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Brexit Bulletin: May Drops Single Market Hint

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  • May Drops Single Market Hint

Theresa May has had a torrid start to 2017. On Sunday she made a bid to take back control, signaling that regaining control of immigration and lawmaking are her key priorities in upcoming Brexit talks, even if that costs Britain membership of the single market.

The prime minister told Sky News on Sunday that leaving the European Union will be about “getting the right relationship, not about keeping bits of membership.”

“We are leaving. We are coming out. We are not going to be a member of the EU any longer, so the question is what is the right relationship for the U.K. to have with the European Union when we are outside,” she said.

“We will be able to have control of our borders, control of our laws, but we still want the best possible deal for U.K. companies to be able to trade in and within the EU and European companies to operate and trade in the U.K.”

A report released on Monday by the think tank Civitas outlined how U.K. exporters could be compensated if May can’t strike a free trade deal. It suggested that by levying £13 billion ($15.9 billion) of tariffs on European products, the government could craft an £8.8 billion package of support based on research credits, cash for disadvantaged regions and cheaper energy bills.

May also used the interview to deny the government’s plan to exit the EU is “muddled,” saying she’ll unveil details of her strategy in the coming weeks.

In a bid to broaden her country’s political agenda beyond Brexit by promoting domestic issues, May will on Monday unveil a plan to “transform” attitudes about mental health. Meanwhile, Foreign Secretary Boris Johnson is in New York to meet advisers to President-elect Donald Trump, who tweeted over the weekend that he will meet May in the Spring.

Weekend Wrap

Trade Secretary Liam Fox has identified 50 nations as potential markets as he urges businesses to take advantage of export opportunities, the Press Associated reported. Donor Andrew Cook warned the Conservative Party it will get no more money from him if May withdraws from the single market, according to The Times. Canadian trade expert Jason Langrish told the Observer that Britain risks a “catastrophic Brexit” because a trade deal could take a decade to strike.

Ivan Rogers, who quit last week as ambassador to the EU, told former Prime Minister David Cameron before Christmas that May was botching Brexit, the Sunday Times said. The Mail on Sunday reported that Trump is considering naming Brexit-supporter Professor Ted Malloch as his envoy to Brussels. The Telegraph says takeovers and investment deals in the British tech sector rose by 40% to a new high last year despite the Brexit vote. The Daily Express reported the U.K. wants a share of the 42,000 bottles of wine owned by the EU.

Test for Shoppers

British consumers, who helped the economy emerge largely unscathed from the Brexit vote, now face their next big health check.

Last week Next offered a grim outlook for 2017 following a downbeat holiday selling season. Now Marks & Spencer, department-store chain Debenhams, grocer J Sainsbury and other retailers are poised to provide business updates.

Their updates should reveal clues about any changes to household spending patterns, and whether the economy will continue weathering the U.K.’s decision to leave the EU, according to Bloomberg’s Jill Ward and Sam Chambers. A sharp upswing in inflation in expected this year. That, and uncertainty over the economic outlook could test how willing households are to keep on splurging.

Brexit Bullets

  • Almost half of companies see more risk than opportunity in 2017, says manufacturers organization
  • FTI consulting poll of 161 executives finds 51 percent predicting Brexit will benefit their businesses
  • German Vice Chancellor Sigmar Gabriel tells Der Speigel that an EU breakup is no longer inconceivable
  • Merkel to deliver first key speech of 2017 on Monday about future of Europe
  • 75 percent of continental academics in U.K. “more likely to consider leaving” after Brexit, says poll

On the Markets

The pound fell against the dollar and euro in Asian trading after May’s hints about the single market.

By contrast, the FTSE 100 last week logged its fifth successive weekly gain, the longest winning streak since before last year’s referendum.

According to Chris Hughes of Bloomberg Gadfly, such gains may explain why foreign takeovers of British companies have been surprisingly few given the fall in sterling.

Investors moved quickly to price in the benefits weaker sterling would give U.K.-listed companies, such as Arm Holdings, that derive a large portion of their revenue from overseas. Companies drawing at least 75 percent of their revenue from outside the U.K. are up about 22 percent since the referendum. That cancels out the pound’s 16 percent fall against the dollar in the same period.

According to Chris Hughes of Bloomberg Gadfly, such gains may explain why foreign takeovers of British companies have been surprisingly few given the fall in sterling.

Investors moved quickly to price in the benefits weaker sterling would give U.K.-listed companies, such as Arm Holdings, that derive a large portion of their revenue from overseas. Companies drawing at least 75 percent of their revenue from outside the U.K. are up about 22 percent since the referendum. That cancels out the pound’s 16 percent fall against the dollar in the same period.

And Finally…

Chastened by how the economy proved more resilient in the wake of the referendum than they anticipated, economists at HSBC and Morgan Stanley are hedging their bets slightly this year.

While both are still predicting slowdowns, each last week outlined scenarios in which the economy again tops expectations.

For that to happen in Morgan Stanley’s eyes there would need to be a “Goldilocks Brexit” in which the U.K. and EU enjoy what the bank’s analysts called a “gentle” split, resulting in better inflation and unemployment pictures than they now project.

Over at HSBC, economist Liz Martins still thinks Brexit will be “disruptive, peppered with uncertainty and detrimental to growth.” But she added that negotiations could go smoothly, allowing the breakup to be extended over time with London-based banks perhaps allowed continued access to the bloc for a while. That might encourage businesses to keep investing and sterling to gain by enough to cool inflation and prompt consumers to spend, she said.

 

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.

Crude Oil

Nigerian Oil Theft Escalates to 400,000 Barrels a Day, Exposing Systemic Corruption

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A recent report has revealed that Nigeria’s daily oil losses surged to 400,000 barrels as efforts to curb crude oil theft remain ineffective.

This escalation from 100,000 barrels per day in 2013 underscores the severe and worsening challenge facing the nation’s oil sector.

The report, produced by the public policy firm Nextier, is the result of several months of in-depth investigation.

It reveals a complex web of sophisticated networks involving powerful actors, foreign buyers, security personnel, transporters, and government officials.

This elaborate system facilitates the large-scale theft of crude oil, which has been a significant drain on Nigeria’s economy.

From 2009 to 2021, Nigeria lost 643 million barrels of crude oil, valued at $48 billion, due to theft. This loss represents more than half of the nation’s national debt as of 2021.

The situation has also severely impacted Nigeria’s ability to meet its OPEC quotas, which have dwindled from 2.5 million barrels per day in 2010 to just 1.38 million barrels per day.

The report, authored by Ben Nwosu, an associate consultant at Nextier, and Ndu Nwokolo, a managing partner at Nextier, paints a grim picture of the local dynamics fueling this crisis.

It highlights the involvement of multiple small-scale artisanal actors, who are often supported by local political and security forces. These local actors contribute to the creation of underground economies, further complicating efforts to curb theft.

Environmental hazards are another grave concern. Illegal refining processes, characterized by uncontrolled heat and poorly designed condensation units, have led to numerous explosions. Between 2021 and 2023 alone, these operations resulted in 285 deaths.

Despite these dangers, illegal refineries continue to thrive due to economic necessity and systemic corruption.

Nigeria’s four refineries, which have a combined capacity of 445,000 barrels per day, are currently operating at only 6,000 barrels per day due to mismanagement and corruption.

This shortfall forces the country to rely heavily on imported refined products, further exacerbating the situation.

Massive corruption in oil importation and subsidies has led to billions of naira being unaccounted for between 2016 and 2019.

Moreover, the government’s inability to support modular refineries has perpetuated reliance on illegal operations.

Security forces are often implicated in the theft, providing protection for a fee. Although recent measures, such as the destruction of illegal refineries, have offered temporary relief, these efforts have been short-lived.

New illegal operations quickly emerge, perpetuating the cycle of theft and corruption.

The authors of the report emphasize that addressing this complex issue requires more than punitive measures. They call for a comprehensive approach that tackles the root causes, including the need for effective governance and economic opportunities for affected communities.

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Crude Oil

Brent Crude Falls Amid Anticipation of China’s Industrial Output Report

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Brent crude prices fell on Monday, reversing some of last week’s gains as traders anxiously awaited the release of key economic data from China, the world’s largest importer of crude oil.

After climbing 3.8% last week — the first weekly rise in four — Brent crude edged down toward $82 a barrel. Similarly, West Texas Intermediate (WTI) crude was trading near $78 a barrel.

The market’s attention is now focused on China’s scheduled release of industrial output and crude refining figures for May, which are expected to provide crucial insights into the economic health and energy demand of the country.

China’s oil refining — known as crude throughput — is anticipated to be flat or even decline this year for the first time in two decades, excluding the downturn experienced in 2022 due to the COVID-19 pandemic. This projection is based on a survey conducted by Bloomberg among market analysts.

In 2023, China processed a record volume of crude oil as demand rebounded, but signs of robust supply and persistent concerns over Chinese demand have kept oil prices trending lower since early April.

The situation was further complicated by OPEC+’s recent decision to increase output this year, which initially unsettled the market. Key members of the cartel have since clarified that production adjustments could be paused or reversed if necessary.

“Crude has room for growth,” said Gui Chenxi, an analyst at CITIC Futures Co. “The third quarter is typically the peak season globally and should drive oil processing and demand higher.”

Market participants are keenly watching the forthcoming data, as any indications of weakening demand could weigh heavily on prices.

Conversely, stronger-than-expected industrial activity could support prices and offset some of the recent bearish sentiment.

The ongoing uncertainty has led to cautious trading, with investors reluctant to make significant moves until more concrete information is available.

This cautious approach underscores the delicate balance the oil market is trying to maintain amid fluctuating global economic signals.

As the world’s top crude importer, China’s economic performance is a key barometer for global oil demand. The data expected from China will not only influence immediate trading strategies but also provide longer-term market direction.

In the meantime, the oil market remains on tenterhooks, reflecting the broader uncertainties in the global economy.

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Crude Oil

Fed’s Decision to Hold Rates Stalls Oil Market, Brent Crude Slips to $82.17

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Crude Oil - Investors King

Oil prices faced a setback on Thursday as the U.S. Federal Reserve’s decision to maintain interest rates dampened investor sentiment.

The Federal Reserve’s announcement on Wednesday indicated a reluctance to initiate an interest rate cut, pushing expectations for policy easing possibly as late as December. This unexpected stance rattled markets already grappling with inflationary pressures and economic uncertainty.

Brent crude, the international benchmark for Nigerian crude oil, saw a drop of 43 cents, or 0.5% to $82.17 a barrel, reflecting cautious investor response to the Fed’s cautious approach.

Similarly, West Texas Intermediate (WTI) crude oil also slipped by 46 cents, or 0.6% to settle at $78.04 per barrel.

Tamas Varga, an analyst at PVM Oil, commented on the Fed’s decision, stating, “In the Fed’s view, this is the price that needs to be paid to achieve a soft landing and avoid recession beyond doubt.”

The central bank’s move to hold rates steady is seen as a measure to balance economic growth and inflation containment.

The Energy Information Administration’s latest data release further exacerbated market concerns, revealing a significant increase in U.S. crude stockpiles, primarily driven by higher imports.

Fuel inventories also exceeded expectations, compounding worries about oversupply in the oil market.

Adding to the downward pressure on oil prices, the International Energy Agency (IEA) issued a bearish report highlighting concerns over potential excess supply in the near future.

The combination of these factors weighed heavily on investor sentiment, contributing to the decline in oil prices observed throughout the trading session.

Meanwhile, geopolitical tensions in the Middle East continued to influence market dynamics, with reports of Iran-allied Houthi militants claiming responsibility for recent attacks on international shipping near Yemen’s Red Sea port of Hodeidah.

These incidents underscored ongoing concerns about potential disruptions to oil supply routes in the region.

As markets digest the Fed’s cautious stance and monitor developments in global economic indicators and geopolitical tensions, oil prices are expected to remain volatile in the near term.

Analysts suggest that future price movements will hinge significantly on economic data releases, policy decisions by major central banks, and developments in geopolitical hotspots affecting oil supply routes.

 

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