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US Federal Reserve Leaves Funds Rate Unchanged

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Fed Chair Janet Yellen

A divided Federal Reserve left its policy interest rate unchanged to await more evidence of progress toward its goals, while projecting that an increase is still likely by year-end.

“Near-term risks to the economic outlook appear roughly balanced,” the Federal Open Market Committee said in its statement Wednesday after a two-day meeting in Washington. “The Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.”

The sixth straight hold extends U.S. central bankers’ run of getting cold feet amid risks from abroad and inconsistent signs of economic strength. Now the focus will shift to December as the Fed’s likely last chance to raise interest rates in 2016 — a move that depends on how the economy, inflation and markets fare in the months surrounding a contentious presidential election.

“The statement is much more hawkish than I thought it would be,” said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC in New York, who said he expects a rate increase in December. “That just tells you they are revving up the engines.”

Three officials, the most since December 2014, dissented in favor of a quarter-point hike. Esther George, president of the Kansas City Fed, voted against the decision for a second straight meeting. She was joined by Cleveland Fed President Loretta Mester — in her first dissent — and Eric Rosengren, head of the Boston Fed, whose previous dissents called for easier policy.

“Our decision does not reflect a lack of confidence in the economy,” Fed Chair Janet Yellen said at the start of her press conference. “Since monetary policy is only modestly accommodative, there appears little risk of falling behind the curve in the near future.”

Stocks climbed with Treasuries after the decision, while the dollar declined and gold rallied. The Standard & Poor’s 500 Index extended gains after the Fed’s statement, while a gauge of the U.S. yield curve flattened as the shortest-maturity debt underperformed. The greenback lost ground against all but two of its major peers.

The central bank’s so-called “dot plot”, which it uses to signal its outlook for the path of interest rates, showed that officials expected one quarter-point rate increase this year. Three policy makers projected that keeping rates unchanged this year would be most appropriate. Officials scaled back expectations for hikes in 2017 and over the longer run.

Policy makers see two rate hikes next year, down from their June median projection of three.

The Fed said that the labor market will “strengthen somewhat further,” adding the qualifier “somewhat further” to similar language from the July statement.

“Although the unemployment rate is little changed in recent months, job gains have been solid, on average,” the Fed said in its statement. “Household spending has been growing strongly but business fixed investment has remained soft.”

The target range for the benchmark federal funds rate remains at 0.25 percent to 0.5 percent, where it’s been since a quarter-point increase in December 2015 that ended seven years of near-zero rates.

The Fed repeated that it “continues to closely monitor inflation indicators and global economic and financial developments.”

Gradual Pace

The FOMC reiterated that borrowing costs will probably rise at an “only gradual” pace. Policy makers also reiterated that they expect inflation to rise to their 2 percent goal over the medium term.

Because November’s FOMC meeting comes within a week of the U.S. presidential election and isn’t followed by a press conference with Yellen, economists have viewed the Fed’s December meeting as a more likely candidate for an increase.
The latest decision could embolden Republican presidential nominee Donald Trump to unleash additional attacks on Yellen. The billionaire businessman said last week that the Fed “is being totally controlled politically” and might stand pat on rates for the rest of year.

Yellen, a former economics professor at the University of California at Berkeley, was appointed Fed chair by President Barack Obama and served as President Bill Clinton’s top economic adviser.

The decision comes as Fed officials become more convinced that the economy is experiencing a new normal.

Long-Term Rate

Policy makers scaled back their median projection of the long-term interest rate to 2.9 percent from 3 percent in June. The estimate shows how high officials think rates can climb, so its downgrade suggests a shallower hiking cycle.

Fed officials also cut their median growth projection for 2016 to 1.8 percent from 2 percent, mirroring the drop in the longer-run forecast, based on median estimates. Inflation is projected at 1.3 percent in the fourth quarter, down from a forecast of 1.4 percent in June. Policy makers again projected that inflation will reach the 2 percent target in 2018.

Most economists had expected the committee to stay on hold, assigning just a 15 percent chance of a hike this month. Fed watchers saw a 54 percent probability that the Fed will raise rates at its December 13-14 meeting.

Yellen is scheduled to hold a press conference at 2:30 p.m. in Washington. It will be her first public remarks since a speech last month, when she said that the case for an interest-rate increase “has strengthened in recent months.”

Payroll Gains

Nonfarm payrolls have climbed by 182,000 jobs on average so far this year, although the most recent report showed a cooling to 151,000 job gains along with moderating wage increases. Other figures have shown declines in August retail sales and industrial production, as well as drops in sentiment at service companies and manufacturers.

Inflation is still running below the Fed’s 2 percent goal. After picking up earlier in the year, annual gains in the headline personal consumption expenditures price index slowed to 0.8 percent in July. Core inflation, which excludes food and fuel costs, is firmer though still undershooting at 1.6 percent.

Meanwhile, inflation expectations have stayed relatively low. A gauge of market-based expectations watched by the Fed is projecting a pace of price gains of about 1.5 percent in the period five to 10 years out.

The Fed repeated on Wednesday that “market-based measures of inflation compensation remain low.”

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.

Crude Oil

South Sudan Launches First-Ever Oil and Gas Licensing Round

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Brent crude oil - Investors King

South Sudan’s Ministry of Petroleum (MoP) officially launched the country’s first-ever oil and gas licensing round in Juba on Wednesday; Hosted by the MoP and attended by industry executives and international stakeholders, the event signifies an historic moment in the country’s budding oil and gas sector; The launch precedes the country’s highly anticipated national energy conference, South Sudan Oil & Power 2021, organized by Energy, Capital & Power and taking place at the Crown Hotel in Juba on the 29th-30th June.

South Sudan’s Ministry of Petroleum (MoP) officially launched the country’s first-ever oil and gas licensing round in an inaugural event on Wednesday in Juba. Focused on accelerating exploration and production at new and existing blocks, and promoting the country as a competitive investment destination, the event signified an historic moment in the country’s competitive oil and gas sector.

The event was officially launched by Hon. Puot Kang Chol, Minister of Petroleum, where presentations were given by Hon. Awow Daniel Chuang, Undersecretary, MoP and Hon. Athian Ding Athian, Minister of Finance and Economic Planning, with closing remarks by H.E. James Wani Igga, Vice-President and VP of the Economic Cluster, TGNU. With emphasis placed on political improvements, the improved legal framework, and the ongoing acquisition of new data, the launch has reaffirmed the country’s commitment to advancing the sector.

“Oil licensing is a proof of stability and progress in South Sudan. These blocks are part of a vision for lasting peace in the country and we want to open up the energy sector for investment. The Ministry of Petroleum has identified new exploration blocks with potential hydrocarbons for investors, operators, and other parties. We are inviting genuine investors and as mentioned in our Petroleum Act, we will try our best to be transparent,” stated Hon. Puot Kuang Chol.

“It is high time for us to help maximize the natural resources we have, and I applaud the MoP for what they are doing. The oil industry has had its ups and downs, but it is about time that these resources benefit the community, and everyone gets their rightful entitlement of the development that is taking place in South Sudan,” stated Hon.. Athian Ding Athian.

The newly launched licensing round aims to attract international investors and partners to help expand South Sudan’s exploration initiatives. Built against a backdrop of peace and stability, the new licensing round aims to attract investors, while ensuring sustainable developments and community benefits.

“Certainly, one can say with confidence that South Sudan is doing well in maintaining peace and implementing peace agreements. For the first time we can really promote investment. The country needs to rigorously enforce transparency and good governance. We need accountability to improve. I am glad that with this new licensing round, the whole country will benefit,” stated H.E. James Wani Igga.

Additionally, the launch meticulously outlined the licensing process and schedule, providing insight into new and available blocks, technical capabilities and data. By detailing crucial analytical data and information to assist operators and investors, the launch emphasized that South Sudan is officially open for business, and accordingly, is welcoming investors to its competitive sector.

“Most of the areas being licensed had previously not been explored properly in terms of seismic data due to complications from the war. In 2019, we contracted PETROTECH to help with the data. The absence of data previously made it difficult to conduct licensing rounds, however, this licensing round today allows South Sudan to conduct a transparent tendering process with trustworthy data that is available,” stated Hon. Awow Daniel Chuang.

According to the MoP, the Ministry will use stringent criteria in its facilitation of the bid evaluation and investor selection process. With the offered blocks falling between longitudes 25 and 36 and between latitudes 4 and 11, and the size of blocks ranging between 4,000 and 25,000km², the licensing round is expected to be highly competitive. Additionally, the MoP is emphasizing the role of Nilepet in facilitating growth across the industry.

“If you look at the producing blocks today, the percentage of Nilepet has gone to 10% equity. We want investors but we also want to promote the capacity of Nilepet as the national oil company,” continued Hon. Puot Kang Chol.

The newly launched licensing round will be expanded on at the South Sudan Oil & Power (SSOP) 2021 conference, organized by Energy Capital & Power and endorsed by the Ministry of Petroleum. The Ministry will unpack the exploration of new blocks, existing blocks and will explain how it will further explore already producing areas.

Taking place at the Crown Hotel in Juba on the 29th-30th June, SSOP 2021 is expected to drive investment, promote engagement, and accelerate growth within South Sudan’s oil and gas sector.

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Crude Oil

Brent Crude Oil Crosses $75 Per Barrel as Global Demand Recovers

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Crude oil - Investors King

Crude oil prices sustained bullish runs amid rising demand for global oil and likely delay in Iranian crude supply to global oil market.

Brent crude oil, global benchmark for Nigerian oil, rose above $75 a barrel for the first time since 2019 on Tuesday as global investors remained bullish across the board.

Brent crude rose 26 cents or 0.4 percent to $75.16 a barrel as of 7 am Nigerian time on Tuesday.

The rebound has pushed up spot premiums for crude in Asia and Europe to multi-month highs.

“The market sentiment stays strong with improved outlook for global demand,” said Satoru Yoshida, a commodity analyst with Rakuten Securities, adding that a rally in Asian stock markets is also helping boost risk appetite among investors.

Global shares extended their recovery on Tuesday, with Asian markets bouncing from four-weeks lows as investor focus on economic growth partly offset worries about the U.S. Federal Reserve raising rates sooner than expected.

BofA Global Research raised its Brent crude price forecasts for this year and next, saying that tighter oil supply and recovering demand could push oil briefly to $100 per barrel in 2022.

Investors are looking to weekly U.S. inventory data as crude oil stockpiles have fallen for four weeks, said Toshitaka Tazawa, analyst at commodities broker Fujitomi Co.

U.S. crude stocks were expected to drop for the fifth consecutive week, while distillate and gasoline were seen rising last week, a preliminary Reuters poll showed on Monday.

“The oil prices are expected to hold a firm tone amid expectations that fuel demand will pick up quickly along with economic recovery in Europe and the United States,” Tazawa said.

The price gap between the world’s two most actively traded oil contracts narrowed to its lowest in more than seven months, demonstrating that U.S. oil output is still in the COVID-19 doldrums with the market likely to remain undersupplied.

Negotiations to revive the Iran nuclear deal took a pause on Sunday after hardline judge Ebrahim Raisi won the country’s presidential election.

Raisi on Monday backed talks between Iran and six world powers to revive a 2015 nuclear deal but flatly rejected meeting U.S. President Joe Biden, even if Washington removed all sanctions.

“The lower probability of Iranian crude oil returning to the market due to the new hardline president is also supporting the market,” Fujitomi’s Tazawa said.

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Energy

Majority of New Renewables Undercut Cheapest Fossil Fuel on Cost

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Solar energy - Investors King

The share of renewable energy that achieved lower costs than the most competitive fossil fuel option doubled in 2020, a new report by the International Renewable Energy Agency (IRENA) shows. 162 gigawatts (GW) or 62 per cent of total renewable power generation added last year had lower costs than the cheapest new fossil fuel option.

Renewable Power Generation Costs in 2020 shows that costs for renewable technologies continued to fall significantly year-on-year. Concentrating solar power (CSP) fell by 16 per cent, onshore wind by 13 per cent, offshore wind by 9 per cent and solar PV by 7 per cent. With costs at low levels, renewables increasingly undercut existing coal’s operational costs too. Low-cost renewables give developed and developing countries a strong business case to power past coal in pursuit of a net-zero economy. Just 2020’s new renewable project additions will save emerging economies up to USD 156 billion over their lifespan.

“Today, renewables are the cheapest source of power,” said IRENA’s Director-General Francesco La Camera. “Renewables present countries tied to coal with an economically attractive phase-out agenda that ensures they meet growing energy demand, while saving costs, adding jobs, boosting growth and meeting climate ambition. I am encouraged that more and more countries opt to power their economies with renewables and follow IRENA’s pathway to reach net-zero emissions by 2050.”

“We are far beyond the tipping point of coal,” La Camera continued. “Following the latest commitment by G7 to net-zero and stop global coal funding abroad, it is now for G20 and emerging economies to match these measures. We cannot allow having a dual-track for energy transition where some countries rapidly turn green and others remain trapped in the fossil-based system of the past. Global solidarity will be crucial, from technology diffusion to financial strategies and investment support. We must make sure everybody benefits from the energy transition.”

The renewable projects added last year will reduce costs in the electricity sector by at least USD 6 billion per year in emerging countries, relative to adding the same amount of fossil fuel-fired generation. Two-thirds of these savings will come from onshore wind, followed by hydropower and solar PV. Cost savings come in addition to economic benefits and reduced carbon emissions. The 534 GW of renewable capacity added in emerging countries since 2010 at lower costs than the cheapest coal option are reducing electricity costs by around USD 32 billion every year.    

2010-2020 saw a dramatic improvement in the competitiveness of solar and wind technologies with CSP, offshore wind and solar PV all joining onshore wind in the range of costs for new fossil fuels capacity, and increasingly outcompeting them. Within ten years, the cost of electricity from utility-scale solar PV fell by 85 per cent, that of CSP by 68 per cent, onshore wind by 56 per cent and 48 per cent for offshore wind. With record low auction prices of USD 1.1 to 3 cents per kWh today, solar PV and onshore wind continuously undercut even the cheapest new coal option without any financial support

IRENA’s report also shows that new renewables beat existing coal plants on operating costs too, stranding coal power as increasingly uneconomic. In the United States for example, 149 GW or 61 per cent of the total coal capacity costs more than new renewable capacity. Retiring and replacing these plants with renewables would cut expenses by USD 5.6 billion per year and save 332 million tonnes of CO2, reducing emissions from coal in the United States by one-third. In India, 141 GW of installed coal is more expensive than new renewable capacity. In Germany, no existing coal plant has lower operating costs than new solar PV or onshore wind capacity.

Globally, over 800 GW of existing coal power costs more than new solar PV or onshore wind projects commissioned in 2021. Retiring these plants would reduce power generation costs by up to USD 32.3 billion annually and avoid around 3 giga tonnes of CO2 per year, corresponding to 9 per cent of global energy-related CO2 emissions in 2020 or 20 per cent of the emissions reduction needed by 2030 for a 1.5°C climate pathway outlined in IRENA’s World Energy Transitions Outlook.

The outlook till 2022 sees global renewable power costs falling further, with onshore wind becoming 20-27 per cent lower than the cheapest new coal-fired generation option. 74 per cent of all new solar PV projects commissioned over the next two years that have been competitively procured through auctions and tenders will have an award price lower than new coal power. The trend confirms that low-cost renewables are not only the backbone of the electricity system, but that they will also enable electrification in end-uses like transport, buildings and industry and unlock competitive indirect electrification with renewable hydrogen.

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