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U.S. Stocks Retreat as Metals Prices Gain, Dollar Drop

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U.S. stocks fell, as commodities from copper to gold advanced amid a slide in the dollar that was fueled by speculation global growth may not be strong enough to warrant further central-bank tightening. Crude erased an advance to fall back below $32 a barrel.

The Standard & Poor’s 500 Index retreated after rising 0.8 percent. Disappointing results at retailers dragged consumer shares lower. Crude slid, while the Bloomberg Dollar Spot Index headed for its biggest two-day loss since 2009. Emerging-market equities rallied almost 3 percent. The pound fell after Ian McCafferty, the Bank of England’s only policy dissenter over the past six months, dropped his call for higher interest rates.

The dollar’s retreat was sparked by data showing the U.S. services sector grew at the slowest pace in nearly two years, underscoring the vulnerability of the American economy to unsteadiness abroad. The report tipped the fixed-income market’s balance closer toward zero rate hikes by the Federal Reserve this year, amid prospects central banks from Asia to Europe will act to quell the turmoil that’s roiled markets in 2016. The greenback’s drop helped prop up the price of gold and industrial metals.

“The lower the dollar, the better it is for commodities, so we are seeing a little bounce back,” Andrew Brenner, head of international fixed income at National Alliance Capital Markets in New York said by phone. “The number of Fed rate raises has continued to be reduced by the market place, probably a little bit too much. But yes the Fed will cut back, we will not do four interest rates raises this year.”

Stocks

The S&P 500 fell 0.3 percent to 1,907 at 2:51 p.m. in New York. The gauge advanced yesterday for the first time this month, erasing a drop of more than 1 percent as oil’s surge topped 7 percent. The benchmark equity gauge is down more than 6 percent so far in 2016.

Materials shares advanced 2.2 percent, as Freeport McMoRan Inc. surged with copper. Energy producers fell 0.2 percent after earlier gaining. Shares in consumer-discretionary stocks fell. Kohl’s Corp. sank 19 percent after slow sales squeezed profits. Ralph Lauren Corp. plunged after the company cut its annual forecast.

Economic data did little to alter perceptions on the strength of the world’s largest economy. Initial jobless claims last week rose more than expected, Labor Department data showed, while factory orders declined at a faster pace in December than the previous month.

“The question is what can we hang our hat on right now? It’s not earnings, it’s not what central banks are able to do, and it’s certainly not what we’re seeing with economic data,” Yousef Abbasi, global market strategist at JonesTrading Institutional Services LLC in New York, said by phone. “Central banks continue to take their targets down on growth and inflation and part of today’s frustration came with the whippiness of crude.”

The Stoxx Europe 600 Index fell 0.2 percent, after rising as much as 1.1 percent. Daimler AG led automakers to among the biggest declines out of the 19 industry groups. Gauges of energy shares and commodity producers jumped more than 3.3 percent, for the best performances.

Credit Suisse Group AG slumped 11 percent to its lowest price since August 1992 after posting a quarterly loss as it wrote off goodwill and set aside provisions for litigation, while its two investment-banking divisions slumped.

Emerging Markets

The MSCI Emerging Markets Index rose 2.6 percent, with more than five stocks advancing for every one that declined. Material and energy producers led gains among 10 industry groups, climbing almost 5 percent.

Russia’s Micex Index jumped 2.4 percent, the most in a week, and shares in Dubai rallied 2.8 percent. Equity benchmarks in South Korea, Malaysia, the Philippines and South Africa rose at least 0.8 percent.

Emerging-market currencies headed for a two-day advance. Malaysia’s ringgit and South Korea’s won strengthened at least 1.4 percent against the dollar, sending a gauge of developing-nation exchange rates toward a one-month high. Turkey’s lira erased this year’s losses.

Currencies

The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, retreated 0.6 percent after sliding as much as 1.9 percent last session.

The greenback fell against all of its 16 major peers except Mexico’s peso and the British pound, which was weighed down by the Bank of England ’s unanimous vote to keep interest rates unchanged. Officials signaled borrowing costs will stay low as they cut their growth and inflation forecasts.

The dollar slipped 1 percent to 116.67 yen, after erasing all its gains since the BOJ’s surprise Jan. 29 move. The greenback weakened 1 percent to $1.1214 per euro, and has now fallen every day this week.

Commodities

The Bloomberg Commodity Index, which measures returns on raw materials, fell 0.2 percent after earlier rallying as much as 1.2 percent. The gauge advanced 1.9 percent yesterday.

Oil sank after rallying earlier. West Texas Intermediate fell 1.9 percent to $31.67 a barrel in New York, after jumping as much as 4.1 percent. Some OPEC member states and non-members have been talking about an extraordinary meeting on production.

Statoil ASA, Norway’s biggest oil company, deepened investment cuts and offered to pay dividends in stock. Royal Dutch Shell Plc said it depleted its oil and gas reserves much faster than it replenished them with new resources in 2015, its worst performance since 12 years ago.

Industrial metals benefited from a drop in the U.S. currency that makes dollar-denominated commodities cheaper for investors. Aluminum for delivery in three months climbed to the highest this year on the LME, and lead advanced for the eighth day in a row, the longest run since June 2014.

Spot gold climbed for a fifth day, the longest run of gains in five months, as expectations of continued low U.S. interest rates seeped through the market.

Bonds

The Treasury 10-year note yield slipped two basis points to 1.87 percent. The yield dropped to 1.79 percent Wednesday, the lowest level since February 2015. Goldman Sachs Group Inc. and Pacific Investment Management Co. say bonds are poised to fall and traders aren’t prepared for how far the Federal Reserve will raise interest rates.

Spanish and Italian government bonds led declines across the euro region as investors questioned the level of additional stimulus they can expect from the European Central Bank.

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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Markets

Black Friday Lull

We’re seeing subdued trading at the end of the week, with the absence of the US leaving markets lacking any notable direction.

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

We’re seeing subdued trading at the end of the week, with the absence of the US leaving markets lacking any notable direction.

This isn’t really unusual and at the end of the week too, it really makes sense. Barring a flurry of big headlines from elsewhere, we could now see equity markets just drift into the weekend with investors already having an eye on next week.

Perhaps today people are trading in their charts for some Black Friday deals, the outcome of which will certainly be on everyone’s radar. Going into the holiday season, we’ll get an early idea of the state of play for household spending in the midst of a cost-of-living crisis.

Of course, it will naturally be difficult to distinguish how much of that bargain hunting will prove to be holiday season shopping brought forward in an attempt to get the “best deals”. But if Black Friday shopping takes a hit this year, it won’t bode well for the rest of the holiday period which is so important to retailers.

PBOC cuts the RRR

The PBOC cut the RRR by 25 basis points this morning in a bid to support the economy which is once more going through a difficult period. How effective that will prove to be when cities are seeing restrictions and effective lockdowns reimposed is hard to say. But combined with other measures to boost the property market and ease Covid curbs, the cut could be supportive over the medium term when growth remains highly uncertain.

Oil pares losses as price cap talks continue

Oil prices are higher on Friday, continuing to pare losses after being hit heavily in recent weeks by surging Covid cases in China and discussions around the price cap on Russian crude.

Lockdowns in all but name appear to be popping up in major Chinese cities in an attempt to get a grip on record cases which will weigh heavily on economic activity once more and in turn demand. It’s now a question of how long they last but clearly investors’ enthusiasm toward the relaxation of Covid restrictions was a bit premature.

Talks will continue on a price cap but it seems it won’t be as strict as first thought, to the point that it may be borderline pointless. That’s hit oil prices again this week as the threat to Russian output from a $70 cap, for example, is minimal given it’s selling around those levels already.

Gold establishing a range ahead of key data releases

Gold is marginally lower today but has been quite choppy throughout the session, and broadly lacked any real direction. We could be seeing a little profit-taking as the dollar edges higher following the relief rally that followed the Fed minutes.

The yellow metal is trading roughly in the middle of what may be a newly established range between $1,730 and $1,780, potentially now awaiting the next catalyst ahead of the December Fed meeting. With another jobs and inflation report still to come, a lot could change between now and when the FOMC next meets.

Bitcoin still extremely vulnerable

Bitcoin is edging lower again today after recording three days of gains. That dragged it off the lows but didn’t really carry it that far from them. It’s trying to stabilize around the $15,500-$17,000 region and weather the storm but I’m not sure it will be that easy. There’s likely more to come from the FTX collapse and the contagion effects, not to mention potentially other scandals that could be uncovered. This may continue to make crypto traders very nervous and leave the foundations supporting price extremely shaky. ​

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Crude Oil

Lack of Inflows, Revenue Shortage Plunge Nigeria’s Excess Crude Account By 89%

The ECB balance declined from $4.1 billion recorded in November 2014 to $472,513

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Weak foreign revenue inflow amid fluctuations in the global oil market has plunged Nigeria’s Excess Crude Account (ECA) by 89% in the last eight years.

The Excess Crude Account (ECA) is an account used to save excess crude oil revenue by the Nigerian government.

The ECB balance declined from $4.1 billion recorded in November 2014 to $472,513 in the same period of 2022, according to a statement from the Ministry of Finance, Budget, and National Planning.

Economists attributed the substantial decline to the nation’s persistent depreciation in foreign revenue inflows and the struggle with crude oil production amid global uncertainty.

According to Jonathan Aremu, professor of economics at Covenant University in Ogun State, the decline was a result of constant withdrawal without replenishment.

“For you to increase the ECA, the oil price must rise above the budgeted price. If it does not, nothing goes in.  Also, if what you are spending is higher than what goes in, it depletes. This is the situation,” he noted.

On Thursday, crude oil prices declined following the Group of Seven (G7) nations’ proposed plan to cap Russian oil at $65-70 a barrel.

Brent crude oil, against which Nigerian oil is priced, declined to $85 a barrel while the West Texas Intermediate (WTI) crude fell by 0.6% to $77.48 a barrel.

Despite the fact that the benchmark price for oil in the 2022 budget was $57, the price of oil today is still about $30 higher. In spite of higher oil prices, the ECA has been on a decline since early 2022, suggesting that the issue is internal.

“Nigeria’s crude production plunged below 1 million barrels per day (mbpd) for the first time since Buhari became President this year and has averaged about 1.2 mbpd most part of 2022. Therefore, it is impossible to take advantage of the Russian-Ukraine war inflated oil prices like we did during the Gulf war under former president Ibrahim Babangida,” Samed Olukoya, CEO/Founder Investors King Ltd stated.

The government needs to address internal issues, revamp refineries, reduce oil theft and diversify the economy to reduce overexposure to global oil fluctuations.

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Crude Oil

Crude Oil Opens at $85 as G7 Nations Move to Cap Russian Oil

The Group of Seven (G7) proposed to cap Russian crude oil at $65-$70 a barrel

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Crude oil

Crude oil opened lower on Thursday, declining to a two-month low following the Group of Seven (G7) proposal to cap Russian crude oil at $65-$70 a barrel.

A greater-than-expected build in U.S. gasoline inventories and widening COVID-19 controls in China added to downward pressure.

Brent crude dipped 50 cents, or 0.6%, to $84.91 a barrel, while U.S. West Texas Intermediate (WTI) crude fell by 46 cents, or 0.6%, to $77.48 a barrel.

Both benchmarks plunged more than 3% on Wednesday on news the planned price cap on Russian oil could be above the current market level.

The G7 is looking at a cap on Russian seaborne oil at $65-$70 a barrel, according to a European official, though European Union governments have not yet agreed on a price.

A higher price cap could make it attractive for Russia to continue to sell its oil, reducing the risk of a supply shortage in global oil markets.

That range would also be higher than markets had expected, reducing the risk of global supply being disrupted, said Vivek Dhar, a commodities analyst at Commonwealth Bank in a report.

“If the EU agree to an oil price cap of $65‑$70/bbl this week, we see downside risks to our oil price forecast of $95/bbl this quarter,” Dhar said.

Oil and gas exports are forecast to account for 42% of Russia’s revenues this year at 11.7 trillion roubles ($196 billion), according to the country’s finance ministry, up from 36% or 9.1 trillion roubles ($152 billion) in 2021.

The G7, including the United States, as well as the whole of the European Union and Australia, are planning to implement the price cap on sea-borne exports of Russian oil on Dec. 5.

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