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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.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Gold

Gold Steadies After Initial Gains on Reports of Israel’s Strikes in Iran

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Gold, often viewed as a haven during times of geopolitical uncertainty, exhibited a characteristic surge in response to reports of Israel’s alleged strikes in Iran, only to stabilize later as tensions simmered.

The yellow metal’s initial rally came on the heels of escalating tensions in the Middle East, with concerns mounting over a potential wider conflict.

Spot gold soared as much as 1.6% in early trading as news circulated regarding Israel’s purported strikes on targets in Iran.

This surge, reaching a high of $2,400 a ton, reflected the nervousness pervading global markets amidst the saber-rattling between the two nations.

However, as the day progressed, media reports from both countries appeared to downplay the impact and severity of the alleged strikes, contributing to a moderation in gold’s gains.

Analysts noted that while the initial spike was fueled by fears of heightened conflict, subsequent assessments suggesting a less severe outcome helped calm investor nerves, leading to a stabilization in gold prices.

Traders had been bracing for a potential Israeli response following Iran’s missile and drone attack over the weekend, raising concerns about a retaliatory spiral between the two adversaries.

Reports of an explosion in Iran’s central city of Isfahan further added to the atmosphere of uncertainty, prompting flight suspensions and exacerbating market jitters.

In addition to geopolitical tensions, gold’s rally in recent months has been underpinned by other factors, including expectations of US interest rate cuts, sustained central bank buying, and robust consumer demand, particularly in China.

Despite the initial surge followed by stabilization, gold remains sensitive to developments in the Middle East and broader geopolitical dynamics.

Investors continue to monitor the situation closely for any signs of escalation or de-escalation, recognizing gold’s role as a traditional safe haven in times of uncertainty.

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Commodities

Global Cocoa Prices Surge to Record Levels, Processing Remains Steady

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Cocoa futures in New York have reached a historic pinnacle with the most-active contract hitting an all-time high of $11,578 a metric ton in early trading on Friday.

This surge comes amidst a backdrop of challenges in the cocoa industry, including supply chain disruptions, adverse weather conditions, and rising production costs.

Despite these hurdles, the pace of processing in chocolate factories has remained constant, providing a glimmer of hope for chocolate lovers worldwide.

Data released after market close on Thursday revealed that cocoa processing, known as “grinds,” was up in North America during the first quarter, appreciating by 4% compared to the same period last year.

Meanwhile, processing in Europe only saw a modest decline of about 2%, and Asia experienced a slight decrease.

These processing figures are particularly noteworthy given the current landscape of cocoa prices. Since the beginning of 2024, cocoa futures have more than doubled, reflecting the immense pressure on the cocoa market.

Yet, despite these soaring prices, chocolate manufacturers have managed to maintain their production levels, indicating resilience in the face of adversity.

The surge in cocoa prices can be attributed to a variety of factors, including supply shortages caused by adverse weather conditions in key cocoa-producing regions such as West Africa.

Also, rising demand for chocolate products, particularly premium and artisanal varieties, has contributed to the upward pressure on prices.

While the spike in cocoa prices presents challenges for chocolate manufacturers and consumers alike, industry experts remain cautiously optimistic about the resilience of the cocoa market.

Despite the record-breaking prices, the steady pace of cocoa processing suggests that chocolate lovers can still expect to indulge in their favorite treats, albeit at a higher cost.

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Crude Oil

Dangote Refinery Leverages Cheaper US Oil Imports to Boost Production

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Crude Oil

The Dangote Petroleum Refinery is capitalizing on the availability of cheaper oil imports from the United States.

Recent reports indicate that the refinery with a capacity of 650,000 barrels per day has begun leveraging US-grade oil to power its operations in Nigeria.

According to insights from industry analysts, the refinery has commenced shipping various products, including jet fuel, gasoil, and naphtha, as it gradually ramps up its production capacity.

The utilization of US oil imports, particularly the WTI Midland grade, has provided Dangote Refinery with a cost-effective solution for its feedstock requirements.

Experts anticipate that the refinery’s gasoline-focused units, expected to come online in the summer months will further bolster its influence in the Atlantic Basin gasoline markets.

Alan Gelder, Vice President of Refining, Chemicals, and Oil Markets at Wood Mackenzie, noted that Dangote’s entry into the gasoline market is poised to reshape the West African gasoline supply dynamics.

Despite operating at approximately half its nameplate capacity, Dangote Refinery’s impact on regional fuel markets is already being felt. The refinery’s recent announcement of a reduction in diesel prices from N1,200/litre to N1,000/litre has generated excitement within Nigeria’s downstream oil sector.

This move is expected to positively affect various sectors of the economy and contribute to reducing the country’s high inflation rate.

Furthermore, the refinery’s utilization of US oil imports shows its commitment to exploring cost-effective solutions while striving to meet Nigeria’s domestic fuel demand. As the refinery continues to optimize its production processes, it is poised to play a pivotal role in Nigeria’s energy landscape and contribute to the country’s quest for self-sufficiency in refined petroleum products.

Moreover, the Nigerian government’s recent directive to compel oil producers to prioritize domestic refineries for crude supply aligns with Dangote Refinery’s objectives of reducing reliance on imported refined products.

With the flexibility to purchase crude using either the local currency or the US dollar, the refinery is well-positioned to capitalize on these policy reforms and further enhance its operational efficiency.

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