Pound traders who held on during this year’s pasting have little to look forward to next week.
After falling to the lowest level in 5 1/2 years against the dollar on Friday, the U.K.’s currency may struggle to catch a break next week as reports are forecast to show inflation remained close to zero, wage growth slowed and retail sales dropped in the nation.
Sterling also weakened versus the euro, declining for an eighth consecutive week, its longest slide since 1999, as signs of weakness in the domestic economy and global shocks from China took the shine off Britain’s currency.
The Bank of England kept interest rates unchanged at a record low on Jan. 14, citing a weakening outlook for growth and inflation. The 10-year break-even rate, which acts as a gauge of the bond market’s outlook for U.K. price growth, dropped to its lowest level since 2009 following a slump in oil prices to the least in 12 years.
Commerzbank AG cut its forecasts for the pound Friday to $1.46 at year-end and $1.50 at the end of 2017, compared with earlier predictions of $1.52 and $1.53, respectively.
“The fall in oil prices and the decline in the pound simply has to be reflected in the forecasts,” said Esther Reichelt, a Frankfurt-based strategist at the German bank. “It’s nothing the Bank of England can ignore and recent data are rather disappointing. The headwinds to the British economy have definitely increased.”
The pound fell 1.6 percent in the week to $1.4289 at 5:12 p.m. London time Friday, after touching $1.4279, the least since May 2010. Sterling weakened 2 percent to 76.83 pence per euro.
The U.K. currency was undercut by banks pushing out their expectations for when the BOE will raise interest rates. The prospect of an entrenchment of record-low rates and a possible British exit from the European Union has added to the risks stacking up against the pound, which has seen banks across Europe slashing their forecasts. BOE Governor Mark Carney is scheduled to speak on Jan. 19.
The annual inflation rate will rise to 0.2 percent in December from 0.1 percent the previous month, according to the medium forecast of economists surveyed by Bloomberg. Weekly earnings will slow in the three months through November, while retail sales are forecast to have contracted last month, surveys show.
“We expect retail sales to come in weaker than expected, but importantly there is also the dynamics of earnings to be looked at,” said Roberto Mialich, a senior foreign-exchange strategist at UniCredit SpA in Milan. The market expects wage growth to decline “so clearly the near-term future for sterling will worsen and remain weak,” he said.
U.K. government bonds advanced this week. The 10-year benchmark yield fell 11 basis points, or 0.11 percentage point, to 1.66 percent. It touched 1.63 percent on Friday, the lowest since April. The 2 percent gilt due in September 2025 rose 0.96, or 9.60 pounds per 1,000-pound face amount, to 102.995.
No Plan to Increase Fuel Price; Says FG
The Federal Government has stated that it has no plan to increase fuel price during the yuletide period.
This assurance is coming amid the nationwide fuel scarcity which has pushed the price of petrol above N250 in many retail stations.
Investors King learnt that fuel is being held for N250 per litre in Abuja and several other cities across the country while black marketers are charging between N400 and N450 per litre.
The scarcity and the high price of fuel are however becoming unbearable for many Nigerians, especially those who have reasons to embark on business travel for the December festivals.
According to the National Public Relations Officer, Independent Petroleum Marketers Association of Nigeria (IPMAN), Chief Ukadike Chinedu, most of the association members, who owned the bulk of the filling stations across the country, were now subjected to purchasing PMS at about N220/litre, which was why many outlets currently dispensed at about N250/litre and above.
He noted that the cost of the commodity has been on the rise due to its unavailability and other concerns in the sector.
He added that the price of fuel could be sold from N350/litre to N400/litre before the end of the year.
Meanwhile, a number of senior officials at the NNPC had stated that the subsidy was becoming too burdensome on the national oil company, as this was another reason for the scarcity of PMS.
According to a source who is familiar with the development as reported by Punch News, “How can we continue to import 60 million litres of petrol daily and keep subsidising it, while millions of litres are either diverted or cannot be accounted for? The burden is too much, as you rightly captured in that story”.
Investors King understands that NNPC is the sole importer of petroleum into the country and it pays billions of naira every month to subsidise the product to N147 per litre.
Reuters News reported that in August 2022, NNPC paid more than $1 billion as fuel subsidy while the federal government earmarked N3.6 trillion as fuel subsidy in the 2023 budget proposal.
Fuel Scarcity: NNPC Declares 2billion Liters in Stock, Blames Scarcity on Road Construction
NNPC Claimed it as 2 billion litres of fuel despite scarcity
The Nigerian National Petroleum Company (NNPC) has blamed the recent fuel scarcity on road construction around Apapa, noting that the corporation has about 2 billion litres of fuel in stock.
According to a statement issued by NNPC Executive Vice President, Downstream, Mr Adeyemi Adetunji, the Nigeria National Petroleum Company has about 2 billion litres of fuel which can last the country conveniently for more than 30 days.
The Executive Vice President further blamed the queues on the road construction around Apapa axis which has slowed down the movement of oil trucks to several parts of the country.
“The recent queues in Lagos are largely due to ongoing road infrastructure projects around Apapa and access road challenges in Lagos” he said.
He however noted that more filling stations should have Premium Motor Spirit (PMS) otherwise known as petrol with the ease in gridlock along the apapa axis.
“The gridlock is easing out and NNPC Ltd has programmed vessels and trucks to unconstrained depots and massive load outs from depots to states are closely monitored,” he said.
Investors King gathered that several states including Abuja have been impacted by the supply chain difficulty caused by the construction around Apapa.
The scarcity of fuel has therefore led to the hike in price. In most places across the country, fuel is sold as high as N250 per litre. Several fuel stations are already taking advantage of the situation coupled with the increase in the movement of people and goods owing to the December festivals.
Speaking further, Adeyemi noted that the situation will soon be back to normalcy as NNPC is taking measures to address the situation.
“We want to reassure Nigerians that NNPC has sufficient products and we significantly increased product loading in selected depots and extended hours at strategic stations to ensure sufficiency nationwide.
“We are also working with industry stakeholders to ensure normalcy is returned as soon as possible,” he concluded.
Global Growth to Drop Below 2% in 2023, Says Citi
Citigroup on Wednesday forecast global growth to slow to below 2% next year, echoing similar projections by major financial institutions such as Goldman Sachs, Barclays, and J.P. Morgan.
Strategists at the brokerage cited continued challenges from the COVID-19 pandemic and the Russia-Ukraine war — which skyrocketed inflation to decades-high levels and triggered aggressive policy tightening — as reasons behind the outlook.
“We see global performance as likely (being) plagued by ‘rolling’ country-level recessions through the year ahead,” said Citi strategists, led by Nathan Sheets.
While the Wall-Street investment bank expects the U.S. economy to grow 1.9% this year, it is seen more than halving to 0.7% in 2023.
It expects year-on-year U.S. inflation at 4.8% next year, with the U.S. Federal Reserve’s terminal rate seen between 5.25% and 5.5%.
Among other geographies, Citi sees the UK and euro area falling into recession by the end of this year, as both economies face the heat of energy constraints on supply and demand front, along with tighter monetary and fiscal policies.
For 2023, Citi projects UK and euro area to contract 1.5% and 0.4%, respectively.
In China, the brokerage expects the government to soften its zero-COVID policy, which is seen driving a 5.6% growth in gross domestic product next year.
Emerging markets, meanwhile, are seen growing 3.7%, with India’s 5.7% growth — slower than this year’s 6.7% prediction — seen leading among major economies.
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