Global markets are facing a crisis and investors need to be very cautious, billionaire George Soros told an economic forum in Sri Lanka on Thursday.
China is struggling to find a new growth model and its currency devaluation is transferring problems to the rest of the world, Soros said in Colombo. A return to positive interest rates is a challenge for the developing world, he said, adding that the current environment has similarities to 2008.
Global currency, stock and commodity markets are under fire in the first week of the new year, with a sinking yuan adding to concern about the strength of China’s economy as it shifts away from investment and manufacturing toward consumption and services. Almost $2.5 trillion was wiped from the value of global equities this year through Wednesday, and losses deepened in Asia on Thursday as a plunge in Chinese equities halted trade for the rest of the day.
“China has a major adjustment problem,” Soros said. “I would say it amounts to a crisis. When I look at the financial markets there is a serious challenge which reminds me of the crisis we had in 2008.”
Soros, whose hedge-fund firm gained about 20 percent a year on average from 1969 to 2011, has a net worth of about $27.3 billion, according to the Bloomberg Billionaires Index. He began his career in New York City in the 1950s and gained a reputation for his investing prowess in 1992 by netting $1 billion with a bet that the U.K. would be forced to devalue the pound.
Measures of volatility are surging this year. The Chicago Board Options Exchange Volatility Index, known as the fear gauge or the VIX, is up 13 percent. The Nikkei Stock Average Volatility Index, which measures the cost of protection on Japanese shares, has climbed 43 percent in 2016 and a Merrill Lynch index of anticipated price swings in Treasury bonds rose 5.7 percent.
China’s Communist Party has pledged to increase the yuan’s convertibility by 2020 and to gradually dismantle capital controls. Weakness in the world’s second-largest economy remains even after the People’s Bank of China has cut interest rates to record lows and authorities pumped hundreds of billions of dollars into the economy. Data this week reinforced a sluggish manufacturing sector.
U.S. and Ghana Inaugurate New $64.7 Million Energy Infrastructure Investment at Pokuase
U.S. Ambassador to Ghana Stephanie Sullivan joined the President of Ghana H.E. Nana Akufo-Addo and other Ghana government officials to formally inaugurate the Pokuase Bulk Supply Point (BSP) in Accra today. The U.S. Millennium Challenge Corporation (MCC) funded the $64.7 million (GH₵ 391.9 million) electrical infrastructure project under the Ghana Power Compact.
“The Pokuase Bulk Supply Point represents sustainable infrastructure investment by the United States with Ghana that will benefit hundreds of thousands of Ghanaians now and into the future,” remarked Ambassador Sullivan at the inaugural event. “It will help deliver more reliable power to the people, places, and businesses of Accra that drive increased economic activity benefitting families, businesses, and communities.”
This represents a flagship investment under the Millennium Challenge Corporation’s Ghana Power Compact. The Pokuase BSP will reduce outages in the power system, help stabilize voltages, and improve the quality and reliability of power supplied to the northern parts of the capital city of Accra. It will also reduce technical losses in the power transmission and distribution system, contributing to the financial viability of the Electricity Company of Ghana (ECG) and the Ghana Grid Company (GRIDCo) in the long term. The Pokuase BSP is now the largest-capacity BSP in Ghana at 580 megavolt amperes (MVA) and will directly benefit 350,000 utility customers.
The Government of Ghana implemented the project through the Millennium Development Authority (MiDA). MiDA formally handed over the new power substation to ECG and GRIDCo in today’s ceremony.
The Pokuase BSP is the first major construction project to be completed under the Ghana Power Compact. The $316 million compact is helping the Government of Ghana improve the power sector through investments that will provide more reliable and affordable electricity to Ghana’s businesses and households. The compact is also funding a BSP at Kasoa and two primary substations at Kanda and Legon, in addition to other power sector investments, energy efficiency programs, and women’s empowerment programs within the power sector. The compact program will officially close on June 6, 2022.
Oil Falls Slightly as China Steps in to Curb Rising Coal Prices
Global oil prices moderated slightly on Wednesday following the Chinese government’s decision to curb high coal prices and ensure coal mines function at maximum capacity.
Brent crude, against which Nigerian oil is priced, dropped to $83.98 per barrel at 11:00 am Nigerian time. While the U.S. West Texas Intermediate (WTI) crude fell by 80 cents or 1 percent to $81.20 a barrel.
“China is planning to take steps to combat the steep rises in the domestic coal market … which could put considerable pressure on the coal price there and reverse the fuel switch to oil,” Commerzbank said.
Prices for Chinese coal and other commodities slumped in early trade, which in turn pulled oil down from an uptick earlier in the day.
China’s National Development and Reform Commission said on Tuesday it would bring coal prices back to a reasonable range and crack down on any irregularities that disturb market order or malicious speculation on thermal coal futures. read more
Oil markets in general remain supported on the back of a global coal and gas crunch, which has driven a switch to diesel and fuel oil for power generation.
But the market on Wednesday was also pressured by data from the American Petroleum Institute industry group which showed U.S. crude stocks rose by 3.3 million barrels for the week ended Oct. 15, according to market sources.
That was well above nine analysts’ forecasts for a rise of 1.9 million barrels in crude stocks, in a Reuters poll.
However, U.S. gasoline and distillate inventories, which include diesel, heating oil and jet fuel, fell much more than analysts had expected, pointing to strong demand.
Data from the U.S. Energy Information Administration is due later on Wednesday.
Oil Prices Hit Multi-year Highs on Monday
Oil prices hit multi-year highs on Monday buoyed by recovering demand and high natural gas and coal prices encouraging users to switch to fuel oil and diesel for power generation.
Brent crude oil futures were up 59 cents, or 0.7%, to $85.45 a barrel by 0900 GMT, after hitting $86.04, their highest level since October 2018.
U.S. West Texas Intermediate (WTI) crude futures climbed 90 cents, or 1.1%, to $83.18 a barrel, after hitting a $83.73, their highest since October 2014.
Both contracts rose by at least 3% last week.
“Easing restrictions around the world are likely to help the recovery in fuel consumption,” analysts at ANZ bank said in a note, adding that gas-to-oil switching for power generation alone could boost demand by as much as 450,000 barrels per day in the fourth quarter.
Cold temperatures in the northern hemisphere are also expected to worsen an oil supply deficit, said Edward Moya, senior analyst at OANDA.
“The oil market deficit seems poised to get worse as the energy crunch will intensify as the weather in the north has already started to get colder,” he said.
“As coal, electricity, and natural gas shortages lead to additional demand for crude, it appears that won’t be accompanied by significantly extra barrels from OPEC+ or the U.S.,” he said.
Prime Minister Fumio Kishida said on Monday that Japan would urge oil producers to increase output and take steps to cushion the impact of surging energy costs on industry.
Chinese data showed third-quarter economic growth fell to its lowest level in a year hurt by power shortages, supply bottlenecks and sporadic COVID-19 outbreaks.
China’s daily crude processing rate in September also fell its lowest level since May 2020 as a feedstock shortage and environmental inspections crippled operations at refineries, while independent refiners faced tightening crude import quotas.
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