Oil prices surge, markets narrow odds on Fed hike Oil prices surged on Monday after Saudi Arabia and other OPEC+ oil producers announced a surprise round of output cuts, a potentially ominous sign for global inflation just days after a slowdown in U.S. price data had boosted market optimism. Brent oil futures jumped $5.16 to $85.05 a barrel on news output would be cut by around 1.16 million barrels per day, while U.S. crude climbed $4.88 to $80.55. The change comes before a virtual meeting of an OPEC+ ministerial panel, which includes Saudi Arabia and Russia, and which had been expected to stick to 2 million bpd of cuts already in place until the end of 2023. The latest reductions could lift oil prices by $10 per barrel, the head of investment firm Pickering Energy Partners said on Sunday. The surge in energy costs somewhat overshadowed Friday’s slower reading for core U.S. inflation which had seen Wall Street end the month on a strong note. S&P 500 futures dipped 0.4% on Monday, while Nasdaq futures lost 0.7%.MSCI’s broadest index of Asia-Pacific shares outside Japan eased 0.2%. Japan’s Nikkei edged up 0.4%, though a survey of manufacturers came in just under forecasts. The jolt to inflation expectations saw yields on U.S. two-year Treasuries rise 3 basis points to 4.104%, while Fed fund futures pared back expectations for rate cuts later in the year. The market nudged up the probability of the Federal Reserve hiking rates by a quarter point in May to 61%, from 48% on Friday, and had 40 basis points of cuts priced in by year end. That in turn helped the dollar gain 0.25% on the Japanese yen to 133.14, while the euro eased almost 0.4% to $1.0802. The rise in oil prices is bad news for Japan’s trade balance given it imports most of its energy.The lift in the dollar and yields nudged gold prices down nearly 0.5% to $1,958 an ounce. The outlook for U.S. rates could be impacted by data on ISM manufacturing and payrolls out this week, though the reaction to Friday’s jobs report will be muted by the Easter holidays.Central banks in Australia and New Zealand hold policy meetings this week, with the latter expected to hike by another quarter point to 5.0%. Markets are wagering the Reserve Bank of Australia (RBA) will pause its tightening campaign after 10 straight rises, though analysts are more divided on whether it might still hike.
Retail inflation in milk was reported at 8.85% in May 2023. The milk inflation has remained elevated at over 6% since August 2022. Despite India being the largest milk producer since 1998, the commodity has been the second biggest factor after cereals such as rice and wheat in driving up retail inflation in the last fiscal.
Milk has the second highest weight in the food and beverages basket of the consumer price index at 6.61%, a notch lower than cereals and products with a 9.67% weight. Organised players, including Mother Dairy and Amul, hiked prices multiple times in the last one year citing higher fodder cost, robust demand and some impact due to reports of lumpy skin disease.
Industry sources said feed cost, which has a share of more than 65% in the cost of production of milk, has increased to Rs 20/kg from Rs 8 a year ago. The finance ministry in April had attributed the elevated milk inflation to a demand supply mismatch and said it could be one of the factors apart from volatile international crude oil prices and constrained supplies of milk would influence the country’s inflation trajectory.
“Milk production has been impacted by a lumpy skin disease infecting millions of cattle in late 2022,” the ministry said in the monthly economic review, adding that the vaccination drive against the disease is expected to curb the spread and immune the cattle against the skin disease.
According to official data, currently India is the world’s largest milk producer, and has a share of 23% in global milk production. For the first time in decades, the country’s milk production is likely to have stagnated in 2022-23 due to Lumpy Skin Disease in cattle across several states and the lagged effect of Covid-19 in the form of stunting of the animals, a senior official with department of animal husbandry and dairying recently had stated. The milk production was estimated at 221 million tonne in 2021-22.