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Stocks Extend Rout, Oil Slides on China as Soros Warns of Crisis

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Global markets shuddered as turmoil emanating from China spread around the world and billionaire George Soros warned of a crisis.

Chinese shares fell 7 percent within a half hour of opening, triggering a full-day trading halt, after the central bank cut the yuan’s reference rate by the most since August. Other equity markets tumbled, with European shares falling the most since September and U.S. futures indicating a lower open. Commodities weren’t spared as crude headed for its lowest settlement in 12 years. Haven assets gained, with Treasuries rising for a sixth day, the yen reaching a four-month high and gold surging.

“China has a major adjustment problem,” Soros said Thursday at an economic forum in Colombo, Sri Lanka. “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.”

Contagion from China helped wipe $2.5 trillion off the value of global equities in the first six days of this year as the nation’s tolerance for a weaker currency is viewed as evidence that policy makers are struggling to revive an economy that’s the world’s biggest user of energy, metals and grains. The World Bank cut its global growth forecasts for this year and next as China’s slowdown prolongs a commodity slump and contractions endure in Brazil and Russia. Chancellor of the Exchequer George Osborne plans to highlight a “dangerous cocktail” of global threats faces the British economy this year.

China

The Hang Seng China Enterprises gauge of mainland shares listed in Hong Kong tumbled 4.2 percent, its lowest close since October 2011. The Hang Seng Index dropped 3.1 percent.

The Shanghai Composite Index tumbled 7.3 percent before trading was suspended. New circuit breakers, which kicked in on Monday, have been criticized by analysts for exacerbating declines as investors scramble to exit positions before getting locked in by the halts.

After the stoppage, the securities regulator announced rules to limit selling by major shareholders when a ban expires this week. The watchdog also held an unscheduled meeting on the tumbling stock market without coming to a decision on policy action, according to a person familiar with the discussions.

“The Chinese yuan is smack bang at the heart of concerns,” Chris Weston, chief market strategist in Melbourne at IG Ltd. “For risk assets to stabilize and sentiment to turn around, we are going to need a stable or even positive move in the Chinese currency. It’s clear that the market is becoming increasingly concerned by the global inflation outlook.”

The offshore yuan swung from a 0.3 percent gain to a 0.7 percent loss and back in the space of about 30 minutes in early activity in Hong Kong’s freely-traded market. It was subsequently 0.4 percent higher versus the greenback, while the onshore rate weakened 0.6 percent.

“We saw aggressive intervention in the offshore yuan market,” said Zhou Hao, an economist at Commerzbank AG in Singapore. “We don’t really understand the rationale behind the market movements in the past few days. Obviously, these movements have reminded us of the market rout last year.”

The central bank is considering new measures to prevent high exchange-rate volatility in the short term, according to people familiar with the matter.

China’s foreign-exchange reserves slid more in December than forecast, capping their first-ever annual decline, as authorities sought to prop up a weakening yuan.

Stocks

The Stoxx Europe 600 Index slid 3.2 percent at 1:07 p.m. in London, as all but 10 stocks fell. Commodity producers and carmakers, among those with the most sales exposure to China, led declines.

Anglo American Plc tumbled 9.6 percent and ArcelorMittal slid 6.1 percent, dragging a gauge of miners to its lowest level since 2009. A measure of energy producers also fell to a near six-year low, with Royal Dutch Shell Plc dropping 6.2 percent, the most since August.

Daimler AG, BMW AG and Volkswagen AG each lost at least 4.5 percent, helping pull Germany’s benchmark DAX Index below 10,000 for the first time since October.

The VStoxx Index measuring volatility expectations in euro-area shares jumped 17 percent, heading for its biggest weekly advance since April.

Futures on the Standard & Poor’s 500 Index lost 2.2 percent, after the U.S. benchmark slipped Wednesday to its lowest level in three months.

The MSCI Asia Pacific Index retreated 2.1 percent. Benchmark stock indexes in Australia, Japan, Singapore and Thailand all lost more than 2 percent.

Currencies

The yen, which has been the best-performing major currency so far this year amid the demand for safe-haven assets, rose as much as 1 percent to its strongest level since August versus the dollar.

The pound fell to the weakest level since June 2010, touching $1.4555. The U.K. currency slid 1 percent to 74.46 pence per euro. It has fallen every day this week against the dollar. Disappointing manufacturing and services data added to the view that the Bank of England will have to keep its benchmark interest rate lower for longer.

The Aussie tumbled 0.8 percent to 70.13 U.S. cents, and touched 70.09, its lowest since Oct. 2. It fell more than 3 percent through Wednesday, its worst start to any year since currency controls were scrapped in December 1983, according to data compiled by Bloomberg.

Commodities

The Bloomberg Commodity Index dropped 0.7 percent, headed for its lowest close since 1999.

West Texas Intermediate crude slid 3.3 percent to $32.86 a barrel, poised for the lowest settlement since February 2004. Crude supplies at Cushing, Oklahoma, the delivery point for U.S. crude, climbed to an all-time high, government data showed Wednesday. Brent oil will slump to $30 in the next 10 days, according Nomura Holdings Inc., while UBS Group AG sees an oversupply pushing prices even lower.

Copper retreated 2.6 percent in London to the lowest since Nov. 24 and zinc slumped 3.6 percent. Cocoa for March delivery fell for a fifth day to an eight-month low on ICE Futures U.S. in New York. Gold rose as much as 0.8 percent to a two-month high of $1,102.85 an ounce.

Bonds

Yields on 10-year Treasury notes fell one basis points to 2.16 percent, after earlier touching the lowest since October. Japanese government bond futures advanced to a record high after 30-year notes were auctioned at a higher price than dealers forecast. South Korea’s 10-year yield fell to a record low as the weakening yuan dimmed the outlook for exports to China and North Korea’s fourth nuclear test, conducted on Wednesday, spurred demand for safer assets.

Germany’s 10-year break-even rate, a gauge of the market’s outlook for inflation, tumbled to the lowest level since February amid concerns that the rout in commodity markets would subdue price-growth.

The cost of insuring investment-grade corporate debt climbed to the highest since Oct. 6. The Markit iTraxx Europe Index of credit-default swaps on highly rated companies rose four basis points to 85 basis points. The Markit iTraxx Europe Crossover Index of default swaps on junk-rated companies jumped 16 basis points to 351 basis points, the highest since Dec. 15.

Emerging Markets

Energy producers led losses in developing-nation stocks, driving the MSCI Emerging Markets Index down 2.7 percent. Benchmark gauges in South Africa, Thailand, the Philippines and Abu Dhabi slid more than 2.5 percent and those for Saudi Arabia, Dubai and Qatar tumbled at least 3 percent. Russian markets were closed for a holiday.

A gauge tracking 20 emerging-market currencies dropped for a fifth day, headed for its longest losing streak since October. The rand in South Africa, which counts China as its biggest trading partner, tumbled 1.5 percent to a record low. Russia’s ruble slid 1.1 percent in offshore trading while Mexico’s peso and Brazil’s real slid at least 0.6 percent.

Bloomberg

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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Crude Oil

Nine Oil Producing States Pocket N625bn in 2 Years

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Oil - Investors King

The federal government has revealed that Nine oil-producing states pocket N625.43 billion as 13 percent oil derivation, subsidy, and SURE-P refunds in just two years.

This was made known in a statement released on Friday by the Senior Special Assistant to the President on Media and Publicity, Garba Shehu.

According to the statement, the states that benefited from the refunds include Abia, Akwa-Ibom, Bayelsa, Cross River, Delta, Edo, Imo, Ondo, and Rivers States. Garba Shehu, however, added that the states still have about N1.1 billion as outstanding benefits due to them. He added that the refund has been accumulated since 1999.

Making reference to the comments made by the Governor of Rivers State, the Presidency noted that the Buhari-led regime will continue to render equal service to all the states regardless of affiliation, Investors King learnt. 

Between October 2, 2021, and January 11, 2022, the presidential spokesman disclosed that the states were paid in eight instalments, while the ninth to 12th instalments are still outstanding. 

Meanwhile, Garba recalled that data obtained from the Federation Account Department, Office of the Accountant General of the Federation,  showed that a total of N477.2 billion was released to the nine states as a refund of the 13 percent derivation fund on withdrawal from Excess Crude Account (ECA), without deducting derivation from 2004 to 2019, leaving an outstanding balance of N287.04 billion.

“Abia State received N4.8 billion with an outstanding sum of N2.8 billion, Akwa-Ibom received N128 billion with an outstanding sum of N77 billion, Bayelsa with N92.2bn, leaving an outstanding of N55 billion”.

“Cross River got a refund N1.3 billion with a balance N792 million, Delta State received N110 billion, leaving a balance of N66.2 billion, Edo State received N11.3 billion, with a balance of N6.8 billion, Imo State, N5.5 billion, with an outstanding sum of N3.3 billion, Ondo State, N19.4 billion with an outstanding sum of N11.7bn while Rivers State was paid 103.6 billion, with an outstanding balance of N62.3 billion” the statement read. 

According to the presidential spokesperson, states also got N64.8 billion as a refund of the 13 percent derivation fund on deductions made by Nigeria National Petroleum Company Limited without payment of derivation to Oil Producing states from 1999 to December.

Garba concluded that the president has approved the outstanding payment of N860.59 billion from the refunds which will soon be released to the benefiting states. 

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Markets

Flashing Green

Oil prices have rebounded strongly over the last few days – up around 10% from the lows – buoyed by the prospect of a lower price cap on Russian crude

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Traders Wall Street

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

We’re seeing green flashing across the board on Thursday, with sentiment buoyed by positive signals on Fed rate hikes and China’s Covid response.

While it could be argued that Jerome Powell’s comments on Wednesday were relatively balanced – slower tightening now but rates high for longer – the last year has proven that anticipating the path of inflation even a short period ahead is incredibly difficult. Knowing what the Fed intends to do next is far more valuable than what it thinks it may do 6-12 months down the line.

And anything that is perceived to reduce to possibility of an interest rate recession is going to be a positive for equity markets. The Fed has every opportunity to tighten more in the months ahead if the data doesn’t play ball. What’s far more difficult is undoing the damage caused by moving too fast now with little to no visibility on how impactful past tightening has been.

Positive signals

The signals coming from China also look very positive. While we shouldn’t expect a dramatic shift in policy from the leadership, particularly before the March Congress, any modest softening in its Covid-zero policy will and should be welcomed. The approach has been extremely damaging to growth and confidence and the protests highlight how public opinion towards it is changing.

We shouldn’t be naive to the fact that a move away from the policy won’t be easy and there’ll be plenty of setbacks. But it’s certainly a step in the right direction that, along with the measures announced to revive the property market, could put the economy on a much better path.

A huge few days for oil markets

Oil prices have rebounded strongly over the last few days – up around 10% from the lows – buoyed by the prospect of a lower price cap on Russian crude, another large production cut from OPEC+ this weekend, and China’s evolving Covid stance. There remains considerable uncertainty surrounding all of the above though which will likely ensure prices remain volatile going into the weekend. That could carry more risk than normal if the OPEC+ meeting does go ahead as planned on Sunday and the EU hasn’t agreed to the price cap level by the close of play Friday. The range of possibilities on these two things alone is huge which will make rumours and speculation over the coming day or two all the more impactful.

Gold testing range highs

Gold bulls were particularly happy with Powell’s comments on Wednesday with the yellow metal rallying strongly to trade at the upper end of its recent range. It faces strong resistance around $1,780 though which was a significant level of support in the first half of the year. With so much data to come over the next day or so, it may not prove particularly resilient if traders are given further hope that rates will rise more slowly and peak lower.

Some relief for cryptos

The risk relief rally is coming at just the right time for bitcoin, helping it to recover from the lows to trade around $17,000. This is around the highs of the last few weeks since it settled after its latest plunge. Whether it will be enough to revive interest in the cryptocurrency, I’m not sure. The FTX fallout is continuing to weigh heavily on the space and the prospect of more contagion or scandals is hard to ignore.

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Crude Oil

Oil Revenue into Foreign Reserve Dropped From $3bn Monthly in 2014 to Zero in 2022

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Oil

The official foreign exchange receipt from crude oil sales into Nigeria’s official reserves has dried up steadily from above US$3.0 billion monthly in 2014 to an absolute zero dollar today, the Central Bank of Nigeria (CBN) governor, Godwin Emefiele disclosed.

Speaking at the 57th annual bankers’ dinner organized by the Chartered Institute of bankers of Nigeria (CIBN) in Lagos, the CBN governor noted that there has been a significant loss in foreign reserves due to the naira’s struggle and the rise in demand for forex. 

He added that the sharp increase in the number of Nigerians who are seeking education in foreign countries particularly the UK has resulted in an unprecedented demand for foreign exchange. 

According to him, the number of student visas issued to Nigerians by the UK alone has increased from an annual average of about 8,000 visas as of 2020 to nearly 66,000 in 2022.

Emefiele also lamented about the level of crude oil theft in Nigeria which has significantly affected the country’s oil production. He noted that crude oil theft has adversely impacted the Country’s foreign exchange reserves.

Investors King had earlier reported that Nigeria has lost its coveted position as Africa’s largest oil producer after oil production dropped below the mark of 1 million barrels per day. 

Nigeria currently trails Angola, Libya and Algeria to the fourth position. 

Meanwhile, on the Naira-4-Dollar scheme which the CBN introduced to boost migrant remittances into the Nigerian economy, the CBN governor noted that the scheme has largely been successful. 

“I am happy to note that, so far, the Naira-for-Dollar scheme has been successful in increasing remittance inflows through our registered International Money Transfer Organisation (IMTOs),” he said.

Emefiele also noted that the introduction of the National Domestic Card Scheme (NDCS) will help to reduce the operating cost incurred by commercial banks while using foreign cards. 

It could be recalled that the CBN earlier announced that it planned to introduce Nigeria-made transactional cards to replace well-known cards such as Visa and MasterCard.

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