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An Unusually Packed Thursday Will Test Markets

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  • An Unusually Packed Thursday Will Test Markets

The world’s on edge over everything from rising tension in the Middle East to an uncertain U.K. election to the turmoil surrounding the Trump administration.

Yet financial markets chug along as if nothing’s amiss — global stocks are churning just 0.4 percent below all-time highs, while volatility in equities, bonds and currencies remains dormant and money continues to pour into riskier developing nations.

It’s a pattern that’s held for the better part of the year, with the odd bout of angst thrown in. Investors have discounted geopolitical risks as idiosyncratic and focused instead on a global economy that’s powering higher amid persistently low inflation. With central banks assuring they’ll remove years of stimulus only gradually, risk tolerance remains robust.

“While you may get little spikes in risk aversion at times, markets are looking through them, as long as the underlying fundamentals remain supportive,” said Peter Kinsella, a senior currency and rates strategist at Commonwealth Bank of Australia from London.

Then there’s Thursday.

The European Central Bank’s rate decision will unveil officials’ views on inflation and how long they’ll leave the monetary spigot flowing. Former FBI Director James Comey testifies to a Senate committee on his interactions with President Donald Trump. And the day ends with the outcome of a U.K. election that polls show tightening into the vote.

“Investors are mindful of the event risks, but the liquidity trade is by far the most important and most dominant factor,” said Mark Nash, head of global bonds at Old Mutual Global Investors in London. “It makes the market very forgiving.”

Look no further than the economy for a reason why. The Organization for Economic Cooperation and Development on Wednesday raised its forecast for global growth this year to 3.5 percent from 3.3 percent as of March. Historically, it’s generally taken prolonged economic contraction to end a bull market, and JPMorgan Chase & Co. notes that no rally has peaked longer than a year before a recession has started.

“We have this kind of Goldilocks world continuing where no one sees any dramatic threats to growth on the horizon,” said Rupert Harrison, chief macro strategist at BlackRock in London on Bloomberg Television. “This is still a very unloved rally in terms of the equity markets. We still think it has some further to go.”

The ECB is least likely to disrupt the calm Thursday, with the central bank preparing to cut its inflation outlook at the policy meeting, boosting the prospect stimulus will remain in place longer, Bloomberg reported. In the U.S., investors have long anticipated the Federal Reserve will tighten at its meeting next week — though the pace from there remains glacial, according to the Fed fund futures.

While the latest diplomatic spat among Qatar and its Arab neighbors exacerbated geopolitical concerns, market risks from such events have been fleeting in recent years, including Russia’s annexation of Crimea and the U.K.’s vote to exit the European Union.

Jens Nystedt, a senior portfolio manager at Morgan Stanley Investment Management, examined major political events since World War II and found that any initial selloff only proved to be buying opportunities.

Comey’s testimony could see the market add to rising speculation the Trump administration won’t be able to push through tax and regulatory overhauls aimed at boosting growth — though the so-called Trump trade expired weeks ago. Goldman Sachs Group Inc.’s gauges of high-tax stocks, for instance, have been underperforming low-tax companies, suggesting little expectations for reform in that area.

The market cares about politics that have an impact on the economy. That’s not likely on Thursday, said CBA’s Kinsella.

“Investors can see that political risks rarely result in market negative outcomes over the longer term,” he said.

To be sure, the market itself has flashed signs of caution, especially when it comes to U.S. equity valuations. The Shiller Cyclical Adjusted P/E ratio reached the most expensive level since the dot-com bubble, while the credit market has shown hints of stress as household borrowings surged to a record $12.7 trillion.

Billionaire investor Bill Gross warned Wednesday that U.S. markets are at their highest risk levels since before the 2008 financial crisis because of the lofty valuation.

“Instead of buying low and selling high, you’re buying high and crossing your fingers,” Gross, manager of the $2 billion Janus Henderson Global Unconstrained Bond Fund, said at the Bloomberg Invest New York summit.

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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Crude Oil

Oil Prices Continue to Slide: Drops Over 1% Amid Surging U.S. Stockpiles

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Crude Oil

Amidst growing concerns over surging U.S. stockpiles and indications of static output policies from major oil-producing nations, oil prices declined for a second consecutive day by 1% on Wednesday.

Brent crude oil, against which the Nigerian oil price is measured, shed 97 cents or 1.12% to $85.28 per barrel.

Similarly, U.S. West Texas Intermediate (WTI) crude slumped by 93 cents or a 1.14% fall to close at $80.69.

The recent downtrend in oil prices comes after they reached their highest level since October last week.

However, ongoing concerns regarding burgeoning U.S. crude inventories and uncertainties surrounding potential inaction by the OPEC+ group in their forthcoming technical meeting have exacerbated the downward momentum.

Market analysts attribute the decline to expectations of minimal adjustments to oil output policies by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known collectively as OPEC+, until a full ministerial meeting scheduled for June.

In addition to concerns about excess supply, the market’s attention is also focused on the impending release of official government data on U.S. crude inventories, scheduled for Wednesday at 10:30 a.m. EDT (1430 GMT).

Analysts are keenly observing OPEC members for any signals of deviation from their production quotas, suggesting further volatility may lie ahead in the oil market.

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Energy

Nigeria Targets $5bn Investments in Oil and Gas Sector, Says Government

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Crude Oil - Investors King

Nigeria is setting its sights on attracting $5 billion worth of investments in its oil and gas sector, according to statements made by government officials during an oil and gas sector retreat in Abuja.

During the retreat organized by the Federal Ministry of Petroleum Resources, Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, explained the importance of ramping up crude oil production and creating an environment conducive to attracting investments.

He highlighted the need to work closely with agencies like the Nigerian National Petroleum Company Limited (NNPCL) to achieve these goals.

Lokpobiri acknowledged the challenges posed by issues such as insecurity and pipeline vandalism but expressed confidence in the government’s ability to tackle them effectively.

He stressed the necessity of a globally competitive regulatory framework to encourage investment in the sector.

The minister’s remarks were echoed by Mele Kyari, the Group Chief Executive Officer of NNPCL, who spoke at the 2024 Strategic Women in Energy, Oil, and Gas Leadership Summit.

Kyari stressed the critical role of energy in driving economic growth and development and explained that Nigeria still faces challenges in providing stable electricity to its citizens.

Kyari outlined NNPCL’s vision for the future, which includes increasing crude oil production, expanding refining capacity, and growing the company’s retail network.

He highlighted the importance of leveraging Nigeria’s vast gas resources and optimizing dividend payouts to shareholders.

Overall, the government’s commitment to attracting $5 billion in investments reflects its determination to revitalize the oil and gas sector and drive economic growth in Nigeria.

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Commodities

Palm Oil Rebounds on Upbeat Malaysian Exports Amid Indonesian Supply Concerns

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Palm Oil - Investors King

Palm oil prices rebounded from a two-day decline on reports that Malaysian exports will be robust this month despite concerns over potential supply disruptions from Indonesia, the world’s largest palm oil exporter.

The market saw a significant surge as Malaysian export figures for the current month painted a promising picture.

Senior trader David Ng from IcebergX Sdn. in Kuala Lumpur attributed the morning’s gains to Malaysia’s strong export performance, with shipments climbing by a notable 14% during March 1-25 compared to the previous month.

Increased demand from key regions like Africa, India, and the Middle East contributed to this impressive growth, as reported by Intertek Testing Services.

However, amidst this positivity, investors are closely monitoring developments in Indonesia. The Indonesian government’s contemplation of revising its domestic market obligation policy, potentially linking it to production rather than exports, has stirred market concerns.

Edy Priyono, a deputy at the presidential staff office in Jakarta, indicated that this proposed shift aims to mitigate vulnerability to fluctuations in export demand.

Yet, it could potentially constrain supply availability from Indonesia in the future to stabilize domestic prices.

This uncertainty surrounding Indonesian policies has added a layer of complexity to palm oil market dynamics, prompting investors to react cautiously despite Malaysia’s promising export performance.

The prospect of Indonesian supply disruptions underscores the delicacy of global palm oil supply chains and their susceptibility to geopolitical and regulatory factors.

As the market navigates these developments, stakeholders remain attentive to both export data from Malaysia and policy shifts in Indonesia, recognizing their significant impact on palm oil prices and market stability.

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