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European Stocks Fall on Central Bank Angst

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European Stocks
  • European Stocks Fall With Emerging Markets

European stocks fell with emerging markets as the prospect of monetary policy turning less accommodative in the world’s biggest economies damped appetite for higher-yielding assets.

The Stoxx Europe 600 Index dropped for the first time in seven days and the MSCI Emerging Markets Index halted a two-day rally after report an informal consensus was building in the European Central Bank that quantitative easing will need to be tapered once a decision is taken to end the program. Spanish and Italian bonds extended a selloff in euro-area debt markets, while Treasuries held a three-day drop after Federal Reserve officials talked up the chance of a U.S. interest-rate increase in 2016. The pound touched a five-year low against the euro while oil rallied after data indicated American stockpiles shrank.

Funds poured into riskier assets this year as supportive monetary policies in the world’s biggest economies spurred demand for higher-yielding investments. That’s left markets vulnerable to a selloff as central banks in Europe and Japan show signs of wanting to dial back their unprecedented stimulus and the case for a U.S. interest-rate increase builds. When the Fed indicated it was reducing asset purchases in 2013, it sparked a so-called taper tantrum leading to a surge in bond yields.

“The central bank may be trying to test the market, see how it reacts to this sort of news and lift some of the pressure we’ve had on the banking sector,” said William Hobbs, head of investment strategy at Barclays Plc’s wealth-management unit in London. “They may have come to the realization that monetary policy isn’t helping the banking sector, which may ultimately make it counter-productive.”

Stocks

While the Stoxx Europe 600 Index fell 1 percent at 11:53 a.m. in London, a gauge of banks was little changed. Yield-sensitive industries including telecommunications, utilities and real estate were among the biggest decliners on the Stoxx 600. The number of shares changing hands was about 18 percent higher than the 30-day average.

Tesco Plc helped limit losses among retailers, jumping 13 percent after reporting first-half profit that beat analysts’ estimates. Delta Lloyd NV rallied 29 percent after NN Group offered to buy the company for 2.4 billion euros ($2.7 billion) in cash to boost scale in the pensions and insurance sectors. NN Group slid 0.8 percent.

Data Wednesday showed the euro region’s economy is losing steam, with a Purchasing Manages’ Index for the manufacturing and services sector falling in September from August.

The MSCI Emerging Markets Index fell 0.4 percent following a 1.3 percent advance over the previous two days. Shares in Asia led losses, with the Philippines and Indonesia dropping more than 0.9 percent.

The Hang Seng China Enterprises Index of Chinese companies listed in Hong Kong rose for a third day, advancing 0.6 percent. The Hang Seng Index added 0.6 percent, with trading volumes 27 percent less than the 30-day average amid a week-long holiday in mainland China.

S&P 500 Index futures were little changed after U.S. stocks fell 0.4 percent on Tuesday. Among economic data scheduled for Wednesday, the focus will be on the ADP Research Institute’s employment figures, services and manufacturing reports, as well as orders for durable goods.

Currencies

The pound touched a five-year low versus the euro, staying weaker even as a report showed the services industry grew more than economists forecast last month, in another sign of the economy’s resilience following the June vote to leave the European Union. Sterling was 0.2 percent weaker at 88.22 pence per euro.

The British currency has tumbled against all of its major counterparts this week after Prime Minister Theresa May signaled the U.K. is prepared to surrender membership of Europe’s single market. May is due to speak again on Wednesday at the conclusion of her Conservative Party’s annual conference.
The Bloomberg Dollar Spot Index was little changed, after gaining 0.6 percent in the last session. The yen fluctuated following a 1.2 percent drop versus the greenback on Tuesday.

New Zealand’s dollar sank to a seven-week low after global dairy prices fell. Average prices for whole milk powder, the nation’s chief farm export, fell 3.8 percent at Tuesday’s GlobalDairyTrade auction.

Bonds

Spain’s 10-year bond yield climbed three basis points to 1.00 percent as traders digested the potential for an ECB taper. Italian yields rose three basis points to 1.34 percent, a day after the nation sold 50-year bonds for the first time. Benchmark German 10-year bond yields increased three basis points to minus 0.02 percent.

The yield Treasury 10-year notes rose one basis point to 1.70 percent, after climbing six basis points on Tuesday. Following hawkish comments from Fed officials, the odds of an interest rate increase this year have risen to 61 percent, up about 11 percentage points from last week, though futures indicate only a 21 percent chance of a move coming when the next meeting concludes on Nov. 2.

Richmond Fed chief Jeffrey Lacker may argue for the second time this week in favor of an interest-rate rise when he speaks Wednesday. Fed Bank of Chicago President Charles Evans said borrowing costs could be raised as early as November and his counterparts for Richmond and Cleveland spoke over the last two days in favor of a hike.

Emerging-market bonds fell relative to their developed-nation counterparts. The emerging-market debt yield premium over U.S. Treasuries widened two basis points to 329, rising from lowest since Sept. 8, according to JPMorgan Chase & Co. indexes.

Commodities

Crude oil rose as much as 1.8 percent to $49.53 a barrel in New York, the highest since June 30. Inventories dropped by 7.6 million barrels last week, the American Petroleum Institute was said to report, before official data on Wednesday that’s forecast to show stockpiles increased. A deal between major producers could trim output by 1.2 million barrels a day and boost prices by as much as $15 a barrel, according to Venezuela’s oil minister.

Gold for immediate delivery rose 0.4 percent, after a 3.3 percent plunge in the last session that marked its steepest slide in a year. Industrial metals declined in London, with copper, nickel and lead declining for a third day.

“It does appear that the market is a bit jittery over prospects for a global exit from central bank stimulus,” said Ric Spooner, a chief market analyst at CMC Markets in Sydney. “For metals there’s a concern that the main impact would be a stronger dollar” as most commodities are priced in the currency, he said.

Natural gas for same-day delivery rose 13 percent in London after gaining 29 percent on Tuesday as a cold snap is expected to boost demand for the heating fuel.

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

Brent Crude Oil Approaches $70 Per Barrel on Friday

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Crude oil

Nigerian Oil Approaches $70 Per Barrel Following OPEC+ Production Cuts Extension

Brent crude oil, against which Nigerian oil is priced, rose to $69 on Friday at 3:55 pm Nigerian time.

Oil price jumped after OPEC and allies, known as OPEC plus, agreed to role-over crude oil production cuts to further reduce global oil supplies and artificially sustain oil price in a move experts said could stoke inflationary pressure.

Brent crude oil rose from $63.86 per barrel on Wednesday to $69 per barrel on Friday as energy investors became more optimistic about the oil outlook.

While certain experts are worried that U.S crude oil production will eventually hurt OPEC strategy once the economy fully opens, few experts are saying production in the world’s largest economy won’t hit pre-pandemic highs.

According to Vicki Hollub, the CEO of Occidental, U.S oil production may not return to pre-pandemic levels given a shift in corporates’ value.

“I do believe that most companies have committed to value growth, rather than production growth,” she said during a CNBC Evolve conversation with Brian Sullivan. “And so I do believe that that’s going to be part of the reason that oil production in the United States does not get back to 13 million barrels a day.”

Hollub believes corporate organisations will focus on optimizing present operations and facilities, rather than seeking growth at all costs. She, however, noted that oil prices rebounded faster than expected, largely due to China, India and United States’ growing consumption.

The recovery looks more V-shaped than we had originally thought it would be,” she said. Occidental previous projection had oil production recovering to pre-pandemic levels by the middle of 2022. The CEO Now believes demand will return by the end of this year or the first few months of 2022.

I do believe we’re headed for a much healthier supply and demand environment” she said.

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Crude Oil

Oil Jumps to $67.70 as OPEC+ Extends Production Cuts

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opec

Oil Jumps to $67.70 as OPEC+ Extends Production Cuts

Brent crude oil, against which Nigerian oil is priced, rose to $67.70 per barrel on Thursday following the decision of OPEC and allies, known as OPEC+, to extend production cuts.

OPEC and allies are presently debating whether to restore as much as 1.5 million barrels per day of crude oil in April, according to people with the knowledge of the meeting.

Experts have said OPEC+ continuous production cuts could increase global inflationary pressure with the rising price of could oil. However, Saudi Energy Minister Prince Abdulaziz bin Salman said “I don’t think it will overheat.”

Last year “we suffered alone, we as OPEC+” and now “it’s about being vigilant and being careful,” he said.

Saudi minister added that the additional 1 million barrel-a-day voluntary production cut the kingdom introduced in February was now open-ended. Meaning, OPEC+ will be withholding 7 million barrels a day or 7 percent of global demand from the market– even as fuel consumption recovers in many nations.

Experts have started predicting $75 a barrel by April.

“We expect oil prices to rise toward $70 to $75 a barrel during April,” said Ann-Louise Hittle, vice president of macro oils at consultant Wood Mackenzie Ltd. “The risk is these higher prices will dampen the tentative global recovery. But the Saudi energy minister is adamant OPEC+ must watch for concrete signs of a demand rise before he moves on production.”

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Gold

Gold Hits Eight-Month Low as Global Optimism Grows Amid Rising Demand for Bitcoin

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Gold Struggles Ahead of Economic Recovery as Bitcoin, New Gold, Surges

Global haven asset, gold, declined to the lowest in more than eight months on Tuesday as signs of global economic recovery became glaring with rising bond yields.

The price of the precious metal declined to $1,718 per ounce during London trading on Thursday, down from $2,072 it traded in August as more investors continue to cut down on their holdings of the metal.

The previous metal usually performs poorly with rising yields on other assets like bonds, especially given the fact that gold does not provide streams of interest payments. Investors have been jumping on US bonds ahead of President Joe Biden’s $1.9 trillion coronavirus stimulus package, expected to stoke stronger US price growth.

We see the rising bond yields as a sign of economic optimism, which has also prompted gold investors to sell some of their positions,” said Carsten Menke of Julius Baer.

Another analyst from Commerzbank, Carsten Fritsch, said that “gold’s reputation appears to have been tarnished considerably by the heavy losses of recent weeks, as evidenced by the ongoing outflows from gold ETFs”.

Experts at Investors King believed the growing demand for Bitcoin, now called the new gold, and other cryptocurrencies in recent months by institutional investors is hurting gold attractiveness.

In a recent report, analysts at Citigroup have started projecting mainstream acceptance for the unregulated dominant cryptocurrency, Bitcoin.

The price of Bitcoin has rallied by 60 percent to $52,000 this year alone. While Ethereum has risen by over 660 percent in 2021.

 

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