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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.

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Energy

Unlocking Investments into Africa’s Renewable Energy Market

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green energy - Investors King

The African Energy Guarantee Facility (AEGF) is launching a virtual roadshow of free webinars allowing a deeper understanding of risk issues for renewable energy projects on the continent, and conversations around risk mitigation solutions. The first webinar will take place on Thursday, 23 September from 14:30-16:00 hrs. EAT. 

The session will be oriented on how to get more energy projects from the drawing board to the grid. While the energy demand in African economies is expected to nearly double by 2040, and although the potential for renewable energy is 1,000 times larger than the demand, only 2GW out of almost 180GW of this new renewable power were added on the African continent.

Clearly not good enough! To improve the situation within the next two decades, new solutions need to be implemented urgently. De-risking and promoting private sector investments will play a crucial part of it.

In this 90-min interactive session, AEGF partners: the European Investment Bank (EIB), KfW Development Bank, Munich Re and the African Trade Insurance Agency (ATI) will share their experience and provide valuable insights on how they were able to come together and design practical solutions for investors and financiers of green energy projects in Africa aligned with SDG7 objectives.

Across Africa, the complexity of renewable energy projects and their long tenors hold back crucial energy investment. Tailored to the specific needs and risk profiles of sustain­able energy projects, AEGF will tackle the investment challenge by providing underwriting expertise and capacity tailored to market needs.

The AEGF will significantly boost private investment in sustainable energy projects, both expanding access to clean energy and contribute to achieving UN Sustainable Development Goals. The scheme supports new private sector investment in eligible renewable energy, energy efficiency and energy access projects in sub-Saharan Africa.

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Energy

Shell Signs Agreement To Sell Permian Interest For $9.5B to ConocoPhillips

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Shell profit drops 44 percent

Shell Enterprises LLC, a subsidiary of Royal Dutch Shell plc, has reached an agreement for the sale of its Permian business to ConocoPhillips, a leading shales developer in the basin, for $9.5 billion in cash. The transaction will transfer all of Shell’s interest in the Permian to ConocoPhillips, subject to regulatory approvals.

“After reviewing multiple strategies and portfolio options for our Permian assets, this transaction with ConocoPhillips emerged as a very compelling value proposition,” said Wael Sawan, Upstream Director. “This decision once again reflects our focus on value over volumes as well as disciplined stewardship of capital. This transaction, made possible by the Permian team’s outstanding operational performance, provides excellent value to our shareholders through accelerating cash delivery and additional distributions.”

Shell’s Upstream business plays a critical role in the Powering Progress strategy through a more focused, competitive and resilient portfolio that provides the energy the world needs today whilst funding shareholder distributions as well as the energy transition.

The cash proceeds from this transaction will be used to fund $7 billion in additional shareholder distributions after closing, with the remainder used for further strengthening of the balance sheet. These distributions will be in addition to our shareholder distributions in the range of 20-30 percent of cash flow from operations. The effective date of the transaction is July 1, 2021 with closing expected in Q4 2021.

Shell has been providing energy to U.S. customers for more than 100 years and plans to remain an energy leader in the country for decades to come.

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Crude Oil

Oil Gains 1 Percent on Possible Tight Supply 

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Oil prices - Investors King

Oil prices rose on Tuesday as analysts pointed to signs of U.S. supply tightness, ending days of losses as global markets remain haunted by the potential impact on China’s economy of a crisis at heavily indebted property group China Evergrande.

Brent crude gained 95 cents or 1.3% to $74.87 a barrel by 0645 GMT, having fallen by almost 2% on Monday. The contract for West Texas Intermediate (WTI) , which expires later on Tuesday, was up 91 cents or 1.3% at $71.20 after dropping 2.3% in the previous session.

Global utilities are switching to fuel oil due to rising gas and coal prices, and lingering outages from the Gulf of Mexico after Hurricane Ada that imply less supply is available, ANZ analysts said.

“While slowing Chinese economic growth and uncertainty around the (U.S.) Fed’s tapering timetable weighed on market sentiment, other developments still point to higher oil prices,” ANZ Research said in a note.

Still, investors across financial assets have been rocked by the fallout from heavily indebted Evergrande (3333.HK) and the threat of a wider market shakeout in the longer term.

“Evergrande’s woes are threatening the outlook for the world’s second-largest economy and making some investors question China’s growth outlook and whether it is safe to invest there,” said Edward Moya, senior market analyst at OANDA.

While that view of the state of China’s economy is weighing on markets, the U.S. Federal Reserve is also expected to start tightening monetary policy – likely to make investors warier of riskier assets such as oil.

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