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Reserve Bank of Australia Says Recent Data Positive

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Australia’s central bank said low interest rates are supporting household spending and a weaker exchange rate is aiding local firms, even as it reiterated that a subdued inflation outlook gives scope to ease policy further if needed.

“Recent domestic data had generally been positive,” the Reserve Bank of Australia said Tuesday in minutes of its Dec. 1 meeting, where it kept rates at a record-low 2 percent for a seventh month. “Even so, members recognized that there was still evidence of spare capacity in the economy.”

Australia recorded its biggest back-to-back monthly jobs gain since 1988 after adding 71,400 workers in November, and consumer confidence has held up as optimists continue to outweigh pessimists. Expectations the central bank will further lower its benchmark in coming months to boost below-average growth have moderated, with traders pricing in a 44 percent chance of a rate cut by June.

The local currency edged higher, trading at 72.58 U.S. cents at 11:35 a.m. in Sydney from 72.42 cents before the release.

Australia is grappling with the fallout from plunging prices of its commodity exports including iron ore as key trading partner China’s economy cools.

“There was overcapacity in some parts of the Chinese economy,” the RBA said. “Conditions were likely to become more difficult over time for a range of unprofitable firms.”
The central bank, which cut rates twice this year, could be gaining traction in its efforts to boost confidence to spur spending and encourage business investment.

Rate Boost

The RBA noted stronger employment growth and surveys showing above average conditions for firms. “There continued to be evidence that very low interest rates were supporting growth in household consumption and dwelling investment, and the exchange rate was adjusting to the significant declines in key commodity prices and boosting demand for domestic production,” it said.

Australian firms in industries including tourism, education and manufacturing have been assisted by a 30 percent drop in the Australian currency since the beginning of 2013.

The RBA said “subdued” wage inflation last quarter was consistent with its forecast for a “prolonged period” of weak growth in pay packets. It said consumer prices were likely to remain consistent with its target range.

“Members judged that the outlook for inflation may afford some scope for a further easing of monetary policy should that be appropriate to lend support to demand,” the minutes said, reiterating recent previous comments.

The central bank will also be waiting on the Federal Reserve meeting this week, when U.S. policy makers are expected to tighten for the first time in almost a decade, potentially exerting downward pressure on the Aussie dollar as a rate differential narrows.

Still, the RBA noted that as confidence in a U.S. move built, the Aussie dollar had appreciated over the prior month, in contrast with most other currencies.

 

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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Crude Oil - Investors King

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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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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