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

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stock market

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, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Crude Oil

NNPCL CEO Optimistic as Nigeria’s Oil Production Edges Closer to 1.7mbpd

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Crude Oil

Mele Kyari, the Group Chief Executive Officer of the Nigerian National Petroleum Company Limited (NNPCL), has expressed optimism as the nation’s oil production approaches 1.7 million barrels per day (mbpd).

Kyari’s positive outlook comes amidst ongoing efforts to address security challenges and enhance infrastructure crucial for oil production and distribution.

Speaking at a stakeholders’ engagement between the Nigerian Association of Petroleum Explorationists (NAPE) and NNPCL in Lagos, Kyari highlighted the significance of combating insecurity in the oil and gas sector to facilitate increased production.

Kyari said there is a need for substantial improvements in infrastructure to support oil production.

He noted that Nigeria’s crude oil production has been hampered by pipeline vandalism, prompting alternative transportation methods like barging and trucking of petroleum products, which incur additional costs and logistical challenges.

Despite these challenges, Kyari revealed that Nigeria’s oil production is steadily rising, presently approaching 1.7mbpd.

He attributed this progress to ongoing efforts to combat pipeline vandalism and enhance infrastructure resilience.

Kyari stressed the importance of taking control of critical infrastructure to ensure uninterrupted oil production and distribution.

One of the key projects highlighted by Kyari is the Ajaokuta-Kaduna-Kano (AKK) gas pipeline, which plays a crucial role in enhancing gas supply infrastructure.

He noted that completing the final phase of the AKK pipeline, particularly the 2.7 km river crossing, would facilitate the flow of gas from the eastern to the western regions of Nigeria, supporting industrial growth and energy security.

Addressing industry stakeholders, including NAPE representatives, Kyari reiterated the importance of collaboration in advancing Nigeria’s oil and gas sector.

He emphasized the need for technical training, data availability, and policy incentives to drive innovation and growth in the industry.

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Commodities

Nigeria to Achieve Fuel Independence Next Month, Says Dangote Refinery

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Dangote Refinery

Aliko Dangote, the Chairman of the Dangote Group and Africa’s wealthiest individual has announced that Nigeria is poised to attain fuel independence by next month.

Dangote made this assertion during his participation as a panelist at the Africa CEO Forum Annual Summit held in Kigali.

The announcement comes as a result of the Dangote Refinery’s ambitious plan, which aims to eliminate the need for Nigeria to import premium motor spirit (PMS), commonly known as petrol, within the next four to five weeks.

According to Dangote, the refinery already operational in supplying diesel and aviation fuel within Nigeria, possesses the capacity to fulfill the diesel and petrol requirements of West Africa and cater to the aviation fuel demands of the entire African continent.

Dangote expressed unwavering confidence in the refinery’s capabilities, stating, “Right now, Nigeria has no cause to import anything apart from gasoline and by sometime in June, within the next four or five weeks, Nigeria shouldn’t import anything like gasoline; not one drop of a litre.”

He said the refinery is committed to ensuring self-sufficiency in the continent’s energy needs, highlighting its capacity to significantly reduce or eliminate the need for fuel imports.

The Dangote Refinery’s accomplishment marks a pivotal moment in Nigeria’s quest for energy independence. With the refinery’s robust infrastructure and advanced technology, Nigeria is poised to become a net exporter of refined petroleum products, bolstering its economic stability and reducing its reliance on foreign imports.

Dangote’s remarks underscored the transformative potential of the refinery, not only for Nigeria but for the entire African continent.

He emphasized the refinery’s role in fostering regional energy security, asserting, “We have enough gasoline to give to at least the entire West Africa, diesel to give to West Africa and Central Africa. We have enough aviation fuel to give to the entire continent and also export some to Brazil and Mexico.”

Dangote further outlined the refinery’s broader vision for Africa’s economic advancement and detailed plans to expand its production capacity and diversify its product range.

He highlighted initiatives aimed at promoting self-sufficiency across various sectors, including agriculture and manufacturing, with the ultimate goal of reducing Africa’s dependence on imports and creating sustainable economic growth.

Dangote’s vision for a self-reliant Africa resonates with his long-standing commitment to investing in the continent’s development.

He concluded his remarks by reiterating the refinery’s mission to transform Africa’s energy landscape and drive socio-economic progress across the region.

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Crude Oil

Oil Prices Surge Amidst Political Turmoil: Brent Tops $84

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Oil prices - Investors King

The global oil market witnessed a significant surge in prices as political upheaval rocked two of the world’s largest crude producers, Iran and Saudi Arabia.

Brent crude oil, against which Nigerian oil is priced, rose above $84 a barrel while West Texas Intermediate (WTI) oil climbed over the $80 threshold.

The sudden spike in oil prices followed a tragic incident in Iran, where President Ebrahim Raisi and Foreign Minister Hossein Amirabdollahian lost their lives in a helicopter crash.

Simultaneously, apprehensions over the health of Saudi Arabia’s king added to the geopolitical tensions gripping the oil market.

Saudi Arabia stands as the leading producer within the Organization of the Petroleum Exporting Countries (OPEC), while Iran ranks as the third-largest.

Despite these significant developments, there are no immediate indications of disruptions to oil supply from either nation.

Iranian Supreme Leader Ayatollah Ali Khamenei reassured that the country’s affairs would continue without interruption in the aftermath of the tragic event.

However, the geopolitical landscape remains fraught with additional concerns, amplifying market volatility.

In Ukraine, drone attacks persist on Russian refining facilities, exacerbating tensions between the two nations.

Moreover, a China-bound oil tanker fell victim to a Houthi missile strike in the Red Sea, further fueling anxiety over supply disruptions.

Warren Patterson, head of commodities strategy for ING Groep NV in Singapore, remarked on the market’s reaction to geopolitical events, noting a certain desensitization due to ample spare production capacity within OPEC.

He emphasized the need for clarity from OPEC+ regarding output policies to potentially break the current price range.

While global benchmark Brent has experienced a 9% increase year-to-date, largely driven by OPEC+ supply cuts, prices had cooled off since mid-April amidst easing geopolitical tensions.

Attention now turns to the upcoming OPEC+ meeting scheduled for June 1, with market observers anticipating a continuation of existing production curbs.

Despite the surge in oil prices, there’s a growing sense of bearishness among hedge funds, evidenced by the reduction of net long positions on Brent for a second consecutive week.

This sentiment extends to bets on rising gasoline prices ahead of the US summer driving season, indicating a cautious outlook among investors.

As the oil market grapples with geopolitical uncertainties and supply dynamics, stakeholders await further developments and policy decisions from key players to navigate the evolving landscape effectively.

The coming weeks are poised to be critical in determining the trajectory of oil prices amidst a backdrop of geopolitical turmoil and market volatility.

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