Markets

Stocks Drop as Energy Firms Slide With Ruble After OPEC Impasse

Published

8 years ago

October 31, 2016

Stocks Drop as Energy Firms Slide With Ruble After OPEC Impasse

Energy shares led stocks in Europe lower, the Russia ruble weakened and oil touched a one-month low after the world’s biggest crude producers failed to agree to supply cuts at a meeting in Vienna. U.S. equity-index futures and Mexico’s peso clawed back some of their losses from Friday triggered by the FBI’s reopening of an inquiry into Hillary Clinton’s e-mails.

A gauge of energy companies on the MSCI All Country World Index slipped for a second day after the Organization of Petroleum Exporting Countries ended two days of talks on Saturday without agreeing any individual quotas.

Russia’s ruble declined while the South African rand surged after prosecutors withdrew charges against Finance Minister Pravin Gordhan. Perceived investment-grade credit risk was set for the longest run of increases since May.

The OPEC talks yielded little more than a promise that the world’s top oil producers would keep discussing ways to stabilize the market. Sovereign bonds were relatively muted Monday as investors awaited key central bank meetings from the U.K. and U.S. later in the week. Global equities lost ground in October and government bonds also slid amid speculation the Federal Reserve will hike interest rates this year.

“Oil companies are reacting to OPEC news,” said William Hobbs, head of investment strategy at Barclays Plc’s wealth-management unit in London. “We have a huge week of data, biggest in a long time. So people are positioning for what’s expected to be a pretty important week.”

Stocks

The Stoxx Europe 600 Index dropped 0.5 percent as of 7:19 a.m New York time, set for a sixth day of declines, the longest losing streak since February. The benchmark has fallen 1.1 percent in October, a month that has yielded gains in five of the past six years.

BP Plc and Tullow Oil Plc fell more than 1 percent, dragging a measure of energy companies to the worst performance of the 19 industry groups on the Stoxx 600, as oil declined after European markets closed Friday.
Miners gained the most on the index as metals prices advanced. Centamin Plc led the charge after saying it sees gold output near the upper end of its 2016 forecast.

WPP Plc led media companies higher, rising 4.1 percent after the world’s largest advertising company posted an increase in quarterly sales. Sika AG jumped 14 percent after a Swiss court backed its bid to block a takeover by Cie de Saint-Gobain. Shares in its French rival dropped 0.8 percent.

S&P 500 Index slid 20 points in about 40 minutes on Friday amid news the Federal Bureau of Investigation was again looking into Clinton’s use of private e-mail while secretary of state, an issue that has dogged her presidential campaign.

Futures on the gauge advanced 0.1 percent, indicating equities will rebound from Friday’s retreat to a six-week low. Investors will look to data Monday on personal income and spending for indications of the health of the U.S. economy as the Federal Reserve prepares to meet.

Among stocks moving in premarket New York trading, Baker Hughes Inc. gained 9.1 percent after General Electric Co. agreed to combine their oil and gas businesses to bolster their operations amid the global slump in crude prices. General Electric added 0.3 percent. Level 3 Communications Inc. climbed 3.9 percent after agreeing to a $34 billion cash-and-stock takeover offer from CenturyLink Inc.

For more news on the latest probe into Clinton’s e-mails, click here.

Commodities

Crude oil fell 0.6 percent to $48.40 a barrel in New York, trading near the lowest since the end of September. Oil has fluctuated near $50 amid skepticism about whether OPEC can implement the first supply cuts in eight years at an official meeting in November.

“Talks over the weekend make it seem less likely there will be an agreement on production cuts,” said Ric Spooner, a chief market analyst at CMC Markets in Sydney. “The market has probably made a fair bit of the adjustment, but I wouldn’t be surprised to see oil fall further into the $47 range.”
Gold was little changed at about $1,274.13 an ounce after rallying 0.6 percent on Friday.

Aluminum and zinc extended gains in Shanghai as investors bet that strong domestic demand, surging coal prices and logistical issues will underpin prices. Aluminum rose to its highest since September 2014, having jumped by about 10 percent last week, and zinc climbed to levels last seen in March 2011.

Currencies

The rand jumped 1.8 percent as South Africa’s Chief Prosecutor Shaun Abrahams announced that fraud charges against the finance minister have been dropped, two days before he was due to appear in court.

The Bloomberg Dollar Spot Index has climbed more than 2 percent this month, set for the biggest gain since May.

While the Fed is seen leaving policy unchanged at a review this week, futures prices indicate a 69 percent chance of an interest-rate hike at its December meeting, up from 59 percent at the end of September.

The ruble fell 0.2 percent, declining for a second day and set for its first monthly drop in three.

Mexico’s peso advanced 0.4 percent as Clinton’s allies escalated attacks on FBI Director James Comey to stem political damage from his disclosure last week the agency is reviewing files related to a probe of her e-mail practices.

South Korea’s won traded near a three-month low as President Park Geun-hye deals with an influence-peddling scandal that’s sparked calls by the ruling party for her to remove the prime minister. Prosecutors raided Park’s office over the weekend to investigate allegations her close friend Choi Soon-sil — a private citizen whom opposition lawmakers have linked to a religious cult — wielded influence on state affairs over an extended period.

China’s yuan strengthened 0.2 percent, paring its biggest monthly loss since May. It advanced from near a six-year low following Friday’s retreat in the dollar and as China’s clampdown on UnionPay payments for insurance products in Hong Kong provided support. The transactions have been used as a means of skirting capital controls to take funds out of the mainland.

Bonds

The yield on Treasuries due in a decade was little changed at 1.84 percent, after touching a five-month high of 1.88 percent on Friday. Sovereign debt in the world’s biggest economy has lost 1.2 percent on average this month, the worst performance since February 2015, a Bloomberg index shows.

Germany’s 10-year bond yield was at 0.16 percent, up 28 basis points this month, which would be the biggest increase since May 2013.

Spanish 10-year bond yields were little changed at 1.23 percent, after Mariano Rajoy claimed a second term as prime minister by winning a confidence vote on Saturday night, ending a 10-month political impasse.

The cost of insuring investment-grade corporate bonds against default climbed for a fifth day. The Markit iTraxx Europe Index of credit-default swaps on highly rated companies rose one basis point to 73 basis points, a two-week high. A gauge of swaps on junk-rated corporate issuers rose for a fifth day, the longest run since June. It added three basis points to 332 basis points.

China’s one-year interest-rate swaps rose five basis points to an 18-month high of 2.76 percent in Shanghai. The increase reflects speculation policy makers will seek to keep money rates high as they tackle asset bubbles and try to stem declines in the yuan.

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Samed Olukoya

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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Energy

Egypt Increases Fuel Prices by 15% Amid IMF Deal

Published

2 days ago

July 25, 2024

Samed Olukoya

Egypt has raised fuel prices by up to 15% as the country looks to cut state subsidies as part of a new agreement with the International Monetary Fund (IMF).

The oil ministry announced increases across a variety of fuel products, including gasoline, diesel, and kerosene.

However, fuel oil used for electricity and food-related industries will remain unaffected to protect essential services.

This decision comes after a pricing committee’s quarterly review, reflecting Egypt’s commitment to align with its financial obligations under the IMF pact.

Egypt is in the midst of recalibrating its economy following a massive $57 billion bailout, orchestrated with the IMF and the United Arab Emirates.

The IMF, which has expanded its support to $8 billion, emphasizes the need for Egypt to replace untargeted fuel subsidies with more focused social spending.

This is seen as a crucial component of a sustainable fiscal strategy aimed at stabilizing the nation’s finances.

Effective immediately, the cost of diesel will increase to 11.5 Egyptian pounds per liter from 10.

Gasoline prices have also risen, with 95, 92, and 80-octane types now costing 15, 13.75, and 12.25 pounds per liter, respectively.

Despite the hikes, Egypt’s fuel prices remain among the lowest globally, trailing only behind nations like Iran and Libya.

The latest increase follows recent adjustments to the price of subsidized bread, another key staple for Egyptians, underscoring the government’s resolve to navigate its economic crisis through tough reforms.

While the rise in fuel costs is expected to impact millions, analysts suggest the inflationary effects might be moderate.

EFG Hermes noted that the gradual removal of subsidies and a potential hike in power tariffs could have a relatively limited impact on overall consumer prices.

They predict that the deceleration in inflation will persist throughout the year.

Egypt’s efforts to manage inflation have shown progress, with headline inflation slowing for the fourth consecutive month in June.

This trend offers a glimmer of hope for the government as it strives to balance economic stability with social welfare.

The IMF and Egyptian officials are scheduled to meet on July 29 for a third review of the loan program. Approval from the IMF board could unlock an additional $820 million tranche, further supporting Egypt’s economic restructuring.

Crude Oil

Oil Prices Rise on U.S. Inventory Draws Despite Global Demand Worries

Published

2 days ago

July 24, 2024

Samed Olukoya

Oil prices gained on Wednesday following the reduction in U.S. crude and fuel inventories.

However, the market remains cautious due to ongoing concerns about weak global demand.

Brent crude oil, against which Nigerian crude oil is priced, increased by 66 cents, or 0.81% to $81.67 a barrel. Similarly, U.S. West Texas Intermediate crude climbed 78 cents, or 1.01%, to $77.74 per barrel.

The U.S. Energy Information Administration (EIA) reported a substantial decline in crude inventories by 3.7 million barrels last week, surpassing analysts’ expectations of a 1.6-million-barrel draw.

Gasoline stocks also fell by 5.6 million barrels, while distillate stockpiles decreased by 2.8 million barrels, contradicting predictions of a 250,000-barrel increase.

Phil Flynn, an analyst at Price Futures Group, described the EIA report as “very bullish,” indicating a potential for future crude draws as demand appears to outpace supply.

Despite these positive inventory trends, the market is still wary of global demand weaknesses. Concerns stem from a lackluster summer driving season in the U.S., which is expected to result in lower second-quarter earnings for refiners.

Also, economic challenges in China, the world’s largest crude importer, and declining oil deliveries to India, the third-largest importer, contribute to the apprehension about global demand.

Wildfires in Canada have further complicated the supply landscape, forcing some producers to cut back on production.

Imperial Oil, for instance, has reduced non-essential staff at its Kearl oil sands site as a precautionary measure.

While prices snapped a three-session losing streak due to the inventory draws and supply risks, the market remains under pressure.

Factors such as ceasefire talks between Israel and Hamas, and China’s economic slowdown, continue to weigh heavily on traders’ minds.

In recent sessions, WTI had fallen 7%, with Brent down nearly 5%, reflecting the volatility and uncertainty gripping the market.

As the industry navigates these complex dynamics, analysts and investors alike are closely monitoring developments that could further impact oil prices.

Commodities

Economic Strain Halts Nigeria’s Cocoa Industry: From 15 Factories to 5

Published

2 days ago

July 24, 2024

Samed Olukoya

Once a bustling sector, Nigeria’s cocoa processing industry has hit a distressing low with operational factories dwindling from 15 to just five.

The cocoa industry, once a vibrant part of Nigeria’s economy, is now struggling to maintain even a fraction of its previous capacity.

The five remaining factories, operating at a combined utilization of merely 20,000 metric tons annually, now run at only 8% of their installed capacity.

This stark reduction from a robust 250,000 metric tons reflects the sector’s profound troubles.

Felix Oladunjoye, chairman of the Cocoa Processors Association of Nigeria (COPAN), voiced his concerns in a recent briefing, calling for an emergency declaration in the sector.

“The challenges are monumental. We need at least five times the working capital we had last year just to secure essential inputs,” Oladunjoye said.

Rising costs, especially in energy, alongside a cumbersome regulatory environment, have compounded the sector’s woes.

Farmers, who previously sold their cocoa beans to processors, now prefer to sell to merchants who offer higher prices.

This shift has further strained the remaining processors, who struggle to compete and maintain operations under the harsh economic conditions.

Also, multiple layers of taxation and high energy costs have rendered processing increasingly unviable.

Adding to the industry’s plight are new export regulations proposed by the National Agency for Food and Drug Administration and Control (NAFDAC).

Oladunjoye criticized these regulations as duplicative and detrimental, predicting they would lead to higher costs and penalties for exporters.

“These regulations will only worsen our situation, leading to more shutdowns and job losses,” he warned.

The cocoa processing sector is not only suffering from internal economic challenges but also from a tough external environment.

Nigerian processors are finding it difficult to compete with their counterparts in Ghana and Ivory Coast, who benefit from lower production costs and more favorable export conditions.

Despite Nigeria’s potential as a top cocoa producer, with a global ranking of the fourth-largest supplier in the 2021/2022 season, the industry is struggling to capitalize on its opportunities.

The decline in processing capacity and the industry’s current state of distress highlight the urgent need for policy interventions and financial support.

The government’s export drive initiatives, aimed at boosting the sector, seem to be falling short. With the industry facing over N500 billion in tied-up investments and debts, the call for a focused rescue plan has never been more urgent.

The cocoa sector remains a significant part of Nigeria’s economy, but without substantial support and reforms, it risks falling further into disrepair.