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Bonds Rise With Emerging Markets After Trump Selloff; Oil Surges

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Emerging Markets
  • Bonds Rise With Emerging Markets After Trump Selloff; Oil Surges

The fallout from Donald Trump’s election to the U.S. presidency eased off in financial markets with Treasuries and emerging markets halting their slide. Stocks jumped with crude.

Treasury 10-year note yields fell from this year’s high and Italy’s bonds outperformed German bunds, which investors tend to favor in times of turmoil. The Dow Jones Industrial Average climbed to a record and shares in developing nations rallied after a four-day slump. The dollar advanced to a five-month high against the yen, and Mexico’s peso led gains among major currencies. Oil surged the most in seven months as OPEC members were said to be making a final diplomatic push toward securing a deal to cut output.

Trump’s election victory, which came with pledges to cut taxes, spend more than $500 billion on infrastructure and restrict imports, triggered a record selloff in global bonds as traders assessed the implication for inflation and interest rates. Some, including Fidelity Investments’ Ford O’Neil, have already expressed skepticism that Trump’s proposals will be fully backed by Congress, while Goldman Sachs Group Inc. last week said the rally in iron and copper was “too much, too fast.”

“Many people were surprised by the market reaction to the election, but now portfolio managers are starting to focus more on where potential investment opportunities may be with a Trump administration,” said Ross Yarrow, director of U.S. Equities at Robert W. Baird & Co. in London. There has been “lots of chatter of fiscal stimulus and tax reform, but there are still a lot of moving parts and no firm details.”

Bonds

The yield on benchmark Treasury 10-year notes dropped three basis points, or 0.03 percentage point, to 2.23 percent as of 4 p.m. New York time. The 41 basis-point jump over the last three trading sessions marked the steepest climb in more than seven years and the 14-day relative strength index for the securities indicated they were the most oversold since 1990, a potential signal that they may be set for a reversal.

O’Neil, who oversees about $100 billion in bonds for Fidelity Investments, said the sharp run-up in yields following the election may not be justified given that Trump will face resistance from Congress in getting his fiscal stimulus plans approved.

Federal Reserve Bank of Richmond President Jeffrey Lacker said Monday that easier fiscal policy may require higher rates, but it’s too early for the central bank to react to potential policy changes by the incoming administration.

Italy’s 10-year yield slid 12 basis points to 1.96 percent, after rising for five consecutive days, and that on Spanish securities with a similar due date dropped to 1.45 percent, from as high as 1.66 percent on Monday. German bund yields were little changed at 0.31 percent, as a report showed growth in Europe’s biggest economy slowed to the weakest pace in a year last quarter.

Indian bonds rallied on expectations liquidity will improve in the wake of Prime Minister Narendra Modi’s surprise Nov. 8 crackdown on unaccounted wealth through the withdrawal of high denomination bills. Japan’s 10-year bond yield increased to zero, having been negative for almost eight weeks, as a gauge of demand weakened at a sale of five-year securities on Tuesday.

Currencies

A broad index of the greenback fluctuated after a four-day rally, its longest in a month, as U.S. retail sales figures were stronger than forecast, while Federal Reserve Bank of Boston President Eric Rosengren said the central bank would tighten monetary policy faster with more fiscal stimulus. The president-elect’s proposals to increase spending and cut taxes are fueling bets economic growth will accelerate and push the Fed to raise interest rates.

“The dollar is potentially going to go a lot higher still, if we do go down the route of extra fiscal stimulus,” which would also result in higher interest rates, Jeremy Hale, head of global macro strategy and asset allocation at Citigroup Inc., said in a Bloomberg Television interview. “That mixture of growth stimulus through the fiscal side and tighter monetary policy can be very powerful for the currency.”

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, lost 0.1 percent. It surged 2.8 percent last week, the most since 2011, and on Monday erased its losses for this year. The greenback rose 0.8 percent to 109.23 yen.

The pound fell for a second day versus the dollar as a report showed U.K. inflation unexpectedly slowed in October. Bank of England Governor Mark Carney told lawmakers that sterling weakness was due to the outlook for slower growth.

The MSCI Emerging Markets Currency Index rose 0.4 percent as Mexico’s peso and South Africa’s rand rallied more than 1.8 percent. China’s yuan slipped to its weakest level since 2008.

Commodities

Iron ore slid 9 percent in Singapore, extending the last session’s retreat from a two-year high. The price soared by a record 27 percent last week, driven by speculative interest in China and optimism Trump’s policies will boost steel demand. Goldman Sachs said Friday that iron ore’s reaction to the Trump win was excessive, while Capital Economics Ltd. warned prices will face growing pressure from rising supply.

Copper pulled back from near a one-year high, while gold rebounded from a five-month low. It slid 4.4 percent over the last three days as the dollar strengthened.

Crude oil rose 5.8 percent to $45.81 a barrel in New York. Qatar, Algeria and Venezuela are leading the effort to finalize a deal, a delegate familiar with the talks said.

Stocks

The S&P 500 Index rose 0.8 percent to 2,180.39, after edging lower Monday for a second straight decline. The Dow Average advanced for a seventh straight day, while the Nasdaq Composite Index rallied 1.1 percent.

As central bankers look for signs of stronger growth, a report today showed sales at retailers rose more than forecast last month in a broad advance after an even stronger September than initially estimated, marking the biggest back-to-back increase since 2014. A separate reading on November manufacturing in the New York region unexpectedly rose.

“The retail sales data showed broad-based gains rather than just narrowly focused on home improvement and autos. That’s heartening,” said Brian Jacobsen, the chief portfolio strategist at Wells Fargo Funds Management LLC, which oversees $242 billion. “This is another data release that if the Fed had in hand when it met at the beginning of November, it probably would have hiked. The economic data isn’t likely going to derail this Trump-bump in the market. It could be handed off to a Santa Claus Rally.”

The Stoxx Europe 600 Index rose 0.3 percent. It has swung between intraday gains and losses for six sessions, matching a streak last seen in August, and has struggled to break out of a trading range of about 20 points since July.

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.

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Crude Oil

Goldman Sachs Revised Down Brent Oil Forecast for Q3 2021

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Brent crude oil - Investors King

Goldman Sachs Group, an American multinational investment bank and financial services company, has revised down its Brent oil price projection for the third quarter (Q3) of 2021 by $5 from $80 per barrel previously predicted to $75 a barrel following the surge in Delta variant COVID-19.

The investment bank predicted that the surge in Delta variant COVID-19 cases will weigh on Brent oil price in Q3 2021 even with the expected increase in demand.

However, the bank projected a stronger second half of 2021, saying OPEC+ adopted slower production ramp-up will offset 1 million barrel per day demand hit from Delta.

Goldman said, “Our oil balances are slightly tighter in 2H21 than previously, with an assumed two-month 1 mb/d demand hit from Delta more than offset by OPEC+ slower production ramp-up.”

The leading investment banks now projected a deficit of 1.5 million barrels per day in the third quarter, down from 1.9 million barrels per day previously predicted.

Therefore, Brent crude oil is expected to average $80 per barrel in the fourth quarter, a $5 increase from the $75 initially predicted and the bank sees 1.7 million barrels per day in the fourth quarter.

The oil market repricing to a higher equilibrium is far from over, with the bullish impulse shifting from the demand to the supply side,” the bank said.

Goldman added that even if vaccinations fail to curb hospitalisation rates, which could drive a longer slump to demand, the decline would be offset by lower OPEC+ and U.S. shale output given current prices.

Oil prices may continue to gyrate wildly in the coming weeks, given the uncertainties around Delta variant and the slow velocity of supply developments relative to the recent demand gains,” it said.

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Crude Oil

Oil Extends Gains on Thursday on Expectations of Tighter Supplies

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Crude Oil - Investors King

Oil prices rose about $1.50 a barrel on Thursday, extending gains made in the previous three sessions on expectations of tighter supplies through 2021 as economies recover from the coronavirus crisis.

Brent crude settled at $73.79 a barrel, up $1.56, or 2.2%, while U.S. West Texas Intermediate (WTI) settled at $71.91 a barrel, rising $1.61, or 2.3%.

“The death of demand was greatly exaggerated,” said Phil Flynn, senior analyst at Price Futures Group in Chicago. “Demand is not going away, so we’re back looking at a very tight market.”

Members of the Organization of the Petroleum Exporting Countries and other producers including Russia, collectively known as OPEC+, agreed this week on a deal to boost oil supply by 400,000 barrels per day from August to December to cool prices and meet growing demand.

But as demand was still set to outstrip supply in the second half of the year, Morgan Stanley forecast that global benchmark Brent will trade in the mid to high-$70s per barrel for the remainder of 2021.

“In the end, the global GDP (gross domestic product) recovery will likely remain on track, inventory data continues to be encouraging, our balances show tightness in H2 and we expect OPEC to remain cohesive,” it said.

Russia may start the process of banning gasoline exports next week if fuel prices on domestic exchanges stay at current levels, Energy Minister Nikolai Shulginov said, further signalling tighter oil supplies ahead.

Crude inventories in the United States, the world’s top oil consumer, rose unexpectedly by 2.1 million barrels last week to 439.7 million barrels, up for the first time since May, U.S. Energy Information Administration data showed.

Inventories at the Cushing, Oklahoma crude storage hub and delivery point for WTI, however, has plunged for six continuous weeks, and hit their lowest since January 2020 last week.

“Supplies fell further by 1.3 million barrels to the lowest level since early last year, theoretically offering support to the WTI curve,” said Jim Ritterbusch of Ritterbusch and Associates.

Gasoline and diesel demand, according to EIA figures, also jumped last week.

Barclays analysts also expected a faster-than-expected draw in global oil inventories to pre-pandemic levels, prompting the bank to raise its 2021 oil price forecast by $3 to $5 to average $69 a barrel.

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Energy

RES4Africa, Enel Green Power and the European Investment Bank Encourage African Youth to Find Green Energy Solutions to Community Challenges

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European Investment Bank - Investors King

The second Micro-Grid Academy Young Talent of the Year Award today acknowledged energy innovation from across Africa that can accelerate the green transition and improve economic opportunities.

Backed by the RES4Africa Foundation, Enel Green Power and the European Investment Bank the yearly competition encourages young energy entrepreneurs from across the continent to develop projects that expand enegy access, enable greater use of renewable eneryg and accelerate sustainability.

Young finalists from across West, East and Southern Africa presented their innovative ideas to expert judges from the RES4Africa Foundation, Enel Green Power and the European Investment Bank.

The 2021 edition of the Micro-Grid Academy Young Talent of the Year Award has arrived to its final steps. Today, the eight young African innovators selected as finalists out of nearly 50 applicants presented to the international public their disruptive projects for the first time. The presentation took place during the event Public Competition for the MGA Young Talent of the Year 2021 finalists, and represents a preparatory step for the announcement of the three winners, that will be held the 28th of September in the framework of the Precop26.

The three entities strongly believe that renewables and innovation will be the response to the climate changes and energy deficit that Africa faces. In this deeply needed path towards its just energy transition, the continent can and must rely on one of its most precious resources : its youth. With this joint initiative, RES4Africa, Enel Green Power and the European Investment Bank put together their efforts to support those young people from all Africa countries who are committed and motivate to create a real change in their communities.

These are the finalists identified by the selection committee, who publicly presented their project ideas and among which there are the three future winners:

• Adekoyejo Ifeoluwapo Kuye, 26 years old from Nigeria, introduced a project focused on a sustainable cold chain for food;

• Alex Makalliwa, 31 from Kenya, presented his initiative of electrical tricycles for heavy loads in Nairobi;

• Benson Kibiti, 34 also from Kenya, performed an overview on an PV-powered trolley for heating up food and providing power;

• Lucas Filipe Tamele Junior, 24 from Mozambique, focused on waste management, biofertilizers and biogas;

• Matjaka Ketsi from Lesotho is 28, and presented an initiative aiming at building solar-powered Learning Centres for rural communities;

• Shedrack Charles Mkwepu is instead 26 and comes from Tanzania: he designed a system that allows farmers to control irrigation and other soil parametres from a mobile phone;

• Carol Ofafa, 32 from Kenya, proposed the installation of a PV system for health facilities;

• Kumbuso Joshua Nyoni, 34 from Zambia, envision an integrated Water-Food-Energy model for PV power and a water pumping system.

The webinar benefitted from the presence of Salvatore Bernabei, President of RES4Africa and Head of Enel Global Power Generation, as well as of Maria Shaw Barragan, Director of Lending in Africa, Caribbean, Pacific, Asia and Latin America, European Investment Bank. They introduced the objectives of the MGA Young Talent of the Year Award, while reflecting upon youth’s impact on the just energy transition.

Moreover, after the finalists’ presentation, a final feedback was provided, with closing remarks, by Roberto Vigotti, Secretary General at RES4Africa Foundation, Carmelo Cocuzza, Head of Corporates Unit, European Investment Bank, and Silvia Piana, Head of Regulatory Affairs Africa, Asia and Australia Area at Enel Green Power.

“The ability to generate innovation will be a fundamental driver to pave the way for a transformation that goes well beyond the dynamic of the Energy sector” commented Salvatore Bernabei “We are here give voice and visibility to young talents, innovators, entrepreneurs promoting the best innovative ideas to stimulate socio-economic progress from within and free the creativity of the younger generations in designing the Africa of tomorrow”.

Increasing energy access and enabling more sustainable energy use is crucial to unlock opportunities for communities across Africa. The finalists in this year’s Micro-Grid Academy Young Talent Awards all demonstrate inspirational and innovative thinking that combined world-class energy expertise with unparalleled understanding of local energy needs and all deserve to win. The European Investment Bank is pleased to join RES4Africa and Enel Green Power to support talented young innovators and encourage them to become green energy leaders of the future.” said Maria Shaw-Barragan, European Investment Bank Director for Global Partners.

RES4Africa Foundation (Renewable Energy Solutions for Africa) envisions the sustainable transformation of Africa’s electricity systems to ensure reliable and affordable electricity access for all, enabling the continent to achieve its full, resilient, inclusive and sustainable development. The Foundation’s mission is to create favourable conditions for scaling up investments in clean energy technologies to accelerate the continent’s just energy transition and transformation.

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