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Election Angst Spreads as Stocks Drop, Bonds Rise With Gold, Yen

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Donald Trump and Hillary Clinton
  • Election Angst Spreads as Stocks Drop, Bonds Rise With Gold, Yen

Global stocks fell toward a three-month low and bonds jumped as investors crowded into haven assets after polls showed Donald Trump gaining ground in next week’s U.S. presidential election.

Shares in Europe slumped for the eighth consecutive day and futures foreshadowed a seventh day of losses for U.S. equities. Currency markets also reflected the growing unease in financial markets, with the yen and Swiss franc strengthening, and Mexico’s peso, seen as a barometer of the election, extending its biggest decline since July. Gold climbed to a one-month high and Treasuries rose as the looming election pushed a Federal Reserve policy decision into the background. Crude oil fell after a report showed American stockpiles expanded.

In a sign of fraying nerves, a Bank of America Corp. index tracking volatility has jumped 64 percent since it touched its lowest level in two years last week. That’s as Democratic presidential contender Hillary Clinton has seen her odds of winning the Nov. 8 U.S. presidential election falter after an FBI examination into her e-mails was restarted Friday. In an open letter on Tuesday, 370 economists, including some Nobel laureates, warned that Trump is “a dangerous, destructive choice,” because he “promotes magical thinking and conspiracy theories,” a statement that was quickly denounced by a top adviser as out of touch with reality.

“This is a year of surprises and backlash against convention,” said Paul Wildman, an analyst at Avalon Capital based in London. Trump “leans toward more protectionism,” he said.

Stocks

The MSCI All Country World Index of shares slipped 0.2 percent as of 7:54 a.m. in New York, set for the lowest close since July 12. The Stoxx Europe 600 Index fell 0.4 percent, with almost all industry groups down. Automakers slid the most as the euro strengthened versus the dollar, potentially harming exports, while financial firms also tumbled. The MSCI Asia Pacific Index fell by the most since September, with Japanese shares retreating from a six-month high before the nation’s financial markets shut Thursday for a holiday.

Europe’s VStoxx Index added 1.6 percent, taking its advance into an eighth day, the longest streak in more than five years. Still, the measure of volatility expectations is in line with its average over the last year, and other measures of risk are below the highs seen when Britain voted to leave the European Union in June.

An ABC News/Washington Post tracking poll on Tuesday showed Trump, a Republican, with 46 percent support to Clinton’s 45 percent, putting him ahead for the first time since May. Futures on the S&P 500 Index fell 0.3 percent.

“The Trump risk is in revival,” said Chihiro Ohta, a Tokyo-based senior strategist at SMBC Nikko Securities Inc. “With Trump, there always follows an uneasiness over whether policies will be managed properly in the U.S.”

Danske Bank A/S helped position a gauge of lenders as among the worst performers on the Stoxx 600, dropping 2.5 percent after A.P. Moller-Maersk A/S sold its remaining stake in Denmark’s biggest bank. Maersk lost 9.4 percent after reporting a slump in earnings as the shipping industry suffers from overcapacity. Hugo Boss AG rose 6.5 percent after reporting better-than-estimated profit due to cost cuts and growth in China.

Sony Corp. sank to a two-month low after the Japanese electronics maker’s quarterly profit missed estimates and Sumitomo Electric Industries Ltd. tumbled 12 percent after the company lowered its full-year earnings target.
Companies including Alibaba Group Holding Ltd. and Facebook Inc. report earnings Wednesday.

Currencies

The yen climbed 0.7 percent against the dollar, after surging 0.6 percent in the last session. The franc also added 0.4 percent following a 1.4 percent jump that marked its biggest gain in about five months.

Mexico’s peso slid 0.8 percent versus the greenback and touched its weakest level since Sept. 30. The currency tends to lose ground when support builds for Trump, who has said he would revisit the North American Free Trade Agreement that governs commerce between the U.S. and Mexico.

The won dropped as much as 1.1 percent to its weakest level since July as South Korean President Park Geun-hye replaced her prime minister and finance chief on Wednesday to help stem the fallout from a political scandal that threatens her grip on power.

South Africa’s rand rallied as much as 1.7 percent to a five-week high after President Jacob Zuma withdrew a court application to halt the release of a graft ombudsman’s report into allegations the Gupta family, who are his friends, had too much influence over the government.

The kiwi gained 1.3 percent after New Zealand’s jobless rate unexpectedly fell to the lowest level since 2008. A tightening labor market could help Reserve Bank of New Zealand Governor Graeme Wheeler lift inflation back to the middle of his 1-3 percent target band, negating the need for further policy easing.

Commodities

Gold added 0.6 percent, after a 0.9 percent gain on Tuesday. Before the FBI letter to Congress came out, futures had been stuck in a narrow trading range, with price swings measured by the 60-day historical volatility near the lowest in almost two years.

The Bloomberg Industrial Metals Subindex fell for the first time in eight days, as zinc retreated from a five-year high in London and aluminum slid from its highest close since June 2015.

Crude oil fell 1.4 percent to a one-month low in New York after industry data showed American inventories increased by 9.3 million barrels last week. Organization of Petroleum Exporting Countries members Libya and Nigeria are boosting output, providing a challenge to the group’s effort to finalize an agreement to curb production and stabilize prices.

Bonds

Haven demand boosted sovereign bonds, with 10-year yields falling across most of the developed world.

The yield on Treasuries due in a decade fell three basis points to 1.80 percent, after touching a five-month high of 1.88 percent in the last session. It’s unlikely the rate will climb too far past 2 percent anytime soon given how the American economy is performing, according to Jim Caron at Morgan Stanley Investment Management, which oversees $406 billion.

While the Fed is expected to leave interest rates unchanged when a two-day meeting concludes Wednesday, futures indicate a 68 percent chance of a rate hike by year-end and investors will be on the lookout for any hints the authority may give regarding the policy outlook.

Yields on German 10-year bunds, the euro region’s benchmark securities, headed for their biggest drop in almost six weeks, slipping six basis points to 0.12 percent. Yields on similar-maturity U.K. gilts dropped eleven basis points to 1.17 percent, and those on Spanish 10-year debt fell eight basis points to 1.21 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.

Crude Oil

Oil Prices Decline on Rising India COVID-19 Cases, U.S Inflation Concerns

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Global oil prices extended a decline on Friday following a 3 percent drop on Thursday as coronavirus cases rose in India, one of the world’s largest oil consumers.

Brent crude oil, against which Nigerian oil is priced, declined by 35 cents or 0.5 percent to $66.70 a barrel at 5 am Nigerian time on Tuesday while the U.S West Texas Intermediate (WTI) fell by 28 cents or 0.4 percent to $63.54 per barrel.

The commodity super cycle rally just hit a hard stop and the energy market doesn’t know what to make of Wall Street’s fixation over inflation and the slow flattening of the curve in India,” said Edward Moya, senior market analyst at OANDA.

The crude demand story is still upbeat for the second half of the year and that should prevent any significant dips in oil prices,” he added.

Prices dropped over a series of key economic data that stoke inflation concerns and forced experts to start thinking the Federal Reserve could raise interest rates to curb the surge in inflation.

An increase in interest rates typically boosts the U.S. dollar, which in turn pressures oil prices because it makes crude oil more expensive for holders of other currencies.

This coupled with the fact that India, the world’s third-largest oil consumer, recorded more than 4,000 COVID-19 deaths for a second straight day on Thursday, dragged on the oil outlook in the near term.

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Crude Oil

Brent Crude Rises to $69 on IEA Report

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Oil prices rose after the release of the International Energy Agency’s (IEA)  closely-watched Oil Market Report, with WTI Crude trading at above $66 a barrel and Brent Crude surpassing the $69 per barrel mark.

Prices jumped even though the agency revised down its full-year 2021 oil demand growth forecast by 270,000 barrels per day (bpd) from last month’s assessment, expecting now demand to rise by 5.4 million bpd. The downward revision was due to weaker consumption in Europe and North America in the first quarter and expectations of 630,000 bpd lower demand in the second quarter due to India’s COVID crisis.

The excess oil inventories of the past year have been all but depleted, and a strong demand rebound in the second half this year could lead to even steeper stock draws, the IEA said yesterday, keeping an upbeat forecast of global oil demand despite the weaker-than-expected first half of 2021.

However, the upbeat outlook for the second half of the year remains unchanged, as vaccination campaigns expand and the pandemic largely comes under control, the IEA said.

Moreover, the global oil glut that was hanging over the market for more than a year is now gone, the agency said.

“After nearly a year of robust supply restraint from OPEC+, bloated world oil inventories that built up during last year’s COVID-19 demand shock have returned to more normal levels,” the IEA said in its report.

In March, industry stocks in the developed economies fell by 25 million barrels to 2.951 billion barrels, reducing the overhang versus the five-year average to only 1.7 million barrels, and stocks continued to fall in April.

“Draws had been almost inevitable as easing mobility restrictions in the United States and Europe, robust industrial activity and coronavirus vaccinations set the stage for a steady rebound in fuel demand while OPEC+ pumped far below the call on its crude,” the IEA said.

The market looks oversupplied in May, but stock draws are set to resume as early as June and accelerate later this year. Under the current OPEC+ policy, oil supply will not catch up fast enough, with a jump in demand expected in the second half, according to the IEA. As vaccination rates rise and mobility restrictions ease, global oil demand is set to soar from 93.1 million bpd in the first quarter of 2021 to 99.6 million bpd by the end of the year.

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Crude Oil

OPEC Expects Increase In Global Oil Demand Raises Members’ Forecast on Crude Supply

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The Organisation of Petroleum Exporting Countries (OPEC) yesterday lifted its forecast on its members’ crude this year by over 200,000 bpd and now expects demand for its own crude to average 27.65mn bpd in 2021.

This is almost 5.2mn bpd higher than last year and around 2.7mn b/d higher than an earlier estimate of the group’s April production.

According to the highlights of the organisation’s latest Monthly Oil Market Report (MOMR), OPEC crude is projected to rise from 26.48 million bpd in the second quarter to 28.7 million bpd in the third and 29.54 million bpd in the fourth quarter of the year.

The report also indicated a fall in Nigeria’s crude production from 1.477 bpd in February to 1.473, a difference of just about 4,000 bpd before rising again in April to 1.548 million bpd, to add 75,000 bpd last month.

OPEC stated that its upward revision of members’ crude was underpinned by a downgrade in the group’s forecast for non-OPEC supply, which it now expects to grow by 700,000 bpd to 63.6mn b/d against last month’s report’s projection of a 930,000 bpd rise to 63.83mn bpd.

The oil cartel projected that US crude output would drop by 280,000 bpd this year, compared with its previous forecast for a 70,000 bpd decline.

On the demand side, OPEC kept its overall forecast unchanged from last month’s MOMR, stressing that it expects global oil demand to grow by 5.95 million bpd to 96.46 million bpd this year, partly reversing last year’s 9.48mn bpd drop.

Spot crude prices fell in April for the first time in six months, with North Sea Dated and WTI easing month-on-month by 1.7 percent and 1 percent, respectively.

On the global economic projections, the cartel said stimulus measures in the US and accelerating recovery in Asian economies might continue supporting the global economic growth forecast for 2021, now revised up by 0.1 percent to reach 5.5 percent year-on-year.

This comes after a 3.5 percent year-on-year contraction estimated for the global economy in 2020.

However, global economic growth for 2021 remains clouded by uncertainties including, but not limited to the spread of COVID-19 variants and the speed of the global vaccine rollout, OPEC stated.

“World oil demand is assumed to have dropped by 9.5 mb/d in 2020, unchanged from last month’s assessment, now estimated to have reached 90.5 mb/d for the year. For 2021, world oil demand is expected to increase by 6.0 mb/d, unchanged from last month’s estimate, to average 96.5 mb/d,” it said.

The report listed the main drivers for supply growth in 2021 to be Canada, Brazil, China, and Norway, while US liquid supply is expected to decline by 0.1 mb/d year-on-year.

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