supplies in all key markets despite efforts led by the Organization of the Petroleum Exporting Countries (OPEC) and Russia to cut output by 1.8 million barrels per day (bpd) in the first half of the year to tighten the market and prop up prices.

OPEC is discussing extending its cuts into the second half of the year, but the group has an uphill task as oil inventories are near record levels in many parts of the world.

"It is clear that the world has plenty of oil in stock, making OPEC's life that much harder," said Jeffrey Halley, senior market analyst at futures brokerage OANDA in Singapore.

U.S. data on Wednesday showed a drop in crude oil stocks, but gasoline inventories surged as refiners produced more fuel than the market could consume.

"U.S. commercial stocks increased by more than 6.5 million barrels last week," said Tamas Varga, senior analyst at London brokerage PVM Oil Associates. "Stock rebalancing has been put on hold as U.S. commercial oil inventories have jumped."

U.S. crude oil production is also rising, up 10 percent since mid-2016 at 9.27 million bpd.

Rystad Energy expects U.S. shale oil output to grow by 100,000 bpd each month for the rest of this year and into 2018 if oil prices hold around $50-$55 a barrel, well above estimates by the U.S. Energy Information Administration for monthly gains of about 29,000 bpd in 2017 and 57,000 bpd in 2018.

"We see a risk for a weaker oil price towards the end of the year ... because shale is delivering so much oil," Jarand Rystad told Reuters.

Still, with an expectation that OPEC will extend its production cuts to cover all of 2017, analysts said there was support for prices around current levels.

"Brent oil looks neutral in a range of $51.30 to $52.32," said Reuters technical commodities analyst Wang Tao.

Dollar holds gains; Canadian dollar, Mexican peso surge on NAFTA relief

The dollar only held its gains against the Japanese yen on Thursday after U.S. President Donald Trump's tax plan offered no surprises, slowing the greenback's rally.

The market also awaited the European Central Bank's monetary policy decision.

The Canadian dollar and Mexican peso, which had slumped earlier on reports the United States is considering withdrawing from the North American Free Trade Agreement (NAFTA), bounced sharply after Trump said he would not scrap the pact but renegotiate instead.

The U.S. dollar had surged to a four-week high of 111.780 yen on Wednesday before Trump's tax reform plans were unveiled. But it lost traction as the proposals failed to excite investors. The dollar was last up 0.2 percent at 111.20 yen .

The dollar index against a basket of major currencies slipped 0.2 percent to 98.841 (DXY) after rising as far as 99.332 the previous day.

Trump's plan would cut the income tax rate paid by public corporations to 15 percent from 35 percent and reduce the top tax rate assessed on pass-through businesses, including small partnerships and sole proprietorships, to 15 percent from 39.6 percent.

"It (the plan) was kind of as we expected really. The dollar generally has come off on the view that the announcement of the so-called plan reads more like a wish list than a firm plan," said Adam Cole, currency strategist with RBC Capital Markets in London.

The euro was up 0.1 percent at $1.0913 . It has had a buoyant week, climbing to a 5-1/2 month high of $1.0951 on Wednesday, as the first round of the French presidential elections held over the weekend reduced perceived risk toward the common currency.

The European Central Bank is due to announce its policy decision later on Thursday. It is not expected to move, waiting until its June meeting to signal any plans to pull back from its ultra-loose monetary policy.

The Swedish crown fell more than half a percent to 9.060 per euro (EURSEK=) after the Riskbank kept its benchmark interest rate at -0,5 percent, as expected, and said it would extend its bond-buying program by 15 billion Swedish crowns.

The Canadian dollar bounced 0.6 percent to C$1.3542 per dollar, while Mexico's peso strengthened 1.2 percent to 18.95 pesos per dollar as Trump's latest stance on NAFTA eased concerns toward U.S. trade protectionism for now.

Trump tax plan will sharply slash corporate tax rates

U.S. President Donald Trump is proposing to slash the corporate income tax rate and offer multinational businesses a steep tax break on overseas profits brought into the United States, officials said late on Tuesday.

With financial markets eagerly anticipating a White House tax plan, Trump will also call for a sharp cut in the top rate on pass-through businesses, including many small business partnerships and sole proprietorships, to 15 percent from 39.6 percent, an administration official said.

He will propose cutting the income tax rate paid by public corporations to 15 percent from 35 percent, and allowing multinationals to bring in overseas profits at a tax rate of 10 percent versus 35 percent now, the official said.

Trump's proposal will not include a controversial "border-adjustment" tax on imports that was in earlier proposals floated by Republicans in the U.S. House of Representatives as a way to offset revenue losses resulting from tax cuts.

Trump's tax blueprint will fall short of the kind of comprehensive tax reform that Republicans have long discussed, and serve chiefly as a guidepost for lawmakers in the House and Senate.

"We're driving this a little bit more," a senior White House official told a group of reporters late on Tuesday.

The plan is not expected by analysts to include any proposals for raising new revenue to offset that lost by the tax cuts, and so, if enacted, it would potentially add billions of dollars to the federal deficit.

Trump sent Treasury Secretary Steve Mnuchin and National Economic Council Director Gary Cohn to Capitol Hill on Tuesday to brief lawmakers on the plan to be unveiled on Wednesday afternoon, likely by Mnuchin.

Mnuchin has been leading the administration’s effort to craft a tax package that can win support in Congress, although the proposals would have a long way to go before becoming law, even with Republicans in control of both the House and Senate.

Mnuchin has said the cuts will pay for themselves by generating more economic growth but fiscal hawks, potentially some in Trump’s own Republican Party, along with Democrats, are certain to question these claims.

Trump also may cap the individual top tax rate at 33 percent, repeal the estate and alternative minimum taxes and cut taxes for the middle class, analysts said.

Whether Trump will include provisions that could attract Democratic votes, such as a proposal to fund infrastructure spending or a child-care tax credit as proposed by his daughter Ivanka, is still the subject of speculation.

CAPITOL HILL MEETING

Mnuchin and Cohn, both veterans of investment bank Goldman Sachs (N:GS), went to Senate Republican Leader Mitch McConnell’s office on Tuesday evening, where they all met with House Speaker Paul Ryan, and the chairmen of the House and Senate tax committees, Orrin Hatch and Kevin Brady, respectively.

Hatch called it a "preliminary" 30-minute meeting and participants described it as positive and productive.

As Mnuchin left the Capitol he told reporters there is "no question" the Trump administration and Republicans in the Senate and House agree on the "fundamental principles of tax reform."

The senior White House official said Trump would like to see Congress pass tax reform by the middle of autumn.

Trump has struggled to advance his domestic agenda, including taxes. With his 100th day as president approaching on Saturday, he has yet to offer formal legislation to Congress or win passage of a major bill he favors.

Some Washington policy analysts said the White House plan could clash in some ways with a broader tax plan shaped months ago by House Republicans, and complicate the consensus-building needed for full tax reform, a political feat not accomplished since 1986 when President Ronald Reagan pulled it off.

The House Republican plan, championed by Ryan and Brady, proposed a 20 percent corporate tax rate. Many U.S. corporations, especially large multinationals, already pay well below the statutory 35 percent tax rate but have been campaigning for a formal rate cut for many years.

The Ryan-Brady plan did include "pay-fors," including a proposed "border adjustment" tax that would favor exports and discourage imports.

When asked after Tuesday’s briefing if Republicans had ruled out including a border adjustment tax in a tax overhaul, Hatch said: "I wouldn't say that. The House hasn't given up on that but they've acknowledged it needs some work."

Separately cutting the top tax rate for pass-through businesses, which account for most U.S. companies, could benefit Trump himself, said Frank Clemente, executive director of Americans for Tax Fairness, a Democratic activist group.

"In trying to slash taxes for pass-through business entities, Trump is seeking to dramatically reduce his own tax bill," he said in a statement.