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Asian Stocks Volatile Amid Brexit Worries, MSCI China Decision

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Asian stocks recovered slightly from a near three-week low on Wednesday as markets digest MSCI’s decision not to include domestic Chinese equities in its indexes.

Mainland Chinese shares, among Asia’s worst performers this year, were mixed while Hong Kong slid, as markets, which had expected Chinese A-shares to be included in the emerging market index, considered the announcement.

MSCI’s broadest index of Asia-Pacific shares outside Japan were down 0.1 percent. Japan’s Nikkei reversed earlier losses to rise 0.7 percent.

China’s CSI 300 index and the Shanghai Composite staged a turnaround from earlier declines to rise 0.4 percent and 0.6 percent respectively. Hong Kong’s Hang Seng index slipped 0.1 percent.

MSCI in its decision said Beijing had more work to do in liberalising capital markets, and said it wanted more time to assess the effectiveness of the Qualified Foreign Institutional Investor (QFII) quota allocation scheme and capital mobility policy changes.

MSCI said it would consider China A shares’ inclusion as part of its 2017 review and didn’t rule out a potential off-cycle announcement should further positive developments occur ahead of June 2017.

“We agree there is room for improvement in the regulatory environment and in corporate governance in the A-share market,” Steven Sun, head of China and Hong Kong equity research at HSBC, wrote in a note.

“However, we believe it is moving in the right direction…We still think inclusion is probable (possibly by year-end).”

China’s securities regulator said the decision won’t impact the reform and opening process of the country’s capital markets, adding that the country needs to build long-term, stable and healthy capital markets.

The Chinese central bank set the yuan midpoint rate at 6.6001, the lowest level against the dollar since January 2011. It eased to 6.6020 per dollar on the open, and was last trading slightly higher at 6.5978.

The offshore yuan rose to 6.6071 after earlier falling to 6.6152 to the dollar, its weakest level since early February as worries about China’s economy deepened after data showed growth in China’s fixed-asset investment slowed to a 15-year low.

On Wall Street, S&P 500 Index hit a three-week low to end at 2,075.32 on Tuesday, down 0.18 percent, in its fourth consecutive drop, led by a 1.45 percent fall in financial shares.

European shares were under more pressure, with Britain’s FTSE falling 2.0 percent to a 3 1/2-month low on fears disruptions from leaving the political and economic union could harm the UK economy, possibly sending it into a recession.

“The economic impact would occur over months and years, not immediately. But financial markets are constantly trying to look forward and discount what’s going to happen,” said Michael Metcalfe, head of global macro strategy at State Street Global Markets based in London.

“But I think the real question will become political – that a large country has decided to leave the EU,” he added.

Worries that Brexit will deal a significant blow to the integration of Europe have helped to push up borrowing costs of European countries with weak credit ratings.

The gap between 10-year Portuguese bond yields and German peers rose to 337 basis points, its widest since February. The spread for Italian and Spanish debt also rose to levels not seen since February.

Investors instead flocked to the safety of German bunds, whose yield fell below zero for the first time in history on Tuesday.

The Japanese yen also held firm, staying near a six-week high against the dollar and a 3 1/2-year high against the euro.

The yen was changing hands at 106.285 to the dollar, having hit a six-week high of 105.63 on Tuesday. The euro stood at 119.02 yen after falling to a low of 118.48.

The safehaven Swiss franc was last trading at 1.0798 per euro after rising to a 5 1/2-month high of 1.0787 in the previous session.

The British pound struggled near its two-month low against the dollar touched on Tuesday. It last stood at $1.4136, close to Tuesday’s low of $1.4091.

Concerns about Brexit dwarfed any optimism from solid U.S. retail sales data published on Tuesday.

Fed funds futures show investors see almost no chance of the Fed raising U.S. interest rates on Wednesday after the dismal U.S. payrolls report for May.

The 10-year U.S. debt yield fell to a four-month low of 1.567 percent on Tuesday and last stood at 1.6113 percent.

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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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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Nigeria, Other OPEC Members Oil Revenue to Hit 18 Year Low in 2020

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Revenue of OPEC Members to Drop to 18 Year Low in 2020

The United States Energy Information Administration (EIA) has predicted that the oil revenue of members of the Organisation of the Petroleum Exporting Countries (OPEC) will decline to 18-year low in 2020.

EIA said their combined oil export revenue will plunge to its lowest level since 2002. It proceeded to put a value to the projection by saying members of the oil cartel would earn around $323 billion in net oil export in 2020.

If realised, this forecast revenue would be the lowest in 18 years. Lower crude oil prices and lower export volumes drive this expected decrease in export revenues,” it said.

The oil expert based its projection on weak global oil demand and low oil prices because of COVID-19.

It said this coupled with production cuts by OPEC members in recent months will impact net revenue of the cartel in 2020.

It said, “OPEC earned an estimated $595bn in net oil export revenues in 2019, less than half of the estimated record high of $1.2tn, which was earned in 2012.

“Continued declines in revenue in 2020 could be detrimental to member countries’ fiscal budgets, which rely heavily on revenues from oil sales to import goods, fund social programmes, and support public services.”

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