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Asian Stocks Stumble on Geopolitical Tensions, Oil Stands Tall

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Chinese Yuan - Investors King

Asian stocks were on edge on Wednesday as geopolitical tensions flared after Turkey downed a Russian fighter jet, while crude oil prices extended gains.

Spreadbetters expected some of the tension to have eased when trading begins in Europe, forecasting a slightly higher open for Britain’s FTSE .FTSE, Germany’s DAX .GDAXI and France’s CAC .FCHI.

MSCI’s index of Asia-Pacific stocks outside of Japan .MIAPJ0000PUS edged up 0.1 percent but shares in Hong Kong .HSI, Australia and South Korea .KS11 slipped.

Japan’s Nikkei .N225 shed 0.4 percent.

Adding to investor nervousness that followed attacks in Paris earlier this month, Turkey shot down a Russian aircraft near the Syrian border on Tuesday, saying the jet had violated its air space.

It was one of the most serious publicly acknowledged clashes between a NATO member country and Russia for half a century.

“The individual impact on the market from events like the Paris attacks and heightened security in Brussels may be small, but there is also uncertainty that’s worrying investors,” said Masaru Hamasaki, head of market & investment information department at Amundi Japan.

“The stock market does not like uncertainty,” Hamasaki said.

Still, some of the markets in the region managed to hold their own even as the tense backdrop kept buyers at bay. Shanghai shares edged up 0.3 percent .SSEC while Malaysian and Indonesian stocks also posted modest gains.

“The conclusion would be Russia would not want to take this too much further at a time when its economy is seeing some green shoots after the past two years of sanctions,” said Evan Lucas, market strategist at IG in Melbourne, adding that Turkey is Russia’s second-biggest energy customer.

The incident briefly sparked oil supply fears and sent crude prices surging overnight to 2-week highs.

U.S. crude CLc1 absorbed early profit taking on Wednesday and edged up 0.1 percent to $42.92 a barrel.

The rally in crude favoured commodity currencies such as the Australian dollar AUD=D4, which hovered near a 1-month high of $0.7276.

The Canadian dollar fetched C$1.3294 CAD=D4 to the greenback after pulling away from a 2-month low of C$1.3436 struck earlier this week.

The U.S. dollar was lower, hurt in part as the latest flare-up in geopolitical tensions stoked demand for safe-haven Treasuries and drove their yields lower.

The benchmark 10-year U.S. note yield US10YT=RR stood at 2.239 percent after touching a 3-week low of 2.206 percent overnight.

“I was a bit worried yesterday. So far Russia seems to be taking a ‘grown-up’ attitude, which was good but the market may remain a bit anxious,” said Takako Masai, head of market research at Shinsei Bank in Tokyo.

The dollar index against a basket of major currencies .DXY fell to 99.528, retreating from an 8-month peak of 100.000 set on Monday.

Against the yen, the greenback dipped to a 1-1/2 week low of 122.27 JPY= before crawling back to 122.43.

The euro EUR= gained 0.1 percent to $1.0655.

Prices of metals such as zinc, copper and nickel, which had recently plumbed multi-year lows, bounced on the back of the dollar’s retreat. A stronger dollar makes dollar-denominated metals more expensive for buyers. [MET/L]

However, industrial metals are seen remaining under pressure in the long run with an expected Federal Reserve interest rate hike in December likely to underpin the dollar.

Reuters

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Markets

Markets Today – Under Pressure, US Data, Oil, Gold, Bitcoin

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By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA

Stock markets have fallen heavily in June so it seems only fitting that they’re ending the month with big losses as reality continues to bite.

There’s no getting away from recession chat and while the heads of the Fed, ECB and BoE didn’t exactly fuel that during their panel discussion on Wednesday, they didn’t do anything to dispel it either. They all know that there’s a strong likelihood of recession this year or next and investors are increasingly accepting that fate as well.

There’s been a plethora of economic data from across Europe this morning, mostly tier two and three, and it was a bit of a mixed bag. The labour market figures, for example, remain strong with the anomaly being Germany but this was heavily distorted by the integration of Ukrainian refugees into the labour market. Underlying numbers remain in good shape even if across the bloc, employment growth is expected to slow.

It’s impossible to ignore the fact that households are being squeezed and we’re seeing that appear in the data, particularly in the UK which will probably fall into recession later this year. But it is unlikely to be alone in that which is why bear-market rallies are proving to be so short-lived.

US inflation boost but spending slips

US inflation data was unusually encouraging ahead of the open. Perhaps that’s getting a little carried away but it didn’t deliver another crushing below so maybe this feeling is actually relief rather than joy. The core reading was a little better than expected at 0.3%, in line with April, while the headline also fell a little short of expectations at 0.6%.

The income and spending data were arguably less encouraging. Earnings rose 0.5% as expected, a slight acceleration from April, while spending rose only 0.2%, a big drop from 0.9% a month earlier and half the forecast. Another sign of the squeeze taking a toll on households? The US economy is among the best positioned to fend off a recession but it’s not completely immune to the cost-of-living crisis. It may be catching up.

Oil lower as OPEC+ sticks to August target

Oil prices are modestly lower on Thursday, further paring recent gains following yesterday’s reversal. As expected, OPEC+ stuck to its planned 648,000 barrel increase in August and refrained from any decision beyond then which could add an element of uncertainty to future targets, particularly given recent reports that even Saudi Arabia and UAE are running near capacity.

The global economic uncertainty doesn’t make planning ahead any easier, either. The prospect of a recession has created more two-way price action in recent weeks, preventing any unsustainable surges in the price of crude as China reopened and the OPEC+ deficit increased. ​

Gold slightly buoyed by inflation data

Gold has been trending lower over the last couple of weeks but remains in its early summer range between $1,800 and $1,870. It’s really struggled for direction over the last couple of months despite the volatility in the broader financial markets. It has been like a deer in the headlights, unable to process and respond to the wicked combination of higher inflation, faster monetary tightening and recession fears.

It received a boost from the slightly softer PCE reading from the US, a rare bit of good news when it comes to inflation data. It’s not exactly a massive win, especially when paired with weak spending but it could be worse. Yields fell a little after the data, enabling gold to get back into positive territory for a while.

Bitcoin crumbling

Bitcoin has been hanging on in there around $20,000 but its resilience may finally be crumbling under pressure, with the cryptocurrency sliding more than 5% today to trade at around $19,000. This could be really bad news for the crypto space and may even trigger much more severe declines in the coming weeks.

The forced liquidation of Three Arrows Capital may have contributed to the latest decline as traders are left to wonder what other leveraged firms will follow in its footsteps. The fear alone could deliver another hammer blow to crypto valuations before the dust settles.

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Crude Oil

Oil Prices Sustain Bullish Run for Fourth Consecutive Session

Global oil prices appreciated for a fourth consecutive session after it became clear OPEC and allies can not meet their production targets any time soon.

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Global oil prices appreciated for a fourth consecutive session after it became clear OPEC and allies can not meet their production targets any time soon.

Brent crude oil, against which Nigerian oil is priced, appreciated to $120 a barrel as of 3:20 pm Nigerian time on Wednesday. Representing an increase of $12 from $108 a barrel traded a week ago.

The U.S. West Texas Intermediate (WTI) rose to $112.37 per barrel, up from $99.33 per barrel a week ago.

The increase in prices was a result of sanctions imposed on about 1/5 of global supply by western nations. Russia, one of the world’s largest crude oil producers, was sanctioned for waging war against Ukraine, and eventually, disrupting the global economy.

“Given that almost 1/5 of global oil producing capacity today is under some form of sanctions (Iran, Venezuela, Russia), we believed there is no practical way to keep these barrels out of a market that was already exceptionally tight,” JP Morgan said in a research note.

This concern over global supply outweighed worries about a weaker global economy ahead of the projected economic recession in developed nations, especially with developed economies raising interest rates to curb escalating inflation numbers.

“Investors made position adjustments, but remained bullish on expectations that Saudi Arabia and the United Arab Emirates would not be able to raise output significantly to meet recovering demand, driven by a pick-up in jet fuels,” said Hiroyuki Kikukawa, general manager of research at Nissan Securities.

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Crude Oil

Oil Price Rally as Major Producers Flag Capacity Limits

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Oil

Oil prices rallied for a third day on Tuesday as major producers Saudi Arabia and the United Arab Emirates looked unlikely to be able to boost output significantly, while political unrest in Libya and Ecuador added to supply concerns.

U.S. West Texas Intermediate (WTI) crude futures rose $1.8, or 1.6%, to $111.36 a barrel by 0644 GMT, extending a 1.8% gain in the previous session.

Brent crude futures climbed $1.9, or 1.7%, to $116.99, adding to a 1.7% rise in the previous session.

The UAE and Saudi Arabia have been seen as the only two countries in the Organization of the Petroleum Exporting Countries (OPEC) with spare capacity available to make up for lost Russian supply and weak output from other member nations.

“A seam of tight supply news bolstered the market. Two major producers, Saudi Arabia and the UAE, are said to be at, or very close to, near‑term capacity limits,” Commonwealth Bank commodities analyst Tobin Gorey said in a note.

UAE Energy Minister Suhail al-Mazrouei said on Monday UAE was producing near maximum capacity based on its quota of 3.168 million barrels per day (bpd) under the agreement with OPEC and its allies, together called OPEC+.

His comments confirmed remarks by French President Emmanuel Macron who told U.S. President Joe Biden on the sidelines of the Group of Seven nations meeting that the UAE was producing at maximum capacity and that Saudi Arabia could increase output by only 150,000 bpd, well below its nameplate spare capacity of around 2 million bpd.

Analysts also warned political unrest in Ecuador and Libya could tighten supply further.

Libya’s National Oil Corp said on Monday it might have to declare force majeure in the Gulf of Sirte area within the next three days unless production and shipping resume at oil terminals there.

Ecuador’s Energy Ministry said the country could suspend oil output completely within the next two days amid anti-government protests. The former OPEC country was pumping around 520,000 barrels per day before the protests.

Those factors underscore shortages in the market, which have led to a rebound this week, countering recession jitters that weighed on prices over the previous two weeks.

But analysts from Haitong Futures said market sentiment remains fragile with people waiting for clearer guidance for the next move and geopolitical factors in focus.

Leaders of the G7 are discussing a potential price cap on Russian oil that would hit President Vladimir Putin’s war chest while also lowering energy prices.

A French presidential official also called on global powers to explore all options to alleviate a Russian squeeze on energy supplies that has spiked prices, including talks with producing nations like Iran and Venezuela.

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