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Carney Sees Brexit Consumer Slowdown Ahead After 2016 Strength

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Mark Carney, Bank of England governor
  • Carney Sees Brexit Consumer Slowdown Ahead After 2016 Strength

Consumers, the backbone of U.K. economic resilience after the Brexit vote, face fresh headwinds in 2017 that are likely to curb growth, according to Mark Carney.

Bank of England policy makers will be monitoring developments closely as the impact of the weakening pound feeds through to prices, the governor said in London on Monday. Data on Tuesday will probably show inflation accelerated in December to the fastest since 2014.

While the BOE upgraded its 2017 forecast late last year and may do so again in February, it still sees a loss of momentum because of Brexit. The outlook heavily depends on Britain’s new deal with the European Union, and Prime Minister Theresa May may provide some details of her strategy in a speech on Tuesday.

“Recently, there have been signs of continued solid consumer momentum domestically and a stronger growth outlook globally,” Carney said. However, he warned consumption-led growth “tends to be both slower and less durable” as it eventually overtakes earnings, leaving demand more sensitive to household employment and income changes.

Neutral Stance

Reiterating the Monetary Policy Committee’s neutral stance, Carney said interest rates can go up as well as down, and that there are limits to the extent to which inflation above the BOE’s 2 percent target can be tolerated. The response of households to faster inflation as the U.K. negotiates its divorce from the EU will be key, he said.

“How household spending evolves, and the inter-temporal trade-off that households strike, will be important considerations over the next year,” Carney said.

In her speech, May could signal her willingness to quit the EU’s single market for goods and services to regain control of Britain’s borders and laws. Carney spoke after the pound had slipped below $1.20 for the first time in more than three months in response to reports of her plans.

Carney dodged a question on whether he saw the pound depreciating further, saying the U.K. currency “can go up and down.”

Trade Off

In a speech that largely focused on the theory behind policy makers’ trade-off between supporting growth and keeping inflation stable, Carney said there was not a simple rule that could guide their decisions.

Supply shocks like the Brexit decision imply lower growth and higher inflation due to sterling’s slide boosting import prices, Carney said. Because monetary policy primarily affects demand, bringing inflation to target too quickly risks a greater loss of output and jobs. That was why the BOE was right to loosen policy in August, he said.

The U.K. has faced a series of supply shocks since the financial crisis and has faced this trade-off before. By contrast, the U.S. and the euro area have seldom faced the same tension between output and inflation, he said.

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

The Drop in US Crude Oil Inventories Boosted Oil Prices on Wednesday

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Crude oil

The Drop in US Crude Oil Inventories Boosted Oil Prices on Wednesday

Crude oil prices rose on Wednesday following a decline in US crude inventories last week.

The American Petroleum Institute (API) had reported that United States crude oil inventories declined by 5.3 million barrels in the week ended January 22, 2021, more than a reduction of 430,000 barrels predicted by a Reuters poll.

The unexpected decline, coupled with slowing new COVID-19 cases in China, the world’s largest importer of crude oil, boosted oil prices on Wednesday.

Brent crude, against which Nigerian crude oil is measured, rose by 41 cents or 0.7 percent to $56.32 per barrel.

The U.S. West Texas Intermediate (WTI) crude oil also gained 56 cents or 1 percent to $53.17 a barrel.

WTI is slightly firmer on the back of a larger-than-expected draw in US crude inventories reported by the API, which is offset by builds in gasoline and distillates,” said Vandana Hari, oil market analyst at Vanda Insights.

The data, however, showed petrol inventories grew by 3.1 million barrels in the week, more than experts projected.

Similarly, API data revealed that distillate fuel inventories that include diesel and heating oil, jumped by 1.4 million barrels, far higher than the 361,000 barrels decline predicted. However, refinery runs declined by 76,000 barrels per day.

Market participants are now in ‘wait and see’ mode, wanting to see how lockdowns evolve in the coming weeks and months, and how successful countries are in rolling out Covid-19 vaccines,” ING economics said in a note.

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Crude Oil

COVID-19 Plunges Nigeria’s Oil Revenue by 41% in the First Nine Months of 2020

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naira

COVID-19 Plunges Nigeria’s Oil Revenue by 41% in the First Nine Months of 2020

Nigeria’s oil revenue declined by 41.44 percent in the first nine months of 2020 to $2.033 billion, according to the latest data from the Nigerian National Petroleum Corporation, NNPC.

This represents a decline of 41.44 percent from $3.47 billion filed in the same period of 2019 when there was no COVID-19.

In the September 2020 edition of NNPC’s Monthly Financial and Operations Report (MFOR), revenue from oil and gas rose by 16 percent to $120.49 million in the month of September, a 66 percent or $234.81 million drop from $355.3 million posted in the same month of 2019.

The global lockdowns caused by the COVID-19 pandemic plunged Nigeria’s crude oil sales and global demand for the commodity. This was further compounded by Nigeria’s high cost of production compared to Saudi Arabia, Russia and others that were offering discounts to boost sales during one of the most challenging periods in human history.

Experts like Prof. Yinka Omorogbe, President of Nigeria Association of Energy Economics, NAEE, were not surprised with the drop in earnings given the effect of COVID-19 on the world’s economy.

She, however, called for the revamp of the nation’s petroleum sector laws and diversification of the economy away from oil revenue dependence. She said “Covid-19 made 2020 a very hot year and it battered the oil industry internationally and we are not an exception; so we could not have been unaffected”.

She also said the effect of the fall “is definitely a wake-up call; we have to diversify, strengthen our other resources and capabilities”.

Omorogbe, a former NNPC Board Secretary, urged the government and the operators in the sector to look inward and think strategically, stating: “think medium term, think of where they want to be and the government, above all, must think of how best we can utilize our resources, so that we can achieve our objectives once we know and define them.

“It is a clear wake-up call, if not we will just sit here and find that we have become one of the poorest nations in the world”, she noted.

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Commodities

Crude Oil, Other Commodities Closing Price for Monday

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Crude oil

Crude Oil, Other Commodities Closing Price for Monday

Brent crude oil, Nigeria’s crude oil benchmark, gained 47 cents to $55.88 per barrel on Monday, while the US crude oil expanded by 50 cents to $52.77 per barrel.

Gold for February delivery fell $1 to $1,855.20 an ounce. Silver for March delivery fell 7 cents to $25.48 an ounce and March copper was little changed at $3.63 a pound.

The dollar fell to 103.80 Japanese yen from 103.83 yen. The euro fell to $1.2139 from $1.2167.

Wholesale gasoline for February delivery rose 1 cent to $1.56 a gallon. February heating oil rose 2 cents to $1.59 a gallon. February natural gas rose 16 cents to $2.60 per 1,000 cubic feet.

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