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Asian Stocks Slipped as The Dollar Advanced on Thursday

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Asian stocks slipped as the dollar advanced on Thursday after hawkish comments from Federal Reserve Chair Janet Yellen reinforced the case for an interest rate hike later this month.

Spreadbetters saw Britain’s FTSE .FTSE, Germany’s DAX .GDAXI and France’s CAC.FCHI opening down in line with Asian stocks.

Australian shares fell 0.6 percent and South Korea’s Kospi .KS11 shed 1 percent. Shares in Hong Kong, Malaysia and Singapore also declined.

Shanghai shares .SSEC bucked the trend and were last up 0.5 percent, brushing aside a Caixin/Markit Purchasing Managers’ Index showing China’s services sector growth cooling in November. Weak indicators often stir hopes of government stimulus, providing a burst of support for Chinese shares.

Japan’s Nikkei .N225 eased from 3-month highs and stood nearly flat, bound in narrow range as a wait-and-see mood prevailed ahead of the European Central Bank’s policy decision due later in the session.

Fighting stubbornly low inflation, the ECB is expected to deliver measures that could include a deposit rate cut and changes to its asset-buying program.

“The ECB’s decision will likely set the direction for the Japanese market tomorrow and beyond, but it’s also true that the market is seen overbought recently,” said Hikaru Sato, a senior technical analyst at Daiwa Securities in Tokyo.

MSCI’s index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.5 percent after Wall Street slid overnight on Yellen’s comments.

The Fed chair said Wednesday she was “looking forward” to a U.S. interest rate hike that will be seen as a testament to the economy’s recovery.

Her comments come after expectations for a Fed rate hike at the central bank’s Dec. 15-16 policy meeting were slightly shaken by poor manufacturing data released earlier in the week.

However, faith in the U.S. economy was partially restored by Wednesday’s stronger-than-expected ADP private employment report. ECONUS

The dollar index advanced to a 12-1/2-year high of 100.51 .DXY following Yellen’s comments and the upbeat data. It last stood at 100.13.

The euro dipped 0.2 percent to $1.0594 EUR= as the markets braced for the ECB.

“There is great potential for euro volatility as the ECB announces its policy decision, followed by the press conference by President (Mario) Draghi starting 45 minutes later,” wrote Sean Callow, a senior strategist at Westpac.

“Draghi and selected colleagues have clearly signaled that there is sufficient risk of undershooting the ECB’s inflation target to warrant further loosening of monetary settings.”

While the prospects of further ECB easing dogged the euro, expectations of added stimulus have lifted European stocks. The pan-European FTSEurofirst 300 index .FTEU3touched a 3-month high this week.

In commodities, crude oil bounced modestly on bargain hunting following a tumble overnight prompted by surging U.S. stockpiles and a stronger dollar.

U.S. crude CLc1 was up 1.2 percent at $40.43 a barrel after tumbling 4 percent overnight. Crude was still capped with OPEC widely expected not to opt for a production cut at Friday’s meeting despite a global supply glut.

Spot gold XAU= stooped to $1,045.85 an ounce, its lowest since February 2010. Higher interest rates would diminish the allure of non-yielding gold and a stronger greenback makes the dollar-denominated metal more expensive for buyers.

Industrial metals also remained under pressure amid global oversupply and shrinking Chinese demand, with spot iron ore prices plumbing 10-year lows this week.

Three-month copper on the London Metal Exchange CMCU3 was down 0.5 percent at $4,540.50 a ton. Copper edged back toward a 6-year low of $4,443.50 touched late last month with pleas for Chinese government intervention providing little tonic.

China’s major copper producers asked the government this week to buy the metal, joining a growing chorus in the country’s base metal industry that is pleading for state intervention.

Reuter

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Crude Oil

Oil Prices Decline on Rising India COVID-19 Cases, U.S Inflation Concerns

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Global oil prices extended a decline on Friday following a 3 percent drop on Thursday as coronavirus cases rose in India, one of the world’s largest oil consumers.

Brent crude oil, against which Nigerian oil is priced, declined by 35 cents or 0.5 percent to $66.70 a barrel at 5 am Nigerian time on Tuesday while the U.S West Texas Intermediate (WTI) fell by 28 cents or 0.4 percent to $63.54 per barrel.

The commodity super cycle rally just hit a hard stop and the energy market doesn’t know what to make of Wall Street’s fixation over inflation and the slow flattening of the curve in India,” said Edward Moya, senior market analyst at OANDA.

The crude demand story is still upbeat for the second half of the year and that should prevent any significant dips in oil prices,” he added.

Prices dropped over a series of key economic data that stoke inflation concerns and forced experts to start thinking the Federal Reserve could raise interest rates to curb the surge in inflation.

An increase in interest rates typically boosts the U.S. dollar, which in turn pressures oil prices because it makes crude oil more expensive for holders of other currencies.

This coupled with the fact that India, the world’s third-largest oil consumer, recorded more than 4,000 COVID-19 deaths for a second straight day on Thursday, dragged on the oil outlook in the near term.

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Brent Crude Rises to $69 on IEA Report

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Oil prices rose after the release of the International Energy Agency’s (IEA)  closely-watched Oil Market Report, with WTI Crude trading at above $66 a barrel and Brent Crude surpassing the $69 per barrel mark.

Prices jumped even though the agency revised down its full-year 2021 oil demand growth forecast by 270,000 barrels per day (bpd) from last month’s assessment, expecting now demand to rise by 5.4 million bpd. The downward revision was due to weaker consumption in Europe and North America in the first quarter and expectations of 630,000 bpd lower demand in the second quarter due to India’s COVID crisis.

The excess oil inventories of the past year have been all but depleted, and a strong demand rebound in the second half this year could lead to even steeper stock draws, the IEA said yesterday, keeping an upbeat forecast of global oil demand despite the weaker-than-expected first half of 2021.

However, the upbeat outlook for the second half of the year remains unchanged, as vaccination campaigns expand and the pandemic largely comes under control, the IEA said.

Moreover, the global oil glut that was hanging over the market for more than a year is now gone, the agency said.

“After nearly a year of robust supply restraint from OPEC+, bloated world oil inventories that built up during last year’s COVID-19 demand shock have returned to more normal levels,” the IEA said in its report.

In March, industry stocks in the developed economies fell by 25 million barrels to 2.951 billion barrels, reducing the overhang versus the five-year average to only 1.7 million barrels, and stocks continued to fall in April.

“Draws had been almost inevitable as easing mobility restrictions in the United States and Europe, robust industrial activity and coronavirus vaccinations set the stage for a steady rebound in fuel demand while OPEC+ pumped far below the call on its crude,” the IEA said.

The market looks oversupplied in May, but stock draws are set to resume as early as June and accelerate later this year. Under the current OPEC+ policy, oil supply will not catch up fast enough, with a jump in demand expected in the second half, according to the IEA. As vaccination rates rise and mobility restrictions ease, global oil demand is set to soar from 93.1 million bpd in the first quarter of 2021 to 99.6 million bpd by the end of the year.

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OPEC Expects Increase In Global Oil Demand Raises Members’ Forecast on Crude Supply

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The Organisation of Petroleum Exporting Countries (OPEC) yesterday lifted its forecast on its members’ crude this year by over 200,000 bpd and now expects demand for its own crude to average 27.65mn bpd in 2021.

This is almost 5.2mn bpd higher than last year and around 2.7mn b/d higher than an earlier estimate of the group’s April production.

According to the highlights of the organisation’s latest Monthly Oil Market Report (MOMR), OPEC crude is projected to rise from 26.48 million bpd in the second quarter to 28.7 million bpd in the third and 29.54 million bpd in the fourth quarter of the year.

The report also indicated a fall in Nigeria’s crude production from 1.477 bpd in February to 1.473, a difference of just about 4,000 bpd before rising again in April to 1.548 million bpd, to add 75,000 bpd last month.

OPEC stated that its upward revision of members’ crude was underpinned by a downgrade in the group’s forecast for non-OPEC supply, which it now expects to grow by 700,000 bpd to 63.6mn b/d against last month’s report’s projection of a 930,000 bpd rise to 63.83mn bpd.

The oil cartel projected that US crude output would drop by 280,000 bpd this year, compared with its previous forecast for a 70,000 bpd decline.

On the demand side, OPEC kept its overall forecast unchanged from last month’s MOMR, stressing that it expects global oil demand to grow by 5.95 million bpd to 96.46 million bpd this year, partly reversing last year’s 9.48mn bpd drop.

Spot crude prices fell in April for the first time in six months, with North Sea Dated and WTI easing month-on-month by 1.7 percent and 1 percent, respectively.

On the global economic projections, the cartel said stimulus measures in the US and accelerating recovery in Asian economies might continue supporting the global economic growth forecast for 2021, now revised up by 0.1 percent to reach 5.5 percent year-on-year.

This comes after a 3.5 percent year-on-year contraction estimated for the global economy in 2020.

However, global economic growth for 2021 remains clouded by uncertainties including, but not limited to the spread of COVID-19 variants and the speed of the global vaccine rollout, OPEC stated.

“World oil demand is assumed to have dropped by 9.5 mb/d in 2020, unchanged from last month’s assessment, now estimated to have reached 90.5 mb/d for the year. For 2021, world oil demand is expected to increase by 6.0 mb/d, unchanged from last month’s estimate, to average 96.5 mb/d,” it said.

The report listed the main drivers for supply growth in 2021 to be Canada, Brazil, China, and Norway, while US liquid supply is expected to decline by 0.1 mb/d year-on-year.

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