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Federal Reserve Leaves Rates Unchanged

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Janet Yellen

Federal Reserve policy makers left open the door to raising interest rates in June by tacitly nodding to improvement in global financial markets and downplaying recent weakness in the U.S. economy.

The Federal Open Market Committee omitted previous language that “global economic and financial developments continue to pose risks,” instead saying officials will “closely monitor” such developments, according to a statement released Wednesday following a two-day meeting in Washington. The Fed left its benchmark interest rate unchanged.

“Labor market conditions have improved further even as growth in economic activity appears to have slowed,” the FOMC said. “Growth in household spending has moderated, although households’ real income has risen at a solid rate and consumer sentiment remains high.”

The committee reiterated that it will probably raise rates at a “gradual” pace. The central bank’s next meeting is June 14-15.

Extending a hold since raising interest rates in December from close to zero, the committee said that inflation has continued to run below the Fed’s 2 percent target, and market-based measures of inflation compensation remain low.

Risk Assessment

Officials omitted an assessment of whether the risks to the outlook were balanced or not for the third straight meeting. After saying in December that risks were “balanced,” policy makers removed the so-called “balance of risks” in January amid financial-market turmoil.

Minutes from the March meeting showed that “many” officials saw the global situation posing downside risks to the U.S. economy.

Esther George, president of the Kansas City Fed, dissented for the second meeting in a row, repeating her preference for a quarter-point increase instead of voting to leave the federal funds rate’s target range at 0.25 percent to 0.5 percent.

Fed Chair Janet Yellen isn’t scheduled to hold a post-meeting press conference.

Spurred largely by robust jobs growth, Yellen closed 2015 by leading the FOMC to its first rate rise in almost a decade and declaring her expectation for a “gradual” pace of additional hikes this year.

Global Environment

Despite continued strength in the labor market, the committee balked at another move in January and again in March amid worries that weak global growth and turbulence in financial markets might harm the U.S. economy. Markets have since calmed and inflation has showed signs of rising closer to the central bank’s 2 percent target, but growth in the U.S. has slowed.

“Since the beginning of the year, the housing sector has improved further but business fixed investment and net exports have been soft,” the FOMC said. The committee reiterated that a “a range of recent indicators, including strong job gains, points to additional strengthening of the labor market.”

GDPNow, the Atlanta Fed’s measure of economic growth, estimated first-quarter expansion at an annual rate of 0.6 percent, as of Wednesday. Growth in the last quarter of 2015 was also weak, at 1.4 percent on an annualized basis, according to the Commerce Department, which releases preliminary first-quarter figures Thursday for gross domestic product.

Quarterly Forecasts

In quarterly forecasts submitted in March, the median projection from FOMC members was for two quarter-point interest-rate increases in 2016, down from the four projected by the median forecast in December. In contrast, prices for federal funds futures contracts before the FOMC statement implied that investors expected just one move this year, and not until September at the earliest.

Some Fed officials have worked to lift market expectations in recent weeks. Boston Fed President Eric Rosengren, an FOMC voter this year, said April 18 that raising rates at the pace predicted by markets would risk pushing unemployment too low and inflation too high. Rosengren is known for advocating a slower approach to rate hikes than most of his policy-making colleagues.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Markets

OPEC Agrees to Increase Oil Supply by 500,000 Barrels Per Day Ahead of Surge in Demand

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Nigeria's economic Productivity

OPEC and allies finally agreed to ease their 7.7 million barrels per day production cut by 500,000 barrels per day starting from January 2021.

This will now bring the oil cartel’s total production cuts to 7.2 million barrels per day starting from next year.

Oil prices rose after the news as the market believed the approval of Pfizer COVID-19 in the United Kingdom will kick start a series of approvals and helped restore confidence, increase business activities and demand for the commodity across the globe.

After the outcome of the meeting was made public on Thursday, Brent Crude Oil against which Nigerian oil is priced gained 1.35 percent on Friday after gaining 1.4 percent on Thursday to $49.37 per barrel at 11.35 am Nigerian time on Friday.

The US West Texas Intermediate gained 1.29 percent to $46.23 barrel on Friday.

500,000 bpd from January is not the nightmare scenario that the market feared, but it is not what was really expected weeks ago,” said Rystad Energy senior oil markets analyst Paola Rodriguez Masiu. “Markets are now reacting positively and prices are recording a small increase as 500,000 of extra supply is not deadly for balances,” she added.

Investors King increased business sentiment in the energy sector to boost investment, increase activity in the sector and most important improve crude oil demand enough to accommodate the 500,000 barrels per day extra that would be hitting the global market starting from January.

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Communities in Delta State Shut OML30 Operates by Heritage Energy Operational Services Ltd

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Oil

The OML30 operated by Heritage Energy Operational Services Limited in Delta State has been shut down by the host communities for failing to meet its obligations to the 112 host communities.

The host communities, led by its Management Committee/President Generals, had accused the company of gross indifference and failure in its obligations to the host communities despite several meetings and calls to ensure a peaceful resolution.

The station with a production capacity of 80,000 barrels per day and eight flow stations operates within the Ughelli area of Delta State.

The host communities specifically accused HEOSL of failure to pay the GMOU fund for the last two years despite mediation by the Delta State Government on May 18, 2020.

Also, the host communities accused HEOSL of ‘total stoppage of scholarship award and payment to host communities since 2016’.

The Chairman, Dr Harrison Oboghor and Secretary, Mr Ibuje Joseph that led the OML30 host communities explained to journalists on Monday that the host communities had resolved not to backpedal until all their demands were met.

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Crude Oil Recovers from 4 Percent Decline as Joe Biden Wins

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Oil Prices Recover from 4 Percent Decline as Joe Biden Wins

Crude oil prices rose with other financial markets on Monday following a 4 percent decline on Friday.

This was after Joe Biden, the former Vice-President and now the President-elect won the race to the White House.

Global benchmark oil, Brent crude oil, gained $1.06 or 2.7 percent to $40.51 per barrel on Monday while the U.S West Texas Intermediate crude oil gained $1.07 or 2.9 percent to $38.21 per barrel.

On Friday, Brent crude oil declined by 4 percent as global uncertainty surged amid unclear US election and a series of negative comments from President Trump. However, on Saturday when it became clear that Joe Biden has won, global financial markets rebounded in anticipation of additional stimulus given Biden’s position on economic growth and recovery.

Trading this morning has a risk-on flavor, reflecting increasing confidence that Joe Biden will occupy the White House, but the Republican Party will retain control of the Senate,” Michael McCarthy, chief market strategist at CMC Markets in Sydney.

“The outcome is ideal from a market point of view. Neither party controls the Congress, so both trade wars and higher taxes are largely off the agenda.”

The president-elect and his team are now working on mitigating the risk of COVID-19, grow the world’s largest economy by protecting small businesses and the middle class that is the backbone of the American economy.

There will be some repercussions further down the road,” said OCBC’s economist Howie Lee, raising the possibility of lockdowns in the United States under Biden.

“Either you’re crimping energy demand or consumption behavior.”

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